Mortgage Rates Rise, but are Still a Hot Lure for Homebuyers

Mortgage interest rates are continuing to rise, according to a recent report from The Meyers Group, a research and consulting firm. Regionally, rates are lowest in the West and highest in the Northeast Region.

Though we might see mortgage rates move upwards in the months ahead, they will likely remain within most homebuyers comfort zones for the remainder of the year, the Meyers report stated. The combination of rising home values and low mortgage rates has provided a powerful economic force, leading us to expect that holding down long-term interest rates will remain a key priority for the Fed. Therefore, as the economy gains strength, we’re bound to see a delicate balancing act to stimulate business investment and economic growth, while keeping long-term rates low.

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A New Concept for Residential Appraisals

Home appraisals are getting less expensive and involve less time to complete. As with many other facets of real estate activity, the improved and faster procedures are largely due to usage of technological advancements. In this case, computerized databases are used in tandem with onsite inspections and related insurance coverage. It’s becoming the appraisal method of choice by an increasing number of mortgage lenders and brokers.

The system is called Collateral Valuation Insurance by the firm that developed and now offers it  FNIS Valuation Services, a division of Fidelity National Information Solutions. In some cases, the new hybrid appraisal system can shave off a couple of hundred dollars from the conventional appraisal fee. And instead of several weeks to complete, it can be finalized in a few days.

Collateral Valuation Insurance (CVI) utilizes a patent-pending process involving an estimate of property value, obtained from several automated valuation products, a physical inspection of the exterior of the subject property and its neighborhood, and the issuance of an insurance policy. The automated databases used in the process are from leading national organizations, thus ensuring wide geographic coverage and consistent accuracy in determining sales prices and appraised values, according to a FNIS spokesperson. The firm insures the lender and investor for losses in the event of foreclosure to the extent that the appraisal used at the time of origination overvalued the property.

Fidelity National Information Solutions provides a range of services for lenders, real estate professionals, settlement companies and other participants in real estate transactions. Their valuation segment targets the information needs of lenders, loan originators and residential loan servicers. The firm is also the nation’s largest provider of Multiple Listing Service (MLS) systems and supplies tools that allow real estate brokers to improve their working efficiency, the spokesperson said.

Obviously, conventional appraisers take a dim view of the new system. They stress the value of a carefully conducted inspection of the property, inside and out, by a well experienced appraiser.

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MBA Predicts
An interesting report was recently issued by the Mortgage Bankers Association of America. They make some pertinent predictions. Unemployment will slowly decline in the second half of this year, and that trend will probably continue for at least the next three year, MBA projects. Treasury rates will move up and mortgage rates will follow.

While housing sales will reach a record high this year for the third consecutive year, sales will slow slightly over the next two years. Home price appreciation will slow but remain positive. Mortgage origination volume will reach $3.4 trillion this year, an all-time record. It will then decline to $1.94 trillion next year, and $1.46 trillion in year 2005. The overall mortgage volume will drop by 43 percent next year, and another 25 percent in 2005  returning to the level of 1998.

However, the volume of mortgage loans originated for home purchases will increase annually over the next three years, it was predicted. The MBA report is titled, MacroEconomic and Housing Finance Outlook, 2003-2005.

MBA also reported that the rate of mortgage delinquencies is dropping. It now stands at about 4.53 percent (at this writing) for mortgages secured by residential properties. We expect to see delinquencies continuing to fall as the economy improves and generates job growth, said Doug Duncan, MBA’s senior vice president.

We are seeing signs of improvement, but absent a significant or sustained period of growth we expect no major improvement in delinquencies. It should be noted that the recent slight decline in mortgage delinquencies came at the same time personal bankruptcies were setting a record high. In general, an increase in delinquencies lags a downturn in the economy, and a decrease in delinquencies lags an improvement in the economy.

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The Internet’s Growing Impact

With the vast amount of home buying and selling information now available free on the Internet, it’s no wonder that a growing number of sellers are handling their home sale on their own. Or you might be more surprised to learn that despite all that easily accessible information, most sellers still opt for calling in a professional.

As for buyers, nearly three out of four homebuyers now use the Internet as a tool when searching for a home. But most of those buyers work through a real estate broker when finalizing their home selection and purchase. This is revealed in the recently released 2003 Profile of Homebuyers and Sellers report issued by the National Association of Realtors.

The NAR survey and report shows that 71 percent of homebuyers used the Internet in their search for a home during the first quarter of this year  up from 41 percent in 2001. That’s a sharp increase and quite understandable considering the value and convenience of the information. Although most buyers now surf the Web, only 11 percent first learned about the home they actually purchased on the Internet, the report noted. Forty-one percent first learned about their home from a real estate broker or sales associate. Yard signs were credited with 16 percent of the initial contacts.

Other particularly interesting bits of information revealed in the NAR study and report  The typical homebuyer walks through 10 homes, searched for eight weeks to buy a home, and moved 10 miles from their previous residence. The typical seller placed a home on the market for five weeks and had lived in that home for six years. About 40 percent of homebuyers are first-time buyers. The median age of buyers is 40 years. Most buyers are married with no children residing in the home.

Seventy-nine percent of home sellers sold a detached, single-family home. Fifty-one percent of those homes are located in a suburb and 20 percent are in an urban area. Fifty-five percent of sellers purchase a home that was larger than the home they sold. Eighty-three percent of sellers sell their home with the assistance of an agent. Sixty-nine percent of sellers contact only one agent before listing their home. Forty percent first found their listing broker through a referral from a friend or family member.

NAR’s report also profiles today’s homebuyer. The median age of homebuyers (age 40) is four years older than when the previous study was conducted in 2001. The median household income for homebuyers is actually lower (by 7 percent) than the level reported in 2001. This may be due, at least in part, to historically low interest rates that enable a larger number of lower income households to buy a home, according to NAR.
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Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers. He also writes freelance features on real estate related subjects.

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