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Nearly 30 Percent of Refis Shorten Mortgage Term During Q3

November 30, 2012 by · Leave a Comment 

In the third quarter of 2012, 29 percent of borrowers who refinanced an existing mortgage chose to shorten their loan term, based on the Freddie Mac Quarterly Product Transition Report. Further, refinancing borrowers clearly preferred fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate. Of borrowers who refinanced during the third quarter of 2012, 29 percent reduced their loan term, while 68 percent of borrowers kept the same term as the loan that they had paid off; three percent chose to lengthen their loan term. More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless what the original loan product had been. For example, 82 percent of borrowers who had a hybrid ARM chose a fixed-rate loan during the third quarter, the highest share since the second quarter of 2010, while the remaining 18 percent chose to refinance back into a hybrid ARM.

“Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about 0.7 percentage points lower during the third quarter,” said Frank Nothaft, Freddie Mac vice president and chief economist. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.”

Those borrowers who refinanced under the Home Affordable Refinance Program (HARP) were more likely to take out a long-term, fixed-rate mortgage. For example, 25 percent of HARP borrowers shortened their loan term when they refinanced during the third quarter, compared with 31 percent of borrowers who refinanced outside of HARP. Further, of those borrowers who were refinancing out of an ARM, if they refinanced under the HARP program then more than 95 percent chose a fixed-rate mortgage; in contrast, of borrowers that had an ARM, but did not refinance through HARP, about one-half opted for another hybrid ARM.

“Fixed mortgage rates averaged 3.55 percent for 30-year loans and 2.84 percent for 15-year product during the third quarter in Freddie Mac’s Primary Mortgage Market Survey, well below long-term averages and the lowest quarterly averages recorded in our survey,” said Nothaft. “The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about five percent during the third quarter of 2012. It’s no wonder we continue to see strong refinance activity into fixed-rate loans.”

Q3 Negative Equity Drops: Less Than 30 Percent Now Underwater

November 30, 2012 by · Leave a Comment 

Negative equity fell in the third quarter, with 28.2 percent of all homeowners with mortgages underwater, down from 30.9 percent in the second quarter, according to the third quarter Zillow® Negative Equity Report. This is the first time negative equity has fallen below 30 percent, and is the biggest quarter-over-quarter drop in negative equity, since Zillow revised its method for determining negative equity in the first quarter of 2011.

Slightly more than 14 million U.S. homeowners with a mortgage were in negative equity, or underwater, in the quarter, owing more on their mortgages than their homes are worth. That was down from 15.3 million in the second quarter. Additionally, the nation’s 30 largest metro areas covered by Zillow’s report experienced quarter-over-quarter declines in negative equity.

Much of the decline in negative equity can be attributed to U.S. home values rising 1.3 percent in the third quarter compared to the second quarter, to a median value of $153,800, according to the Zillow Home Value Index.

“The fall in negative equity rates means homeowners have additional options for refinancing or selling their homes,” said Zillow Chief Economist Dr. Stan Humphries. “But while we’re moving in the right direction, a substantial number of homes are still locked up in negative equity, unable to enter the existing re-sale market despite the desires of their owner. The housing market has found real momentum of its own, but is not immune from shocks to the broader economy. If negotiations centered on resolving the fiscal cliff don’t inspire confidence in investors and consumers alike, recent home value gains–and, as a result, falling negative equity rates–could stall.”

Of the 30 largest metro areas covered by the report, the five experiencing the largest quarterly declines in negative equity were Phoenix (-6.2 percentage points), Las Vegas (-5.5 percentage points), Denver (-4.9 percentage points), Sacramento, Calif. (-4.6 percentage points) and Orlando (-4.2 percentage points).

What Does a Healthy National Housing Market Look Like?

November 30, 2012 by · Leave a Comment 

Freddie Mac’s economists today used the analogy of a patient with a high fever to talk about the recent course of the housing market. In the November 2012 Economic & Housing Market Outlook, Freddie Mac likened that patient’s 103° temperature to the height of the housing boom in 2006. The patient collapsed, the Outlook reported and “after a difficult period of convalescence, how seems to be getting better.” Indicators such as housing starts, sales, and prices are rising while the negatives of delinquencies and foreclosures inventories are trending down. Freddie Mac’s Chief Economist Frank E. Nothaft asks “What does a national housing market look like at a healthy 98.6 degrees?”

