Homebuilders Getting Optimistic; Higher Home Prices Ahead?

Homebuilder confidence continues to rise.

Just two months after falling to a multi-month low, the Housing Market Index surged again in November, climbing another three points to 21. It's the second straight month that the HMI posted a 3-point gain, catapulting the index to an 18-month.

The Housing Market Index is monthly report from the National Association of Homebuilders. It's meant to measure confidence among the nation's homebuilders, scored on a scale of 1-100.

When homebuilder confidence reads 50 or better, it reflects favorable conditions for homebuilders. Readings below 50 reflect unfavorable conditions.

The Housing Market Index has not read north of 50 since April 2006.

As an index, the HMI is actually a composite reading; the result of three separate surveys sent to homebuilders each month. The National Association of Homebuilders asks it members about current single-family home sales volume; projected single-family home sales volume over the next 6 months; and current "foot traffic".

In November, builder responses were stronger in all 3 categories :

• Current Single-Family Sales : 20 (+3 from October)
• Projected Single-Family Sales : 25 (+1 from October)
• Buyer Foot Traffic : 15 (+1 from October)

And, beyond the headline data, there is an important, noteworthy item in this month's Housing Market Index.

In November, "Current Single Family Sales" climbed 3 points for the second straight month, and is now at the highest point since May 2010 -- the month after last year's home buyer tax credit expired. And, this increase in sales volume is occurring as new home construction is falling, thereby reducing home inventory nationwide.

That's an important point for Minneapolis home buyers.

With more new home sales and fewer new home listings, prices are likely to increase into 2012. Especially with home builders predicting higher sales levels over the next 6 months, and seeing higher levels of buyer foot traffic through their properties today.

For now, though, home prices are stable and mortgage rates are low. This creates low-cost homeownership throughout Minnesota , and helps new home construction remain affordable.

If you're in the market for new home construction, the next 60 days may prove to be your best time to get "a deal".

Government Releases Additional HARP Guidance For Underwater Homeowners

Tuesday, Fannie Mae and Freddie Mac unveiled lender instructions for the government's revamped HARP program, kick-starting a potential refinance frenzy across Minnesota and nationwide.

HARP stands for Home Affordable Refinance Program. The updated program is meant to give "underwater homeowners" an opportunity to refinance at today's low mortgage rates.

In the two-plus years since its launch, HARP's first iteration helped fewer than 900,000 homeowners. HARP II, by contrast, is expected to reach millions.

Lenders begin taking HARP II loan applications December 1, 2011.

To apply for HARP, applicants must first meet 4 basic criteria :

1. The existing mortgage must be guaranteed by Fannie Mae or by Freddie Mac
2. The existing mortgage must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009
3. The mortgage payment history must be perfect going back 6 months
4. The mortgage payment history may not include more than one 30-day late payment going back 12 months 

If the above criteria are met, HARP applicants will like what they see.

For HARP applicants, loan-level pricing adjustments are waived in full for loans with terms of 20 years or fewer; and maxed at 0.75 for loans with terms in excess of 20 years.

This will result in dramatically lower mortgages rates for HARP applicants -- especially those with credit scores below 740. Some applicants will find HARP mortgage rates lower than for a "traditional" conventional mortgage.

In addition, HARP applicants are exempted from the standard waiting period following a bankruptcy or foreclosure, which is 4 years and 7 years, respectively.

These two items are inclusionary and should help HARP reach a broader U.S. audience.

HARP contains exclusionary policies, too.

1. The "unlimited LTV" feature only applies to fixed rate loans or 30 years or fewer. ARMs are capped at 105% loan-to-value.
2. Applicants must be "requalified" if the proposed mortgage payment exceeds the current payment by 20%.
3. Applicants must benefit from either a lower payment, or a "more stable" product to qualify

And, of course, HARP can only be used once. 

Fannie Mae and Freddie Mac will adopt slight variations of the same HARP guidelines so make sure to check with your loan officer for the complete list of HARP eligibility requirements.

Foreclosure Filings Climbing; 4 States Account For Half Of Nationwide Activity

Foreclosed homes are a hot market throughout Minnesota -- and supplies are ramping up.

According to foreclosure-tracking firm RealtyTrac, October's foreclosure filings rose 7 percent to 231,000 filings nationwide.

A "foreclosure filing" is any one of the following foreclosure-related events : A default notice on a home; a scheduled auction for a home; or, a bank repossession of a home. Because of this definition, a single home can account for up to 3 foreclosure filings -- one from each category. 

