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As mortgage rates increased a full percentage point combined with rising prices housing becomes less affordable. While historically rates still low,  time is now to make a move before more potential home buyers are priced out of the market.

Mortgages: 30-year fixed rate has jumped a point since early May

A housing tract in Mesa, Ariz. Homebuilder stocks have fallen recently as mortgage rates increased, combining with rising prices to make housing less affordable. (Justin Sullivan, Getty Images)

 By E. Scott Reckard June 25, 2013, 6:00 a.m

Residential mortgage rates aren't just up from the bottom -- they have zoomed a full percentage point above recent record lows, reaching the mid-4% range.

The average rate for a 30-year fixed-rate home loan hit 4.63% on Monday, according to HSH Associates, up from the 4.33% that HSH recorded Friday and a record average low of 3.44% for the week that ended Dec. 14.

The rocketing rates are choking off a boom in home refinances that hit high gear in September 2011, when the 30-year fixed rate dropped below 4% for the first time on record.

Although the rates remain exceedingly low by historic standards, the increase adds to payments, pricing marginal borrowers out of the market for homes they want to buy.

The monthly payment on a 30-year fixed-rate mortgage for $300,000 is $1,347 at 3.5% but $1,520 at 4.5% -- more than $2,000 more per year. Should the 30-year rate rise to its historic norm of about 6%, the monthly payment would increase to $1,799, adding more than $5,400 to the annual financing cost.

Mortgage rates also have contributed to a recent sell-off in homebuilder stocks. Shares of Los Angeles' KB Home, which closed as high as $24.82 during the first half of May, closed Monday at $19.25 -- down 22% from that May price. Lennar Corp. closed Monday at $34.99, 20% off its high in May; and Toll Brothers Inc.  closed Monday at $31.85, 15% below its recent high of $37.60.

Investors have been demanding higher interest rates since last week, when Federal Reserve Chairman Ben Bernanke said the Fed could begin tapering off its massive purchases of Treasury bonds and mortgage securities later this year.

The purchases, which stimulate the economy by keeping rates low, could end by the middle of next year, Bernanke said, rattling markets that also are skittish about a credit crunch in China, the world's second-biggest economy.

The yield on the 10-year Treasury note, generally a benchmark for fixed mortgage rates, rose for the sixth straight trading session Monday to close at 2.55%. It was 1.66% on May 2.
It’s difficult to tell whether the jump in rates reflects a new reality or simply an increase in volatility caused by confusion regarding the Fed’s plans, the Mortgage Bankers Assn. said in a financial commentary Friday.

“Regardless, refinance application volume, which had already dropped roughly 40% over the month, is likely to fall further,” the trade group said.

HSH is among the more prominent trackers of mortgage rates, each with a different methodology. Another survey, from Bankrate.com, bottomed out at 3.5% last December and fell nearly that low again May 1 at 3.52%.

“If we did the survey today, I’d say we’d be up close to 100 basis points,” meaning a full percentage point above the record low, Bankrate senior financial analyst Greg McBride said Thursday. That would leave the rate “around 4.5% on 30-year fixed,” he said.

The most widely followed survey of mortgage rates, from the giant home finance firm Freddie Mac, is released each Thursday. It bottomed out at a reading of 3.31% on two occasions last fall. The latest Freddie survey, taken early last week before Bernanke's remarks, showed rates pausing in their upward spiral, falling to 3.93% from 3.98% a week earlier.
 Source: http://www.latimes.com/business/money/la-fi-mo-mortgage-rates-jump-20130625,0,5218841.story?track=rss

 

 

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Home price gains likely to remain strong. Shortage of new homes for sale likely to get larger before getting smaller. More demand than supply of new homes have caused prices to rise.

New home sales jump in May to highest level in five years

 

By Andrew Khouri   June 25, 2013, 8:18 a.m.

New home sales surged more than expected last month, a good sign for a building sector that has an oversized role on the broader economy.

