Freddie Mac: 95% of Refinanced Borrowers Opted for Fixed-Rate Loans

08/14/2012 By: Esther Cho 

For borrowers who refinanced in the second quarter, fixed-rate mortgages dominated consumer preferences.

Among those who refinanced in Q2, more than 95 percent opted for a fixed-rate mortgage, according to the Freddie Mac Quarterly Product Transition report.
For those who had a hybrid ARM, 81 percent transitioned into a fixed-rate loan during the second quarter; the percentage represents the highest share in two years. In contrast, for those with a 15-year fixed rate loan, 2 percent transitioned into a hybrid ARM.

Also, 30 percent of those who refinanced in the second quarter shortened their loan term. However, those who refinanced under HARP tended to choose long-term, fixed-rate mortgages.
Twenty-five percent of HARP borrowers opted for shortened terms versus the 30 percent who did not refinance through HARP.
Frank Nothaft, Freddie Mac VP and chief economist, explained the benefits of a shorter term loan.
“Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about three-quarters of a percentage point lower during the second quarter,” said Nothaft. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.”
The report also revealed different preferences between those who did and did not refinance under HARP. For HARP borrowers who originally had an ARM loan, 95 percent transitioned into a fixed-rate mortgage. For those who did not refinance under HARP and had an ARM loan, about half opted for another hybrid ARM.

Low Inventory Adding to Home Prices and Decreasing Days Listed: Redfin

08/10/2012 By: Esther Cho 

As homeowners hold back from selling, home prices are benefiting, according to a report from Redfin, which tracked home prices in 19 U.S. markets.

While prices remained flat month-over-month (-0.1 percent) from June to July, Redfin found prices rose 3.2 percent from July 2011 to July 2012.
However, the number of homes for sale fell 28.1 percent during the same one-year period and also declined 5 percent from June.

According to Redfin, the biggest challenge the housing market is facing is selection, and the problem will persist until the end of the year.
Among 19 markets measured by Redfin, 16 saw yearly price gains, with Phoenix seeing the biggest gain at 28.7 percent.
San Jose and Denver also had noteworthy gains at 11.9 percent and 8.5 percent, respectively. On the other hand, markets that saw yearly decreases included Long Island (-6.6 percent) and Chicago (-3.1 percent).
On a monthly basis, Phoenix actually saw prices dip 2.1 percent. Out of the 19 metros, eight others also saw month-over-month losses, including San Francisco (-2.5 percent), Washington D.C. (-1.9 percent), and Chicago (-1.9 percent). San Jose and Portland had the biggest monthly price gains, 4 percent and 2.1 percent, respectively.
With inventory low, Redfin found the percentage of new listings that were taken off the market within a matter of weeks remained high. For single-family homes, 27.8 percent were under contract within 3.5 weeks from their debut day in July.
Redfin also stated low inventory led to a slowdown in home sales, with July seeing a decline of 12.4 percent from June, but still up 6.8 percent from a year ago

Mortgage Rates Lifted by Encouraging Employment News

08/09/2012 By: Tory Barringer 

Strong employment reports boosted mortgage rates back up for the second week in a row, Freddie Mac reported Thursday.

The GSE’s Primary Mortgage Market Survey shows the 30-year fixed averaging 3.59 percent (0.6 point) for the week ending August 9, an increase from 3.55 percent the previous week.
The 15-year fixed also posted gains, averaging 2.84 percent (0.6 point) for the week, up from 2.83 percent a week ago.
The 5-year adjustable-rate mortgage (ARM) followed, increasing to 2.77 percent (0.6 point) from 2.75 percent the week before. The 1-year ARM actually continued to drop, however, falling to 2.65 percent (0.4 point) from 2.70 percent previously.

Frank Nothaft, VP and chief economist at Freddie Mac, said the week’s positive employment news may be a sign of more growth to come.
“Fixed mortgage rates inched up again this week following stronger-than-expected employment reports. The economy added 163,000 jobs in July, well above the market consensus forecast of 100,000 and the largest increase since February,” Nothaft said. “In addition, the number of announced corporate layoffs fell 45 percent in July compared to last July and was the third time this year that announced layoffs were less than the same month in 2011, according to The Challenger Report. This suggests further net gains in employment are likely in the near future.”
Bankrate reported marginal gains in mortgage rates. The 30-year fixed increased to 3.81 percent (from 3.77 percent last week), while the 15-year fixed inched up to 3.00 percent (from 2.99 percent). Meanwhile the 5/1-year ARM stayed flat at 2.91 percent.
“With investors no longer feeling as if the sky is falling, at least temporarily, fixed mortgage rates did move a tad higher. Mortgage rates are closely related to yields on long-term government bonds. Should the better economic news continue, it would keep further Fed stimulus at bay, and likely push up rates a bit more, so stay tuned,” Bankrate said.

To Rent or Own: How Consumers Decide Between the Two

08/03/2012 By: Esther Cho

In a study to examine what factors would drive a person to rent or own in their next move, Fannie Mae found that a mix of demographics and attitudinal drivers were key, while negative housing events appears to do little to thwart would-be buyers.

The study categorized respondents into three groups: renters, those with a mortgage, and outright homeowners.
After gathering demographics for the three groups, the study found that renters tended to be younger and fall into the low income category. For the survey, 46 percent of renters were in the 18 to 34 age group, and 43 percent of renters had an annual income under $25,000. Renters also tended to be single (41 percent) and employed part-time (47 percent).
Homeowners with a mortgage, on the other hand, were more likely to be in the 35-49 age group (41 percent), married (77 percent), and employed full-time (64 percent). They also tended to have a higher income, with 23 percent earning more than $100,000 and 39 percent earning between $50,000 to $100,000 thousand.
Those who were outright owners of their home tended to be 65 and older (46 percent) and retired (49 percent).
The study explained that traditionally, research has focused almost exclusively on demographic factors when trying to dissect the own-rent decision process.

But, based on the survey, attitudes toward housing and finances also had a significant influence on individual decisions to rent or own. The groups most affected by attitudinal drivers were renters and those with a mortgage.
The housing attitude that was found to be the most influential is the belief that “owning or renting makes more sense financially over the long term.” This is what drove all three groups to behave accordingly, depending on their situation.
One attitude that affected renters and discouraged them from buying was concern with affordability and housing maintenance.
An individual’s existing homeownership experience, whether it was positive or negative, was a primary driver of the own-rent intention for a mortgage owner, but not for those who owned their home outright. According to Fannie Mae, the results suggest that once consumers buy a home and have a positive ownership experience, they want to continue being a homeowner rather than consider renting.
For renters and those with a mortgage, the belief in homeownership and aspirations to own a home one day was important in determining whether one expected to own or rent in the future.
For outright owners, demographics, rather than attitudes, determined housing choice preference. According to the study, this is probably due to the fact that the upside financial possibilities are less likely, considering most outright owners are retired and past their income peak.
The study also found that troubles in the housing market over the years did not prevent people from aspiring to buy. Even factors such as exposure to mortgage default, perceived home value appreciation/depreciation, and self-reported underwater status were not significant in predicting intentions to own or rent.
The study analyzed full year 2011 data from the Fannie Mae National Housing Survey and incorporated 12,014 individuals.