Slowing Rising Rates Spurs Refi Mortgage Applications

Interest rates for fixed-rate mortgages continue to climb, motivating more home owners to refinance their adjustable-rate loan and lock-in a fixed rate before those fixed rates climb further. On June 1 the average fixed rate for a 30-year mortgage was 6.62 percent as reported by Freddie Mac 6.66 percent as reported by the Mortgage Bankers Association (for loans no more than 80 percent of the property’s value).

“Currently, mortgage rates are roughly a half a percentage point higher than they were at the start of the year, and that’s led to some moderation in the housing market,” said Frank Nothaft, chief economist for Freddie Mac, a major buyer of home mortgages. “Indeed, in the first quarter of this year, the housing industry directly accounted for seven percent of real Gross Domentic Product (GDP), compared to 19 percent in the preceding quarter.

“Total housing starts in April were the weakest since November 2004,” he added. “Although new home sales in April were the strongest this year, the number of homes for sale hit a record high. Meanwhile, existing home sales declined an expected two percent, further evidence of an easing in housing.”


Upper-End Home Sales Remain Brisk

Even though the housing market has generally cooled down to a more normal volume of sales and price appreciation, one niche is still selling briskly the multi-million-dollar homes. For example, in San Francisco 18 homes in that range sold in the first quarter of this year. That’s up from 15 in the same period last year, according to DataQuick, a real estate information service.

The same type of increases are experienced in many other markets. One factor in the growth could be that median prices of all homes have risen, pushing more homes into the luxury end. Also, inventory is up across the board. But at a time when the overall number of home sales has declined in many markets, the number in the ultra-high range has continued to grow.

“The segment of high-end buyers won’t be immune from the unfolding travails of the rest of the market, but it will weather those difficulties much better than it has historically,” said Mark Zandi, chief economist for Moody’s Economy. The increasing numbers of step-up home buyers are often particularly persistent in finding and purchasing their next dream home. Generally, home sales are down and inventories are up, although new home sales were on the increase in April (surprising many expert analysts).


10-year Treasury Rates up

Bob Bach, senior vice president, research, for Grubb *amp; Ellis Company, a major commercial real estate firm, made a perceptive statement on May 30 that might accurately describe coming trends in the mortgage and real estate field.

“Long-term interest rates have been creeping higher this year, hitting a year-to-date peak of 5.19 percent on May 12th before falling back as investors moved funds from the shaky stock market to the safety of government bonds,” Bach said. “Rising inflation and fears that the Federal Reserve will continue to raise the short-term federal funds rate are behind the increase in long-term rates. In response, demand for commercial real estate, although still very strong, is beginning to retreat from the frothy levels in recent years toward a more sustainable rate of capital flows.”


New Law will Boost FHA Viability

Legislation has been introduced that will empower the Federal Housing Administration (FHA) to become a more efficient provider of financing for affordable homeownership and rental housing. The proposed law — S. 3173, “The 21st Century Housing Act” — proposes significant changes to the National Housing Act, which governs how FHA operates.

“As mortgage bankers, we look to programs like the FHA to help us provide even more options to consumers and help bridge the affordability gap faced by many first-time buyers, and minority and low- and moderate-income families,” said Regina M. Lowrie, chairperson of Mortgage Bankers Association. “S. 3173 will make the changes necessary to ensure that FHA continues its good work in partnership with the mortgage lending community to achieve our joint goal of providing affordable housing and financing.” Key provisions of the bill include the following:

  • Elimination of the minimum cash investment required by the borrower, which would allow FHA to offer a zero downpayment product.
  • Authorization to use FHA revenues above a certain threshold for investment in improving FHA’s technology.
  • Greater flexibility in personnel compensation in order to attract highly qualified staff.
  • Increases in multifamily loan limits to expand affordable rental housing production in high cost areas.


Baby Boomers Hot on Home Ownership

The demographic group that is the greatest homeowners in the country is baby boomers. They have a higher rate of ownership than the national average. Also, one out of four of those boomers own more than one property, according to a new study commissioned by the National Association of Realtors. The study also shows boomers are optimistic about the future, but many are not adequately prepared for retirement.

Nearly eight in ten boomers now own their own homes, and almost nine out of ten have owned at some point in their lives. About 96 percent believe owning a home is a good financial investment, evidenced by their actions. The overall rate of home ownership is now 69 percent, according to the U.S. Census Bureau.

As for those boomers who have never owned a home, 85 percent cited financial reason, but 38 percent simply didn’t want the responsibility of homeownership. A quarter of respondents own one or more other kinds of real estate in addition to their primary residence. About 13 percent own land, eight percent own rental property, seven percent a vacation home, two percent own commercial real estate or some other kind of real property.


Commercial Mortgage Demand up

Commercial and multifamily mortgage originations increased 34 percent during the first quarter of this year compared to the same quarter of last year, according to the Mortgage Bankers Association. “The first quarter is traditionally when originators recover from the flood of year-end activity and build the foundation for the year ahead,” said Douglas Duncan, MBA chief economist. “While it is unknown if the rate of growth seen in these markets during last year will continue at the same pace this year, first quarter numbers indicate no immediate signs of slowing.”

