Freddie Mac Weekly Update:Mortgage Rates Ease Back a Little

30-year fixed-rate mortgage: Averaged 4.81 percent with an average 0.7 point for the week ending December 23, 2010, down from last week when it averaged 4.83 percent. Last year at this time, the 30-year FRM averaged 5.05 percent.

The 15-year fixed-rate mortgage: Averaged 4.15 percent with an average 0.7 point, down from last week when it averaged 4.17 percent. A year ago at this time, the 15-year FRM averaged 4.45 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.75 percent this week, with an average 0.6 point , down from last week when it averaged 3.77 percent. A year ago, the 5-year ARM averaged 4.40 percent.

One-year Treasury-indexed ARMs: A veraged 3.40 percent this week with an average 0.7 point, up from last week when it averaged 3.35 percent. At this time last year, the 1-year ARM averaged 4.38 percent.

Freddie Sayz
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
Mortgage rates were little changed this week following significant increases over the prior several weeks. Economic reports in December have suggested the economy began regaining momentum towards the end of the year, with consumer spending, industrial production and exports all posting solid gains. Treasury yields backed up as this stronger growth outlook caused an improvement in risk appetites and the likelihood of deflation to recede further.

Rates remain low, however, despite the recent rise, and are still well below where they began the year. Low mortgage rates are an important factor in housing affordability, which in October was the highest on record, according to the National Association of Realtors . These conditions are conducive to improving housing market conditions, and indeed, sales of existing single-family homes rose 6.7 percent in November to the strongest pace since June, according to the Realtors. In addition, the median sales price rose 1.2 percent over November 2009, which represented the first 12-month increase since August and largest gain since April. Finally, new construction on one-family homes in November rose to the strongest rate since April, based on figures released by the Census Bureau
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Rent vs Buy Today

NAR Existing Home Sales

Existing home sales which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 5.6% to a seasonally adjusted annual rate of 4.68 million in November, but are 27.9% below the cyclical peak of 6.49 million in November 2009, which was the initial deadline for the first-time buyer tax credit. Median existing single-family home prices rose year-over-year in 77 of 155 metropolitan areas and fell in 76 metro areas.

NAR Pending Sales

A forward-looking indicator, rose 10.4%  based on contracts signed in October from in September. The index remains 20.5% below a surge to a cyclical peak in October 2009, which was the highest level since May 2006.

Rent Vs Buy

The argument for affordability has a few key components. Price, cost of money and a comparison to a similar property rental.

Price
Home prices are running about 22% less than five years ago. Its hard to know when price has reached a point where willing buyers step up, but pending sales clearly point to a slowing trend.  The Commerce Dept. report showed that new home sales rose 5.5 percent to an annual rate of 290,000 in November from the revised October rate of  275,000.

Price will continue to decline and increase affordability. There are some that think a double dip is in progress and we will see continuede price declines through 2011 or 2012.

Cost of Money
Lower tax rates just extended for another two years may boost growth. Mortgage rates responded by increasing to a six  month high with rates up more than half a point in just the past month. NAR President Vicki Golder, points out: A decade ago, mortgage rates were almost double what they are today, and they’re about 1.5% lower than the peak of the housing boom....So still historically low.

Rates remain low and are still well below where they began the year. Low mortgage rates are an important factor affordability, which in October was the highest on record

Rent Comps
Rents increased for the second quarter in a row. Asking and effective rents increased by 0.5% and 0.6% respectively in the third quarter and vacancy rates dropped from 7.8% to 7.1% nationally.To summarize, price is dropping but cost of money is rising and so are rents. Most areas havent reached a balance between the cost of renting and the cost of buyi ng, probably the main arguement for home prices continuing to descend to meet a willing buyer.

Rule of thumb: Homes are probably fairly valued at about 15 times a year's rent. So, for example, if you're paying $15,000 a year to rent a place, think twice about buying a home that costs more than $225,000. Fifteen times is the historic average.

