Global Unrest Puts US Mortgage Rates Under 5%

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U.S. mortgage rates fell for a second week, tracking a drop in Treasury yields as violent unrest in Libya sparked demand for relatively safe investments.

The average rate for 30-year fixed loans declined to 4.95 percent in the week ended today from 5 percent, according to Freddie Mac. The average 15-year rate was 4.22 percent, down from 4.27 percent a week earlier, the McLean, Virginia-based mortgage-finance company said in a statement.

Turmoil in Libya has sent oil pricessurging and spurred speculation that an economic recovery may slow. Yields on 10- year Treasury notes, which are benchmarks for some consumer loans, fell to a three-week low today. The decline has pushed mortgage rates down from a 10-month high, making home buying more affordable as demand begins to recover.

“In times of trouble, money runs to places where it can be parked safely, like Treasuries,” said Keith Gumbinger, vice president at HSH Associates, a publisher of consumer-loan data in Pompton Plains, New Jersey. “Mortgage rates tend to follow that.”

Sales of previously owned homes rose in January to the highest level since July 2010, the National Association of Realtors reported yesterday. The share represented by foreclosures and short sales rose to a 12-month high, pushing the median price to the lowest level in almost nine years.

New-Home Purchase Drop
Purchases of new homes plunged 13 percent last month, the Commerce Department said today. The drop reflected declines in the West and South that indicate a California tax credit and bad weather may have played a role.

Mortgage applications in the U.S. climbed last week from a two-year low as falling rates helped boost refinancing. The Mortgage Bankers Association’s index of loan applications increased 13 percent in the week ended Feb. 18. The group’s refinancing gauge increased 18 percent, while its measure of purchase applications climbed 5.1 percent.

Rates for a 30-year fixed mortgage reached 5.05 percent in the week ended Feb. 10, the highest since April. The decline to 4.95 percent pushed monthly payments for a $300,000 home loan to $1,601 from $1,620.

Homebuyers may respond to the lower rates because of expectations borrowing costs will rise by the end of the year as the economy improves, Gumbinger said. The rate for a 30-year fixed loan probably will average 5.1 percent in 2011, according to a forecast posted on the website of the National Association of Realtors.

“Consumers will simply enjoy this little dip we have here before the economy picks up,” Gumbinger said. “They’ll take any decline in rates they can get.”

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• Mortgage Rates on Fixed 30-Year U.S. Loans Decrease to 4.95% (businessweek.com)

Continued Signs of Improvement: Mortgage Delinquencies Down

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There was a lot of good news in the Fourth Quarter National Delinquency Study released by the Mortgage Bankers Association (MBA) Thursday. First, the overall, seasonally adjusted delinquency rate (which does not include loans in foreclosure) fell to 8.22 percent, a decrease of 91 basis points from a 9.13 percent rate in the third quarter and down 125 basis points from the same period in 2009. Jay Brinkmann, MBAs chief economist said that the non-seasonally adjusted rate showing a decrease of 46 basis points to 8.93 percent might be even better news. There is usually a sharp spike in the rate in the fourth quarter, perhaps because homeowner's budgets are impacted by the first home heating bills of the season. That the rate fell this time indicates that the downward movement may be real.

Delinquencies were down across all stages but one. Loans in the 30+ day bucket had a delinquency rate of 3.25 percent, down from 3.36 percent in the third quarter and 3.31 percent a year earlier. This rate, in fact, returns 30 day delinquencies to a pre-recession level. Loans delinquent 60+ days decreased 1.44 percent in the third quarter to 1.34 percent. The rate was 1.60 percent a year earlier. Loans in the 90+ bucket decreased from 4.34 percent to 3.63 percent quarter-over-quarter. One year earlier the 90+ rate was 4.62 percent. Loans seriously delinquent or in foreclosure had a rate of 8.57 percent compared to 8.70 percent a quarter earlier and 9.67 percent in the fourth quarter of 2009.

