Which Model Is More Accurate : The Case-Shiller Index Or The Home Price Index?
The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government’s own Home Price Index, however, reached a different conclusion.
According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.
So, as a home buyer and/or homeowner , by which valuation model should you make your bets? Perhaps neither.
This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets.
The Case-Shiller sample set, for example, comes from just 20 cities across the country — and they’re not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population.
That’s hardly representative of the housing stock overall.
By comparison, the Home Price Index tracks home sales everywhere — every city in every state — but it specifically excludes certain properties. The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing.
The HPI ignores homes backed by “jumbo” loans, too.
Therefore, the “right” model for home values cannot come from national data at all — it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood. A real estate agent in the area does, however.
The best way to get a pulse for what’s happening in markets right now is to talk to somebody with good data.
Home Sales Are Back On The Rise After A 2-Month Pullback
Just one week after reports of Existing Home Sales and New Home Sales plunging, the housing market is signaling that auturm may fare better than did summer.
The number of homes under contract to sell rose 5 percent in July.
The data comes from the July Pending Home Sales Index, as published by the National Association of Realtors®. By definition, a “pending home sales” is a home that is sold, but not yet closed.
Historically, 80% of such homes close within 60 days which makes the Pending Home Sales Index an excellent, forward-looking indicator for the real estate market.
Indeed, the nationwide drop in home sales this summer was foreshadowed by the Pending Home Sales report. The index dropped 30 percent in May. Then, two months later in July, it was shown that Existing Home Sales volume dropped 29 percent.
That’s a strong correlation.
Now, to be fair, the July Pending Home Sales Index is still relatively low; the second-lowest on record and well below last year’s numbers. But, the tick higher last month shows how housing may be stronger than than what the headlines report.
It appears that buyers took advantage of rising inventory, cheap financing, and stagnant prices, and pushed the market forward. We should expect similarly promising numbers when September’s Existing Home Sales data is released.
What’s Ahead For Mortgage Rates This Week : September 7, 2010
Last week was a roller-coaster ride in the conforming mortgage market. After opening the week by making new, all-time lows, markets reversed sharply on better-than-expected data in manufacturing and housing, and data from overseas.
Rates rose through Wednesday and Thursday, then Friday’s jobs report sent rates jumping.
Last week marked the first time that mortgage rates worsened 3 days in a row since late-April.
The combination of the jobs report not posting as poorly as predicted, and light volume because of Labor Day, pushed rates higher by as much as a quarter-percent in some markets.
On the week, conforming mortgage rates were unchanged but, depending on when you locked, there was great disparity. Tuesday’s rates were much better than Friday’s.
Meanwhile, this week, with little data due for release, mortgage rates should remain unpredictable, moving as a result of momentum and outside influence. It makes for dangerous times for rate shoppers. Mortgage rates may fall, but, then again, they might rise, too.
Keep in mind that markets are in the midst of a 19-week rally and rates can’t fall forever. Mortgage bonds are likely overbought so when the selling begins, pricing should worsen quickly. This will cause mortgage rates to spike.
Therefore, if you’ve been shopping for a mortgage or are just wondering if the time is right to refinance, call your loan officer and work the numbers together. Refinancing won’t make sense for everyone, but it may make sense for you.
Mortgage rates are still exceptionally low.
August 2010 Jobs Report Pushes Mortgage Rates Higher
On the first Friday of each month, the Bureau of Labor Statistics releases Non-Farm Payrolls data for the month prior.
The data is more commonly called “the jobs report” and it’s a major factor in setting mortgage rates for homeowners everywhere. Especially today, considering the economy.
This is because, although it’s believed that the recession of 2009 is over, there’s emerging talk of new recession starting.
Support for the argument is mixed:
- Job growth has been slow, but planned layoffs touch a 10-year low
- Consumer confidence is down, but beating expectations
- Consumer spending is weak, but not declining
In other words, the economy could go in either direction in the latter half of 2010 and the jobs market may be the key. More working Americans means more paychecks earned, more taxes paid, and more money spent; plus, the confidence to purchase a “big ticket” items such as a home.
Jobs growth can provide tremendous support for housing, too.