Your home is not a growth stock. You should look to justify multiples higher than 15 to 20 by considering personal needs, proximity to schools and transportation, your own cash flow situation and job security.

It would also be advisable to get a sense of what the property would likely rent for and see how far that rent would go towards paying the mortgage should you have to move. Home sales are slowing and if you find yourself a reluctant landlord, be sure you can carry the mortgage.

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Mortgage Bankers Weekly Update: Mortgage Applications Decrease

Mortgage Bankers Association for the week of  12/15/2010

Market Composite Index: (loan application volume)      decreased 2.3 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 2.7 percent compared with the previous week.

Refinance Index: decreased 0.7 percent from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0 percent from one week earlier.

Purchase Index:  decreased 8.6 percent compared with the previous week and was 16.6 percent lower than the same week one year ago

Refinance Share of Mortgage Activity: increased to 76.7 percent of total applications from 75.2 percent the previous week
  decreased to 5.5 percent from 5.6 percent of total applications from the previous week.

Arm Share: decreased to 5.6 percent from 5.7 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org)

Treasury rates increased last week following news that lower tax rates could be extended for another two years, boosting growth prospects.  With this move, mortgage rates reached their highest level in more than six months, said Michael Fratantoni, MBAs Vice President of Research and Economics. Not surprisingly, with rates up more than half a percentage point over the past month, refinance activity has declined sharply.  Home purchase applications dropped this week following three weeks of increases, but remain near levels last seen in early May.
The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year.
We expect that mortgage originations will decrease to $1.4 trillion in 2010 from a downwardly revised $2.0 trillion in 2009, previously estimated at $2.1 trillion. Total originations will then fall to $996 billion in 2011, the lowest level of originations since 1997. Purchase activity in 2010 will see a significant drop from 2009, although it was given a brief boost in the spring by the tax credit program, but start to recover in 2011. Refinance activity is currently being buoyed by mortgage rates that remain close to historical lows, but will fall in 2011 and 2012 as rates start to increase. Purchase originations will fall to $480 billion from $665 billion in 2009 and refinance originations will decrease to about $921 billion in 2010 from $1.3 trillion in 2009. We expect that the refinance share of originations should fall from 66 percent in 2010 to 37 percent in 2011, and then 26 percent in 2012.
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Freddie Mac Weekly Update: Mortgage Rates Continue to Climb

30-year fixed-rate mortgage: Averaged 4.83 percent with an average 0.7 point for the week ending December 16, 2010, up from last week when it averaged 4.61 percent. Last year at this time, the 30-year FRM averaged 4.94 percent.

The 15-year fixed-rate mortgage: Averaged 4.17 percent with an average 0.7 point, up from last week when it averaged 3.96 percent. A year ago at this time, the 15-year FRM averaged 4.38 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.77 percent this week, with an average 0.7 point, up from last week when it averaged 3.60 percent. A year ago, the 5-year ARM averaged 4.37 percent.

One-year Treasury-indexed ARMs: Averaged 3.35 percent this week with an average 0.7 point, up from last week when it averaged 3.27 percent. At this time last year, the 1-year ARM averaged 4.34 percent.

Freddie Sayz
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

Market concerns over stronger economic growth that, in the near term, could lead to an increase in inflation have sparked a rise in bond yields and mortgage rates have followed. For instance, the growth in retail sales excluding automobiles in November was twice that of the market consensus forecast. Industrial production showed the biggest gain in November since July, according to the Federal Reserve Board . And consumer sentiment, as measured by the Thomson Reuters/University of Michigan index, rose to a six month high in December. As a result, interest rates for 30 year fixed mortgages this week were the highest since the week of May 20th of this year.
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Multi Famiily Rentals Improve

The demographics

The multifamily sector is in recovery. According to Reis, net absorption in 3Q spiked, dropping the national vacancy rate from 7.8% to 7.1%, one of the largest quarterly drops on record.

Rents increased for the second quarter in a row. Asking and effective rents increased by 0.5% and 0.6% respectively in the third quarter over the previous quarter.