Because of this, we may glean more relevant insight into the foreclosure market by separating RealtyTrac's foreclosure report into "event types".

• Default Notices : Up 10% from September 2011; Down 31% from October 2010.
• Scheduled Auctions : Up 8% from September 2011; Down 38% from October 2010.
• Bank Repossessions : Up 4% from September 2011; Down 27% from October 2010.

These breakdowns suggest that, although improved as compared to last year, the foreclosure market is growing. At least, it's growing in some parts of the country. We can't forget that -- like everything real estate -- foreclosures are a local phenomenon. 

In October, just 4 states accounted for more than half of the country's foreclosure filings. Those four states -- California, Florida, Michigan and Illinois -- represent just 26% of the U.S. population.

Even on a per household basis, the figures remain disproportionate :

• Top 10 Foreclosure States : 1 foreclosure per 341 households, on average
• Bottom 10 Foreclosure States : 1 foreclosure per 7,434 households, on average

The nationwide foreclosure rate was 1 foreclosure per 563 households.

As a Minneapolis home buyer, foreclosures are worth watching. They account for 18% of home resales nationwide and, in some markets, can be bought at steep discounts versus a comparable "non-distressed" home. That is part of their appeal, in fact.

But just because foreclosed properties can be a "deal", it doesn't mean you should rush to buy one. Buying a foreclosed home from a bank is different from buying a non-foreclosed home from a "person". The contracts and negotiation process are different, and foreclosed homes are sometimes sold as-is.

"As-is" means "this home may have defects".

Therefore, if you plan to buy a foreclosed home, talk with a real estate professional first. You can learn a lot about the housing market online, but with respect to writing an offer on a property, you'll want an experienced agent on your side.

What's Ahead For Mortgage Rates This Week : November 14, 2011

Amid a dearth of new U.S. economic data, Eurozone developments led mortgage markets down in last week's holiday-shortened trading week. Mortgage rates across Minnesota worsened slightly, increasing week-over-week for the first time in a month.

Freddie Mac reports the average 30-year fixed rate mortgage at 3.99% with an accompanying 0.7 discount points. Discount points are loan fees, and 1 discount point is equal to 1 percent of your loan size.

Greece has dominated mortgage market headlines since February. As the nation-state aims to reign in its national spending, it has also adopted harsh austerity measures. The combination is meant to prevent future debt defaults, but global investors remain concerned that problems in Greece may spill over into other Eurozone nations.

As those concerns have grown, U.S. mortgage markets have benefited. This is because U.S. mortgage markets are backed by the U.S. government, and investors treat the U.S. mortgage market as "safe" compared to other security-types.

Safe investments are in high demand during uncertain times, often improving in price. This pattern is known as Safe Haven Buying and it's one reason why mortgage rates tend to fall when the economy is sagging. Mortgage rates move opposite of mortgage bond prices.

This week, U.S. economic data returns, but markets will still be watching the Eurozone. Sunday, Italy changed leadership, in part, to restore market confidence in its ability to get its debt load under control. 

Expect developments in Italy to sway U.S. mortgage rates this week. In addition, rates will respond to a rash of economic data and Fed speakers :

• Tuesday : Producer Price Index, Retail Sales, 5 Fed speakers
• Wednesday : Consumer Price Index, Housing Price Index, 2 Fed speakers
• Thursday : Housing Starts, Jobless Claims, 1 Fed speaker

Mortgage rates remain near all-time lows, with not much room to drop. If you're shopping for a mortgage rates, therefore, consider locking in. As Greece and Italy show signs of moving forward, expect Safe Haven Buying to recede, and mortgage rates to rise.

Banks Resume Tightening Mortgage Guidelines

As part of its quarterly survey to member banks nationwide, the Federal Reserve asked senior loan officers whether last quarter's "prime" residential mortgage guidelines have tightened, loosened, or remained as-is.

A "prime" borrower is defined as one with a well-documented, high-performance credit history; with low debt-to-income ratios; and who chooses to finance a home via a traditional fixed-rate or adjustable-rate mortgage product.

After a 2-year easing cycle, the nation's biggest bank banks report that they've reversed course, and are raising the bar on mortgage approvals.

For the period July-September 2010, 88% of responding loan officers admitted to tightening their prime guidelines, or leaving them "basically unchanged".

If you've applied for a home loan of late, you've experienced this first-hand.