Today, though, jobs growth was “fair”. According to the government, 54,000 jobs were lost in August, but that reflects the departure of 114,000 Census workers. The private sector (i.e. non-government jobs), by contrast, added 67,000.
In addition, net new jobs was revised higher for June and July by a total of 123,000. That’s a good-sized number, too.
Right now, Wall Street is reacting with enthusiasm, bidding up stocks at the expense of bonds — including mortgage-backed bonds. This is causing mortgage rates to rise. Rates should be higher by about 1/8 percent this morning.
August’s Fed Minutes Lead Mortgage Rates Higher
Home affordability took a slight hit this week after the Federal Reserve’s release of its August 10 meeting minutes.
The “Fed Minutes” is a lengthy, detailed recap of a Federal Open Market Committee meeting, not unlike the minutes published after a corporate conference, or condo association gathering. The Federal Reserve publishes its meeting minutes 3 weeks after a FOMC get-together.
The minutes are lengthy, too.
At 6,181 words, August’s Fed Minutes is thick with data about the economy, its current threats, and its deeper strengths. The minutes also recount the conversations that, ultimately, shape our nation’s monetary policy.
It’s for this reason that mortgage rates are rising. Wall Street didn’t see much from the Fed that warranted otherwise.
Among the Fed’s observations from its minutes:
- On the economy : The recession was deeper than previously believed
- On jobs : Private employment is expanding slowly
- On housing : The market was “quite soft” in June
Now, none of this was considered “news”, per se. If anything, investors were expecting for harsher words from the Fed; a bleaker outlook for the economy. And, because they didn’t get it, monies moved to stocks and mortgage bonds lost.
That caused mortgage rates to rise.
The Fed meets 8 times annually. Its next meeting is scheduled for September 21, 2010. Until then, mortgage rates should remain low and home affordability should remain high. There will be ups-and-downs from day-to-day, but overall, the market is favorable.
Bank Mortgage Lending Policies Appear To be Easing
The tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.
According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges.
During that period, eight in 10 lenders added hurdles.
For mortgage applicants , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of restriction.
Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters. There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.
That said, lots of homeowners are still getting loans.
Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.
According to Freddie Mac, mortgage rates are as low as they’ve been in history.
So, if you’re among the many wondering if now is the right time to buy a home — or refinance one — remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.
What’s Ahead For Mortgage Rates This Week : August 23, 2010
Mortgage markets stalled last week in back-and-forth trading as Wall Street grappled with weak housing data, falling builder confidence, and worsening jobs numbers nationwide.
Because markets were volatile, rate shopping was challenging.
Conforming mortgage rates did managed to make a new all-time low last Thursday but quickly gave up those gains. Most of Friday afternoon was spent in the red and, as a result, for the second straight week, mortgage rates failed to fall overall.
But, although last week’s action puts a damper on this summer’s mortgage rate rally, the Refi Boom is still going strong.
According to Freddie Mac, as compared to April 8 when mortgage rates touched their recent high-point, pricing is hugely improved across 3 popular loan products.
- 30-year fixed : Then, 5.21%; Now, 4.42%
- 15-year fixed : Then, 4.52%; Now, 3.90%
- 5-year ARM : Then, 4.25%; Now, 3.56%
As an example of potential savings, a homeowner with a $250,000 30-year fixed rate mortgage would save $96 per month at today’s rates as compared to April’s.
Over the life of a loan, that’s a savings of $34,560.
This week, it’s unlikely that the Refi Boom will meet its end, but that doesn’t mean you should wait for rates to fall further. Mortgage rates tend to change quickly and without notice, and should rates rise, you may find that you’ve missed the market bottom.
If today’s rates appeal to your finances and budget, consider locking something in and moving forward.
Mortgage Rates Make New Lows For The 9th Week In A Row
Another week, another new low for conforming mortgage rates. In fact, this week marks the 9th time in a row it’s happened.
Mortgage rates are (again) at their lowest levels in history.
The data comes from the Freddie Mac, a government group and major loan securitizer for the U.S. mortgage market. Freddie Mac’s weekly survey is among the most widely-cited reports on mortgage rates and is the data used in home affordability models, among other statistics.
