Home Opportunity Index Ranks 225 Metro Areas For Affordability

With home prices still relatively low and mortgage rates trolling near their all-time best levels, it's no surprise that home affordability is extraordinarily high in Minneapolis and most U.S. markets.

According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between January-March 2010 were affordable to families earning the national median income.

It's the second highest reading in the survey's history.

Of course, on a city-by-city basis, home affordability varies. 

In the first quarter of 2010, for example, 98.7% of homes sold in Bay City, Michigan were affordable for families earning the area's median income and in Indianapolis, the percentage was almost 95 percent.

Indianapolis has held the top quarterly ranking for close to 5 years now.

On the opposite end of the spectrum, the New York-White Plains, NY-Wayne, NJ region earned the "least affordable" metropolitan area for the 8th consecutive quarter.  Just 20.9% of homes are affordable to families earning the local median income.

The rankings for all 225 metro areas are available on the NAHB website but regardless of where your town ranks, home affordability remains high as compared to historical values but it likely won't last long.  Home values are recovering in many markets and mortgage rates won't stay this low forever.

All things equal, buying a home may never come this cheap again. If you were planning to buy later this year, consider moving up your timeframe.

The Fed's April Minutes Push Mortgage Rates Even Lower

After starting the day in the red, mortgage rates rebounded Wednesday afternoon after the Federal Reserve released its April 27-28, 2010 meeting minutes.

It's good news for home buyers and would-be refinancers in Plymouth.  Mortgage rates continue to troll along multi-year lows.

"Fed Minutes" are lengthy, detailed recaps of Federal Open Market Committee meetings, not unlike the minutes you'd see after a corporate conference, or condo association gathering. The Federal Reserve publishes Fed Minutes 3 weeks after each respective FOMC get-together.

The Fed meets 8 times annually.

Because of the minutes' content and density, it's of tremendous value to Wall Street and investors.  Fed Minutes provide a glimpse into the conversations and debates that shape the country's monetary policy.

The broad scope of the published meeting minutes are in sharp contrast to the more well-known, post-meeting press release which reads more like a policy summary.

And the extra words matter.

Here's some of what the Fed discussed last month:

• On Greece : A crisis in Greece could slow U.S. domestic growth
• On housing : Despite government support, growth appears to have stalled
• On its mortgage buyback program : There's little reason to sell mortgage bonds right now

When the markets saw the Fed Minutes, what had been a down day for bond markets turned positive. The less-than-sunny outlook for the near-term U.S. economy sparked bond sales, pushing prices higher.

Mortgage rates move opposite mortgage bond prices.

Wall Street is always in search of clues from inside the Fed about what's next for the economy and post-FOMC minutes usually give good fodder.  April's meeting was no different.

For now, mortgage rates remain near all-time lows but once the Eurozone issues are settled, rates are likely to rise. If you haven't locked a mortgage rate, your window may be closing.  Once the economy is turning around for certain, mortgage bonds will be among the first of the casualties.

Housing Starts Rise In April, Exerting Downward Pressure On Home Prices

Single-family Housing Starts rose by 55,000 last month, suggesting ample housing stock from which Minneapolis can choose this summer.

The report is a slightly larger read than what economists had expected.

Furthermore, for the first time since June 2009, Housing Starts appears to have broken away from its half-million unit plateau. 593,000 new homes were started in April.

Ordinarily, both Wall Street and Main Street would celebrate a strong housing sector report like this, but the Department of Commerce's press release also held two cautionary notes.

The first point of caution is a mathematical one.  Although single-family starts increased by 10.2 percent, the survey had a Margin of Error of 10.7 percent. This means that Housing Starts may have fallen by 0.5 percent and the report is statistically worthless.

The second point of caution is tied to Building Permits, a complementary data point in the same Department of Commerce report.  In April, Building Permits fell by almost 11 percent with a tiny Margin of Error of less than 2%.  This tells us that builders are pulling back -- a sign of low housing market confidence

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Housing Starts, therefore, should ease though June and July.

