Historic Record Low Interest Rates...Where are the Buyers?

Long-term interest rates were the lowest in nearly 50 years, providing great opportunities to refinance a home or to purchase a new or foreclosed property at near record-low mortgage rates.

Investors on the other hand around the US stock market in the U.S. and around the globe have been pulling billions of dollars from stock markets and reinvesting into U.S. Treasury securities (bills, notes and bonds), still viewed as the most risk-free and marketable securities in the world … regardless of what Standard & Poor's thinks.

The Federal Reserve (this nation's central bank) has set its most important interest rate — the federal funds rate — at a record low target level of 0 percent to -0.25 percent since December 2008, a period now reaching 32 months. Equally important, the Fed's monetary policy arm — the Federal Open Market Committee (FOMC) — noted a few weeks ago that it would maintain this rate at the current record low "at least through mid-2013" — unlike any statement the Fed has ever made. A Federal Reserve that has traditionally found value in keeping financial market players guessing as to impending monetary policy changes, for the moment, abandoned such policy in a major way. 

The reasons that have kept consumer and business borrowers on the sideline, in spite of the low, longer-term interest rates that provide a very attractive refinance or home purchase opportunities, is because of the combination of weak U.S. economic growth, high unemployment, anxiety about Europe, enormous and destructive budget deficits, and a general mistrust in the political direction of this nation.

With everything put together, as a Realtor® one would think that the low mortgage interest rates of recent weeks and attractive home prices

would lead mortgage applications to jump sharply. Such is not the case. In fact, as reported last week, applications for new mortgages hit a 15-year low! Refinance applications dropped as well.

So the question is, why aren't more homeowners first-time home buyers not taking advantage of such low interest rates?  The Mortgage Bankers Association in a statement blamed the fall on "volatile markets and rampant uncertainty," which kept home purchasers on the sidelines. Today's reported plunge in consumer confidence only supports that view!

photo: Fotosearch

ShirLee McGarry®  Twitter, LinkeIn, Facebooks, Website

Pre-Foreclosure Short Sales Jump 19% in Second Quarter

Short sales shot up 19 percent between the first and second quarters, with 102,407 transactions completed during the April-to-June period, according to RealtyTrac.

Over the same time-frame, a total of 162,680 bank-owned REO homes sold to third parties, virtually unchanged from the first quarter.

RealtyTrac’s study also found that the time to complete a short sale is down, while the time it takes to sell an REO has increased.

Pre-foreclosure short sales took an average of 245 days to sell after receiving the initial foreclosure notice during the second quarter, RealtyTrac says. That’s down from an average of 256 days in the first quarter and follows three straight quarters in which the sales cycle has increased.

REOs that sold in the second quarter took an average of 178 days to sell after the foreclosure process was completed, which itself has been lengthening across the country. The REO sales cycle in Q2 increased slightly from 176 days in the first quarter, and is up from 164 days in the second quarter of 2010.
Discounts on both short sales and REOs increased last quarter, according to RealtyTrac’s study, but homes sold pre-foreclosure carried less of a markdown when compared to non-distressed homes.
 

Sales of homes in default or scheduled for auction prior to the completion of foreclosure had an average sales price nationwide of $192,129, a discount of 21 percent below the average sales price of non-foreclosure homes. The short sale price-cut is up from a 17 percent discount in the previous quarter and a 14 percent discount in the second quarter of 2010.

 More...

S&P Downgrade Could Feed Home Buyer ‘Anxiety’

When all is said and done, borrower psychology—and not mortgage rates—could face the bulk of any housing-market damage that stems from the Standard & Poor’s rating downgrades.

S&P downgraded the credit ratings of Fannie Mae and Freddie Mac on Monday morning to AA+ from AAA. That, of course, followed Friday’s rating cut for the United States.

The downgrades by themselves don’t appear to have done much to roil mortgage markets. (Today’s WSJ story previewed some of the risks). The 10-year Treasury note, to which mortgage rates are closely tied, has fallen to a record low, which is good for mortgage rates. That could be offset, in part, if mortgage investors demand slightly higher prices for mortgages.

And it’s important to remember that investors’ demand for higher prices on mortgages could have less to do with the downgrades themselves and more to do with the way lenders are managing an uptick in refinance activity that began in earnest last week when rates fell sharply.

At this point, it seems the downgrades are likely doing far more damage to consumer psychology than to mortgage rates, which have fallen to around 4.37% for a 30-year fixed rate loan, near historic lows.

The rout in the stock market, new worries about layoffs, and the euro-zone crisis will not help consumer confidence. “Who wants to get out of bed today, let alone buy a house?” says Lou Barnes, a mortgage banker in Boulder, Colo. For consumers who are ready to take the plunge, qualifying for a mortgage, not the mortgage rate itself, continues to be the main hurdle limiting would-be buyers.

