by LLT | Apr 10, 2017 | LLT, News
Nationwide, families with small children typically spend seven years in their home.
U.S. homeowners that bought a two-bedroom home in 2009 and wanted to upgrade to a three-bedroom home in 2016 could expect to spend an additional $447 per month on their mortgage.
Move-up buyers in many large Midwest markets could expect to stretch their dollars further. In Chicago, Cincinnati and St. Louis buyers can expect to spend roughly $150 more on mortgage payments each month by upgrading from a two-bedroom to a three-bedroom home.
In hot, coastal markets, move-up buyers could expect to spend upwards of $500 extra each month – and in notoriously expensive Los Angeles, San Francisco and San Jose, more than $1,000 – on mortgage payments when moving from a two-bedroom to a three-bedroom home.
Growing families and households looking for more space this home-shopping season probably already anticipate paying more each month for that larger home. But just how much their monthly mortgage payments rise depends largely on where they’re looking to live and how much more space they want.
Nationwide, families with small children typically spend seven years in their home, according to the U.S. Census Bureau. And because many move-up buyers are just those kinds of people – households looking to expand – we defined “move-up buyers” as households that have spent seven years in their home. This means that the family purchased a home in 2009 and was looking to expand and purchase another home in 2016.
The average American family moving from a typical two-bedroom U.S. home to the median three-bedroom home in the same ZIP code last year could expect to pay $447 more on their monthly mortgage payment, or about $5,364 per year. The premium on an additional bedroom also increases with the size of the house. For example, upgrading from a one-bedroom home to a two-bedroom home would equate, on average, to an additional $192 per month on the mortgage payment. Move-up buyers nationwide moving from the median three-bedroom to the typical four-bedroom home could expect an even steeper increase in monthly costs – $614 more per month.
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by LLT | Apr 7, 2017 | LLT, News
Millennials are finally entering the market, at least according to Ellie Mae’s recent Millennial Tracker, which shows millennials accounting for 86 percent of all closed loans in February.
Results of the Tracker also point to millennials’ overall time-to-close tightening, hitting just 44 days for the month—the shortest average time-to-close for this demo since March 2016. According to Joe Tyrell, EVP of Corporate Strategy for Ellie Mae, this is likely due to technology that allows lenders to automate some of their processes.
“Purchase loans are increasing, indicating that Millennials are continuing to enter the first-time homebuyer market,” Tyrell said. “In addition, we saw time to close decrease from 49 days in January to 44 days in February, which indicates that our lenders are seeing more efficiency as they embrace mortgage automation.”
Broken down by loan type, time-to-close was tightest on VA loans, which decreased from 57 to 41 days from January to February. Purchase loans dropped from 46 to 42 for the same time period, FHA loans dipped from 47 to 43, and refinance loans decreased from 58 to 52.
On a market level, the most millennial purchases by percentage were seen in Texas, with Odessa, Midland, and Beaumont-Port Arthur coming in at the top. Odessa was one of the top markets in February as well.
Overall, millennial purchases are on the incline, up 2 percent from January, as are FHA loans, which increased from 35 percent to 36 percent. Conventional loans remained stable, making up 61 percent of all loans for February. Refinances fell, however, dipping to 14 percent of all millennial loans—down 2 percentage points over the month.
Also falling for the millennial demo in February were FICO scores, dropping from an average of 724 in January to 723 over the month. Millennial scores peaked in August through October of last year, when they averaged 726. FICO scores were higher on conventional loans (747) than on FHA loans (690) and VA loans (745).
According to past iterations of the Millennial Tracker, millennial women—particularly those who are single—are more likely to choose FHA loans than their male counterparts.
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by LLT | Apr 6, 2017 | LLT, News
Mortgage rates fell for the third week in a row, but their downward trend may be short-lived.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average tumbled to 4.1 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.14 percent a week ago and 3.59 percent a year ago. The 30-year fixed rate has fallen 20 basis points in less than a month.
The 15-year fixed-rate average dropped to 3.36 percent with an average 0.5 point. It was 3.39 percent a week ago and 2.88 percent a year ago. The five-year adjustable rate average ticked up to 3.19 percent with an average 0.4 point. It was 3.18 percent a week ago and 2.82 percent a year ago.
“After three straight weeks of declines, the 30-year mortgage rate is now barely above the 2017 low,” Sean Becketti, Freddie Mac chief economist, said in a statement. “Next week’s survey rate may be determined by Friday’s employment report and whether or not it can sustain the strength from earlier this year.”
The yield on the 10-year Treasury sank to 2.34 percent Wednesday, a drop of 28 basis points in less than three weeks. Since mortgage rates tend to follow the moment of long-term bonds, home loan rates also dipped.
But between the release of the Federal Reserve minutes Wednesday and Friday’s employment report, mortgage rates could be poised for a rebound. In the minutes of its March meeting released this week, the central bank indicated that it may begin to shrink its balance sheet. Since the economic downturn, the Fed has been buying mortgage-backed securities and has about $4.5 trillion in bonds. Investors have been wondering when it would begin shedding its holdings.
The last time the Fed signaled it was thinking about unwinding its bond-buying program, mortgage rates soared in what became known as the “taper tantrum.”
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by LLT | Apr 5, 2017 | LLT, News
Fannie Mae study questions mortgage professionals and consumers
A new study by Fannie Mae examines homebuyer education, and explains why many buyers aren’t being educated.
Most consumers interviewed in the study had little or no awareness of pre-purchase homeownership education classes unless they were required to take one.
For this study, Fannie Mae conducted 54 individual in-depth interviews and eight two-hour mini-group discussions across four markets, among lower-income first-time homebuyers as well as professionals, real estate agents and loan officers, who have experience working with lower-income first-time homebuyers and homeownership education or counseling.