Sales of new single-family homes rose 2.1% from April to a seasonally adjusted annual rate of 476,000, the Commerce Department said Tuesday. That was the highest rate since July 2008 and 29% more than May of last year.

Home values have risen sharply lately as buyers compete for few available homes. That lack of inventory and price growth has builders turning dirt and increasingly confident in the new home market.

That is not only good news for those in construction but also related industries such as lumber, and heating and air conditioning.

New home sales rose from April in all regions except the South, but were up across the nation compared with last year.

The median price for new homes in May was $263,900, down 2.8% from a month earlier.
Supply remains below average. If new homes continued to sell at the current rate there would be a supply of 4.1 months, unchanged since April.

Also on Tuesday, a leading home price index showed strong growth during April in the nation's largest cities. The Standard & Poor’s/Case-Shiller index rose 2.5% from March and 12.1% over the last year.

Because of the time it takes to build new homes, economists Patrick Newport and Stephanie Karol of IHS Global Insight said those sharp gains won't ease soon.

"The shortages are likely to get larger before getting smaller, which means that home price gains in most cities and states are likely to remain strong for some time," they said in an emailed analysis.

 Source: http://www.latimes.com/business/money/la-fi-mo-new-home-sales-20130625,0,1987953.story?track=rss

 

 

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In California, home prices are still going up! Low inventory of homes for sale, low interest rates, declining distressed sales & increased demand has caused the sharp price increases recently. This is all helping the state's housing recovery.

California home prices hit five-year high, sales increase as well

 

A sign advertises Candlestick Cove, a new housing community in San Francisco. California home prices shot up almost 26% in May compared to the same month in 2012, DataQuick said. (Justin Sullivan / Getty Images / February 26, 2013)

By Andrew Khouri  June 13, 2013, 1:57 p.m

California home prices climbed to a five-year high last month and sales increased as well, placing increased momentum behind the state’s housing recovery.

The median sales price for a home rose 25.9% from last year to hit $340,000 in May, real estate firm DataQuick said Thursday. Sales of new and existing homes jumped 1.2% to 42,293, the most for a May since 2006 when 54,099 homes sold.

But while sales increased last month to a multi-year high, they remained 9% below average as tight inventory continued to define the market, DataQuick reported.

The lack of homes for sale, low interest rates, investor demand and an improving economy have caused sharp price increases recently. The median price paid for a home in Southern California rose 24.7% in May from last year, while the Bay Area jumped 29.8%.

The median sale price is the point at which half of homes sold for more and half sold for less; it is influenced by the types of homes selling as well as a general rise or fall in values.
Helping the median rise is the declining percentage of distressed sales. Notices of default -- the first formal step in the state’s foreclosure process — fell 10.2% last month from April, according to PropertyRadar.com

Homes that had been foreclosed upon within the last year accounted for 11.4% of homes resold in California — the lowest point since August 2007, DataQuick said. Short sales also dropped last month compared to May 2012.

Statewide, the median has increased year-over-year for 15 straight months, but is still below a peak of $484,000

Source: http://www.latimes.com/business/money/la-fi-mo-california-home-price-20130613,0,4664637.story?track=rss

Farewell 3% mortgage rates

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Looks like mortgage rates are trending upwards. Ultra-low rates may be history soon.

By Les Christie @CNNMoney June 6, 2013: 10:19 AM ET

NEW YORK (CNNMoney)

Say goodbye to ultra-low mortgage rates.

In the past month, rates have been on the rise and they are expected to continue to climb.

This week, the average rate on a 30-year fixed-rate mortgage jumped another 10 percentage points to 3.91% and are up from 3.3% in early May, according to mortgage giant Freddie Mac. Meanwhile, those seeking a 15-year loan received an average rate of 3.03%, up from 2.56% -- a record low.
"It's unlikely that rates will ever be that low again," said Doug Duncan, Fannie Mae's chief economist.

Those who didn't take advantage of record-low rates have missed the boat -- at least for now. Here are three reasons why.

