Those who missed out and did not refinance their mortgage earlier this year when mortgage rates were at longtime lows may soon have another chance. The average 30-year-fixed rate mortgage stands at 5.2 percent, down from 5.32 percent last week, compared to an average of 6.37 percent just a year ago.
 
The main cause behind the falling mortgage rates seems to be the struggling job market, with skyrocketing unemployment numbers creating market concerns. Unemployment is at 9.5 percent, the highest rate since 1983, and 467,000 jobs were shed across the country in June alone.
 
People are already taking advantage of the situation. The Mortgage Bankers Association reported an 11 percent increase in mortgage applications this week, mostly due to a sudden interest in refinancing and the largest amount of home purchase applications in three months. It remains to be seen whether or not mortgage rates will continue to fall, but the murky outlook for the labor market will probably keep mortgage rates in check for now.

Image: Flickr

On Tuesday the Appraisal Institute released a statement in response to a comment by Lawrence Yun, National Association of Realtors chief economist, who stated that the increase in existing home sales in May was less than expected because poor appraisals are stalling transactions. Yun further claimed that faulty valuations are keeping buyers from getting loans.

Bill Garber, Director, Government and External Relations responded:

“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with. The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today.

“It should be pointed out that neither the buyer, the seller, the Realtor nor the builder is the client of an appraiser in a typical real estate transaction. In transactions where buyers are seeking loans, our clients are the lenders. Appraisers provide lenders with objective information and value opinions that help protect them from making questionable loans and investments and help them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don’t act like we want them to or hope they will. Nonetheless, competent and professional appraisers understand this and develop credible estimates of value that ultimately help ensure that lenders loan the proper amount, buyers don’t pay too much and sellers get a fair price.

“In these complex markets, it is particularly important that lenders use only the highest caliber of appraisers. Members of the Appraisal Institute holding the MAI, SPRA or SRA designation have met extensive experience and education requirements and must comply with a strict Code of Professional Ethics and Standards of Professional Appraisal Practice.”

The Appraisal Institute is a global membership association of professional real estate appraisers, with over 25,000 members and 91 chapters throughout the world.

Image Credit: dno 1967, Flickr

The Appraisal Institute today released a valuable guide to understanding the real estate cycle. While many factors affect the value of homes including the laws of supply and demand, their quick reference guide to spotting a turning point in the market should be a priceless resource to would-be investors, especially first timers!

Ten signs that the the real market has hit bottom:

1. A spike in local sales activity - a spike refers to a significant rise in the number of home sales (or values) in a local market area, which generally is measured month to month. A spike does not necessarily mean continued growth, i.e. it could be a one month phenomenon.
2. Higher asking and selling prices vs. appraisal value opinions for residential properties - appraisers study the markets; they do not make the markets. When the data shows higher sale prices in comparable properties market value opinions will increase proportionally. Appraisers seek evidence of value but do not create the value. In time periods with low activity, evidence of any kind is difficult to find.
3. More activity at open houses - 5 to 8 people is considered average, so a dozen or more people attending an open house means buyer interest is picking up. Also, the mood of the attendees is important. Are they optimist and upbeat? Buyers interest alone does not always translate to effective purchasing power. If the number of buyers in the market increases but they do not have requisite down payments, the sales may still not occur.
4. Shorter marketing times - in some markets, houses have been up for sale for more than a year. In most balanced residential markets, properties that are priced competitively will typically sell in less than six months. If the Days On Market (DOM) is shortening, many practitioners will read an improvement in the market.
5. Reduced number of foreclosures and short sales - a reduction in these transactions commonly signals a more balanced market. If lenders are reluctant to foreclose because of an oversupply of inventory, they may choose to wait to repossess the properties, which could allow a spike in the number of foreclosures later despite a better market condition.
6. Stabilized employment - stable or increasing employment rates provide the necessary confidence for potential buyers to invest in a home. Since most buyers rely on borrowed funds to make real estate purchases and borrowing money usually requires a source of repayment and that usually means jobs, an increase in this basic need, will enable more real estate sales.
7. Fewer buyer incentives and seller concessions - seller paid incentives or concessions are a sign of seller motivation. If there are fewer builders offering “free” upgrades and fewer sellers sweetening the deal with big screen TVs, it may be a sign of lessening supply and therefore a better market.
8. New construction starts - most builders are quite attune to their markets and will not build new homes without a corresponding contract for sale or a perceived increase in demand. An increase in the number of building permits usually indicates higher demand and higher prices. If residential properties are selling for 25% less than they cost to build, only a few new homes will be built. It would be prudent to buy an existing home rather than build a new one for a much higher price.
9. “Move-up” buyers entering the market - more buyers willing to move to a larger or superior quality home indicates a healthy market. The lack of buyers at the lower end of the price range will have a chain reaction throughout the market. If a buyer for a high priced home has a lower priced home to sell first, the sale of the higher priced home may have to occur before the higher priced one can sell.
10. Apartments advertising renter specials - fewer renters in the market may indicate more people are moving into owner occupied homes or it could indicate a reduction in population. Lower population will cause an oversupply of housing which will oftentimes permeate throughout several markets.