Here’s what some industry watchers say:

Lawrence Yun, chief economist, National Association of Realtors: “Even if [mortgage] rates were to rise because of the downgrade, this fact is less important in light of the current overly stringent underwriting standards and the general lack of consumer confidence about the economy. A 30-year fixed rate rising from 4.3% to 4.6% will not change the housing game that much, but a return to normal underwriting standards and a boost to consumer confidence will be the true game changer.”

Dan Oppenheim, analyst, Credit Suisse: “We fear that the macro and equity market turmoil will roil the already-fragile consumer confidence, cutting into housing demand and home prices (presenting risk to our volume and book value estimates for homebuilders). We noted in our July Survey of Real Estate Agents the tension between favorable affordability and buyers’ anxiety. We think the see-saw has likely tilted dramatically toward anxiety winning out. … Affordability has remained near its all-time most attractive levels for some time (we estimate the monthly mortgage payment on a median-priced home represents just 14% of median gross household income, compared to 20% historically), but buyers are unlikely to move forward with plans while lacking confidence.”

Stan Humphries, chief economist, Zillow: “The real near-term impact of the downgrade on the housing market won’t happen via mortgage rates but rather through reduced consumer confidence. Consumer confidence is being buffeted right now with negative signals, from reports early last week of declining consumer spending in June to more tepid job growth numbers reported on Friday. In periods of economic turmoil, many consumers tend to hunker down, making it less likely they will engage in high-priced transactions like home purchases. Moreover, the stock market declines that have accompanied the debt ceiling debate and the credit rating downgrades by S&P won’t help consumer confidence either, making any consumers invested in the markets feel that much poorer.” 

By Nick Timiraos
Associated Press
August 8, 2011, 1:24 PM ET

National Association of Realtors...

NAR Calls on FHA to Eliminate
Prepayment Penalty

In light of the Ability-to-Repay Proposed Rule, NAR sent a letter to the Federal Housing Administration asking the agency to remove their prepayment penalty. The proposed rule amends the Federal Reserve’s Regulation Z, the Truth in Lending Act (TILA), to prohibit any creditor from providing a mortgage loan without making a reasonable and good faith determination that the borrower has the ability to repay the loan. As amended, TILA also strictly limits or, in some cases, bars prepayment penalties. Where they are allowed, they must be phased out over three years. NAR submitted comments on the Ability-to-Repay proposed rule on July 22, 2011.

NAR has been urging FHA and Ginnie Mae to remove their prepayment penalty for more than eight years. No other traditional lending program, including the Veterans Administration’s Loan Guaranty Program and the US Department of Agriculture’s Rural Housing Service loans, has such a requirement. In the last 10 years, FHA borrowers have paid more than $1.8 billion in excess interest/prepayment penalties. This penalty places an unreasonable and often unexpected burden on FHA consumers who already face high housing and closing costs. The mission of the FHA program is to serve those not fairly served by the private market. Imposing interest penalties on these consumers contradicts this goal.

Jerome Nagy, 202-383-1233
Megan Booth, 202-383-1222

Biggest Reason your Home Hasn't Sold: #1 Home Overpriced

1. Your home is overpriced.
 

Optimistic home sellers love to use the phrase, "There is a buyer for every home." There is one important qualifier they often leave off the other side of the equation..."at the buyer's price."

The truth is, buyers -- not sellers -- ultimately determine the market value of a home. You can ask for the moon and set your listing price well above comparable properties in your neighborhood, but at some point it will be up to you, the seller, to accept what the buyer thinks your home is worth. In today's short sale pool, it is the 3rd party or bank/lender that determines the price that usually is below current market values

Overpricing is the biggest reason homes don't sell. When you ask an unrealistic price, it sets in motion a process that often works against you. Here's why:

Most real estate agents, and hence most qualified buyers, will see your new listing within 30 days. If it is overpriced by as little as 5 percent, it will be duly noted and interest in your property will wane, especially if you show no intention of coming off your asking price. You likely already priced out buyers who might have qualified for financing at a more reasonable price. Even if you manage to find a buyer at your inflated asking price, the property may not appraise at that figure and the financing will fall apart.

 

Your real estate agent may have approved or even suggested the inflated asking price to secure your listing (more on this in No. 4). Conversely, other Realtors often use overpriced properties like yours to help sell their own listings ("Here's what they are asking. Now would you like to take a second look at that first house I showed you?")

"If you have a house that really should be priced at $200,000 and you've got it listed at $260,000, you are trying to compete against homes that really are worth close to $300,000 and all of a sudden your home really is not competing well," says Jeri Fisher of Jeri Fisher Real Estate in Missoula, Mont. "You want to compete with what is available out there among homes similar to yours."

If your home remains on the market for too long, agents and buyers may begin to wonder if there are other, perhaps more serious reasons why it isn't selling. "It becomes shopworn, the same as a jacket hanging in the store week after week," says Fisher. "People are aware that it has been on the market a long time and agents stop showing it."

based on article by Jay MacDonald • Bankrate.com