Rate update: Watch Italy if you want lower mortgage rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Watch Italy if you want lower mortgage rates
May 232018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last time we discussed the case for lower mortgage rates and the fact that unexpected headlines could put some downward pressure on rates. Well, that seems to be the case this week. In addition to news about trade negotiations with China, the Korean and Iranian nuclear deals, and the political drama in Washington, markets had to digest political headlines out of Italy.

Italian headlines affecting US mortgage rates? There’s a good reason for it, and one possible outcome could lead to significantly lower rates.

Italy recently held parliamentary elections with no party taking a majority. However, populist parties that generally oppose Italy’s membership in the European Union had strong showings, and two of them agreed to form a coalition government.

From a market standpoint, the EU represents stability. Much as the Brexit vote caused rates to plummet, an EU breakup could do the same. Italy is the third largest economy in the EU, and while it probably could survive Italy’s departure, that departure could cause other, smaller countries opposed to EU reforms to bolt as well.

For now, I think it would be smart to take advantage of the dip in rates as I think it will be temporary (absent more headlines). The coalition parties have pared back some of their more radical proposals, and it would take many months for them to implement the ones that remain. However, it’s another drip in the bucket trying to pull rates back down from their 7-year highs.

Cool map helps you decide whether to rent or buy

 Real Estate Market, Residential Mortgage  Comments Off on Cool map helps you decide whether to rent or buy
May 192018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

For many, the decision whether to rent or buy can be a confusing one. I’ve found a multitude of surveys and tools that claim to help you with the decision, but with so much information, analyzing your own situation can be overwhelming.

I came across an interesting Web site the other day that analyzes the rent vs buy data in an easy-to-digest format – a US map using shading to indicate whether buying or renting makes more sense. The map presents the results on a county-by-county basis, and you can zoom in to see the specific results for your county.

The map also allows you to choose a breakeven point – the point at which buying and renting are equally advantageous. Set this to the number of years you think you would live in the same location, and the map resets the shading to show you areas where buying or renting is better.

Finally, it’s important to consider the assumptions used to produce the map. The producers used US Census data to determine average rents and home prices. For the “buy” scenario, the producers assumed a 20% down payment, a 4.5% mortgage rate, and $2000 in closing costs. The last two could be a bit low depending on your situation, and unfortunately, many folks don’t have 20% for a down payment. Give me a call if you want me to calculate the breakeven point for your specific situation.

Record number say good time to sell a home

 Real Estate Market, Residential Mortgage  Comments Off on Record number say good time to sell a home
May 182018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

Fannie Mae’s housing index soared to a record high last month despite a negative reading from one of the index’s key components. The net share of respondents who said now is a good time to sell a home increased 6 points from last month to 45%. This good-time-to-sell sentiment has been on a steady rise for the last couple years, but unfortunately it doesn’t seem to have resulted in additional home inventory for sale, which remains very low.

Respondents also reported stronger personal financial conditions. They expressed an increased sense of job security, and more reported that their incomes had increased significantly in the last year.

The net share of respondents who think home prices will continue to rise jumped 7 points this month, and the average expected increase was 3.9%. While that might seem a negative for homebuyers, respondents said they expect rents to rise an average 5.7% over the same period.

The one black mark in the survey was the net share of respondents who think now is a good time to buy. That component fell 3 points last month. It’s likely the combination of higher prices, higher mortgage rates, and fewer homes for sale contributed to the fall. However, these same factors may increase buyers’ sense of urgency even if they don’t think it’s a good time to buy.

Rate update: The case for lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The case for lower rates
May 092018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates seem to have plateaued again – waiting for the another source of inspiration to set them on a new course higher or lower. Which course is more likely?

The mainstream narrative is that higher rates are inevitable because of the factors we discussed a couple weeks ago, namely more government borrowing, less Federal Reserve accommodation, and continued economic growth.

These factors are undeniable. What we don’t know is the extent to which the market already has priced them in. Maybe rates have plateaued because they already reflect the risks associated with these factors. If that’s true, markets may increasingly pay attention to other factors that could lead to lower rates.

Consider the following:

– While the Fed’s favored measure of inflation, the PCE, moved higher, close to the Fed’s 2% target, it did so because very low inflation readings from last year are dropping out of the calculation. Moreover, transitory factors, hospital costs and oil prices, seem to be causing much of the recent rise.

– While the unemployment rate dropped below 4% for the first time since 2000, employment growth missed expectations for the second straight month, and wage growth also was below expectations.

– The economic expansion is long in the tooth. Talking heads increasingly are warning of a downturn just because it’s been so long since the last one. European economies already look softer.

– Global headlines are starting to grab market attention again. Israel is warning of imminent war in the Middle East, and the President’s withdrawal from the Iranian nuclear deal adds some uncertainty to the region. On the other side of the continent, while a trade war with China still seems unlikely, talk of it creates uncertainty, and uncertainty exerts downward pressure on rates.

– Finally, it’s probably not too soon for markets to start thinking about the effects of the mid-term elections.

I still think the upward forces on rates will remain stronger in the short term. However, absent some additional positive momentum, the chances are increasing that the next significant move for rates could be lower.

The main reason homeowners won’t sell their homes

 Real Estate Market, Residential Mortgage  Comments Off on The main reason homeowners won’t sell their homes
May 012018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Survey after survey recently has shown that homeowners think it’s a good time to sell their homes. Recently, we reported an all-time high, 65% of respondents, ascribed to that sentiment in a Fannie Mae survey. A recent ValuedInsured survey said the percentage is 79%. So, if it’s such a good time to sell, why aren’t more homes for sale?

Pundits have speculated about many reasons, but one of the top suggestions has been the interest rate effect. Most homeowners have been able to finance or refinance their homes at very low interest rates. Now that rates are higher, they don’t want to trade in that low mortgage payment for a higher one.

This may be a valid concern for some folks, but in the ValueInsured survey, only 18% of respondents cited it. The overwhelming majority, 79%, said they weren’t selling because of the price they’d end up paying for a new home. In the same survey, 61% of respondents said they’re waiting for home prices to become more “reasonable” before moving.

I can see why homeowners would be nervous given reports of bidding wars and nearly double-digit yearly price increases in some markets. Unfortunately, when everyone feels nervous at the same time, it exacerbates the home inventory shortage, which leads to more price increases and more bidding wars.

This “time the market” argument seems like a serious hurdle to seeing more homes for sale. However, I suspect just a moderation of home price increases could calm nerves a bit. If homeowners could predict the price of their replacement homes, we could see an easing of the shortage.