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.

Barclays: Trends Suggest Recovery is Sustainable

07/20/2012 By: Tory Barringer 

The housing recovery is strengthening and turning onto a sustainable path, Barclays said in a report Wednesday.

According to the firm’s U.S. Housing report, single-family housing starts are expected to trend upward, matching the strength of multi-family starts that has driven the housing recovery over the past year. Barclays also anticipates that home price indices will close out the year strong, suggesting a broadening and lasting recovery.
The rising supply and steady sales pace of single-family starts apparently encouraged homebuilders. The National Association of Home Builders (NAHB) Housing Market Index rose from 13 in mid-2011 to 35 as of July 2012. The rising index reflects the organization’s optimism in single-family sales, which in the past have been a reliable indicator for single-family starts as supply tries to keep up with demand.
“This suggests to us that single-family starts will have to rise just to keep new home inventories at historical lows. Based on our macro forecast, which has the U.S. remaining in a moderate growth environment, we forecast that housing starts will average 732,000 in Q2 12 and 760,000 in Q3 12. Against a gradual pickup in new home sales to an average of 357,000 units in Q2 12 and 363,000 units in Q3 12, months’ supply of inventory should continue to gradually move lower to 4.3 months,” said Barclays in the report.

Based on improved affordability, increased demand, and falling inventory, the firm projected a year-over-year home price increase of 2.9 percent by the end of 2012. The report cited greater than expected increases in the S&P/Case Shiller Home Price Indices in March and April, pointing to the spread of price increases even in regions hit hardest by the housing crisis.
Barclays noted that its baseline forecast assumes that policymakers will work to prevent the European financial crisis from becoming a global issue on the scale of 2008’s crisis. The firm also assumed that U.S. legislators will not impose any excessive financial tightening. If these events occur, Barclays said, the risk of another U.S. recession will increase, and housing demand will likely fall off, leading to decreased prices.
Given this information, Barclays issued its prediction that second-quarter profits for homebuilders are likely to increase, with new orders showing the largest year-over-year increase since 2005. This momentum is expected to continue through the second half of 2012, leading to a relatively successful year.
Barclays also expects to see firm and favorable building prices during the spring selling season, with homebuilders cutting incentives and increasing prices. Several homebuilding companies, including Hovnanian Enterprises, Toll Brothers, and KB Home, reported favorable pricing trends during the quarter. Only two builders-KB Home and Beazer Homes USA-are expected to be unprofitable.
Based on the happenings in the year’s second quarter, Barclays announced that it is adjusting its ratings on several building material credits that are likely to benefit from the upturn in housing demand. Owens Corning was upgraded to from Market Weight to Overweight, while Masco, USG, and Whirlpool moved up from Underweight to Market Weight.

Housing Market Gains Strength as Mortgage Rates Slip Again

07/19/2012 By: Tory Barringer 

The third week of July brought news of more mortgage rate lows, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).

For the week ending July 19, the 30-year fixed averaged 3.53 percent (0.7 point), down from 3.56 percent the previous week and 4.52 percent the year before. In all of 2012, the average 30-year fixed has only gone to 4.00 percent or higher for one week.
The average 15-year fixed for the week was 2.83 percent (0.6 point), down from 2.86 percent the week before and 3.66 percent at the same time in 2011. This week marks the eighth consecutive week that the average 15-year fixed-rate mortgage has been below 3.00 percent.

The 5-year adjustable-rate mortgage (ARM) also fell, averaging 2.69 percent (0.6 point), a drop from 2.74 percent last week. The 1-year ARM saw no changes, hovering at 2.69 percent (0.4 point).
Frank Nothaft, VP and chief economist at Freddie Mac, explained how the low rates are aiding in the housing market’s recovery.
“With little signs of inflation and the Federal Reserve’s ‘Operation Twist’ keeping U.S. Treasury bond yields in check, fixed mortgage rates are remaining low and helping to stir the housing market,” said Nothaft. “For instance, the 12-month growth rate in the core Consumer Price Index has been in a narrow 2.1 to 2.3 percent band over the past nine months ending in June. Meanwhile, new construction on one-family homes rose for the fourth consecutive month in June to its strongest pace since April 2010 with builders restocking their lean inventories of new homes. In fact, homebuilder confidence for the next six months rose for the third month in a row in July to its highest reading since March 2007.”
Bankrate also posted new record lows, with the 30-year fixed falling to 3.78 percent from 3.79 percent the week before. The 15-year fixed averaged 3.04 percent, inching down from 3.05 percent in the previous survey. Meanwhile, the average 5/1 ARM rate fell to 2.89 percent, a slide down from 2.95 percent.

Mortgage Defaults Down in June, Index Reveals

07/17/2012 By: Tory Barringer 

An already positive trend in mortgage defaults continued through the month of June, according to data released Tuesday in the S&P/Experian Consumer Credit Default Indices.

The data shows that most loan types-including bank card and first and second mortgage loans-saw a decrease in default rates, many of them for the sixth consecutive month. Four loan types posted their lowest rates since the end of the recent recession.

The national composite fell in June to 1.52 percent from 1.62 percent in May. The first mortgage default rate decreased to 1.41 percent (from 1.50 percent in May and 2.02 percent in June 2011), a level last seen in May 2007. The second mortgage default rate dropped to an eight-year historic low of 0.73 percent in June (down from 0.88 percent in May and 1.40 percent a year ago).
“June 2012 data continued a positive trend in consumer credit quality,” said David M. Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. “Consumer default rates are falling, and we are approaching new lows across most loan types. In the last recession, most default rates peaked in the spring of 2009; since then the decline has been bumpy but consistent.”
Of the five metropolitan statistical areas (MSAs) covered in the data, Dallas posted the lowest rate, falling down from 0.94 percent in May to 0.87 percent in June. Los Angeles followed with nearly double Dallas’ rate (1.60 percent in June, down from 1.82 percent in May). New York was the only MSA to post a default rate increase in June (up to 1.64 percent from 1.61 percent in May).
Blitzer said the data is evidence of better household financial conditions across the country.
“There is only positive news in June’s numbers,” he said. “In the past three years, households have come a long way in repairing their balance sheets.”