The increase in commercial lending activity is across all property types. The increases include: 26 percent increase in loans for office buildings, 23 percent for multifamily property loans, 55 percent for retail, 33 percent in loans for industrial space, and 123 percent for health care properties. The largest percentage increase in lending was for hotel properties, reflecting a 165 percent increase.


Rising Gas Prices Impact Home Selling Market

The sharp increase in the cost of gasoline is impacting the home buying market, according to results of a survey conducted by It showed that 70 percent of consumers feel rising gas prices have become an important consideration when deciding where to live. Nearly half of all home buyers (48 percent) ranked rising gas prices as “very important.”

Consumer attitudes and opinions about commuting long distances to work have shifted rather dramatically in recent months. More than 40 percent of home buyers now think a short commute to work is an important factor in choosing a new home. Last summer, Kelton Research asked the same question and found that 9 percent of consumers thought a short commute was an important consideration. Real estate brokers also are reporting that consumers are seeking homes that are closer to their employment site and desired local services.


The Scoop on No-Cost Mortgages

“No-cost mortgages” are being increasingly promoted by lenders. It sounds like a no-brainer. Who in his right mind would pay up-front costs for a new mortgage when no-cost loans are available? Actually, many prudent consumers are opting for a mortgage with normal up-front settlement fees. Strange as it may seem, they can often save money by doing so. Here’s why:

A no-cost mortgage is not really no-cost. It usually means that the “no-cost” provision at closing time is purchased by a higher interest rate. That, in turn, means the borrower will be paying those fees bit-by-bit with every monthly payment. The longer the borrower makes those payments, the more extra interest money is collected by the lender.

The no-cost mortgage can be a good deal for the borrower if the plan is to keep the mortgage for a short period of time. It’s usually not a good deal if the mortgage is to be held for a long term, say eight years or longer. Of course, if a home buyer simply doesn’t have the cash for those closing costs, a no-cost mortgage might be his only option for financing a home purchase.

It should be noted that there are usually certain payments (costs) at closing, even for a no-cost mortgage. Examples are the per-diem interest from the closing date to the first day of the following month, escrows for taxes and insurance, homeowners’ insurance and transfer taxes.

Many people tend to confuse no-cost with no-cash mortgages. The no-cost mortgage is described above. The no-cash mortgage usually means the borrower is charged the usual closing costs, but instead of paying them at closing they are added to the loan balance. In those cases, the borrower has a larger initial loan balance and must pay interest over the years on that extra amount.


Preparing a Home to be Market-Friendly

Now that home selling is slipping rapidly from a sellers market to a buyers market, more thought and planning is needed to prepare a home for being shown and sold. If strategic planning is neglected, the house may remain on the market for a very long time before a buyer is found and sale is consummated. In recent years, very little effort was needed to sell a residential property. Many homes were sold within hours of being placed on the market. Some sales were for prices higher than the asking price, and some home sellers had multiple offers.

Today, it’s a much different story. Inventories of available homes are up in most markets, and prospective buyers are fewer in numbers. And those buyers are much more demanding in selecting a property. Mortgage interest rates are rising. We’re back to being very competitive when offering a home for sale.

Here are a few ideas for making your home more saleable: Try to visualize your home from the perspective of a buyer. Focus first on simple cosmetic enhancements, such as a needed coat of paint, new carpet or updated door knobs. Make improvements in the front yard landscaping, giving your home enhanced “curb appeal.” First impressions are vitally important in showing a home to prospective buyers.

An obvious but often neglected step is to give the house a thorough cleaning, and clear rooms and garage of clutter. You may have to rent a storage space for some of your accumulated stuff, but it will be well worth it. An uncluttered room looks larger and helps the prospective buyer visualize his or her own furnishing in the space.

When considering a major remodeling project with an eye toward increasing the value and salability of your home, it’s important to know the types of projects that historically increase values. Adding more living space to your home, such as adding a bedroom, bath or “great room” is probably the best value-enhancer. Some of the above suggestions resulted from a study conducted by the American Society of Appraisers (ASA).

“Homeowners are in a position they haven’t been in for quite some time,” said Mike Evans, an appraiser and ASA member. “Home prices in many markets may be on a downtrend for a while. It pays to plan to make home improvement decisions if you may be selling your home in the next few years. Think in terms of increasing the value of your home not just about design and decor.”


Simultaneous Home Buying and Selling

Selling a home can be particularly emotional and traumatic when the seller is simultaneously buying another home, according to a recent survey by the Website. The double-whammy emotional process of selling and buying a home can send even the savviest of homeowners into a whirlwind of exhilarating highs and frustrating lows, it was noted in the survey report.

“Many people underestimate the emotional overload of selling one home and buying another at the same time,” said Holly Slaughter with Nearly half of the survey respondents agreed that the uncertainty of knowing how quickly their home would sell was difficult or more difficult that expected. They considered that time to be the most significant emotional low in the process.

“That sense of uncertainty, always present to some degree during a home sale of purchase, is basically doubled for bridging homeowners,” Slaughter noted. “The only antidote is to spend some time planning for contingencies and to set your expectations realistically.”


Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers – along with freelance features. Reproduction of this report, in part or entirety, is prohibited without the express permission of the author. E-mail: Web site:

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