High delinquency rates and defaults since 2007 have caused the banks to rethink what they will lend, and to whom. As a result, today's mortgage lenders scrutinize assets, incomes, and credit scores to make sure that nothing "slips by".

For today's home buyers and would-be refinancers, the mortgage approval process can be challenging as compared to how it looked just 18 months ago.

• Minimum credit scores requirements are higher today
• Downpayment/equity requirements are larger today
• Debt-to-Income ratio requirements are more strict today

In other words, although mortgage rates are the lowest that they've been in history, fewer applicants can qualify. And, with more the housing market still in recovery, it's likely that guidelines will tighten again in 2012.

Therefore, if you're among the many people in Maple Grove wondering if it's the right time to buy a home or refinance, consider that, although mortgage rates may fall, approval standards may not.

The best rate in the world won't matter if you're not eligible to lock it.

This Holiday Season, Think Twice Before Saving 15 Percent At The Register

With Halloween behind us, retailers are in the Holiday Spirit. Businesses know that consumers spent a median $556 on holiday gifts last year and they want this year to be just as strong.

That's why it's barely November and, already, Black Friday ads clog our mailboxes and the airwaves. Retailers want our dollars and they're offering great deals to early shoppers.

There's one discount a smart shopper should think twice, however -- the ever-present "Open A Charge Card Today And Save 15%" promotion. In the short-term, deals like this will save money. 

Over the long-term, however, opening a charge card could cost you much, much more -- especially if you plan to refinance your home or buy a new one.

Applying for a charge card can lower your credit score up to 85 points.  

According to the myFICO.com website, as a category, "New Credit" accounts for 10% of your 850 possible credit points, comprising the following credit traits :

• Your number of recently opened accounts
• Your number of recent credit inquiries
• Time elapsed since your recent credit inquiries
• Your proportion of new accounts to all accounts

Each trait is a negative in the FICO-scoring credit algorithm which means that, with each in-store charge card application, your credit score is likely to fall. How far your score will fall depends on the rest of your credit profile.

Meanwhile, low FICO scores correlate to higher loan fees.

Using a real-life example, assuming 20% equity in a home, for either purchase or refinance, look how loan fees for a $200,000 conforming mortgage change by FICO score :

• 740 FICO : There will be no added loan costs
• 720 FICO : You'll have a 0.250% increase in loan costs, or $500
• 700 FICO : You'll have a 0.750% increase in loan costs, or $1,500
• 680 FICO : You'll have a 1.500% increase in loan costs, or $3,000
• 660 FICO : You'll have a 2.500% increase in loan costs, or $5,000

You can see first-hand how expensive low credit score can be -- much more costly than the 15% saved at the mall. That's why people planning to refinance to today's low rates and soon-to-be Minneapolis homeowners, shouldn't rush to save 15% at the register. 

For people in want of a mortgage, high FICO scores are worth protecting.

Tips For Maximizing Your Home's Appraised Value

A home appraisal is an independent opinion of your home's value, performed by a licensed home appraiser. Appraisals are part of the traditional home purchase process, and lenders require them for most refinances, too.

Appraisers are trained professionals. First, they derive a base for your home's value based on the recent sales prices of homes that are comparable to yours in terms of bedrooms, bathrooms, style, and square footage.

Then, accounting for features and amenities that make your home different, the appraiser applies "adjustments" to that base value.

This methodology is called the "Sales Comparison" approach and the result is your home's appraised value.

It's the most common appraisal method used by lenders.

As a homeowner in Plymouth , you can't affect the sales prices of your home's comparable properties, but you can help your appraiser understand how your home stands apart from these homes. This, in turn, can affect your home's adjustments, resulting in a higher appraised value.

With home appraisals, every valuation dollar can matter. With that in mind, here are a few tips for maximizing your home's appraised value :

1. Be home for your appraisal so you can answer the appraiser's question, if there are any.
2. Mention any new roofing, flooring, HVAC, plumbing, or windows you've installed since purchase.
3. Don't mention projects or repairs you're "about to undertake". Appraisers don't credit for unfinished projects.
4. Make minor household fixes prior to the appraisal (e.g.; leaky sink, running toilet, peeling paint). 
5. Present a tidy home. This can contribute to a higher "overall condition" adjustment.

Lastly, schedule the appraisal for a time that is convenient for your entire household. An appraiser needs to see, measure, and take photos of every room in your home. If a room's door is closed because of a resting child, for example, the appraiser may need to schedule a second appointment to complete the appraisal, and that can raise your appraisal costs.