FHA : Monthly Mortgage Insurance Premiums To Rise April 18, 2011

For the third time in 12 months, the FHA is changing its mortgage insurance costs. 

Effective for all FHA case numbers assigned on, or after, April 18, 2011, annual mortgage insurance premiums (MIP) will increase 25 basis points.

The change will add $250 to an FHA-insured homeowner's annual loan costs per $100,000 borrowed, and applies to all borrower's equally. Current FHA borrowers are unaffected.

To understand the FHA is to understand why premiums are rising.

As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. According to its own records, the FHA's percentage of purchase money business in Minnesota and nationwide expanded from 4 percent in FY 2006 to 19 percent in FY 2010.

Rapid growth like this has strained the FHA's capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will "significantly strengthen" its reserves. By law, the FHA must maintain a certain minimum level of reserves.

FHA mortgage insurance varies by loan term, and by loan-to-value and, beginning April 18, 2011, the new insurance premiums are as follows:

• 15-year loan term, loan-to-value > 90% : 0.50% per year
• 15-year loan term, loan-to-value <= 90% : 0.25% per year
• 30-year loan term, loan-to-value > 95% : 1.15% per year
• 30-year loan term, loan-to-value <= 95% : 1.10% per year

To calculate your monthly mortgage insurance premium, multiply your starting loan size by your insurance premium, and divide by 12. 

There is no change planned to the 1 percent upfront mortgage insurance premium charged by the FHA.

Make A Mortgage Rate Plan BEFORE Friday's Jobs Report

Mortgage rates could move higher beginning tomorrow morning. The Bureau of Labor Statistics releases its February jobs report at 8:30 AM ET.

Home buyers and rate shoppers in Minneapolis would be wise to take note. The jobs report is almost always a market-mover.

Consider last month.

Although net job creation fell well-short of expectations in January -- just 36,000 jobs were added -- the national Unemployment Rate dropped to 9.0%, its lowest level in 2 years. The marked improvement surprised economists and sparked inflationary concerns within the investor community.

This, in turn, caused mortgage rates to rise.

In the days immediately following the jobs report's release, conforming rates across Wisconsin jumped 0.375 percent. That's equivalent to a mortgage payment increase of $22 per month per $100,000 borrowed.

A similar spike could occur tomorrow.

Wall Street scrutinizes job growth because with more working Americans, there's more consumer spending, and consumer spending accounts for 70% of the U.S. economy. A blow-out number tomorrow would change expectations for the future, and lead rates higher again.

The economy shed 7 million jobs between 2008 and 2009 and has barely made 1 million of them back. Tomorrow, analysts expect to see 183,000 jobs created. If the actual reading is lower-than-expected, mortgage rates should fall and home affordability will improve.

Anything else and mortgage rates should rise. Likely by a lot.

Therefore, if you're shopping for a mortgage right now, consider your risk tolerance. Once markets open tomorrow, you can't get today's rates.

Ignore The Case-Shiller Index; Focus On The Future Instead

Last week, Standard & Poor's released its Case-Shiller Index for December 2010. The index is a home valuation tracker, meant to meausure the change in home prices from one period to the next.

December's Case-Shiller Index showed major devaluations nationwide. As compared to December 2009, on a year-over-year basis, home values fell in 18 of the Case Shiller Index's 20 tracked markets, and the U.S. National Index dropped 4 percent overall. 

The retreat puts December's home values at similar levels as compared to early-2003.

That said, buyers and sellers would be wise to take the findings lightly. The Case-Shiller Index is inherently flawed. As such, its results are neither practical -- nor relevant -- to everyday Americans.

There are 3 Case-Shiller flaws, in fact.

The first flaw is the index's limited sample set. Wikipedia lists 3,100+ municipalities nationwide and we can be certain that real estate is bought and sold in all of them. The Case-Shiller Index, however, measures just 20 of them. That's less than 1% of all U.S. cities. And then, within those tracked cities, Case-Shiller reports an average, lumping disparate neighborhoods and streets into one big number.

