In the first quarter of 2017, refinances fell 45% from the fourth quarter, however the second and third quarters could see a turnaround in refi activity, according to a first look at Black Knight’s soon to be released Mortgage Monitor.
This chart shows refinance activity each week from October through June as refinance candidates fell from 8.6 million to 4.4 million.
Click to Enlarge
(Source: Black Knight)
Since interest rates fell below 4%, the financeable population rose to its highest point for 2017. While the current 4.4 million borrowers is down significantly from October, it is an increase of 56% or 1.6 million borrowers from mid-March’s low.
Borrowers who refinanced in the first quarter of 2017 cut their monthly mortgage payments by an average of $109 per month, or a total aggregate savings of $36.5 million per month. This marks the lowest total monthly savings since 2008 and a decrease from the fourth quarter’s $59 million.
But since the first quarter, savings have increased once again to a total of $1.1 billion or $260 per borrower each month.
This chart shows the total monthly savings borrowers saw each month.
Houzz at a Glance Who lives here: A professional couple and their young daughter Size: 2,040 square feet (189.5 square meters) Location: Kensington, Maryland Architect:Lou Balodemas
After living in an apartment in Washington, D.C., for many years, the homeowners were looking for a house that would reflect their love of midcentury modern design. After finding the 1951 rambler, pictured below, in a D.C. suburb, they enlisted architect Lou Balodemas to transform it into their dream midcentury-inspired home. The key was a new butterfly roof, which gives the home uplifting charm right from the get-go.
AFTER: “The profile of the original modest rambler remains evident in this renovation,” Balodemas says. The new front porch is marked by a butterfly-shaped roof chosen for its welcoming character. The addition takes advantage of a side-lot line that flares toward the street, increasing the presence of the south-facing facade. The design of the facades is a study in balancing the existing brick structure with the addition, which is clad in rich, modern ATAS metal siding and cedar. V-shaped steel siding was used for texture on the majority of the new walls, creating varying vertical bands of light and shadow.
The new kitchen at the front of house has large windows overlooking the yard. “The homeowners had a lot to do with the design and paint colors,” Balodemas says. The upper cabinets, floating shelves and window trim are made of clear vertical-grain Douglas fir; the lower cabinets are painted gray.
Countertops: Marmara marble; pendant lights: Artemide
In the living room, on the other side of the foyer, the butterfly roof drives exterior views upward and captures plentiful daylight. A fireplace was removed, as the homeowners said they would never use it and wanted the wall space instead.
Wall unit: vintage Hans Wegner, homeowners’ own; large console: West Elm; coffee table and side tables: Blu Dot; flooring: red oak; rug and clock: homeowners’ own: accent wall paint: Normandy, Benjamin Moore
AFTER: The remodeled exterior continues the material juxtaposition of existing brick (painted gray), steel and cedar. “The metal has a V-groove that makes the surfaces catch light at different angles,” Balodemas says.
A shortage of homes for sale has bedeviled U.S. house hunters in recent years, so why don’t builders build more? One problem is that they’re running out of lots to build on—at least in the places that people want to live.
Cities that were sprawling before the Great Recession have begun to sprawl again. Space-constrained cities, meanwhile, have run out of room to build. That reality has spurred developers to focus on center-city neighborhoods where high-density building is allowed—and new units command exceedingly high prices.
At some point, said Issi Romem, chief economist at BuildZoom, vacant lots in desirable urban neighborhoods will run out. “If you have three days of rations left, you’ll be fine on day one, two, three,” said Romem, author of new research demonstrating home construction patterns. “On day 4, you have a problem.”
Historically, cities grew outward, as builders developed tracts on the periphery—then filled in the land between various developments over time. When these so-called expansive cities of the South and Southwest run out of infill land on which to build, developers simply pushed out further. Some of these cities, like Austin and Nashville, have seen downtown boomlets. But more broadly, the building trends in those metros looks more like Dallas: Inside a 30-mile radius from the center of the city, new home sales decreased from 2000 to 2015. Outside the radius, though, sales are up by more than 50 percent. The same trend has played out to varying degrees in Phoenix, Atlanta, and San Antonio, among other cities.