Foreclosure starts were down from 1.34 percent in the third quarter to 1.27 percent, but the new figures were seven basis points higher than a year earlier. The foreclosure inventory was up from 4.58 percent in Q4 2009 and 4.39 percent in Q3 2010 to 4.63 percent in the most recent survey. Brinkmann said much of the increase is probably due to process issues with loans working through the system.

The improvement in delinquencies holds across loan types as well, with the rate for all prime loans and all subprime loans decreasing for the third consecutive quarter. Prime loans now have a delinquency rate of 5.48 percent, down from 6.29 percent in Q3 and subprime are at 23.01, a decrease of 322 basis points. There were slight increases in foreclosure starts for subprime and VA loans and Prime ARMs.

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Home Affordability Hits 20 Year High

Home affordability rose to its highest level in at least 20 years in the fourth quarter of 2010, according to an index released by the National Association of Home Builders and Wells Fargo today.

The Housing Opportunity Index found that 73.9 percent of new and existing homes sold in the fourth quarter were affordable to families earning the national median income of $64,400 -- surpassing the previous high, 72.5 percent, recorded in the first quarter of 2009.

"Today's report shows that housing affordability at the end of 2010 was at its highest level since we started computing the HOI," said Bob Nielsen, NAHB's chairman, in a statement. "However, while this is good news for consumers, both homebuyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales."

Before 2009, the index had never hit 70 percent and rarely topped 65 percent, the association said. Last quarter was the eighth straight quarter the index was above 70 percent.

Three states dominated among the top 10 most affordable metropolitan areas overall: Indiana, Michigan and Ohio. Elkhart-Goshen, Ind., ranked highest, with 97 percent of its homes affordable to a family making the area's median income. All but one (Indianapolis-Carmel, Ind.) among the top 10 had populations under 500,000.

10 most affordable metro areas

Elkhart-Goshen, Ind. 97% $58,600 $104,000
Lansing-East Lansing, Mich. 96.7% $65,900 $86,000
Kokomo, Ind. 96.5% $61,400 $80,000
Mansfield, Ohio 96.3% $55,100 $75,000
Bay City, Mich. 96% $56,200 $80,000
Cumberland, Md.-W.Va. 95.3% $52,200 $88,000
Springfield, Ohio 94.3% $56,800 $75,000
Flint, Mich. 94.2% $56,500 $82,000
Sandusky, Ohio 93.7% $64,000 $101,000
Indianapolis-Carmel, Ind. 93.5% $68,700 $106,000

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California Foreclosure Volume up 50%

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Foreclosure sales bounced back to levels not seen since robo-signing moratoriums went into effect last fall. With significant increases in Arizona, California, Nevada, Oregon and Washington; foreclosure sales rose both in terms of properties that went Back to the Bank and those Sold to Third Parties, typically investors. As a result Bank Owned Inventories (REO) increased everywhere except in Oregon where banks sold more homes then they took back.


"We have not seen this level of activity on the courthouse steps for months," says Sean O'Toole, CEO and Founder of ForeclosureRadar.com. "The increase in foreclosures is just in time to provide a fresh supply of entry level homes for the spring home buying season."

Arizona
Notice of Trustee Sale filings were up 10.9 percent in January 2011 from the prior month, the first increase in six months. Foreclosure sales catapulted with a 56.2 percent increase in sales back to the bank and a 52.7 percent increase in sales to third parties on a month-over-month basis. Both banks and Third parties bought more properties in January 2011 than in any other single month since we began tracking Arizona foreclosure sales in August 2009.

California
Reversing a four month declining trend, Notice of Default filings rose 6.9 percent month-over-month in California, while Notice of Trustee Sale filings dropped 13.8 percent from the prior month. Foreclosure filings year-over-year show only mild change, with Notice of Default filings down 3.3 percent and Notice of Trustee Sale filings slipping just 1.4 percent from January 2010. Foreclosure sales skyrocketed from December, with 51.5 percent more sales Back to Bank and 52.8 percent more properties purchased by Third Parties, typically investors. Cancellations were up as well, rising 12.4 percent this month as compared to last which was the first time in six months that cancelations increased month-over-month.