Home prices are based on housing's supply and demand.  For the next few months, supply should elevate, helping prices remain suppressed, after which, supply should dwindle. 

The best time to buy a home, therefore, may be now.  As the summer months come to close, we may find that buyers vastly outweigh sellers.

The Right Way To Take A Cash Gift For Downpayment

As lenders tighten mortgage guidelines for Plymouth home buyers, minimum downpayment requirements are increasing.  Several years ago, you could finance a home with nothing down. Today, most conventional mortgages require at least 10 percent.

Anecdotally, guideline changes have led to an increase in the number of home buyers accepting cash gifts from family.

Gifts are allowed in most cases but the problem is, if you don't accept the gift in a "lender-friendly" way, the mortgage underwriter could reject it, and negate it.

You can't just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.

1. Provide an acceptable gift letter signed by all parties
2. Provide documentation of the gifter's withdrawal of funds via teller receipts
3. Provide documentation of the giftee's deposit of funds via teller receipts

Lenders require these 3 steps for two basic reasons.  First, they want to make sure that the cash gift is "clean" (i.e. not laundered).  Second, they want to make sure the gift is really a gift and not a loan-in-disguise.

It's why lenders typically require that the loan application be accompanied by a signed, dated letter.

For example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift -- not a loan -- and there is no expectation of repayment.

Signed,
[Signature of gifter]

As an additional step, home buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit. If the cash gift is for $10,000, therefore, the bank's deposit slip should indicate that a $10,000 deposit was made -- nothing more, nothing less. Don't add a random $100 deposit to the transaction, in other words. The $100 deposit should be a separate transaction.

It's also worth noting that gifting funds between family members can create both legal and tax liabilities.  If you're unsure about how donating or receiving a gift may impact you, call or email me directly.  If I can't help you with your questions, I can refer you to somebody that can.

What's Ahead For Mortgage Rates This Week : May 17, 2010

Mortgage markets improved last week -- but barely -- as ongoing doubt surrounding the health of Greece and the Euro pushed additional investors into safe assets, including mortgage bonds. 

Mortgage rates were wildly volatile between Monday and Friday before closing the week slightly better than their best levels of the year.

It's the 3rd straight week in which mortgage rates improved but that doesn't necessarily mean the trend for lower rates will continue. The last two times mortgage rates teased these levels, they immediately spiked higher.

It happened once in February 2010, and again, 4 weeks later in March.

This week, the same could happen.  After a week-and-a-half without much data of consequence, the newswires will be on overtime.

The first release to watch is Monday's National Association of Home Builder's Housing Market Index.  It's not a "mainstream" release, per se, but the index gives some insight into how homebuilders are feeling about the economy and homebuilders are on the frontlines of the housing market. The stronger the report, the worse it should be for mortgage rates going forward.

The same goes for Tuesday's Housing Starts and Building Permits numbers.

Also on Tuesday, the government releases the Producer Price Index. The Producer Price Index is like a "cost of living" report for U.S. businesses -- it measures the change in operating cost from mont-to-month and from year-to-year.

PPI is viewed as a precursor to inflation and inflation is bad for mortgage rates. Therefore, if the Producer Price Index reads higher-than-expected, mortgage rates will rise. If PPI is in-line, rates in Wisconsin should hold steady.

Then, on Wednesday, the Consumer Price Index is released. Again, if costs are rising, mortgage rates will likely follow.

The week closes with the release of the Federal Reserve's minutes from its last meeting in April and the jobs figures.  All in all, a busy week of data and mortgage rates could change by a lot.

If you're still shopping for the market bottom, luck's been on your side but there's a point when it's best to just lock in.  This week may be that point.

Talk to your loan officer about today's market and make yourself a game plan for locking a rate. Rates have never stayed this low, for this long, and this week doesn't figure to be much different.