For more information regarding the Appraisal Institute, check out their website here: www.appraisalinstitute.org.

Image Credit:  brokersaunders, Flickr

There are many considerations that go into buying a home . However, it might come as a surprise to some that prior to this recession affordability was not the most important factor for many home buyers.

How the times have changed.

Indeed, times have changed so much, according to the real estate search engine, Roost, that affordability has become much more important in the quest for a home :

In an Opinion Research poll that surveyed 1,002 U.S. adults by telephone May 8-11, 2009, 43 percent of respondents across the board – male/female, married/not married, and from every corner of the country – said that finding a home they can afford and maintain was the most important consideration when researching a new home , and was cited significantly more often than the number two consideration, finding a home in the right location or community.  This can be compared to a survey conducted by Kelton Research in 2005, prior to the recent economic downturn, in which a full three out of four Americans (72 percent) stated that when looking at available property, the neighborhood was more important than the house itself.

I found this bit of news very interesting. Perhaps part of the reason we are in the mess wer’re in rign now is due to the fact that other considerations took precedence over affordablitity for so long . Mortgage lenders had no concern for affordability; they could approve anyone, collect the commission and just push the responsibility off on investors through derivatives. And, of course, consumers were too blinded by the promise of “more house for the money” to stop and think about true affordability.

Now, though, the recession has many rethinking their financial decisions of the past few years . Affordability is important again. And, while “experts” recommend that you keep your mortgage payments to 1/3 of your month income (33%), I suggest the following in order to increase the affordability of your home:

• Keep your mortgage payments to 28% of your income.
• Use your net income as a gauge, instead of your gross income.
• Try to keep all your housing costs (mortgage and interest plus maintenance, taxes and utilities) to 33% of your monthly net income.

Many people are learning a hard lesson right now. If you are interested in buying a home , you would do well to learn these lessons, and consider affordability. You don’t want your home to be a hardship.

image source: BrendelSignature via Wikimedia Commons

Earlier today, the Obama administration announced plans to expand the help available for those affected by the housing crisis. During the housing boom, many mortgage lenders offered second loans to potential homebuyers so that they’d be able to purchase real estate even without a down payment. Obama’s new plan would offer incentives to lenders to help consumers dealing with these piggyback loans.

Image: sxc.hu

Second loans are affecting about half of all homeowners struggling with ther mortgages. Unfortunately, homeowners who are trying to refinance for a lower monthly payment need permission from the company holding the second mortgage, and this a roadblock for borrowers trying to get back on their feet.

The new second mortgage initiatives will be funded from the money already allocated to the overall housing aid plan. Mortgage companies will get $500 for each modified plan, plus an additional $250 a year for three years if the borrowers don’t default. Borrowers, on the other hand, would get up to $1000 over five years that can be used to pay off the principle of a first mortgage.

Additional incentives would give $2500 payments to mortgage companies who agreed to participate n the Hope for Homeowners program, which was launched last fall.

MacroMarkets and WisdomTree Asset Management have come together of offer securities that are tied to home prices. WisdomTree will assist in the introduction of and education about two new products: MacroShares Major Metro Housing Up and MacroShares Major Metro Housing Down.

The MacroShares Major Metro Housing Trusts are designed to reflect trends in home price movements. The pair (Up and Down) will move in relation to the S&P/Case-Shiller Home Price Indices, a widely followed barometer of residential housing prices in the U.S.  Robert Shiller, co-founder and Chief Economist of MacroMarkets noted:

“Housing prices play a tremendous role influencing consumer confidence, the direction of the U.S. economy, and the value of related financial assets generally. By delivering greater market access, new price discovery and liquidity to this vital asset class, I believe the MacroShares Housing Trusts represent a remarkable innovation that will complement government efforts to better serve individual home owners and improve financial institutions.”

About the MacroShares Major Metro Housing Trusts

Like all MacroShares, the Major Metro Housing Trusts will be fully-collateralized by short term United States Treasury Bills, overnight repurchase agreements secured by Treasury securities and cash. In addition to addressing issuer and counterparty credit risk concerns that continue to mount in connection with certain other exchange-traded products, this collateral is also anticipated to generate quarterly distributions for MacroShares investors when interest income exceeds trust expenses.

Image Credit: woodleywonderworks, Flickr

The word is that even if you aren’t buying a home, now is a good time to refinance. There are government programs designed to help people refinance, and mortgage interest rates are the lowest they’ve been in a looong time. With some mortgage interest rates at 4.65% (15-year fixed at my local credit union), it really does seem like now is the time to lock in the savings that come with refinancing to a lower rate. But, as with all financial decisions, you need to be careful. There are some refinancing fees that you need to watch out for.