The 30-year fixed rate is averaging 4.42% nationally with an accompanying cost of 0.7 points. 1 point is equal to 1 percent of the loan size. This week’s reported rate is lower by 0.02 percent from last week, and lower by 0.70 percent from one year ago.
On a region-by-region basis, though, “average” 30-year fixed mortgage rates are different.
- Northeast : 4.44 with 0.6 points
- Southeast : 4.44 with 0.8 points
- N. Central : 4.42 with 0.4 points
- Southeast : 4.46 with 0.5 points
- West : 4.35 with 0.8 points
But this isn’t to say that mortgage pricing is better in, say, California as compared to Florida. Note that the West Region — with the lowest average rate — has the highest required points. This is because mortgage rates and mortgage fees move in opposite directions. The type of low-rate/high fee structure common in the West may be right for some home buyers and would-be refinancers, but may not be right for others.
What’s important to remember is that, as a rate-shopper , it’s always your choice on how your loan is structured. Banks offer multiple set-ups — with or without points — to meet every applicant’s budget.
As mortgage rates continue to slide and touch new lows, it’s an excellent opportunity to see what your lender can do for you. Low rates won’t last forever.
Creating Your Family Command Center
If your calendar coordination is crumbling and you can’t remember which child has ballet practice and which one has baseball, it’s time to take command. And what better way to do that than by constructing a family command center? It’s a simple project that will help you plan upcoming events, make sure everyone makes their appointments and keep everyone on track in your busy household.
First, find a place in the home with some open wall space that gets trafficked by everyone in the family so that they can easily check in.
Next, hang a good-sized monthly calendar so that everyone can read and update it. Next to it hang a cup or other small container with a different colored pen for each family member for color-coded calendar entries. Add one additional color for family events.
Also hang a mail bin/hanging inbox, similar to what you’d see in an office, with a slot for each family member. These will serve as an ideal spot for school permission slips, mail and other important papers.
For posting papers that everyone should see, such as a flyer for an event or that A-plus test paper, a cork board and push pins or a metal sheet with magnets is an ideal solution.
To make sure family members can easily share quick messages, make sure to include a chalkboard with a chalk ledge or a white board with dry erase markers in your command center.
Other items you might want to hang alongside these core items include several key hooks, your dog’s leash and a prominently displayed clock. A nearby recycling bin for junk mail and other papers that need tossing would be handy.
To add a designer touch, try coordinating the color and look of each of the above items. Also, consider making a frame for items that are plain, such as your monthly calendar, to tie them in with your command center’s overall appearance.
Don’t forget to set some ground rules for your family command center. The goal is to increase coordination and reduce paper clutter, so ensure that everyone cleans out his or her inbox at least once a week, that old messages are wiped off the white board and that old flyers and similar papers are removed from the cork/magnetic board.
How Much Should You Expect To Pay In Mortgage Closing Costs?
How much does a mortgage cost? The answer depends on where you live. But no matter which your locale, chances are strong that you’ll pay more for a mortgage in 2010 as compared to 2009.
According to Bankrate.com and its annual Closing Cost Survey, a typical $200,000, purchase mortgage now carries an average $3,741 in closing costs — up nearly 37 percent from last year.
As defined by Bankrate.com, “closing costs” is defined as the sum of two numbers. The first group is labeled “origination charges”, a category that includes such items as underwriting fees, application fees and processing fees. These fees are paid directly to the loan originator’s company at the time of closing.
The second grouping of costs is labeled “third-party fees”. Third-party fees include appraisals, credit reports, settlement fees and title searches — items paid in connection with the loan, but not paid to the lending bank or broker.
It’s unclear why closing costs appear to have escalated into 2010, but Bankrate.com suggest that recently-enacted federal lending laws are a culprit:
- The new law requires loan officers to be accountable to a Good Faith Estimate’s accuracy. Bankrate.com’s prior-year surveys may have been “understated”, therefore, because of a lack of accountability.
- The cost of federal compliance is high, and banks may be passing on compliance costs to consumers
To see the complete list of closing costs by state, visit the Bankrate.com website.
Michael Haigh
NMLS# 200819
Phone: 415-269-4461
Fax: 877-754-5250
Email: michael.haigh
@wjbradley.com
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