The answer to the question requires a comparison with the market today to that in the years before the peak itself. Today we are looking at:
•The S&P/Case-Shiller 20-city and Federal Housing Finance Agency’s purchase-only house price indexes have both shown seven consecutive months of seasonally adjusted positive gains through August.
•Freddie Mac’s own house price index was up 4 percent in September over the same month in 2011 and other geographically broad based increases in 44 states and the District of Columbia.
•Residential construction was up 26 percent in the first nine months of this year compared to the same time last year.
•Home sales were at a rate of almost five million units for the first nine months of 2012, a 9 percent increase from the same period a year ago.
•Homeowner and rental vacancy rates have declined to 1.9 percent and 8.6 percent, respectively.

On the downside, unemployment remains in the high 7-percent area and family-income growth is modest. Housing demand has remained subdued, and the pace of household formations was running at an annual rate of 0.5 percent over 2007- 2011, less than one-half the 1990-2006 average of 1.2 percent per year. Over the past four quarters however it has returned to a 1 percent growth rate which translates into about 1.15 million new households over the past year.

Freddie Mac said today that a diagnosis of a healthy market must take into account demographic shifts. “Generation Y” appears to be delaying household formation and home purchase by remaining in their parent’s home longer while the “Baby Boomers” are now looking at not only the younger generation living with them, but also their own retirement. Consequently fewer are likely to be move-up buyers and may delay a move to a retirement home. There is also the declining rate of both foreclosures and delinquencies. “If we put these additional factors into play,” the Outlook says, “what a healthy housing market should look like will dismay those who keep comparing housing to its peak years of 2004-2006.” Looking at long-term trends here’s what a healthy housing market should look like in the next five years:
•Housing starts increasing to about 1.7 to 1.8 million dwellings per year (compared with 2.1 million in 2005)
•Home sales increasing to about 5 percent of the housing stock, or about 6.5 to 7.0 million homes per year (compared with sales of 7 percent of the stock in 2005)
•U.S. house price appreciation rising gradually to about 3 percent per year (compared to 11 percent of 2005).
•Vacancy rates easing further to about 1.7 percent on for-sale homes and 8 percent for rental homes (down from peaks of about 3 percent in 2008 and 11 percent in 2009, respectively).
•Serious delinquency rates nearing 2 percent (down from a peak of 9.5 percent in early 2010)

To sum up: taking into account recent trends, key housing indicators and the shifting demographic patterns that will define a new and realistic trajectory toward a healthy housing market, the long- term prognosis is promising. In the immediate future, however, the market’s recovery will be tempered by continued high unemployment, modest income growth, and a subdued pace of household formations. In other words, the patient is on the way back to health, but don’t expect the housing market to wake up at 98.6 degrees tomorrow morning.”

Employment Situation Prediction for June 3rd, 2011

June 2, 2011 by · Leave a Comment 

Non-farms payrolls expected up 115,000; Increase in discouraged workers to continue driving unemployment rate

A meaningful correlation exists between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.

While economic data in January and February suggested continued strong economic growth, the direction of that data began to turn in March, as war and natural disasters pressured commodity prices and interrupted material supplies. This trend continued in April, as elevated oil prices raised questions the cost of oil would itself impact economic growth. Those concerns began to play out in May, as several significant economic activity surveys, including the important Philadelphia and New York Fed surveys, showed a sharp decline in underlying economic growth. In addition, weekly claims for unemployment benefits have climbed significantly, a disturbing trend as it could eventually impact hiring.

While oil prices have moderated slightly, the price of oil, currently $100 per barrel, remains at a high enough level that it could continue to impair economic growth. A significant contributing factor in high oil prices is the weakness experienced by the US dollar in currency markets, which directly impacts oil prices because most oil is paid for and purchased in dollars. The dollar is not expected to strengthen in the immediate future given questions about the level of US Treasury debt and the significant supply of currency that has come about due to recent Federal Reserve stimulative measures.

ADP released the results of its survey of employers, saying that it believed 38,000 private payroll jobs were added in May, 2011. This represented a sharp decline in employment growth, and is a low enough gain that it could likely result in a meaningful increase in the unemployment rate, especially if discouraged workers resume their employment search. It also interrupts a period of over 5 months of greater than 170,000 jobs added.

My models produced reliable predictions ranging from 35,000 to 161,000 private payroll jobs added in May, with a higher confidence range between 100,000 and 130,000. The correlation between ADP and BLS private payroll data still failed to hold true in the short term, but it did continue to move closer to signficance. As a result, data derived from that method were given reduced consideration.  I have developed a prediction that tomorrows report will show 130,000 private payroll jobs added in May.

