Is this another housing bubble?

 Real Estate Market  Comments Off on Is this another housing bubble?
Nov 082018

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By G. Steven Bray

Rapidly rising home prices preceded the housing crash 10 years ago during which some homes lost more than 50% of their value. Prices bottomed out a couple years later and have been rising steadily ever since. The strength of the recovery has some folks asking if we’re entering another housing bubble. Let’s look at the data.

Home prices nationally have risen 57% since the 2011 trough and are at record highs in some markets. However, the recovery hasn’t been uniform, and some markets still haven’t fully recovered. In addition, in order to assess market frothiness, it’s important to look at not only what homes cost, but also what homebuyers can afford.

Corelogic did that through its Market Conditions Indicator, which considers both home prices and average incomes. When rising home prices outpace incomes for a metropolitan area, the index labels the area overvalued. According to this index, about one-third of US metros currently are overvalued. This includes most Texas metros, including Austin, San Antonio, DFW, and Houston.

So, what does this mean? According to Corelogic, it probably doesn’t indicate a bubble yet. Before the last crash, two-thirds of metros nationally were overvalued. Market forces could be equilibrate metros if home prices stabilize. However, if for the next couple of years we experience additional price growth, we could enter bubble territory again.

Rate update: Good reason for rising rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Good reason for rising rates
Nov 052018

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By G. Steven Bray

A strong jobs report last Fri shot rates back up to their recent highs. Not only was the number of jobs created greater than expected, wage growth was at its highest since before the recession. Both stoked concerns about inflation, bad news for interest rates.

This week could be an interesting one for rates. First, this week’s Treasury auctions will debut newly increased auction amounts. It will be interesting to see if the current higher rates will be able to attract enough buyers or if even higher rates are needed to clear the auctions.

Later in the week, we have a Federal Reserve meeting. However, the chairman won’t have a post-meeting press conference, and no one expects the Fed to change its stance regarding interest rates at this meeting.

The wildcard this week is the election. It’s very likely markets have priced in the most likely outcome: Democrats take over the House and Republicans increase their numbers a little in the Senate. If we wake up Wed with different results, you can expect market volatility. Common wisdom suggests a bad night for Republicans could be good for lower rates as it would jeopardize the current trajectory of the economy.

If you’re floating your interest rate, I suggest caution. Rates are currently at the higher end of their recent range. Most pundits believe that if we break above that range, rates will move higher quickly.

Fannie housing index says it’s a good time to buy

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Oct 312018

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By G. Steven Bray

Fannie Mae’s housing index fell slightly last month, but it remains on trend, suggesting the housing market continues to strengthen slowly. The good-time-to-buy component of the index rebounded strongly last month, gaining 5 points. Apparently, the strong economy has buoyed homebuyer sentiment enough to overcome rising interest rates. However, the component still is significantly lower than earlier in the year and is down year-over-year.

The good-time-to-sell component remained flat last month; however, it’s still trending higher and is well within reach of its recent all-time high.

Surprisingly, the components that measure personal finances both fell last month. The net share of respondents who said their income is significantly higher than last year fell by 4 points, and the net share who feel confident about job security fell 1 point. However, this last component is strongly positive (+79%), so the decrease probably isn’t meaningful. The right track/wrong track component widened to 21 points in favor of the economy being on the right track, and that could explain the strength of the good-time-to-buy component.

Neither the home price nor mortgage rate component of the index showed any surprises. Respondents still overwhelming expect home prices and mortgage rates to rise in the next year, and the net share expecting a rise increased for both components last month.

A funny thing happened on the way to higher interest rates

 Interest Rates, Residential Mortgage  Comments Off on A funny thing happened on the way to higher interest rates
Oct 292018

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By G. Steven Bray

A funny thing happened on the way to higher interest rates.

The sell-off in the equities market last week put a pause on rising interest rates as all of that cash from stock sales needed somewhere to go, and some of it found its way into the bond market. The pause was a welcome respite, but it still leaves mortgage rates near 7-year highs. But with all the turmoil in equities, the question is why aren’t rate doing better?

Market sentiment of late seems to have focused on two things: continued strength in the US economy and continued monetary tightening from the Federal Reserve. Both support higher interest rates, and with rising inflation metrics this summer, most investors were betting rates would move even higher.

But this week, the punch wore off, and investors realized higher rates might dampen US economic growth. At least, that’s what the talking heads said. Personally, I’m not convinced it was just higher rates that caused the market turmoil. Investors have been piling on the side of higher rates for months now, and with the relaxation of global uncertainties last month, I think investors grew complacent about the risks to the global economy. But the world is still a scary place. Some of those uncertainties have reared their heads again, which balanced the scales – at least momentarily.