Despite the low amount of participation in educational programs, the study showed all participants agreed homeownership education gives borrowers knowledge, confidence and employment to be financially and emotionally prepared for homeownership.
However, homeowners rarely participate in these programs unless they are required to take educational courses and were referred to by loan officers for loan qualification requirements or benefits such as down payment assistance programs, the study showed. In fact, very few even knew the range of programs offered.
“There is considerable fragmentation in the HE landscape,” the study states. “Virtually no consumers and only a few professionals understand the range of HE providers and HE offerings.”
So why is there such a lack of education in the market? Fannie Mae’s study explains that as well. Here are the results for homebuyers, lenders and real estate agents:
- Homebuyers: HE involves time and inconvenience. It’s “another hoop to jump through” during an already stressful time. It sounds like school and involves coming up with more money if a fee is involved.
- Lenders: HE is one more thing on the long list of paperwork to make the deal happen. Loan officers have a deal-centered, transactional mindset. Some are concerned that borrowers will learn something that could kill the deal or lead them to other lenders.
- Real estate agents: There is an overall “not my job” mindset. Real estate agents have no concrete incentive or motivation to refer their clients to HE. They view lenders as experts on loan-related steps and process and want to guide or control their clients themselves. Like loan officers, they are concerned that borrowers might connect to another real estate agent or deal.
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![Why We Could Get Negative Interest Rates Even Though The Fed Is Hiking]()
by LLT | Apr 4, 2017 | LLT, News
At its March meeting, the Federal Reserve raised interest rates by 0.25%. In doing so, it hiked rates for only the third time since 2006. However, in a strange turn of events, the Fed’s move was perceived as a dovish one by the markets.
That’s because even with inflation at its highest level since 2012, the Fed said monetary policy will remain accommodative “for some time.” As has been the case in the past, the Fed is willing to let inflation consolidate above its 2% target before embarking on a more aggressive tightening path.
This willingness to let inflation “run hot” means even as nominal rates rise, real rates—that is, the nominal interest rate minus inflation—are headed into negative territory.
So what are the implications of negative real rates?
Negative Real Rates Drive Gold Higher
The consumer price index (CPI), the most widely used measure of inflation, averaged 2.67% for the first two months of the year. Even if inflation averaged only 2% for all of 2017—the Fed’s target—it would be a big problem for investors and savers alike.
Today, a one-year bank CD pays about 1.4%. Therefore, anyone who keeps their money in a bank is watching their purchasing power erode.
Of course, there are other options. You can put your money in U.S. Treasuries or dividend-paying stocks—both popular sources of fixed income.
However, with both the 10-year Treasury yield and the average dividend yield for a company on the S&P 500 hovering around 2.35%, that doesn’t leave much in the way of real gains if inflation is running at 2% per annum.
If inflation rises or bond yields fall, real interest rates will be pushed into the red… and that’s very bullish for gold.
Gold is known as the yellow metal with no yield, but simple math tells us no yield is better than a negative one. Because of this, gold has done well when real rates are in negative territory. In fact, real US interest rates are a major determinate of which direction the price of gold moves in.
A study from the National Bureau of Economic Research found that from 1997–2012, the correlation between real U.S. interest rates and the gold price was -0.82.
This means as real rates rise, the price of gold falls and vice versa. A -1.0 reading would be a perfect negative correlation, so this is a tight relationship.
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by LLT | Apr 3, 2017 | LLT, News
Continued increases in home prices is driving a the strongest equity market in a decade, according to the latest Mortgage Monitor Report by Black Knight Financial Services. The report, looking at February numbers, found that appreciation nationally has generated $4.7 trillion in equity available to borrowers, the highest it’s been since 2006.
Appreciation is also having a profound effect on the number of underwater borrowers, Black knight reported. An annual home price appreciation of 5.5 percent in 2016 helped raise number of U.S. mortgage holders with tappable equity to 39.5 million. Two thirds of that equity belongs to borrowers with current interest rates below today’s 30-year interest rate, and 78 percent belongs to borrowers with credit scores of 720 or higher.
Overall, Black Knight reported, the total U.S. loan delinquency rate in February was 4.21 percent, a 1 percent drop from January. Mississippi, Louisiana, Alabama, West Virginia, and New Jersey had the highest rates of delinquency; Idaho, Montana, Minnesota, Colorado, and North Dakota had the lowest.
Ben Graboske Black Knight executive vice president for Black Knight’s Data & Analytics division, said that the current equity landscape, in conjunction with a higher interest rate environment, will likely affect mortgage lending trends over the coming year.
“December 2016 marked 56 consecutive months of annual home price appreciation,” Graboske said. “That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to U.S. mortgage holders by an additional $568 billion.”
The nearly 40 million homeowners with tappable equity have current combined loan-to-value ratios of less than 80 percent, Black Knight reported. And cash-out refinance data suggests that they have been increasingly tapping that equity, though perhaps more conservatively than homeowners had in the past.
In Q4, $31 billion in equity was extracted from the market via first lien refinances. While that was the most equity drawn in over eight years, borrowers are still tapping equity at less than a third of the rate they were back in 2005, and they’re doing so more prudently. Post-cash-out loan-to-value-ratio was 65.6 percent, the lowest on record.
However, Graboske said, prepayment speeds, historically a good indicator of refinance activity, have dropped by nearly 40 percent since Jan.1, in the face of today’s higher interest rate environment.
“The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent, but rate-term refinances decline by 75 percent,” he said. “Based on past behavior, we may see a decline in first lien cash-out refinance volume, but it’s still likely that cash-out refinances‒‒and purchase loans‒‒will drive the lion’s share of prepayment activity over the coming year in any case.
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Nationwide, families with small children typically spend seven years in their home.
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