Refinancing fees to watch out for

Anytime you get a loan, there is a chance that you will see an origination fee or a closing fee. Many mortgage lenders will waive these fees, but even so you might be charged something. Here are some costs that you should watch out for as you refinance your home:

1. Fannie Mae and Freddie Mac charge fees when they insure a loan or purchase a mortgage. These government institutions have raised their fees, and that means you will have to pay more. So, if you are taking advantage of the latest government program to help you refinance, be aware that you may have fees to pay to Fannie and Freddie. And, you should find out from your lender whether or not your loan will be sold to one of these institutions. If so, your mortgage lender is likely to pass the fees on to you.
2. Appraisal fees are charged when your home is assessed to determine its value. Some mortgage lenders, however, are paying these fees themselves in order to try and get business.
3. Processing fees are designed to milk a little more out of you. Check for these fees under such terms as credit check fee, underwriting charges, administrative fees or application fees.
4. Private mortgage insurance is charged when you have less than 20% equity. If you default, the mortgage lender is repaid the amount that you owe. PMI was being avoided with piggyback loans at the height of the real estate bubble. Now, though, mortgage lenders are reluctant to offer such “creative” solutions. This is one fee that will be hard to wriggle out of.

Before making a decision, you should shop around. You want to determine that you are get the best deal and paying as little as possible in mortgage loan fees. It’s impossible to refinance with no fees, but you should try to avoid as many of your fees as possible.

image source: TheTruthAbout via Flickr

While some people may not have enough money to go on vacation this year, due to job loss or unlucky investing, the vacation rental industry is seeing an overall growth. Why? Many vacation property owners are deciding to rent out their second homes to vacationers this year, when they haven’t previously.

According to HomeAway, Inc., the world’s largest online vacation rental marketplace, homeowners can average about $20,000 annually. The National Association of Realtors reports that there’s been a sharp decline in second home sales for the second year in a row, and even two thirds of vacation homeowners who won’t be renting this year are looking at the possibility of renting in the future.

The rental season is longer this year than ever before as well. In 2007, vacation homes were available for rent, on average, for 12 weeks, but that average is 15 weeks this year. Many consumers are turning to the Internet to find such rentals, with 74% of vacation landlords advertising online. Says HomeAway’s CEO, Brian Sharples,

“The down economy has had a significant positive impact on the vacation rental market. NAR’s survey shows more second home owners than ever are realizing that from the get-go they can offset the cost of ownership and in many cases profit from their second homes by renting them out.”

Image via press release.

One of the concerns that many homeowners have is how to stop foreclosure. In some real estate markets, however, this may not be much of an issue. In some of the hardest hit areas of the country, banks are declining to take foreclosures.

Banks, loan servicers and others are taking a complete loss and walking away. It’s the latest development in the ongoing mortgage market crisis saga. Homeowners aren’t the only people deciding that it is more financially feasible to just walk away than to try and salvage the property; banks are deciding the same thing now. And that can cause more trouble for already-troubled homeowners.

The New York Times reports on this growing trend amongst mortgage lenders:

Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said some properties had become such liabilities for investors that it was not even worth holding on to them to strip valuable fixtures, like kitchen appliances, toilets and hardware.

“The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can,” Mr. Cecala said. “It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

Most of the real estate that banks are walking away from, however, are properties at the bottom of the market. These are homes that were not worth a great deal to the banks at the outset of the mortgage loans –  homes in the $50,000 to $160,000 range before the housing market crisis hit.

It’s a new twist, and one that could result in confusion and even bigger hassles for homeowners. Many homeowners assume that once foreclosure proceedings start, things are over if they can’t make up the back payments. However, if the bank walks away without letting the homeowner know, he or she could be surprised down the road with more paperwork, expenses and hassles. After all, if the bank refuses to take over the title, you are required to maintain the property — even if you aren’t sure what is going on.

image source: Brendel via Wikipedia

On Monday, a few signs pointed to the possibility that the real estate market in the United States has begun to stabilize and possibly even begun its trek to recovery. According to the National Association of Realtors, the number of existing houses sold jumped more than 5% in February compared to January’s data.

House Sold (Image: Flickr)

Although sales are still down by double-digit percentage points from this time last year, this month-to-month jump was the largest on record in over five years. The median price of a home was slightly more than $165,000.

Many reasons are hypothesized for why the sales of existing homes rose, however one factor that can’t be denied is the falling price of real estate. Compared to this time in 2008, the average price of a home is down more than 15%. In some areas of the country, prices are down more than 30%.

For those looking to buy a new home, unprecedented deals are now available. That said, considering the job losses expected throughout the rest of 2009, the number of people who can afford to buy a home is expected to decrease in coming months.