In America’s most expensive cities, however, that dynamic has been turned inside out (or perhaps outside in). New construction trends in places like New York City have been tightly focused on downtown clusters where zoning rules permit high-density construction. These cities stopped expanding their geographic footprint decades ago, leaving builders to concentrate on finding buildable lots inside existing boundaries. As those lots became harder to find, land prices increase, reducing options for builders hoping to turn a profit. Developers building on pricey lots generally seek to offset land prices by building more densely, Romem said. In many cases, that means focusing on high-end apartments that offer better profit margins. The wealthiest residents are the only ones who can buy, and a vicious cycle is created.
Lately, there has been some give as oversupply of new high-end apartments forces landlords in New York and San Francisco to drop prices on expensive aeries. Still, the broader pattern continues to lean in the direction of higher rents.
What happens next depends on whether voters and their elected officials rewrite zoning rules to allow denser construction, said Romem, particularly in neighborhoods currently limited to single-family homes. Under current rules, he said, it’s unlikely new housing will get built at affordable prices, pushing city-dwellers into a game of musical chairs rigged to favor the rich.
“As long as these cities continue to do well economically, you’re going see poorer folks replaced by richer folks,” he said. “You’re going to read stories about teachers not being able to find place to live.”
In a further sign that the housing market continues to strengthen, builder confidence in the market for newly-built single-family homes rose two points in May to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the second highest HMI reading since the downturn.
The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market. Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward. Builders, however, continue to deal with shortages of lots and labor and increasing building material costs.
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
Two of the three HMI components registered gains in May. The index charting sales expectations in the next six months jumped four points to 79 while the index gauging current sales conditions increased two points to 76. Meanwhile, the component measuring buyer traffic edged one point down to 51.
The three-month moving averages for HMI scores posted gains in three out of the four regions. The Northeast and South each registered three-point gains to 49 and 71, respectively, while the West rose one point to 78. The Midwest was unchanged at 68.
NAHB analysis of the most recent Quarterly Sales by Price and Financing published by the Census Bureau reveals that just 4.7% of new home sales in the first quarter of 2017 were purchased with cash—down from the most recent peak of 9.5% in the fourth quarter of 2014. In contrast, the share of new home sales financed with conventional mortgages rose to 72.0%, its second-highest share since the fourth quarter of 2014. Meanwhile, FHA loan market share continued its upward trend, rising from14.4% to 14.7%.
Census data and NAHB calculations show that new home sales backed by VA products rose to 22,000 (+4,000) in the first quarter of 2017, though market share fell from 8.8% to 8.1%. The market share of VA loans averaged just 2.9% between the 2001 recession and the Great Recession, but has averaged 9.3% since the U.S. economy came out of recession in 2009.
It is worth adopting some caution associated with the Census market share estimates. In particular, the statistical error associated with the FHA, cash, and VA sales estimates from this data set are relatively high. This reduces the reliability of measures of short-term market changes.
Mindful of this limitation, over the long run the current FHA share is roughly one-half the 28% share determined for the first quarter of 2010 but still elevated compared to the 2002-2003 average of 10%.
Although cash sales make up a small portion of new home sales, they constitute a considerably larger share of existing home sales. In February 27% of existing home transactions were all-cash sales—the highest share since November 2015—according to estimates from the National Association of Realtors.
It is also worth noting that a different measure from CoreLogic shows a higher market share for cash sales for new construction: 17.7% in January.
FHA-backed loans were responsible for 14.7% of new home sales during the first quarter of 2017. Although the share has increased in two consecutive quarters, it remains more than twice its pre-recession average of 6.4%.
Conventional financing has expanded as the housing recovery has grown. The market share of new home sales with conventional financing was 62.2% in 2009 and 72.0% in the first quarter of 2017. This share has remained between 68% and 75% over the past four years.
The common questions many first-time buyers ask are now answered.
Purchasing a home and conquering financial responsibility is a goal for many people. But making this leap to homeownership is a big step, and it’s one that should be taken with careful consideration. Let’s face it, finding a home and securing a mortgage isn’t a walk in the park — and certainly nothing like signing a simple rental agreement. You’ve probably encountered confusing jargon such as “points,” “preapproval,” and “prequalification,” and funny names like Fannie Mae. Making sense of everything can leave you on the verge of frustration, but don’t worry — this is a completely normal feeling.
To help you demystify the process and get the most out of your first mortgage, we’ve asked some finance experts about things to consider before applying, some common points of confusion, and a few handy tips to help you understand the basics of mortgages.
