Standard & Poors released its Case-Shiller Index Wednesday. The report shows that, on a seasonally-adjusted basis, between December and January, home prices rose in more than half of the index’s tracked markets.
The strength of this month’s Case-Shiller report, however, should be put in context.
For one, the report is on a 2-month delay; it’s showing data from January, before the start of the Spring Buying Season and before the rush to beat the tax credit. Anecdotally, buyer interest has been strong since, leading to the types of multiple offer situations that drive home prices northward.
In other words, home values may be even higher than what’s reflected in the January Case-Shiller data above.
Furthermore, the Case-Shiller Index measures home values in just 20 cities nationwide and they’re not even the 20 biggest cities. Houston, Philadelphia, San Antonio and San Jose are specifically excluded from the report and each ranks among the country’s 10 most populous areas.
Despite its flaws, though, the Case-Shiller Index remains important. Much like the government’s Home Price Index, the private-sector report helps to finger broad housing trends and housing is still considered a keystone in the U.S. economic recovery.
March 30 (Bloomberg) — The Federal Reserve’s completion this week of its program to buy $1.25 trillion in mortgage bonds probably won’t mean significantly higher U.S. home loan rates as investors return to the market, replacing the Fed.
Fixed mortgage rates likely will rise less than a quarter of a percentage point in the next three months, the smallest increase for the second quarter since a drop in 2005, according to estimates by Fannie Mae and Freddie Mac. The gain would add about $30 to the monthly payment for a $250,000 mortgage.
“What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds,” said Christopher Sebald, chief investment officer for Advantus Capital Management in St. Paul, Minnesota, which oversees $18.5 billion, including about $5.6 billion in mortgage bonds. “I thought the Fed’s exit would leave a bigger void.”
Advantus is purchasing mortgage bonds after the Fed’s program drained supply in the $5.4 trillion market. A recovering U.S. economy means institutions have more capital to invest, and stricter lending standards have made the securities more attractive to money managers like Sebald by limiting the number of loans. About $1.5 trillion of agency mortgage-backed securities will be issued this year, down 12 percent from 2009, according to a March 25 Morgan Stanley report.
“The constraints on borrowers are much higher now, and that’s reducing supply quite a bit,” Sebald said in an interview.
The Fed began buying bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in January 2009 with the aim of bolstering the housing market by reducing financing costs. The plan helped drive the average rate for a 30-year fixed mortgage to an all-time low of 4.71 percent in December. The central bank began tapering off its purchases in January to prepare for its exit from the market tomorrow.
Improved Conditions
“The Federal Reserve’s purchases have had the effect of leaving the banking system highly liquid,” Fed Chairman Ben Bernanke told Congress on March 25. “A range of evidence suggests that these purchases and the associated creation of bank reserves have helped improve conditions in mortgage markets and other private credit markets and put downward pressure on longer-term private borrowing rates and spreads.”
In December 2008, two weeks before the start of the Fed bond-buying program, the spread between the 10-year government bond yield and the average U.S. 30-year fixed mortgage rate was 3.07 percentage points, the widest since 1986, as investors demanded higher payment to compensate for risk. Last week, the difference was 1.14 percentage points, narrower than the 20-year average of 1.65 percentage points.
Worst ‘Behind Us’
“Private buyers are going back into the market to pick up where the Fed is leaving off,” said David Berson, chief economist of PMI Group Inc. in Walnut Creek, California. “Credit spreads have narrowed significantly, and not just for mortgages, because investors believe the worst of the financial crisis is behind us.”
The world’s largest economy probably will grow 3 percent in 2010, according to the median estimate of 53 economists in a Bloomberg poll. Gross domestic product expanded at a 5.6 percent annual pace in the fourth quarter, the most in more than six years, after a 2.2 percent increase in the prior period.
Inflation remains below the Fed’s long-term forecast even with record budget deficits. The central bank’s preferred price measure, which is linked to consumer spending and excludes food and energy costs, rose 1.3 percent in February from a year earlier. Policy makers project the gauge will climb to 1.7 percent to 2 percent over the long run. Fed officials cited “subdued inflation trends and stable inflation expectations” in their March 16 decision to keep interest rates near zero.
Below Average
The U.S. 30-year fixed mortgage rate probably will average 5.13 percent in the second quarter, up from 5.02 percent in the current period, Washington-based Fannie Mae said March 10. Freddie Mac expects a 5.2 percent average, rising from 5 percent this quarter, the McLean, Virginia-based company said in a March 12 report. The average rate in the past decade was 6.2 percent.
A “significant run-up” in mortgage rates may jeopardize a recovery in the housing market, Federal Reserve Bank of San Francisco President Janet Yellen said in a March 23 speech in Los Angeles. That would add another hazard to a market already facing a challenge with next month’s expiration of a federal tax credit of up to $8,000 for homebuyers.
Fed’s ‘Gamble’
“There is an element of a gamble in the Fed ending its mortgage securities buying — they are removing a key support at a point where the recovery housing recovery is still looking quite rickety,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York.