The Fed is going to stop bolstering the housing market. The Fed has kept rates at rock-bottom levels by buying up to $85 billion a month of Treasury bonds and mortgage-backed securities. That has enabled lenders to sell mortgage loans at low interest rates and recoup their money immediately -- plus profits.

"Up until recently, expectations were that the Fed would begin to taper purchases of mortgage-backed securities (MBS) and Treasury bonds late in 2013, but that timeframe appears to have moved to September, possibly sooner," said Keith Gumbinger, vice president of HSH.com, a mortgage information company.

If the Fed stops purchasing the securities, private investors will have to pick up the slack. For investors to do that, the loans will have offer a better payoff. And that would mean raising rates for borrowers, said Duncan.

The economy is no longer reeling. During the recession, the Fed lowered its short-term interest rate to near zero in order to stimulate the economy. But now conditions have improved considerably since the economy emerged from recession four years ago. As the economic revival gains traction, it is creating a tailwind for interest rate increases, according to Gumbinger.

Low rates happen when the economy is in distress. But now, the market believes the economy is getting stronger, said Wendy Cutrefelli, a vice president in the Mortgage Banking Division of Bank of the West.

Job gains have picked up lately, averaging about 202,000 a month over the past six months.
That hiring is advancing rather than retreating is good news for the economy and any positive future reports are expected to push rates higher, according to Gumbinger. Even mediocre news might not cause any meaningful decline in rates.

3.3% rates are unprecedented. "The 30-year [mortgage rate] hit a 37-year low in 2003 at 5.23%," said Gumbinger. "That was the previous low-watermark prior to this financial crisis and it's likely we will move closer to that mark as we grind forward."

Any return to normal conditions, therefore, will likely be accompanied by higher mortgage rates.
Even if they go up a percentage point or two, however, mortgages will still be relatively low. Historically, 30-year loans are usually 5.5% or higher.

For clues to the direction of mortgage rates, look at the daily movements in 10-year Treasury bond yields. Mortgage rates track Treasury yields with the difference between them holding fairly constant.
These days, Treasury bonds have been on a jumpy uphill climb, with the 10-year hitting 2.21% on May 31, its highest closing since April 2012. On Thursday, the yield was about 2.10%. Since the interest rate on a 30-year is usually 1.7 to 2 percentage points higher, it indicates that mortgages should be at between 3.82% and 4.12% this week.

Source: http://money.cnn.com/2013/06/06/real_estate/mortgage-rates/index.html

What if mortgage rates shoot up?

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I agree with the experts below. Timing may be right to buy now before mortgage rates rise. Even with current rising demand and housing prices, rates are historically low which increases affordability.

By Lily Leung 6 a.m.May 24, 2013

 

Peter McNamara and his 5-year-old daughter Keira look at a model home at a Pardee Homes' Watermark community near Carmel Valley on a recent Sunday. Record-low mortgage rates are helping drive up homebuyer demand. — Hayne Palmour IV

Market watchers are speculating when the Fed will start to scale back its mega-bond buying program called quantitative easing, or QE. The economic stimulus has helped keep U.S. mortgage rates at or near record lows, sparking buyer demand and refinancing activity. Would a wind-down of the program pose a threat to the housing recovery? 

• Murtaza Baxamusa, directs planning and development for the Family Housing Corporation, of the San Diego Building Trades in Mission Valley: Yes. Federal stimulus successfully drove down interest rates below 4 percent for the first time ever, making homes affordable for new buyers and those who refinanced. Loans are cheaper now than in the early 1950s. Withdrawal of this stimulus would gradually inflate interest rates to their 20-year average of 6.5 percent for a 30-year fixed mortgage. San Diego still ranks among the worst in the nation in housing affordability. Prices are accelerating, and inventories dwindling. An increase in interest rates could precipitate another housing crisis in five years if income growth does not keep pace with monthly mortgage payments.