Oregon
Oregon saw a dramatic swing in activity on the courthouse steps, with an increase in sales Back to Bank of 33.4 percent. This was the first increase in foreclosure sales in four months. Similarly, Sales to Third Parties increased 70.0 percent from December. Despite the recent improvement, foreclosure sales remain well below where they were at this time last year down 39.0 percent from January 2010.

Washington
Following a two month slide, Washington saw an 8.9 percent rise in the number of Notice of Trustee Sales filed, down 30.0 percent from July 2010. Foreclosures sales jumped with the number of foreclosure sales that went Back to Bank climbing 54.0 percent and those Sold to Third Parties also increasing 23.0 percent from November to December.

Nevada
Notice of Default filings increased 5.3 percent to begin 2011. Conversely, Notice of Trustee Sale filings dropped 22.2 percent month-over-month, but are still 31.7 percent up from a year ago. Activity on the courthouse steps increased for the second consecutive month, with foreclosure sales Back to Bank climbing 36.8 percent and Sales to Third Parties jumping 43.8 percent in January as compared to the prior month. There were more third party sales in January 2011 than any single month in 2010.

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Housing Takes a Hit As Mortgage Rates Top 5%

February is when potential home sellers start painting walls beige and cleaning out closets, preparing for the spring homebuying season. But sellers got some unnerving news last week: The interest rate on a 30-year mortgage jumped up to a level not seen since last April.

In November, the average rate slipped to a 40-year low of 4.17 percent. Today, it's just over 5 percent, and concerns are growing that rates will keep rising — enough to scare away potential buyers. It's at least enough to make those buyers rethink the advantages of homeownership

Why Rates Rose

The housing industry had hoped interest rates would stay very low for a very long time — at least until the market bounced back. Unfortunately, home prices and sales are still depressed, but now mortgage rates are going up. The key reason is inflation. In recent months, prices have been rising for all sorts of commodities, from steel to wheat to gold. Whenever prices go up, long-term interest rates — like those on 30-year mortgages — rise along with them.

So far, at least, the rate hikes have not been steep enough to discourage most potential buyers, and 5 percent is still low by historical standards. Mortgage experts generally say you won't start to seriously undermine the housing market until rates get closer to 6 percent.

Time To Buy A House?
One encouraging thought for people who are trying to sell their homes right now: Rising rates can actually give a short-term boost to real estate sales by pushing potential buyers off the fence. People who have been taking their time making a decision now have motivation to make a commitment before rates move higher

Yet rushing to buy a house and lock in today's interest rates is still a gamble — given that home prices may still fall further. If buyers act now, they can spare themselves a 6 or 7 percent mortgage rate. Then again, if they live in a city where home prices may drop an additional 10 percent, it might be better to hold off for the lower price.

This much is certain: Today's combination of low rates and low prices is making homeownership more affordable than it has been in more than a generation, in terms of the ratio of home prices to annual household income.

During the housing bubble between 2002 and 2007, homebuying became very unaffordable. That's why so many people resorted to bad borrowing ideas like interest-only mortgages. They needed to use lending tricks to buy homes.

Today, buyers don't need tricky loans to become owners — they can find plenty of affordable houses and good mortgage deals. But what they do need is good credit. In the aftermath of the financial crisis, lenders are still keeping their standards high. To get a good loan, a buyer needs a credit score above 740.

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Silicon Valley Home Prices to Suffer "Double-Dip" Then Turn Higher

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After rebounding from a low reached in early 2009, home values in Santa Clara and San Mateo counties have dropped again in a double dip that renews worries about the strength of the housing market, real estate information service Zillow reported Tuesday. Santa Clara County home values have fallen 25.2 percent since their peak in 2006, while San Mateo home values have fallen 24.2 percent.

The phrase "double dip" refers to a new drop in home prices after the recovery from a previous drop. The latest downward trend in area home values began in the middle of last year, after the end of two tax breaks for homebuyers, according to Zillow. The tax breaks encouraged people to buy homes sooner than they might have. That left fewer buyers in the second half of the year, resulting in slower sales and falling prices.