The "national figures" aren't really national, and the "city data" doesn't apply to your home, specifically.

The second Case-Shiller Index flaw is how it measures home value changes. The index only consider at "repeat sales" of the same home, so long as that home is a single-family, detached property. Condominiums, multi-family homes, and new construction are ignored in the Case-Shiller Index.

Because distressed properties account for such a high percentage of resales lately -- 36% in December --foreclosures and short sales skew Case-Shiller Index worse.

And, lastly, the Case-Shiller Index is flawed by "age". Because it reports closed sales a 60-day delay, December's Case-Shiller Index is measuring the values of home sales contracts from September and October. The Case-Shiller Index, therefore, is a snapshot of the not-so-recent past, and does little to tell us about the next 60 days.

Overall, the Case-Shiller Index is helpful tool for economists and policy-makers, but it doesn't do much good for individual homeowners across the city of Plymouth or anywhere else. For accurate, real-time housing data in your local market, talk to a real estate professional instead.

Pending Home Sales Drop For Second Straight Month

After a strong run to close out 2010, the market for home resales softened a bit in January.

On a seasonally-adjusted basis, the Pending Home Sales Index dropped 3 percent last month, and December's figures were revised downward for a loss, too, according to the National Association of REALTORS®.

A "pending home sale" is defined as a home under contract to sell, but not yet closed. 

The forward-looking index is now at a 3-month low on a national level, but still well ahead of its rolling 6-month average.

Unfortunately, national data isn't overly helpful for buyers and sellers of real estate. The National Association of REALTORS® knows this, of course, and makes an effort to get more granular, supplementing the Pending Home Sales Index report with a region-by-region breakdown. 

Between December and January, only the South Region increased in sales volume. The Midwest led the losers:

• Northeast Region: -2.4%
• Midwest Region : -7.3%
• South Region : +1.4%
• West Region : -5.2%

Even still, however, regional data remains too broad to be practical. The South Region, for example, is comprised of multiple states with thousands of cities and town. The housing market dynamics of a specific neighborhood in a specific regional city will differ from that of another neighborhood in another regional city.

Real estate data must be local to be relevant.

Overall, then, what may be most telling from January's Pending Home Sales Index is how weather can influence results.

Most of the country faced drastic weather conditions in January, ranging from raging snowstorms to bitter cold. Events like that tend to put a damper on home sales, a contributing factor in why the number of new contracts fell.

Another reason is rising mortgage rates. Conforming and FHA rates rose week-by-week in January, robbing home buyers of 10% of their purchasing power. This, too, can slow down purchase activity as buyers adjust their expectations.

Looking forward, we should expect the Pending Home Sales Index to resume rising. Inclement weather doesn't kill demand; it just delays it. And mortgage rates have settled somewhat. These two factors should help release pent-up demand just as the Spring Homebuying Season gets underway.

As more buyers enter the market, negotiation leverage will shift to home sellers, pressuring Minneapolis home prices higher. The lowest prices of the year -- and the cheapest financing -- could be what you see today.

What's Ahead For Mortgage Rates This Week : February 28, 2011

Mortgage markets improved last week as Wall Street's concerns about the Middle East trumped its fears of inflation. Conforming and FHA mortgage rates in Wisconsin fell to a 3-week low.

Last week marked the second straight week in which mortgage rates fell, a streak that follows four straight weeks of climbing mortgage rates.

It's been a bout of good fortune for rate shoppers and home buyers.

In addition, according to Freddie Mac's weekly mortgage rate survey, the average spread between conforming 30-year fixed rate mortgages and 5-year ARMs has widened further.

The two benchmark products are now separated by 1.15%. It's the largest interest rate gap in recent history; one that yields a monthly payment difference of $68 per $100,000 borrowed.

This week, it's unclear in what direction mortgage rates will go.