This coming week is a big one for US economic data. Strong data could stoke rates higher again. The inflation scare from this summer has subsided a bit, but I suspect all eyes will be on this Friday’s jobs report, especially the wage component. Unless we get a big surprise earlier in the week, I’m betting markets will keep rates in a narrow range waiting for Friday.

Rate update: Rates simply ran out of crises

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates simply ran out of crises
Sep 182018

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By G. Steven Bray

We were hoping last week’s inflation report would keep a lid on interest rates. Unfortunately, that lid didn’t hold, and we’re looking at the highest mortgage rates in about 5 years. Granted, rates still are historically low, but for some folks “rates in the 4’s” are now in the rear-view mirror.

So, what’s going on? We’re looking at a variety of factors.

– Even though last week’s inflation report was tame, inflation still is elevated compared to last year and supports the idea of additional Fed rate hikes.

– The Fed will again reduce its bond buying on Oct 1st as part of its efforts to shrink its balance sheet.

– Economic activity and consumer confidence have reached short-term highs, and a healthy economy tends to put pressure on rates.

– Wages finally seem to be rising, and rising wages typically filter through to higher consumer inflation and higher economic growth.

– Government borrowing to fund deficit spending means a greater supply of bonds as the Fed is tapering its demand.

Against this backdrop, we’ve had a series of mini-crises this year that kept investors on edge. Trade fears probably have been the most pervasive, but even the fear of with a trade war seems to be dissipating. The apocalyptic predictions didn’t pan out, and investors seem to be viewing the posturing as negotiating tactics rather than a real threat to the global economy.

Other threats still exist, and I think those will keeps rates from rising too much too fast. However, for now, if rates take a temporary dip, it probably makes sense to lock.

Rate update: Inflation rears its ugly head

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Inflation rears its ugly head
Sep 122018

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By G. Steven Bray

With summer behind us, things could get more interesting for interest rates. That may result in more volatility than we saw during the summer, but the same forces that were at work then remain relevant now.

Inflation remains enemy number one of those who want low interest rates. We’ve talked the last few months about how consumer inflation seems to be inching higher, but wage inflation has remained mostly contained. Well, that changed with last week’s jobs report. Average hourly earnings broke through an important ceiling, and rates quickly responded by moving higher. More importantly, total wages, which factors in hours worked, are up 5.1% in the past year. That provides a lot of extra juice for the economy.

Interestingly, earnings for workers in the bottom 10% based on income saw earnings grow 3.9% whereas the top 10% saw only 1.2% growth. That’s positive for the economy because lower income workers are more likely to spend their extra earnings.

Now, the question is will these extra earnings translate into extra consumer demand leading to higher consumer prices. We may get an answer this Thurs through the release of the Consumer Price Index. As we’ve discussed before, the CPI is the granddaddy of inflation measures. The core rate has been rising slowly all year and currently exceeds 2%, the Fed’s supposed target rate. It’s a good bet if Thursday’s reading shows another rise, it will give markets a jolt.

Markets also may be watching the European Central Bank meeting this week. European economic growth has been positive, but not all that and a bag of chips. Rumors are the ECB may downgrade its future growth estimates. That may result in some flight-to-safety bond buying, which could help keep US rates contained.

Rate update: Tariffs, Turkey, and Trump move rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Tariffs, Turkey, and Trump move rates
Aug 282018

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By G. Steven Bray

Watching paint dry has been more exciting this summer that watching interest rates. Even the latest impeachment bait couldn’t get rates to move out of their current range. When will the boredom end?

If history holds any clues, probably sometime in Sep. Why Sep? Well, first of all, traders will be back at their desks trying to make money. Tradeflow movement in bond markets is more likely when there are, well, traders.

One of the events that might influence tradeflows is the Federal Reserve meeting at the end of Sep. The Fed is widely expected to raise short term interest rates once again, and market watchers will carefully parse the post-meeting pronouncements to glean whether another hike is likely in Dec. A couple of Fed members recently have cautioned against a Dec hike.

Before we get to the Fed meeting, we’ll see new inflation data in addition to more headlines concerning tariffs, Turkey, and Trump – and, of course, the mid-term elections. Trade deals with China and our NAFTA partners could remove some of the risk premium currently built into rates – edging rates higher again as we’ve seen the last couple days. If the Turkish crisis proves to be contagious, a new risk-off trade could lead to lower rates. And any political developments that investors believe could imperil the current economic boom would do the same.