Fed policy makers have made it clear in statements following the end of rate-setting meetings that they will restart the mortgage-bond buying program if needed, according to Pandl. That “backstop” has reassured investors and encouraged them to re-enter the market, he said.
Much of the demand for mortgage bonds is coming from money managers seeking to diversify their portfolios, said Berson, of PMI Group.
“Investors are full up with Treasuries,” he said. “They haven’t been able to diversify into mortgage bonds because the Fed has been buying the bulk of them. Give them an opportunity to diversify into that market, and they will.”
Starting Monday, April 5, 2010, getting an FHA mortgage in central Texas and nationwide will be more expensive for borrowers.
In new guidelines set forth earlier this year, the FHA announced plans to raise additional revenue and reduce the overall risk of its mortgage portfolio.
The changes include the following:
Effective April 5th: Increase Upfront Mortgage Insurance Premiums from 1.75% to 2.25% for everyone
Later this year: Reduce seller concessions from 6 percent to 3 percent
For your own loan, to avoid being subject to higher loan costs, make sure to have your FHA Case Number assigned prior to Monday, April 5, 2010. That means you’ll want to give a full mortgage application before the weekend so your lender can register your loan in time for the deadline.
But don’t leave your application to the last minute.
Friday is Good Friday so most banks will be closed. Your true FHA deadline, therefore, is Thursday April 1.
Mortgage markets tanked last week, raising rates in Texas to their highest levels in a month.
Most of the losses occurred Wednesday in what was the worst 1-day mortgage market performance in more than 6 months. Even Friday’s rally could barely dent the losses. Most of the movement was tied to geopolitical concerns and worries of a ballooning federal debt load.
The best time to lock a conventional or FHA mortgage rate last week was Tuesday morning.
This week, markets should remain volatile. There’s a large set of economic data due for release, plus trading volume will thin as the week goes on because markets are closed Friday for Good Friday.
Coincidentally, Friday is also the day that the March jobs report is released.
The non-farm payroll report is expected to show net job growth of 187,000 in March. This is a large number as compared to last month’s net loss of 36,000 job. However, analysts are already dismissing March’s numbers as skewed by both the bad storms of February, and the temporary hiring of Census workers.
In most months, major job growth would be bad for mortgage rates. This month, that won’t be the case. It will take a figure north of 200,000 to cause rates to rise and the higher the actual number, the more that rates will respond.
Also this week, on Wednesday, the Federal Reserve’s $1.25 trillion program to support mortgage markets sunsets. Fed insiders estimate that the program dropped rates 1 percent since its inception in 2008. It’s reasonable that mortgage rates will rise after its end, therefore.
TEXAS (Real Estate Center, Reuters, CNNMoney.com) – A total of 13,064 existing single-family homes were sold in Texas last month, a 2 percent drop from February 2009, according to MLS data compiled by the Real Estate Center at Texas A&M University.
The median price was up 2 percent to $141,100 during the same period, and the state finished the month with a 6.9-month inventory of existing homes.
Here is how Austin and other Texas cities fared in February (data current as of March 25, 2010):
Sales
Change from Last Year
Median Price
Change from Last Year
Months’ Inventory
Austin
1,276
up 7%
$182,000
down 3%
6.2
Dallas
2,707
down 9%
$149,200
up 1%
6.1
Fort Bend
510
down 7%
$188,700
up 8%
4.8
Fort Worth
538
up 5%
$106,000
down 3%
6.5
Houston
3,615
down 4%
$146,600
up 6%
6.6
Longview-Marshall
116
down 12%
$120,000
up 1%
8.9
Odessa
67
up 26%
$123,100
down 5%
5.8
San Antonio
1,239
up 7%
$140,700
down 1%
7.8
Temple-Belton
94
down 10%
$110,800
down 11%
6.7
Victoria
61
up 33%
$109,200
down 23%
6.6
Texas
13,064
down 2%
$141,100
up 2%
6.9
Additional home sales data for these and other major Texas cities are available on the Center’s website.
At the national level, the National Association of Realtors reported this week that existing-home sales fell 0.6 percent to a seasonally adjusted annual rate of 5.02 million units in February from 5.05 million in January. That was 7 percent higher than the 4.69 million-unit pace from February 2009.
Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes, representing an 8.6-month supply.
The national median existing-home price for all housing types of $165,100 last month, which was 1.8 percent below February 2009.
Home values fell again in January, according to the Federal Home Finance Agency’s Home Price Index. Values were reported down 0.6 percent, on average.
We say “on average” because the Home Price Index is a national report. It doesn’t capture the essence of a local market , or even a city market like Round Rock.
The most granular that the monthly Home Price Index gets is regional and January’s report shows that:
Values in the Mountain states rose 2.0%
Values in the Pacific states were flat
Values in the East North Central states fell 1.8%
It’s hardly helpful for home buyers entering the market, or home sellers trying to properly price a home. Furthermore, because the Home Price Index reports on a 2-month delay, its data fails to reflect the current market conditions.
Versus January — the period from which HPI data is collected — mortgage rates are lower, buyer activity is up, and the federal home buyer tax credit is closer to expiring. These each can have an impact on housing.