But prices and sales may be headed back up in the next few months Zillow said Bay Area home values have sagged 28.7 percent from their high of $679,160 in the second quarter of 2006, hitting $484,495 for the quarter that ended in December. They were down 1.1 percent from the previous quarter.


California home values also saw a double-dip in the fourth quarter, Zillow said. But the company expects a gradual recovery of home prices over the next few months. In Santa Clara County, by Zillow's calculations, home values neared but didn't fall below the previous low of April 2009. They fell 3 percent in the quarter that ended Dec. 31, and 1.8 percent from a year earlier, as declines in home prices accelerated at the end of the year. After climbing to $749,100 in June 2007, median single-family home values in the county dropped to $556,400 in April 2009, then climbed to $587,700 in mid-2010 before declining again in the second half of the year to $560,600 in December.

Underwater mortgages -- those worth more than the current value of the home -- rose to 13.8 percent of the county's homes with mortgages, up from a revised 11.7 percent at the end of the previous quarter, Zillow said.

In San Mateo County, home values fell 3.9 percent over the quarter and 4.5 percent from a year earlier. Home values have fallen 24.2 percent in the county since their peak in the second quarter of 2006, when they reached $809,922. They hit bottom in March 2009 at $635,000.

Homes with negative equity increased to 13.2 percent of the housing stock that has mortgages, up from 10.5 percent at the end of the third quarter. Most of the country saw increases in negative equity in roughly the same range. The reason: A scandal over improperly prepared foreclosures caused major lenders to impose a moratorium. Falling prices added to the number of underwater mortgages.

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10 Reasons to be Bullish on Housing in Bay Area

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Almost five full years into the housing downturn, it's still cool to be bearish on real estate. But cool isn't always right: Despite headwinds such as looming shadow inventory, a lackluster job market, and geopolitical instability, there are plenty of reasons why rose-colored glasses may be the real estate eyewear of choice.

Below are 10 reasons why it may finally be time to be bullish on housing ... but first, one huge caveat:

The local bottom that the broad housing market experienced in April 2009 may yet be surpassed to the downside. If it is, housing bears will pound their chests, stubborn pessimism vindicated. They will be mistaking the trees for the forest. This recovery, which in many areas remains in full force, has been, and will continue to be, highly local in nature. Fundamentally strong markets have thrived, while weak ones have languished. National, state, and even city-level indicators have been masking trends that are ongoing on a neighborhood level. This will continue, and those that ignore it will miss out on countless opportunities.

1. Jobs. Housing follows jobs. Period. And while the job market is still bunk in many areas, pockets of strength are emerging. After Google (GOOG) announced it would be hiring as many as 6,000 new employees, the Silicon Valley powerhouse received 75,000 applications in two weeks. The company is looking to retain talent in its fight against local rivals like Apple (AAPL), Salesforce.com (CRM) and Yahoo (YHOO), along with social media upstarts like Facebook, Twitter, and Zynga. If housing really does follow jobs, the San Francisco Bay Area may prove to be a bright spot in 2011.

2. Jobs. At the risk of being redundant, housing follows jobs. Consumer confidence is close to reaching last spring's high point, the most optimistic the US has felt since 2008. And while hiring hasn't restarted in earnest, firing has slowed to a drip. If you haven't been fired yet, chances are your job is reasonably secure. Job security drives optimism, planning for the future and ... home buying.

3. Pent up demand among young adults. Consider this: 2006 college grads entered the labor market just as home prices began to collapse. Those who still have a job kicked and scratched their way through the Great Recession and are now 27, perhaps married or getting there and kids may be on the horizon. Some were even smart enough to save some money. According to a graph produced by economist Tam Lawler and posted on Calculated Risk, today's young adults are under-represented as homeowners compared to historical norms, and a disproportionately large chunk are living at home. As the job market crawls back to life, this trend is likely to reverse. And if the apartment market's snappy performance in 2010 is any indication, it already has.