What’s your best advice to a first-time homebuyer?
“Talk to a local mortgage banker that you’re comfortable with! There are some great mortgage bankers willing to help, so you shouldn’t waste your time with someone who doesn’t make you feel comfortable with the process. Explain what you’re looking to do and what your ideal home-buying situation is. The right mortgage banker will customize your home loan to your specific scenario. Make sure they explain all the costs ahead of time, so that you know exactly what to expect once you get a purchase contract and start the mortgage process.” — Nick Magiera of Magiera Team of LeaderOne Financial
What should buyers be prepared for when applying for a loan?
“Every mortgage situation is different, so there’s really not a one-size-fits-all list of requirements. I recommend that you contact a mortgage banker that you know, like, and trust. If you don’t know any mortgage bankers, then I recommend that you choose a mortgage banker that your real estate agent suggests you work with. Your real estate agent wants you to have a smooth transaction, so they will only send you to mortgage bankers that they trust. A great mortgage banker will then walk you through the process and customize the mortgage around your specific scenario.” — Nick Magiera of Magiera Team of LeaderOne Financial
“There are a few things to get squared away before applying for a loan: 1. Cash for a down payment. Save money/acquire money for a down payment and closing costs. 2. A good working knowledge of your personal finances. Create a budget of your future expenses, as if you own the house, and make sure you can afford it. A good rule of thumb is that your mortgage should not exceed 30% of your take-home income. 3. A general idea of the price range of homes you are interested in. Research potential homes through a local Realtor or at Trulia.com. Compare by looking at real estate taxes, neighborhood statistics, and other criteria. Take your time! Your house may be the largest purchase in your life.” — Scott Bilker of DebtSmart
What is the value in getting preapproved or prequalified for a mortgage?
“It gives homebuyers an edge against competing offers. If a seller sees two offers and one has already been approved, then that is often the one that they go with, as there is less risk for them.” — Tracie Fobes, Penny Pinchin’ Mom
“First off, there is a difference between preapproved and prequalified. Prequalifying means you have done an initial lender screening. However, preapproval is the next step in the process. You have to give the bank many more documents like you’re applying for the mortgage. It’s worth doing because you will get a preapproval letter from the bank, and this will show sellers and real estate agents that you’re a serious buyer. It will also give you a better idea of which homes you can afford. Additionally, you will be able to act quickly once you find that perfect place without having to then seek out financing.” — Scott Bilker of DebtSmart
What range of rates should a first-time homebuyer expect with either a poor credit score or a strong credit score?
“On a conventional loan (Fannie Mae or Freddie Mac), the difference in price between a poor credit score (620) and a strong credit score (740-plus) could be as much as 3.0 points in fees, or 0.75 to 1.25% in interest rate. On an FHA or VA loan, the price difference may be up to 0.75 in points in fees or 0.125 to 0.250% in interest rate.” — Cathy Blocker, EVP, Production Operations of Guild Mortgage Company
“There is not a single universal standard. Lenders determine what kind of risk premium it will add to a loan based on your credit history and other information presented in a loan application. You can’t take a lender’s advertised interest rate for its best-qualified borrowers and tack on a set premium because you’re a C credit instead of an A credit (A credit being the least amount of risk).” — Nick Magiera of Magiera Team of LeaderOne Financial
What are some tips for paying off your mortgage faster?
“There are only two ways to pay off your mortgage fast: 1. Refinance at a lower rate. 2. Pay more toward the mortgage. That’s it. Don’t be fooled by biweekly mortgages because all they do is make you pay more. If you are not in a position to get a lower rate, then simply increase your monthly mortgage payment to an amount that is comfortable, keeping in mind that this is money you cannot easily get back. Conversely, if you pay more on your credit cards, you can always use the card again for cash or to buy things you need.” — Scott Bilker of DebtSmart
What does it mean when “the Fed raises the rates,” and how does it apply to mortgages?
“[The] Federal Reserve sets the interest rate that banks pay to borrow overnight funds from other banks holding deposits with the Federal Reserve. If the cost of overnight borrowing to a bank increases, this typically causes banks to increase the interest rates they charge on all other loans they make, to continue to earn their targeted return on assets. As banks increase their interest rates, other lenders or financial firms also tend to increase their rates. An increase in the federal funds rate does not directly correlate to a direct increase in mortgage rates but is viewed as a general signal to the market that the Federal Reserve views that the economy is growing and that interest rates will be increasing in the future.” — Cathy Blocker, EVP, Production Operations of Guild Mortgage Company
What are points?