Ultimately, national real estate data like the Home Price Index is best suited for lenders and policy-makers. National data helps to identify trends that shape formal policy, but it doesn’t help you, specifically.
Since peaking in April 2007, the Home Price Index is off 13.2 percent.
April 15 is Tax Day and the IRS estimates that the average U.S. household will receive a $2,800 tax refund this year. If you’re among the Americans expecting a refund, this 4-minute piece from NBC’s The Today Show may be helpful. It’s a talk about how to receive a refund and what to do with it.
Some of the key points discussed include:
Why state-issued tax refunds may be delayed this year
How to direct a tax refund to a 529 college savings plan for an even bigger tax refund
There’s also some sensible pointers on using tax refunds to pay down credit card debt, and to fund retirement plans, among other purposes.
If you haven’t started your tax planning yet, try to avoid leaving it for the last weekend. Not only will your tax preparer have more time for you now, but you’ll leave yourself more time to track down important statements and receipts that can boost your federal and state tax deductions.
As expected, Existing Home Sales fell in February, slipping 30,000 units versus January’s numbers. It’s the 4th straight month in which Existing Home Sales were lower, month-over-month.
An “existing” home is one that is previously owned and lived-in (i.e. not new construction).
Existing Home Sales peaked in November 2009, just as the First-Time Home Buyer Tax Credit was set to expire. Immediately thereafter, according to the National Association of Realtors®, monthly sales plunged 17 percent in December, then another 7 percent in January.
Comparatively, February’s dip is a modest 0.6 percent and is more in line with the pre-tax-credit Existing Home Sales trend. The real estate market is rediscovering its normal.
But “normal” may not last for long.
When the federal home buyer’s tax program was extended last year, the new rules stated that home buyers must be under contract for their new, respective homes on, or before, April 30, 2010 in order to claim up to $8,000 in federal money. That deadline is approaching and many markets — Round Rock included — are experiencing a surge in buyer traffic as April 30 nears.
The Existing Home Sales data doesn’t reflect this new demand, nor the number of new contracts written. It only accounts for home closings and, in February, closings were down.
For today’s buyers, the market looks favorable. The federal tax credit is in place, mortgage rates stubbornly stick near all-time lows, and home prices are staying in check.
Existing Home Sales should gain through March and April, pressuring home prices higher. And, by the time the press reports the gains, the best deals in the city may already be gone. Consider acting sooner rather than later.
CNNMoney.com recently published its 2010 forecast and projections for home prices in the country’s largest metro markets.
Listed as “Top 25″ and also comprehensively by state, CNNMoney.com’s home price forecasts puts Santa Rosa, California at the top of 2010′s home appreciation list and Hanford, California at its bottom.
The 10 cities projected for highest home appreciation in 2010 are:
Santa Rosa, CA : +6.0%
Cheyenne, WY : +4.7%
Kennewick, WA : +4.6%
Merced, CA : +4.4%
Bremerton, WA : +4.2%
Fairbanks, AK : +4.2%
Corvallis, OR : +4.1%
Tacoma, WA : +3.9%
Anchorage, AK : +3.8%
Bend, OR : +3.3%
The Pacific Northwest is the region most heavily-represented among price gainers. The Southeast and Middle Atlantic are most represented on the under-perform list.
However, just because a city’s homes are expected to appreciate (or depreciate) in 2010, that doesn’t mean that every home within its limits will follow suit. Real estate cannot be grouped on a city level like CNNMoney.com tries to. There will always be areas in demand within city limits in which prices rise, just as there will be out-of-demand areas in which prices fall.
Real estate data can’t be grouped by city or even by ZIP code, really.
Real estate in Austin is more local than that.
When we say “real estate is local”, it means that every street in every town has a distinct set of traits that drives its home values. Homes that are one block closer to the train; or, homes that are facing north; or, homes that are made of brick. Each of these characteristics can affect a home’s desirability which, in turn, can affects its sales price.
National surveys can’t capture “essence” like this. They only report on the aggregate.
For local real estate data, look to established, publicly available websites and to active, local real estate agents. Both will have data and insight that can help you. National surveys often make for good headlines, but do little to help homebuyers find good value.
The Texas Dept. of Housing and Community Affairs, commonly known as TDHCA, has just released a new modification to the popular Bond 74 program. The program offers a zero interest, forgivable 2nd Lien based on 4% of the loan amount. This money can be used toward the 3.5% Down Payment on an FHA loan allowing the borrower to effectively bring zero funds to close assuming the seller pays the remaining closing costs and prepaid items.
PLUS! They just added a 3% Grant to the program for a combined 7% total Down Payment Assistance!
Here is a link to their website for more information: TDHCA
Starting Monday, April 5, 2010, getting an FHA mortgage in central Texas and nationwide will be more expensive for borrowers.
Mortgage markets tanked last week, raising rates in Texas to their highest levels in a month. 
As expected, Existing Home Sales fell in February, 
CNNMoney.com recently published its 2010 forecast and projections for home prices in the country’s largest metro markets.