I realize I’m being somewhat equivocal concerning the direction of rates, and that’s because I don’t see a lot of reasons for rates to move – except in response to headlines. If you’re floating your rate right now, consider that rates still are close to their recent lows, and I think it will take more significant headlines to move rates lower than higher.

More low down payment options

 Loan Programs, Residential Mortgage  Comments Off on More low down payment options
Aug 222018

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By G. Steven Bray

Fannie Mae and Freddie Mac have 3% down conventional loan programs that target low-to-moderate income folks. We used to call these community lending programs because they’re designed to fulfill Fannie and Freddie’s mandate to provide assistance for mortgages to low and moderate income families and underserved areas. The programs go by the monikers HomeReady and HomePossible.

Unlike the programs we discussed yesterday, you don’t have to be a first-time homebuyer to qualify. However, if the buyers are first-timers, one of them must complete a homebuyer education course for the HomePossible program. For HomeReady, one must complete homebuyer education regardless of first-timer status.

The programs are income-limited. By that I mean your total income cannot exceed a limit, which can differ even within a given county. For both programs, the limit typically is set to an area’s median income. However, the programs waive the limit in disaster areas and in certain areas Fannie and Freddie consider to be underserved. Call me if you want some help determining the income limit for your area.

So, given the programs we discussed yesterday, who cares that we have another 3% down program? Three reasons:

– Conventional low down-payment programs require mortgage insurance, which can bump up your housing payment quite a bit. HomeReady and HomePossible have lower mortgage insurance rates than the other low down payment programs.

– Second, the programs’ easier guidelines may make it easier for you to qualify.

– Finally, you don’t have to be a first-time homebuyer. For HomePossible, you can’t currently own other real estate, but Freddie carves out some exceptions to that in cases of divorce or inheritance.

The programs have other features and restrictions that may make one more appropriate for you than the other. Give me a call to see what’s the best fit for your situation.

Freddie adds another low down payment option

 Loan Programs, Residential Mortgage  Comments Off on Freddie adds another low down payment option
Aug 202018

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By G. Steven Bray

Freddie Mac recently joined Fannie Mae in offering a 3% down conventional loan program with no income limitations. Freddie calls its program HomeOne, and like Fannie’s program, it targets first-time homebuyers.

A lot of folks hear that, first-time homebuyers, and tune out, but you may be a first-time homebuyer and not realize it. Fannie and Freddie define a first-time homebuyer as someone who hasn’t owned real estate in the last 3 years. Freddie expands that definition to allow folks who owned a home with their ex-spouse to qualify.

If you’re buying a home with another person, only one of you has to be a first-time homebuyer. And if all of you are first-time homebuyers, one must complete a homebuyer education course prior to closing. The cost is minimal, and most folks complete the course online.

The programs are limited to single-family homes and condos and have a min credit score of 620. The 3% down payment may come from your own funds or from an acceptable gift source, such as a family member. It can’t come from the seller, but the seller can contribute up to 3% of the price towards your closing costs.

With this offering, Freddie and Fannie finally have comparable low down payment programs. The two have nuanced differences, so give me a call to see if one program is more appropriate for you than the other.

Next time, we’ll look at conventional low down payment options that specifically target low-to-moderate income folks.

Rate update: Tame inflation keeps rates in summer slumber

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Tame inflation keeps rates in summer slumber
Aug 092018

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By G. Steven Bray

Other than the short tantrum mortgage rates performed a couple weeks ago, the market has been in a summer slumber. And even that tantrum didn’t take rates out of the range they’ve inhabited the last few months. This week’s economic headliner could change that, but I doubt it.

Friday brings the release of the all-important Consumer Price Index (CPI), the granddaddy of inflation measures. Wholesale inflation, wage inflation, and oil prices all ticked higher earlier this year, and many analysts expected consumer inflation would follow in short order. We got a hint in that direction a couple months ago, which brought markets to attention.

However, since then, these other inflation measures have relaxed again. Wholesale inflation, released yesterday, and wage inflation, as indicated by the big jobs report last week, were flat. Oil prices, too, have flattened, and the Personal Consumption Expenditures Index, the broader inflation measure favored by the Fed, slipped back below 2%.

So, all eyes are on the CPI tomorrow. Given the weakening of the other measures, a reading that moves the index higher could make rates jump again. Unfortunately, a moderate reading probably won’t lead to much lower rates but will instead just let rates continue to slumber in their current range.