“Points are fees the borrower pays the lender at the time the loan is closed, expressed as a percent of the loan. On a $200,000 loan, 2 points means a payment of $4,000 to the lender. Points are part of the cost of credit to the borrower, and in turn are part of the investment return to the lender. That said, points are not always required to obtain a home loan, but a ‘no point’ loan may have a higher interest rate.” — Nick Magiera of Magiera Team of LeaderOne Financial
Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing the average 30-year fixed mortgage rate falling as the FOMC decided to leave short term rates unchanged.
30-year fixed-rate mortgage (FRM) averaged 3.42 percent with an average 0.5 point for the week ending September 29, 2016, down from last week when it averaged 3.48 percent. A year ago at this time, the 30-year FRM averaged 3.85 percent.
15-year FRM this week averaged 2.72 percent with an average 0.5 point, down from last week when it averaged 2.76 percent. A year ago at this time, the 15-year FRM averaged 3.07 percent.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
Quote Attributed to Sean Becketti, chief economist, Freddie Mac.
“Investors flocked to the safety of government bonds causing the 10-year Treasury yield to continue its descent following the FOMC’s decision to leave rates unchanged. The 30-year fixed-rate mortgage responded by dropping 6 basis points before landing at 3.42 percent — a ten-week low. The course of the economy is uncertain, yet consumers continue to be a bright spot. The September consumer confidence index is up 3 percent to 104.1, exceeding forecasts and reaching a new cycle high.”
Sales of new single-family houses in the United States shrank 11.5 percent to a seasonally adjusted annual rate of 468,000 in September of 2015, the lowest since November last year. The stock of new houses for sale increased to its highest since March of 2010. New Home Sales in the United States averaged 654.25 Thousand from 1963 until 2015, reaching an all time high of 1389 Thousand in July of 2005 and a record low of 270 Thousand in February of 2011. New Home Sales in the United States is reported by the U.S. Census Bureau.
1963 – 2015
A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit. The house can be in any stage of construction: not yet started, under construction, or already completed. This page provides the latest reported value for – United States New Home Sales – plus previous releases, historical high and low, short-term forecast and long-term prediction, economic calendar, survey consensus and news. Content for – United States New Home Sales – was last refreshed on Monday, October 26, 2015.
Appreciating home values in the bottom third of the market helped pull more homeowners out of negative equity in the second quarter of 2015, but condos were more likely than houses to be underwater , according to the Zillow® Negative Equity Report.
• The U.S. rate of negative equity among mortgaged homeowners continued to drop in the second quarter of 2015, to 14.4 percent– the first time the rate has been below 15 percent since the real estate bubble burst.
• The improvement was spurred by value growth in the least valuable third of the housing stock, which are far more likely to be underwater than other homes.
• Condos are more likely to be underwater than single-family homes. Nearly 20 percent of all condos with a mortgage are upside down.
Condo-owners were in far worse shape than single-family homeowners in Chicago, Orlando and Las Vegas. And in only three markets – Detroit, Memphis, and Pittsburgh –single-family homeowners were more likely to be underwater than condo-owners.
A high rate of homeowners who owe more on their mortgages than their homes are worth is a lingering effect of the real estate crisis. At its worst, more than 15 million homeowners were upside down on their homes. Foreclosures, short sales and rapidly rising home values freed nearly half of those homeowners, leaving 7.4 million homeowners upside down at the end of Q2 2015.
The continued decline of the overall negative equity rate was fueled in the first half of the year by strong appreciation for the least valuable third of homes. The least valuable homes are much more likely to be underwater than more valuable homes
In the Atlanta market, for example, nearly 43 percent of the least valuable homes are in negative equity, while only 9.4 percent of high-end homes are underwater. Annual home value appreciation among the least valuable homes in Atlanta had slowed for 12 straight months through June 2015 months. However, low-end homes have been appreciating annually more than more valuable homes. Since June 2014, annual appreciation in the bottom tier outpaced home value appreciation among all Atlanta homes, likely helping drive negative equity down there from 29 percent to 21 percent year-over-year.
Similar trends played out in Sacramento, Riverside, and Phoenix, all places that have struggled with high rates of negative equity.