Home Owners Lose Out by Not Refinancing

Home Owners Lose Out by Not Refinancing. Image courtesy of iosphere / FreeDigitalPhotos.net

Recent reductions in the 30-year fixed-rate mortgage could net the population of borrowers big savings if they would refinance, according to Black Knight Financial Services’ latest Mortgage Monitor Report.

“Before the most recent reductions in the average 30-year mortgage interest rate, approximately 6 million borrowers met broad-based ‘refinancibility’ criteria,” says Trey Barnes, Black Knight’s senior vice president of Loan Data Products. “These criteria assume loan-to-value ratios of 80 percent or below, good credit, non-delinquent loan status, and current interest rates high enough that borrowers have an incentive to refinance. In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million — almost a 25 percent increase. This is a relatively conservative assessment, though, as those with current rates of 4.25 percent to 4.5 percent could arguably benefit from refinancing as well. That group adds another 1.7 million borrowers to the population.”

A separate study by the National Bureau of Economic Research found in an analysis of 1 million fixed-rate mortgages that 20 percent of Americans who failed to refinance could have saved more than $45,000 in payments over the life of their loan. At the time of the study, average interest rates were around 4.3 percent.

In recent weeks, the 30-year fixed-rate mortgage dipped below 4 percent, sinking to the lowest levels in more than a year, according to Freddie Mac. However, some home owners are struggling to refinance as their home values continue to recover from the housing crisis.

But Black Knight also found in its report that the equity picture has greatly improved. It found that 28 consecutive months of home appreciation since 2012 has caused the share of borrowers with negative equity to drop below 8 percent as of July, its lowest level since 2007. In 2011, the percentage of borrowers with negative equity stood at 33 percent.

What’s more, an additional 8.5 percent of borrowers are in “near-negative equity” positions, with less than 10 percent equity in their homes.

“More than half of all borrowers have 30 percent or more equity, a level not seen in nearly eight years,” Barnes notes.

Source: Black Knight Financial Services

First-Time Buyers at Lowest Level in Decades

First-Time Buyers at Lowest Level in Decades. Image courtesy of photostock / FreeDigitalPhotos.net

Despite an improving job market and low interest rates, the share of first-time buyers fell to its lowest point in nearly three decades, according to an annual survey released today by the National Association of REALTORS®.

NAR’s Profile of Home Buyers and Sellers dates back to 1981. The average rate of first-time buyers during that time has been around four out of 10 purchases. In this year’s survey, the share of first-time buyers dropped 5 percentage points from a year ago to 33 percent, representing the lowest share since 1987 (30 percent).

“Rising rents and repaying student loan debt makes saving for a downpayment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce,” says Lawrence Yun, NAR chief economist. “Adding more bumps in the road is that those finally in a position to buy have had to overcome low inventory levels in their price range, competition from investors, tight credit conditions and high mortgage insurance premiums.”

When asked about the primary reason for purchasing, 53 percent of first-time buyers cited a desire to own a home of their own. Most in this group say they plan to stay in their home for 10 years and they are 10 percent more likely to purchase a townhouse or a condo than repeat buyers. The median age of first-time buyers was 31, unchanged from the last two years, and the median income was $68,300 (up from $67,400 in 2013).  The household composition of all buyers responding to the survey was mostly unchanged from a year ago; 65 percent were married couples, 16 percent single women, 9 percent single men, and 8 percent unmarried couples. Thirteen percent of survey respondents were multi-generational households, including adult children, parents and/or grandparents.

The typical first-time buyer purchased a 1,570 square-foot home costing $169,000. The survey also found that 47 percent of first-time buyers said the mortgage application and approval process was much more or somewhat more difficult than expected (an increase of four percent over last year). Among 23 percent of first-time buyers who said saving for a downpayment was difficult, more than half (57 percent) said student loans delayed saving, up from 54 percent a year ago.