• Michael Lea, director of the Corky McMillin Center for Real Estate at San Diego State University: Under its quantitative-easing program, the Fed has been buying long-term Treasury and mortgage-backed securities. This strategy has been successful in keeping long-term rates low, stimulating housing demand and mortgage refinance as well as the stock market. It is time to end it. The housing market is no longer in need of life support and the risks of continuing the program are large. There is a risk of creating housing and stock-market bubbles. And continuing the policy makes the inevitable adjustment to market determined rates more difficult.

• Marco Sessa, chairman of the Building Industry Association of San Diego County and senior vice president of Sudberry Properties : Yes. Just how much is hard to say, particularly for supply- constrained markets like San Diego’s. Everyone expects that a wind-down of the Fed’s quantitative-easing program will result in higher interest rates. Higher interest rates obviously deter homeownership, but they also increase the cost of bringing homes to market. Both are bad for the housing recovery. However, there is a local housing shortage, which puts upward pressure on home values. This offsets the negative effect of increasing interest rates. Bottom line: If you didn’t buy in the last 12 months, there’s no time like the present – if you can find one.

• Robert Vallera, senior vice president of Voit Real Estate Services in San Diego: Yes, there is a threat, but no one knows how this will unfold. Like a cheating athlete, the market is juiced on low interest rates. When the quantitative easing tapers off, rising interest rates will create a drag on home values. San Diego’s median home price is now 6.7 times the median income, well above the historic average. It’s possible that household incomes might not grow quickly enough to offset rising mortgage rates and successfully support current valuations. Conversely, with housing in short supply here, a gradual rise in rates could play out far more smoothly than a sudden rate shock.

•Kurt Wannebo, real estate broker and CEO of San Diego Real Estate and Investments: No. Our housing recovery has been based on a multitude of factors including low inventory, programs that help struggling homeowners, public perception, overseas money and low interest rates. A slight increase in interest rates will slow down price increases but will not be extremely threatening to our recovery. However, it could slow the speed at which we are seeing things change.

Source: http://www.utsandiego.com/news/2013/may/24/mortgage-rates-qe-quantitative-easing-increase/ 

Today's Rising Home Prices Are A Rebound, NOT A Bubble

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5/14/2013 @ 2:36PM

Trulia Bubble Watch: Today's Rising Home Prices Are A Rebound, NOT A Bubble

Although home price gains rival those of the last decade’s bubble, home prices today look undervalued by 7%. Prices are overvalued only in a few California and Texas metros.

Home prices today are rising nearly as fast as they did during the peak bubble years of 2005-2006. Since that bubble helped push us into the Great Recession, we should all be on high alert for the next housing bubble. To track whether home prices are in or nearing bubble territory, today we introduce Trulia’s Bubble Watch, which is based on the most recent price data from the Trulia Price Monitor and other data sources.

So are we in bubble territory? No. Bubble-phobes can rest easy. Even with recent sharp home price increases, prices are still low relative to fundamentals and are far below bubble levels.

Back to Basics: How to Spot a Bubble

To see a bubble, you first need to know what you’re looking for. A bubble in home prices (or in the price of any asset – like stocks or even tulips) is when prices soar above their fundamental value. Fundamental value is based on supply, demand, and realistic expectations about the future. We all learned in Economics 101 that prices move back toward an equilibrium determined by fundamentals of supply and demand. In a bubble, however, rising prices encourage speculation and fuel further demand – up until when the bubble suddenly bursts and people rush to sell, which causes prices to accelerate downward, sometimes well below their fundamental value. Bubbles are notoriously difficult to predict and hard to confirm until after they’ve burst: it’s impossible to be sure whether price gains are justified by fundamentals until, if and when, a bubble bursts. San Francisco home prices, for instance, are the highest in the country; is that “irrational exuberance” by speculative homebuyers, or are those prices justified by strong job growth, high incomes, great weather, and constraints on the local housing supply?