4. Foreclosures. Frankly, I'm getting tired of people claiming that an impending flood of distressed real estate is going to torpedo home prices. If you're making that case, ask yourself if you really, truly have any idea what you're talking about. Banks are rational actors, and as much as Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and the rest are demonized, they rarely willfully destroy the value of their own assets. Which is exactly what flooding the market with bank-owned properties would do. Coupled with political pressure and an ever-increasing maze of foreclosure litigation gumming up the repossession process, foreclosed inventory will continue as its steady stream. It will take years (around four based on current estimates) to work through shadow inventory, but there will be no flood.

5. Inflation. While much is made of inflation in the media, few pundits actually understand it. Inflation expectations, not inflation, is what we should be worried about. Things get scary when consumers start believing that prices are rising, or about to rise. Rational economic actions take hold, and rather than filling their tanks when empty, drivers fill whenever they pass a gas station. The expectation of higher prices, not higher prices themselves, is what changes economic actions. Rising inflation expectations pull demand forward, pushing up prices in an inconvenient self-fulfilling prophesy. Historically, real estate has been a rather good hedge against inflation. Plain and simple, as people start to get nervous about inflation, they buy real estate.

6. Higher rents and low interest rates. Ask a prospective tenant in a major metropolitan area how the apartment search is going and the response will not be pleasant. Rents are rising, inventory is down, and landlords are back in the driver's seat. And despite a recent bounce, interest rates remain historically low. High rents and low interest rates push would-be renters towards buying, particularly in areas with job markets that are relatively less weak than the country at-large.

7. A booming apartment market. Investors are snatching up multifamily properties as positive demographic trends, low interest rates, and perceived values attract professional and amateur buyers alike. Homeownership is at a 10-year low, young adults are moving out of their parents' basements and into apartments, and leverage is fantastically cheap. What more could an apartment buyer want? The multifamily space typically recovers first, and if history is rhyming in even the smallest way, this is good news for housing.

8. Investor appetite remains strong. From fedora-hat donning, Hawaiian-shirt wearing, clipboard-scribbling, earpiece-whispering professional investors at the courthouse steps to vulture funds armed with hundreds of millions of dollars, investor demand for real estate remains robust. Distressed opportunities -- across all types of real estate -- have come to market slower than expected, which means buyers have had more time to hit the pavement and raise money. With limited opportunities, competing buyers are driving up prices of distressed assets: For every well-priced foreclosure there are a dozen all-cash buyers looking for a deal. And don't forget the baby boomers, the first of which turn 65 this year. While many are eying a trade-down into a smaller, more retirement-friendly home, even more are looking for reliable fixed income to pay for rounds of golf and tennis lessons. More than a few gray-hairs view real estate as their path to comfort during the golden years.

9. The stock market. With the Dow Industrials above 12,000 and the S&P 500 topping 1,300 for the first time since mid-2008, IRAs, 401(k)s and trading accounts are feeling fuller than they have in years. The wealth effect is in full effect, as buyers look to sell stock for a down payment and the confidence to pull the trigger on a new home.

10. Confidence. If you've made it this far without either scrolling down to question my sanity on the Minyanville message boards or falling asleep, I salute you. And for the precious few readers who are still with me, consider this very important question: Do you feel better or worse about the US economy, and more importantly your own personal economy than you did two years ago? This is not a political statement: Challenges remain, to be sure, but we Americans are a stubbornly resilient, optimistic bunch. Confidence is relative, and for a country that has been through economic hell and back since 2008, we are in remarkably better shape. Confidence in the present builds confidence in the future, and confidence of all types increases risk-taking activities. Admittedly when you have seen the depths of despair, a single ray of dim light can feel like high noon, but it doesn't matter. Confidence is a trajectory, a transitory voyage through time that is more accurately measured against where you just were than looking at the last time you were here. The fact that most people believe that we're no longer headed for apocalyptic collapse is, as they say, a good thing.

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