First Mortgage Blog

Consumer & Realtor Corner

This news is designed to assist you by providing information that will be helpful to your existing and previous clients as well as other industry related contacts.  Feel free to forward this to your database, post on blogs, websites and more.

Home Prices Still Rising, But Still Affordable

Home prices may have been on the rise the last few years, but homes are still more affordable now than they were in the pre-bubble years, according to the latest Mortgage Monitor Report released by Black Knight Financial Services. Households are using 21 percent of the national median income to pay a home loan on a median-priced home. In 2000-2002, the average payment-to-income ratio was 26 percent, and in 2006, it was 33 percent.

However, Black Knight’s report warns that if home prices continue to increase – as they have year-over-year for 43 consecutive months – the affordability picture in home ownership could start to change in two years. Black Knight factored in a continuing 5.5 percent annual home price appreciation as well as interest rate rises of 50 basis points a year. Under that scenario, “we see that in two years home affordability will be pushing the upper bounds of that pre-bubble average,” says Ben Graboske, senior vice president at Black Knight Data and Analytics.

Source: Black Knight Financial Services

Note: The answer to rising home prices and rents? Buy now as a home provides inflation protection!

Some are enjoying the sale

While many are not too happy about the stock market retrenching and others who work in the energy industry are suffering through a retrenching, much of America is enjoying the sale going on right now. What is on sale? Gasoline and home loans. If these gas prices hold, we would expect a very busy summer vacation season and this should boost the economy. The American Automobile Association has indicated that the price of gas is now averaging over $1.00 per gallon less than the highs hit in 2015.

Lower than expected rates on home loans are fueling an increase in refinancing by homeowners. In mid-February, the share of applications for home loans which were refinances hit over 60% of the total market. Refinancing also puts more cash in consumers' pockets. With the spring real estate season about to start, it remains to be seen whether low rates will also boost home sales. We will add our own speculation.

We believe that if the economy continues to produce jobs near the same rate it did in 2015, and if rates stay low, this could be a banner year for real estate. The only issue holding back real estate sales is the lack of inventory. We expect builders to ramp up to meet the demand produced. The bottom line is that owning is cheaper than renting in most areas of the country and the sale on home loans has made homeownership even more affordable.

The Markets

• Rates on home loans were unchanged last week, holding close to 2015 lows.
• Freddie Mac announced that, for the week ending February 18, 30-year fixed rates remained unchanged at 3.65%.
• The average for 15-year loans also remained unchanged at 2.95%.
• The average for five-year adjustables increased slightly to 2.85%. A year ago, 30-year fixed rates were at 3.76%, slightly below today's levels.
• Attributed to Sean Becketti, chief economist, Freddie Mac -- "After another week of financial market oscillations driven by rumors of potential limits on oil production, the 10-year Treasury yield edged up 5 basis points, and the 30-year fixed rate on home loans remained unchanged at 3.65 percent. Despite this week's uptick in Treasury yields, the 10-year is still 54 basis points lower than it stood at the end of 2015, while the 30-year fixed rate has dropped only 36 basis points over the same period."

Note: As of January 1, Freddie Mac is no longer providing survey data for 1-year adjustables. 

Rates indicated do not include fees and points and are provided for evidence of trends only.  They should not be used for comparison purposes.

Breaking News 

The number of households headed by someone 50 or older has grown the fastest as the overall population ages, but the number of younger households has also been increasing in recent years—albeit as renter households. According to the new report "Failure to Launch: The Outlook for Household Formation & Home Ownership," published by The Demand Institute, 31 percent of Millennials were living with their parents in 2015, up from 27 percent in the early 2000s. While young adults are staying with parents for longer, they eventually move out and form new households, especially once they reach their 30’s. “Young adults do want to purchase homes, eventually, but they are staying in school longer and getting married later in life,” said Jeremy Burbank, a vice president at The Demand Institute who leads the American communities research program. “Incomes have been improving for millennials, but they are still earning less than young adults did in 2000 after we adjust for inflation. Higher home prices are making it more difficult for many to become homeowners.” A period of sustained rental demand will have important implications for the U.S. economy, just like the boom in homeownership did in the early 2000s, according to the new report, while the rental market and multifamily construction will continue to experience strong growth as single-family home construction remains well-below historical levels. The implications also extend beyond the housing sector. “Renter household spending has grown more than four times faster than owner household spending since 2006 in the U.S.," added Burbank. "We have found that in many categories renters spend money differently and have different needs than homeowners, and we project that renters are a significant and growing market opportunity for consumer-facing companies. Source: National Mortgage Professional

The homeownership rate in the U.S. rose for a second straight quarter as job growth and loosening credit put an end to almost two years of steady declines. The share of Americans who own their homes was 63.8 percent in the fourth quarter, up from 63.7 percent in the previous three months, the Census Bureau reported. The increase followed one in the third quarter after a string of declines that started in late 2013. Buoyed by the improving U.S. employment rate, renters are jumping back into homeownership. Sales of existing homes jumped 14.7 percent, the most on record, in December, with first-time buyers accounting for 32 percent of purchases, matching the highest share since August, according to the National Association of Realtors. “The homeownership rate has found a floor,” Matthew Pointon, U.S. property economist for Capital Economics Ltd., said in a phone interview. “We expect it to rise very gradually over the next few years.” The rate, while up from a 48-year low in the second quarter, remains below the peak of 69.2 percent reached in June 2004. Source: Bloomberg Business

Originators have reason for optimism this year, according to one economist who is forecasting strong business prospects. “2016 will be a very strong year for purchases even if rates rise; if they do rise, it won’t be significant,” Mark Fleming, chief economist for First American Mortgage Solutions, told Mortgage Professional America. “Economists have been forecasting rate increases over the last 2-3 years and it hasn’t happened; even with the Fed recently raising its rate, rates on home loans have actually gone down.” Recently released stats support Fleming’s forecast. Applications are up year-over-year and that’s an important indicator of just how strong the market currently is, according to Fleming. That’s good news considering he believes refinance business will dwindle this year. “I do expect refi rates to go down; if rates go up, refinances will drop,” Fleming said. However, he argues increased rates won’t have the same impact on purchases. Source: Mortgage Professional America

Articles and commentary are provided for general information only and should not be relied on as legal or financial advice. Opinions expressed herein do not necessarily reflect the opinions of Forum Mortgage Bancorp.