Home Affordability Still Tops Nationwide

Home affordability slipped slightly last quarter, dragged down by rising mortgage rates and recovering home prices in Minnesota and nationwide.

The National Association of Home Builders reports a Q2 2011 Home Opportunity Index reading of 72.6. This means that nearly 3 of 4 homes sold last quarter were affordable to households earning the national median income of $64,200.

Q2 2011 marks the 10th straight quarter -- dating back to 2009 -- in which the index surpassed 70.

Prior to 2009, the index had never crossed 70 even one time.

However, we must remember that the Home Affordability Index is a national survey. From region-to-region, and town-to-town, home affordability varied.

In the Midwest, for example, affordability was highest. 14 of the 15 most affordable markets nationwide were spread throughout Ohio, Michigan, Illinois and Indiana. Only Syracuse (#9) cracked the list from other regions. 

The top 5 most affordable cities in Q2 2011 were:

1. Kokomo, IN (95.8%)
2. Wheeling, WV (94.7%)
3. Lansing, MI; East Lansing, MI (94.4%)
4. Bay City, MI (94.3%)
5. Youngstown, OH; Warren, OH; Boardman, OH (93.7%)

By contrast, the Northeast Region and Southern California ranked as the least affordable markets. Led by the New York-White Plains, NY-Wayne, NJ area, 7 of the 10 least affordable areas were in New York, New Jersey, and California. For the 13th consecutive quarter the New York metro area was ranked "Least Affordable".

Just 25.2 percent of homes were affordable to households earning the area median income there.

The rankings for all 225 metro areas are available for download on the NAHB website.

After A Pause, Mortgage Guidelines Resume Tightening

Mortgage guidelines appear to be tightening with the nation's largest banks.

In its quarterly survey to senior loan officers nationwide, the Federal Reserve uncovered that a small, but growing, portion of its member banks is making mortgage approvals more scarce for "prime" borrowers.

A prime borrower is described as one with a well-documented payment history, high credit scores, and a low monthly debt-to-income ratio.

Of the 53 responding "big banks", 3 reported that mortgage guidelines "tightened somewhat" last quarter. This is a tick higher as compared to prior quarters in which only 2 banks did.

46 banks reported guidelines unchanged from Q1 2011.

When mortgage guidelines tighten, it adds new hurdles for would-be home buyers in Maple Grove. Tighter lending standards means fewer approvals, and that can retard home sales across a region.

Just don't confuse "tighter standards" with "oppressive standards".

While it is more difficult to get approved for a purchase home loan in 2011 as compared to 2006, the same basic rules apply:

• Show that you have a history of paying your bills on time
• Show that your income is sufficient to cover your obligations
• Show that you can make a downpayment

And the good news is that, once approved, you'll benefit from some of lowest mortgage rates in history.

Last week, the average 30-year fixed mortgage was below 4.250% for buyers willing to pay points, and the average 5-year ARM was below 3.000%. The 15-year fixed rate loan was similarly low.

For as long as delinquency rates remain high, expect mortgage guidelines to continue to tighten through the rest of 2011 and into 2012. Therefore, if you're a "fringe" borrower looking at a purchase in the fall or winter season, consider moving up your time frame. Changing guidelines may render you ineligible for a mortgage.

As Jobs Tally Fades, Mortgage Rates Fall

The U.S. economy is no longer adding new jobs.

Last Friday, in its monthly Non-Farm Payrolls report, the Bureau of Labor Statistics reported that the U.S. economy added exactly zero new jobs in August as the national Unemployment Rate held steady at 9.1 percent.

Despite the "zero" reading, the jobs figures were in the red. This is because the BLS issued revisions to its June and July figures that adjusted the two months of data down by 58,000 jobs.

Economists had expected a monthly reading of +75,000. Their estimates missed.

The weaker-than-expected jobs data fueled a stock market sell-off that pushed stocks down 2.5% and spurred a bond market rally. 

Mortgage bonds -- the securities on which mortgage rates in Plymouth are based -- improved Friday ahead of Labor Day Weekend, and carried that momentum into Monday. While the U.S. markets were closed, global investors snapped up "safe" assets in fear of a second wave of financial crises. Already this year, markets have grappled with sovereign debt concerns in Greece and Portugal.

Now, Italy is facing similar international scrutiny, forcing markets to question the health of the Eurozone.

Concerns like these tend to benefit home buyers and mortgage rate shoppers and that's exactly what we're seeing.

Mortgage rates are falling this week. Rates may reverse quickly, however.

Later this month, the Federal Reserve and White House are each expected to add stimulus to the U.S. economy. If they do, it may push investors back into risky assets including equities at the expense of safe securities. This would spark a bond market sell-off and send rates higher.

Possibly by a lot.

Therefore, if you're currently looking for home or comparing rates between lenders, consider executing sooner rather than later. Mortgage rates are low today, but low rates may not last. And when rates reverse higher, it will likely happen fast.

What's Ahead For Mortgage Rates This Week : September 6, 2011

Mortgage markets improved last week on a weak jobs report, expectation for new market stimulus, growing evidence of a global economic slowdown. Rates were especially volatile, too, with the long Labor Day Weekend looming.

Overall, conforming mortgage rates in Minnesota improved for the first time in 3 weeks. On a product-by-product basis, though, mortgage rates are faring differently.

According to the Freddie Mac weekly mortgage rate survey, last week, the 30-year fixed rate mortgage was unchanged but the 15-year fixed rate mortgage and the 5-year ARM fell.

The 5-year ARM is at a new all-time low for qualified borrowers.

A drop in 5-year ARM rates throughout Minneapolis without a corresponding drop in 30-year fixed mortgage rates signals that markets expect the economy to stabilize over the long-term but with weakness in the near-term. The 5-year ARM's ultra-low rates suggests marked weakness ahead.

The 5-year ARM may get another boost this week, too.

While U.S. markets were closed for Labor Day, Eurozone nations were hit with new wave of sovereign debt concern, this time centered on Italy. Greece, Portugal and Ireland have already been the subject of debt default debate this year. Italy's inclusion hit equity market hard and safe-haven buying re-commenced.

This should give a good start to mortgage rates this week. Look for rates to start lower. That's not to say, however, that they'll finish the week lower. With very little economic data due for release, markets will move on momentum and momentum can change in a flash.

The two biggest potential market movers both come Thursday. Fed Chairman Ben Bernanke speaks in Minnesota at 1:00 PM, and United States President Barack Obama addresses the nation at 7:00 PM. Both speeches are highly anticipated and should cause markets to move.