On one side, there's ongoing unease related to protests in Libya and its neighbors, and that's driving safe haven buying. 

"Safe haven buying" describes when investors flee risky situations and put their money in the safest places possible. Mortgage bonds are one such place, so when safe haven buying is in effect, bond demand is high so bond yields (i.e. mortgage rates) fall.

On the other side, inflation is ramping up.

Recent economic data shows that the economy is expanding, and the Federal Reserve is maintaining its accommodative growth policies. Therefore, this week, the key economic event will be Friday's jobs report. if job creation is high, expect inflation fear to re-ignite, and mortgage rates to rise.

Another risk factor for this week's rate shoppers is that tensions begin to settle in the Middle East, or that Wall Street gets more comfortable with rising oil prices. If that happens, safe haven buying will subside and mortgage rates will resume rising.

There appears to be more reasons for mortgage rates to rise this week than for them to fall. Plan accordingly.

If you have not locked a mortgage rate yet, this week may represent your last chance to get a low one. Talk to your loan officer and make a plan.

New Home Sales Crater In January, Opening The Door For Deals With Builders

Not all housing reports are sunny, it seems.

In its monthly New Home Sales release, the U.S. Department of Commerce showed a 13 percent drop-off in annualized new construction sales between the months of December and January.

It's the biggest one-month drop in New Home Sales since May 2010.

In addition, the supply of new homes for sale spiked higher to 7.9 months last month.  "Home supply" is defined as the amount of time it would take to sell the complete "for sale" inventory at the current pace of sales.

In December, the supply measured just 7.0 months,

Don't fret the news, however. For buyers of new construction in Plymouth , falling New Home Sales figures can be terrific. Weaker markets put pressure on the nation's home builders to sell their respective homes more quickly. To reach that goal, builders often discount prices and/or offer free upgrades to buyers. 

Some of that action may already be in effect.

Despite falling volume, the New Home Sales report showed that new homes are selling faster than in recent months. The median time required to sell a newly-built home dropped to 7.8 months in January -- a figure well below January 2010's reading of 13.9 months.

It suggests that builders are getting better at locating buyers, and moving property.

Therefore, if you're shopping for a new construction and see one worth buying, get to it. Not only will the home likely sell soon if it's priced right, but an increase in mortgage rates will make the home more expensive to finance.

Every 0.250% increase to rates adds $15 monthly per $100,000 borrowed.

Existing Home Supply Down 40% In Last 6 Months

Home resales rose another 2.7 percent last month, according to the National Association of REALTORS® monthly Existing Home Sales report.

An "existing home" is a home that's been previously occupied and is not considered new construction.

The number of existing homes sold on a rolling 12-month basis is now at its highest point since May 2010, the month before the federal homebuyer tax credit ended. It's also up some 40% since July 2010, the month after the tax credit ended.

But that's not the biggest story in the Existing Home Sales report. The precipitous decline in home inventory deserves more attention.

At the current pace of sales, the complete, national home resale inventory will be sold in 7.6 months. This is close to 5 months faster as compared to last year's peak, and well below the 2-year home supply average of 9.0 months. There more buyers in the market, it seems, and fewer homes from which they can choose.

Total home resale inventory is down to just 3.38 million homes nationwide -- the fewest in 12 months.

There were other interesting statistics in the official Existing Home Sales report, including a break-down of purchases by buyer-type.

• First-time buyers accounted for 29% of purchases, down from 33% in January
• Repeat homebuyers accounted for 48% of purchases, up from 47% in January
• Investors accounted for 23% of of purchases, up from 20% in January

In addition, distressed sales -- foreclosures and short sales -- made up 37 percent of the market.

Over the next few days, more housing data will hit the wires and it's expected to show similar strength to January's Existing Home Sales report. With falling supplies and a growing base of move-up buyers, home prices in Maple Grove and around the country are expected to rise in the coming months ahead.