To answer that question, we assess whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. Incomes determine how much people can pay for housing, and price increases aren’t sustainable if they push prices too high relative to incomes. Rents reflect how much people value housing even if they won’t benefit from price appreciation (as renters don’t, but owners do); the price-to-rent ratio is like the price-earnings (P/E) ratio for stocks. Using data from multiple sources (see footnote), we create several measures of fundamental value and combine them in order to calculate how overvalued or undervalued home prices are relative to fundamentals.

Home Prices are Undervalued 7% Nationally and Regionally in 91 of the 100 Largest Metros

We estimate that national home prices are 7% undervalued in the second quarter of 2013 (2013 Q2). During last decade’s bubble, prices were as high as 39% overvalued in 2006 Q1, then during the bust, fell to 15% undervalued in 2011 Q4. Therefore, even with the recent price increases, home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble. That’s why today’s price gains are actually still a rebound, not a bubble. This chart shows how far prices are from bubble territory:

 

 

At the metro level, prices are below their fundamental value in 91 of the 100 largest metros. Prices are overvalued in the California metros of Orange County (+9%), Los Angeles (+5%), San Jose (+3%), and San Francisco (+2%), and the Texas metros of Austin (7%), San Antonio (5%), and Houston (2%), as well as in Portland (plus Honolulu, which at 0.01% is ever so slightly overvalued). The California metros are far less overvalued than at the height of the bubble – Orange County prices were 71% overvalued in 2006 Q1! Even the Texas metros, which largely avoided last decade’s housing bubble, are less overvalued today than at their peaks during the last bubble.

Market Where Home Prices are Overvalued
#	U.S. Metro	Home prices relative to fundamentals, 2013 Q2	Home prices relative to fundamentals at local peak	When home prices peaked locally
1	Orange County, CA	+9%	+71%	2006 Q1
2	Austin, TX	+7%	+12%	2007 Q2
3	San Antonio, TX	+5%	+12%	2007 Q1
4	Los Angeles, CA	+5%	+78%	2006 Q1
5	San Jose, CA	+3%	+59%	2005 Q4
6	San Francisco, CA	+2%	+52%	2005 Q4
7	Houston, TX	+2%	+8%	2005 Q1
8	Portland, OR-WA	+1%	+44%	2007 Q1
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued. Among the 100 largest metros. To see if prices are over or under valued in the 100 largest metros, see here.

Prices are most undervalued today in Las Vegas and Detroit, even after their price gains in the past year. Several Florida and Ohio metros are also among the most undervalued. All of these metros were overvalued at the height of the bubble, some less so (Dayton, Akron) than others (Las Vegas, Palm Bay-Melbourne-Titusville).

Markets Where Home Prices Most Undervalued
#	U.S. Metro	Home prices relative to fundamentals, 2013 Q2	Home prices relative to fundamentals at local peak	When home prices peaked locally
1	Las Vegas, NV	-24%	+70%	2006 Q1
2	Detroit, MI	-23%	+42%	2005 Q1
3	Palm Bay-Melbourne-Titusville, FL	-22%	+75%	2006 Q1
4	Akron, OH	-21%	+19%	2005 Q1
5	Cleveland, OH	-21%	+21%	2005 Q1
6	Warren-Troy-Farmington Hills, MI	-20%	+34%	2005 Q1
7	Jacksonville, FL	-18%	+45%	2006 Q4
8	Toledo, OH	-18%	+25%	2005 Q2
9	Dayton, OH	-17%	+16%	2005 Q1
10	Lake County-Kenosha County, IL-WI	-17%	+29%	2006 Q1
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued. Among the 100 largest metros. To see if prices are over or under valued in the 100 largest metros, see here.

 

Other indicators aside from home prices, like mortgage lending and construction activity, confirm that the housing market isn’t forming a new bubble. Mortgage credit remains very tight, especially for people with lower credit scores, and the new “qualified mortgage” rules under Dodd-Frank intend to prevent the recurrence of toxic mortgages that artificially inflated housing demand in the last bubble. Also, construction activity, though rebounding, is still well below normal levels, and the vacancy rate is falling, so there’s no evidence of overbuilding today like we had during the last decade.