Renter demographics
Who Are They

People Needing Flexibility
Renting can provide more flexibility, greater convenience and lower costs than buying a home. As a result, certain households are more likely to rent than own, including young singles starting out, families relocating to a new metropolitan area, recent immigrants to the United States, and low-income household

In Transition
such as a change in job or marital status. For example, over 60 percent of households that moved in 2003 because of divorce or separation chose to live in a rented unit.

Relocating
For owners who are relocating, rental housing can be a good option if they expect to move again within a few years.

Immigrants
When birth rates among the native born population fell sharply after the baby boom, many feared that rental demand would drop off precipitously. But thanks to the strength of immigration, the number of renter households remained steady through the 1990s and early 2000s as foreign-born households supplemented the rental demand of native-born households. The arrival of young foreign-born households thus tempered the decline in renters aged 25–34 from 20 percent to 12 percent, and in renters aged 35–44 from 18 percent to 7 percent over the 1994–2004 period. Indeed, without these immigrants, the total number of renters would have fallen by more than 2 million (5 percent), rather than rising modestly by 100,000.

Retirees Moving Back
 As the baby boom population ages and their children leave home, some will opt for moving out of their homes and into apartments that require less upkeep and allow them the freedom to do what they want.They fit into he category of lifestyle renters.  Not wanting or needing the cost and obligations of home ownership and choosing the mobility that comes with the lesser commitment of renting, expect a lot of retirees coming back into citys for ease of access to theater, larger communities of like interests and excitement not available in suburbs.

Echo Boomers
National Association of Housing Builders chief economist believes that 83 million echo boomers will enter residential renter market and lead the demand for apartment units over the next few years, approximately 3.2 million between 2010 and 2012. This demographic trend coupled with a strong immigration trends will drive apartment fundamentals. This housing crash happens in the formative years of this population. Will the bias towards home ownership still hold or will echo boomers, raised during this crises, hold a bias towards renting over ownership.

Its clear that rental property will have a brighter future and likely to recover first. The caveat here is that jobs will be a determining factor. If job growth is meager then echo boomers may stay home longer or double up as roommates.

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Freddie Mac Weekly Update: Bond Yields Rise and So Do Mortgage Rates

30-year fixed-rate mortgage: Averaged 4.61 percent with an average 0.7 point for the week ending December 9, 2010, up from last week when it averaged 4.46 percent. Last year at this time, the 30-year FRM averaged 4.81 percent.

The 15-year fixed-rate mortgage: Averaged 3.96 percent with an average 0.7 point, up from last week when it averaged 3.81 percent. A year ago at this time, the 15-year FRM averaged 4.32 percent. .

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.60 percent this week, with an average 0.6 point, up from last week when it averaged 3.49 percent. A year ago, the 5-year ARM averaged 4.26 percent.

One-year Treasury-indexed ARMs: Averaged 3.27 percent this week with an average 0.6 point, up from last week when it averaged 3.25 percent. At this time last year, the 1-year ARM averaged 4.24 percent.

Freddie Sayz

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

After Europe made strides in its debt situation, investors left the security of U.S. Treasury debt causing bond yields to rise and mortgage rates along with them.  Interest rates for 30 year fixed mortgages are now almost a half percentage point higher than the record low set in mid November, which for a $200,000 conventional loan amounts to $50 more in monthly payments.

Housing demand appears to be picking up recently. Existing pending sales jumped 10.4 percent in October to the strongest pace since April, according to the National Association of Realtors. More recently, mortgage applications for home purchases rose for the three consecutive weeks ending on December 3rd, representing a 17.7 percent increase and the strongest pace since the week of May 7th, based on figures released by the Mortgage Bankers Association

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Mortgage Bankers Weekly Update: Mortgage Applications Decrease

Mortgage Bankers Association for the week of  12/8/2010

Market Composite Index:(loan application volume)    decreased 0.9 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 22.8 percent compared with the previous week, which included the Thanksgiving Holiday

Refinance Index: decreased 1.4 percent from the previous week. This is the fourth weekly decrease for the Refinance Index which reached its lowest level since June 2010

Purchase Index:  increased 1.8 percent from one week earlier. This is the third weekly increase for the Purchase Index which reached its highest level since early May 2010. The unadjusted Purchase Index increased 21.3 percent compared with the previous week and was 12.0 percent lower than the same week one year ago. 
Refinance Share of Mortgage Activity: increased to 75.2 percent of total applications from 74.9 percent the previous week

Arm Share: decreased to 5.6 percent from 5.7 percent of total applications from the previous week. 