Governments are continuing to cut employment, which is dragging on overall jobs creation. These cuts will lower total job additions to 115,000 for May.

The official unemployment rate rose to 9.0% in April, as some discouraged workers did return to the labor force. I had previously predicted the unemployment rate would be moving higher because of returning workers. That will not be a meaningful contributor to tomorrow’s unemployment rate; rather the decline in jobs growth will be a more important factor, and that will cause the official unemployment rate to increase to 9.1% for May.

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

Employment Situation Prediction for May 6th, 2011

May 5, 2011 by · Leave a Comment 

April private payrolls expected up 170,000; Labor-force participation rate at multi-decade low; Unemployment rate expected to rise to 9.0%

A meaningful correlation exists between the ADP Private Payrolls report and the Bureau of Labor Statistics monthly Employment Situation Report. I have used data from the past 5 years reports to develop a prediction for tomorrow’s Employment Situation Report.

Economic data in December, January and February suggested that the economic recovery was consolidating its momentum. Data turned slightly more mixed in March, as major natural disasters in New Zealand and Japan, and war in Libya have sapped consumer confidence and caused a sharp spike in energy prices. In the meantime, US manufacturing data showed continued growth and a healthy manufacturing environment, suggesting that employers may be hiring for those positions again.

Data in April have been substantially more mixed. While manufacturing continues to remain strong, unemployment claims have spiked to the highest level in 2011, and the outlook for services has worsened. Productivity remains strong, another indicator that businesses are getting more work from the same number of employees. Throughout April, commodity prices remained elevated, although this reversed sharply on May 5th with a 10% decrease in prices for oil, and similarly large changes in prices for gold, silver, and other precious metals. Federal Reserve Chairman Ben Bernanke suggested in comments he gave April 27th that he believed the spike in prices was transitory; while this is only a single day’s trading, a continued downward trend in prices would confirm his assertion.

Yesterday, ADP released its survey of employers, stating it believed 179,000 payroll jobs were added in April, 2011. This represented a significant decline in job creation from that firm’s revised estimate of 207,000 jobs added in March, 2011. This is the first time in 2011 that estimate has been below 180,000. While 179,000 new positions still represents meaningful growth in jobs, it is not enough to meaningfully reduce the unemployment rate.

My models produced reliable predictions ranging from 159,000 to 194,000 jobs added in April, based on this data. Recent data suggests that the result of tomorrows employment situation report will fall to the lower end of that range, especially the sharp increase in unemployment filings, which often lag the termination or layoff by 1-2 weeks. My data have retained strong statistical significance over the long term. That significance is returning over the short term, and data for one of the data sets used achieved sufficient significance for inclusion in this estimate. After review of available data, I have developed a prediction that tomorrow’s report will show 170,000 jobs were added to private payrolls in March.

Governments continue to cut positions, however, given the magnitude of government job cuts in 2010 and the first few months of 2011, it appears unlikely that trend will continue. I believe government layoffs will still result in the reduction of the total non-farms payrolls to 168,000.

The official unemployment rate declined to 8.8% in March as over 300,000 Americans reported they had started work. Still, labor force participation remains exceptionally low, and will likely result in challenges in reducing the unemployment rate, as discouraged workers come back into the labor force. Given other conditions, especially high gas prices, the return will not be strong in April. For tomorrow, the I expect the reported unemployment rate to increase to 8.9%

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates of Providence, RI, and has more than 10 years experience in the mortgage industry. He also serves as an Adjunct Professor of Finance and Economics with Roger Williams University and the University of New Haven. Extensive data was researched and compiled by Thomas Khoudary of Providence College.

Employers Add Scant 39,000 Jobs in November – A Reprieve for Mortgage Rates

December 3, 2010 by · Leave a Comment 

Unemployment rate edges up to 9.8%; Unexpected drop in retail hiring; Private employers add only 50,000 jobs; Mortgage rates at a 4-week high; ISM non-manufacturing due

It appears that labor markets may not be as strong as recent data have suggested. The Bureau of Labor Statistics’ Employment Situation Report was released this morning, showing a mere 39,000 jobs added in November, far below our estimate of 210,000 and other analysts average estimates of 130,000. A surprising drag on total employment was the retail sector. While expansion in that sector would ordinarily be expected at this time of the year, retail employment actually fell 28,100 in the month.