Is the Next Bubble Coming Soon?

If prices keep rising as fast as they are today, we’d be back in bubble territory in several years. However, prices are unlikely to keep rising as fast as they are today, for three reasons:

1.       Inventory should expand. Tight inventory is boosting prices today as buyers bid up prices on scarce homes; however, as prices continue to rise, more people will sell as they get back above water or decide to cash out, and more new construction will add to inventory.

2.       Mortgage rates should rise. Low mortgage rates today increase buying power because borrowers can afford a more expensive house for the same monthly payment. Rates are likely to rise as a result of the strengthening economy, either through market forces or Fed actions, which – along with more inventory – should slow down price gains.

3.       Investor interest should fade. Undervalued prices have attracted investors, who have helped push up home prices as they have bought and rented out homes. But as prices rise, investor interest will fade.

Will expanding inventory, rising mortgage rates, and declining investor activity cause home prices to plunge? Slow down, yes, but probably not plunge. Just as these factors should cause home prices to slow down, job growth and increased household formation should support a continued recovery in housing demand.

Is Another Bubble Coming Ever?

Even though we’re not in bubble territory today, another one is coming – someday. The history of American real estate is full of speculation, bubbles, and busts. Trulia’s own survey of consumers shows that most people expect prices to get back to the peak of the previous bubble again in the next 10 years – including people in housing markets where prices had been overvalued most. Furthermore, our rent-versus-buy analysis, which indirectly reveals where people expect prices to rise the most long-term, shows that people expect future prices to rise more if they live in metros where booms and busts were more common in the past. This is another sign that people seem to think prices go up but not down. Will government help to prevent another bubble? Perhaps the new mortgage rules will help – but the more cynical answer is “no.” The most recent bubble was more severe than earlier housing bubbles, and if we didn’t previously learn from the past, then why should we learn from it now? In short: housing bubbles look almost inevitable. Whether you’re buying a home, selling a home, or setting housing policy, remember that the next housing bubble is probably just a matter of time. But, as Trulia’s Bubble Watch shows, that time is not now.

Source: http://www.forbes.com/sites/trulia/2013/05/14/trulia-bubble-watch-todays-rising-home-prices-are-a-rebound-not-a-bubble/ 

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Appraisers are valuing homes at or above their selling prices once again. This is another sign the housing market is heating up. Also with home loans in line with actual values it makes it easier for deals to go through.

Home appraisals no longer derailing sales

By Les Christie @CNNMoney May 15, 2013: 9:14 AM ET



This Jacksonville Beach, Fla., townhouse appraised for $5,000 more than asking price.

NEW YORK (CNNMoney)

Consider this one more sign that the housing market is heating up: Appraisers are putting higher values on homes again, allowing for more deals to go through.

During the housing bust, sales were often derailed by low-ball appraisals that fell far shy of a home's selling price.

For example, if a home cost $500,000 and required a 20% down payment of $100,000, the buyer would need to finance $400,000. But if the appraiser valued the home at $450,000, the buyer would only be eligible for a $360,000 loan -- making the home too costly for some buyers.

But now, as home prices climb and housing inventories shrink, appraisers are valuing homes at or above their selling prices, according to Lawrence Yun, chief economist for the National Association of Realtors.

Between 2008 and 2010, appraisals for more than a third of Seattle-based real estate agent Michael Ackerman's sales came in below the selling price. So he had to get creative.

"I started pulling out the key boxes at the homes so the appraisers couldn't get in," said Ackerman. "They had to call me to let them see the home. I would bring a packet of comparables along and explain what I used to price the home."

But now, with home prices posting such strong gains, those strategies may not be necessary anymore.
"I've closed 15 homes so far this year and none of the appraisals have come in below the selling price," said Ackerman.


Source: http://money.cnn.com/2013/05/15/real_estate/home-appraisals/index.html