MBA outlook: (Excerpted from mbaa.org)

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 9.13 percent of all loans outstanding as of the end of the third quarter of 2010, a decrease of 72 basis points from the second quarter of 2010, and a decrease of 51 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year.

We expect that mortgage originations will decrease to $1.4 trillion in 2010 from a downwardly revised $2.0 trillion in 2009, previously estimated at $2.1 trillion. Total originations will then fall to $996 billion in 2011, the lowest level of originations since 1997. Purchase activity in 2010 will see a significant drop from 2009, although it was given a brief boost in the spring by the tax credit program, but start to recover in 2011. Refinance activity is currently being buoyed by mortgage rates that remain close to historical lows, but will fall in 2011 and 2012 as rates start to increase. Purchase originations will fall to $480 billion from $665 billion in 2009 and refinance originations will decrease to about $921 billion in 2010 from $1.3 trillion in 2009. We expect that the refinance share of originations should fall from 66 percent in 2010 to 37 percent in 2011, and then 26 percent in 2012.

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Apartment Sector: The First One Out

This is the one real estate area that seems to be looking up. There is no question thatapartments really scream when it comes to actual performance and renewed investment confidence, says Hessam Nadji, managing director of research and advisory services at Marcus & Millichap. The apartments sector is leading the recovery. Nationally, apartment vacancies declined 20 basis points during the first half to reach 7.8%, setting the stage for rent growth.
Demographics: The rental sector is the one area that that is looking like its in a recovery. Residential housing was t was over built and overbought, while rental properties barely kept up with the demographics. Harvard studies indicate that if you couple the under 30 age group to new immigrants and retirees looking to move back to the city for convenience, as a whole they are a potential renter pool larger than the the boomer generation. That is huge!
Supply: Over 4.3 million loans are 90 days or more delinquent or in foreclosure. Moreover, the shadow inventory (chart) of REO properties, as well as distressed mortgages facing foreclosure, will take nearly three years to clear at the current sales rate, according to an S&P report. S&P analysts concluded that \many servicers will likely shift from mortgage modification to loan liquidation. Hopefully, the banks will distribute supply onto the market with an eye to price stability or at least an orderly decline. With that in mind expect supply to continue to increase and prices to continue to decline.
Jobs: The average number of days delinquent for loans in foreclosure is a record 492 days. Its pretty obvious that jobs are the main culprit now and the expectation is that unemployment will remain more or less constant for the next year. Apartments look better partly because they never participated in the building boom that homes experienced and supply to renter pool favors lower vacancy rates and higher rents.
Investor Psychology: The Census Bureau releases a Housing Tenure, which measures the balance between owner occupied and renter occupied housing units. Owner occupied units have been on the decline and the number of renter occupied units has soared to 34.% in 2009. Of course, jobs are highly correlated to rent and vacancy rates, so this should be seen as fragile and early recovery. Yet rent rates have been increasing and vacancy rates have been declining, even in this weak job market. I think there has been a shift in the investor psychology that benefits the rental property.
Politics of Housing: Congress had mandated that the GSE emphasize home purchases at the expense of rental property. The Congressional Budget Office reported, the government in 2009, devoted nearly four times as much to support homeownership.$230 billion for homes and about $60 billion for multi family property, helping fuel the bubble. It was a primary cause for so many bad decisions…..loose money always is. My guess is that GSE money flow will now favor rental property and affordable housing in particular. The new real estate opportunity is in rentals, they will be the first to recover.
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