Offsetting the low results slightly was a revision to October’s report adding an additional 21,000 jobs to bring that month’s total to 172,000 from 151,000 previously reported.

Private employers added only 50,000 jobs in November. Most economists are looking to private hiring to pull the unemployment rate down, as it is unlikely governments will be able to do much to increase its own payrolls in the face of increasing pressure to reign in deficit spending. During the worst of the financial crisis, private employers cut over 7 million jobs, and have only recently begun to replace those workers.

The unemployment rate increased to 9.8% as more than 100,000 new or returning workers actively sought work, while total workers employed fell by 173,000. Note that these figures do not coincide with the non-farms payrolls figures. The Employment Situation report covers two separate surveys: an establishment survey that provides the jobs data; and a household survey which provides data used to calculate the unemployment rate.

Today’s unemployment report is the largest item of negative economic news in some time, and the deluge of good news has caused a significant increase in mortgage rates. Yesterday, mortgage firm Freddie Mac reported average 30-year fixed rates of 4.46%, up sharply from the recent low of 4.17%. Still, current rates are better by far than they have been historically, presenting excellent opportunities for home buyers and home owners considering a refinance.

The Institute for Supply Management’s non-manufacturing survey came out moments ago indicating continued growth in line with analyst estimates.

Mortgage pricing will improve this morning, but the reason is an island in a sea of otherwise positive economic data. The dip in rates could be very short lived, so borrowers and loan originators should take advantage of it to get rates locked. I recommend locking all loans at this time provided closing is with 60 days.

Next week will bring a few scattered economic reports and $65 billion in new Treasury borrowing, which should serve as a barometer for markets’ willingness to absorb further supply of government debt. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great day!

Related articles:

Daily Update for November 17th

Weekly Recap for November 22nd-26th

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.

ADP Report Reveals Weakening Employment Situation – Daily Mortgage Rate Update for October 6th, 2010

October 6, 2010 by · 1 Comment 

39,000 jobs cut by private employers; Mortgage rates brushing all-time lows again; Is Quantitative Easing 2 the new salvation? – Daily Mortgage Rate Update for October 6th, 2010

Payroll and human resources firm ADP this morning reported the results of its September survey of private payrolls, and the results were somewhat worse than expected. Employers reduced their payrolls by 39,000 jobs in September, when economists had been hoping to see an increase of 18,000 jobs. Coupled with the last major round of Census layoffs, this could lead to a sharply worse employment picture in Friday’s employment situation report.

Mortgage pricing is once again near the threshold of its lowest point ever, thanks to the recent run of weak economic reports. On Monday, manufacturing reported in weaker than expected, sending rates lower. Yesterday, a positive report from the services sector would have pressured mortgage rates to run higher, but intervention from Japan to weaken its currency stove off that worsening. For some time, Japan has been concerned that the strengthening yen would impact that country’s ability to export goods to other countries. Yesterday it took action by buying dollars and selling yen on international markets, indirectly causing US Treasury prices to increase.

The largest area of speculation on financial markets today is over something called “Quantitative Easing 2″.  This program, which is now widely expected to be implemented by the Federal Reserve, would involve some degree of Fed purchases of securities on the open market, most likely Treasuries. The Fed is in a bit of a quandary about means to further stimulate economic activity – its key interest rate has been near 0% since December 2008. QE2 as it is called would allow the Fed to pump cash into an economy struggling to maintain current pricing levels, thus, hopefully, increasing spending by consumers and businesses, and staving off deflation.

Mortgage pricing has opened sharply stronger on the weak employment data and is again testing all time highs seen in late August. That is probably the only reason to question a float strategy at this point – how much lower can rates go? We’ve seen significant benefits from floating so far, but, at the moment the best benefit we can count on is the improved rates received on a 30-day or 15-day lock compared to the longer 45-60-75 day locks many commercial banks are requiring for refinances. By putting a loan in process and waiting to lock until closer to closing, many borrowers are benefiting from better rates than ever expected.

At present, for any loans closing less than 30 days from now, I recommend locking to take advantage of the great pricing currently available, and to avoid risk associated with the reports due later this week. For loans greater than 30 days from closing, I suggest floating to take advantage of the time remaining between now and closing.

Tomorrow, we get the weekly unemployment claims report, followed by Friday’s all-influential Employment Situation Report, also known as non-farms payrolls. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great day!

Related articles:

Daily Update for September 30th

Weekly Recap for September 20th-24th

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.