The Real Estate Hub

Because of strife in Greece, Spain and North Korea, conforming mortgage rates are back to all-time lows. They’re at levels not seen in 50 years.  For homeowners that missed the Refi Boom of November 2009, it’s a second chance.

In this well-presented, 3-minute video from NBC’s The Today Show, you’ll get tips getting low rates and choosing the best time to lock in.

Some of the topics covered include:

• Why were the experts wrong about rates moving higher this summer?
• How much money can you save with a 1 point drop in your interest rate?
• Should you buy a bigger home now that rates have fallen?

The advice in the piece is matter-of-fact and centered.  There is no cheerleading and the message is honest. Mortgage rates are low and they likely won’t stay that way.  If you’ve been thinking about a refinance, talk to your loan officer as soon as possible.

Shopping multiple lenders for a “good mortgage rate” can sometimes save you 1/8 percent on your rate and/or a few hundred dollars in fees. However, when it comes to getting the best mortgage rate, you’re going to more than good research skills.

You’re going to need some luck.

Mortgage rates for people in North Carolina or anywhere else, for that matter, are unpredictable, ever-changing, and rarely change as expected.

For example, when the Federal Reserve left the mortgage market March 31, 2010, analysts said that mortgage rates would rise by a half-percent or more. It was practically stated as fact on TV.  When April 1 came around, though, rates didn’t rise.

Instead, a volcano erupted and mortgage rates dropped on safe haven buying.

Then, a week later, as  the volcano ash cleared, mortgage rates were supposed to resume their rise. Only they didn’t. Instead, a debt crisis emerged in the Eurozone and mortgage rates dropped.

Since March 31, conforming mortgage rates are lower by roughly 0.125 percent, according to Freddie Mac’s weekly mortgage rate survey.  At today’s rates, the savings are roughly $20 per month per $200,000 borrowed — or $100 per month based on their original, post-March 31 forecast.

It brings us to one of the most important axioms in rate shopping: You can’t shop for good luck.

• On some days, rates go higher
• On some days, rates go lower
• On some days, rates stay the same

Occasionally, there are days when rates do all three.

As a home buyer or would-be refinancer, what rate you get depends on at what time of day you do your shopping.

You can’t predict what will happen next in mortgage markets — even just an hour from now. Therefore, the smartest move, sometimes, is just lock your rate now.  At least that way, you’ve got a guarantee.

Mortgage rates and home affordability have improved lately, thanks to an unlikely ally — Mother Nature.

In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.

It’s a drag on commerce that’s spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table. 

In trading circles, it’s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets.  This includes government-backed securities — mortgage-bonds among them.

Demand for bonds rise, pushing up prices and driving down rates.

Conforming and FHA mortgage rates in North Carolina touched a 3-week low earlier this week.

Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There’s literally thousands of influences on the U.S. mortgage market.

If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.

When that happens, mortgage rates will rise.

Therefore, use the seismic uncertainty to your advantage.  Consider locking your mortgage rate sooner rather than later — while rates are still low.

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country.  According to this week’s results, the relative rate of a 5-year ARM in South Carolina is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

• In April 2009, the two products ran neck-and-neck with respect to rates
• In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any one of the following scenarios could warrant a 5-year ARM:

1. Buying a home with an intent to sell within 5 years
2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting an ARM or a fixed, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there’s more to consider than just the payment.

Mortgage markets closed unchanged last week, but that’s not say mortgage rates were calm. Monday through Wednesday, rates improved steadily before a swift, late-week sell-off unwound the gains.

Mortgage rates have been very low for a very long time — against the expectations of most market experts.  The speed of the Thursday-Friday reversal may signal that markets are preparing for change.

One key story from last week was the Federal Open Market Committee’s scheduled Tuesday meeting. Upon adjournment, the Fed voted 9-1 to hold the Fed Funds rate in its current target range near 0.000% and reiterated its plan to keep rates low for “an extended period of time”. 

Kansas Fed President Thomas Hoenig was the lone dissenting vote.

For rate shoppers in North Carolina , take note. 

The Fed specifically mentioned that the its $1.25 trillion mortgage buyback program will end, as planned, March 31, 2010.  This could force rates higher over the next two weeks because, according to the Fed, the existence of a buyback program forced rates lower by 1 percentage point in 2009.

When the program ends, it’s expected that markets will give back some of that 1 percent, leading to higher mortgage rates for borrowers.

This week, in addition to the buyback program’s looming end-date, there’s several other potential influences on mortgage rates:

1. The Existing Home Sales data for February is released Tuesday, along with the Home Price Index
2. The New Home Sales data for February is released Wednesday
3. Consumer Confidence data hits Friday

Strength in any — or all three — of these reports should put pressure on mortgage rates to rise.

But there’s one wildcard this week and that’s the aforementioned Kansas Fed President Hoenig’s scheduled speech Wednesday morning. Typically, Fed members stay on message when making public appearances, but Hoenig is expected to talk about why rates should be higher, and what the Fed needs to do to prepare the economy for late-2010 and beyond.

His words could lead Wall Street to rethink its position on the mortgage bond market and that could cause rates to spike Wednesday afternoon.

Mortgage rates remain volatile and are still relatively low. If you’re unsure of whether now is a good time to lock in, consider that there’s a lot more room for rates to rise than to fall right now. Especially with momentum shifting for the worse.

Homes are more affordable in Preston and across the nation as the housing market emerges from a slow winter season with mortgage rates still near 5 percent.

Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant.  It’s something worth watching.

Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.

If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation”. Mortgage rates are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices. 

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring tax credit, the timing to buy a Raleigh home may be as good as it gets.

You can’t get your mortgage rates from the newspaper. Last week proved it.  Again.

Friday morning, headlines around the country read that mortgage rates were down 0.04 percent, on average, since the week prior.

A sampling of said headlines includes:

• US Mortgage Rates Drop For 2nd Straight Week (Reuters)
• Mortgage Rates On 30-year US Loans Fall To 4.93% (Business Week)
• 30-Year Fixed Mortgage Rate Falls Farther Below 5% (Marketwatch)

The story behind the headline was sourced from the Freddie Mac Primary Mortgage Market Survey, am industry-wide mortgage rate poll of more than 100 lenders.  The PMMS has reported mortgage rate data to markets since 1971 and is the largest of its kind.

Unfortunately, rate shoppers can’t rely on it.

See, unlike governments and private-sector firms, when consumers are in need mortgage rate information, they need the information delivered in real-time; for making decisions on-the-spot.  Consumers need to know what rates are doing right now.

The Freddie Mac survey can’t offer that.

According to Freddie Mac, the survey’s methodology is to collect mortgage rates from lenders between Monday and Wednesday and to publish that data Thursday morning.  The survey results are an average of all reported mortgage rates. The problem is that mortgage rates change all day, every day.  The PMMS results are skewed, therefore, by methodology.

And, meanwhile, the issue was compounded last week because mortgage rates shot higher Wednesday afternoon — after the survey had “closed”.  The market deterioration ran into Thursday, too — again, unable to be captured by Freddie Mac’s PMMS.

Although the newspapers reported mortgage rates down last week, they weren’t.  Conforming mortgage rates were higher by at least 1/8 percent, or roughly $11 per $100,000 borrowed per month.  In some cases, rates were up by even more.

Newspapers and websites can give a lot of good information, but pricing is far too fluid to rely on a reporter. When you need to know what mortgage rates are doing in real-time, make sure you’re talking to a professional mortgage advisor.  Otherwise, you may just be getting yesterday’s news.