In addition to tapping into their own savings (81 percent), first-time buyers used a variety of outside resources for their downpayment. Twenty-six percent received a gift from a friend or relative, with 6 percent receiving a loan from a relative or friend. Ten percent sold stocks or bonds, or tapped into a 401(k) fund. Ninety-three percent of entry-level buyers chose a fixed-rate mortgage, with 35 percent financing their purchase with a low-downpayment Federal Housing Administration-backed mortgage (down from 39 percent in 2013), and 9 percent using the Veterans Affairs loan program with no downpayment requirements.

“FHA premiums are too high in relation to default rates and have likely dissuaded some prospective first-time buyers from entering the market,” says Yun. “To put it in perspective, 56 percent of first-time buyers used a FHA loan in 2010. The current high mortgage insurance added to their monthly payment is likely causing some young adults to forgo taking out a loan.”

Source: “NAR Annual Survey Reveals Notable Decline in First-time Buyers,” National Association of REALTORS® (Nov. 3, 2014)

Mortgage Rates on Real Estate, Still Below 4%

Mortgage Rates on Real Estate, Still Below 4%. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Average fixed-rate mortgages inched up from last week’s lowest rates of the year but are still hovering below historical lows, Freddie Mac reports in its weekly mortgage market survey.

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 30:

• 30-year fixed-rate mortgages: averaged 3.98 percent, with an average 0.5 point, rising from last week’s 3.92 percent average. Last year at this time, 30-year rates averaged 4.10 percent.
• 15-year fixed-rate mortgages: averaged 3.13 percent, with an average 0.5 point, rising from last week’s 3.08 percent. A year ago, 15-year rates averaged 3.20 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 2.94 percent, with an average 0.5 point, rising from last week’s 2.91 percent average. Last year at this time, 5-year ARMs averaged 2.96 percent.
• 1-year ARMs: averaged 2.43 percent, with an average 0.4 point, up from last week’s 2.41 percent average. A year ago, 1-year ARMs averaged 2.51 percent.

Source: Freddie Mac

Home Buyers are Predictable

Home Buyers are Predictable. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Are you a highly conscientious person? Then you’ll probably want a fixed-rate mortgage. Somewhat neurotic? Then you’d likely rather own than rent.

A new study suggests that a person’s personality traits are predictive of his or her real estate decisions. Researchers gave more than 1,100 respondents a personality-assessment test, asking them to rate themselves on several personality traits, such as openness (e.g. artistic and imaginative); conscientiousness (efficient and organized); extroversion (sociable and energetic); agreeableness (forgiving and undemanding); and neuroticism (tense and moody). The respondents were then asked about their real estate preferences, including type of mortgage, desire to rent or buy, and investing in real estate or stocks. Researchers controlled for several variables, such as level of education, home ownership, age, gender, and income.

The results showed “a very solid correlation” between personality and real estate choices, co-author Danny Ben-Shahar, a professor at Tel Aviv University, told The Wall Street Journal. High scorers of neuroticism, for example, showed a preference for home ownership over renting and tend to opt for mortgages with lower loan-to-value ratio — likely because neurotic people tend to be more averse to risk, Ben-Shahar says.

Meanwhile, respondents who scored high on agreeableness or extroversion, as well as conscientiousness, showed a preference for investing in real estate over stocks. Researchers speculate that conscientious people are more willing to postpone gratification and likely to make a less-risky investment while also diversifying their portfolio.

Ben-Shahar told the Journal that personality traits won’t always match a real estate profile exactly, but individual personality can have an influence on the way people choose to live.

The findings are to be published in the Journal of Behavioral and Experimental Economics.

Source: “In Real Estate, Your Personality Makes You Predictable,” The Wall Street Journal (Oct. 29, 2014)

Credit issues still and issue but home sales are still up.

Credit issues still and issue but home sales are still up. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Pending home sales inched up slightly in September, and for the first time in 11 months, they were above year-ago levels, according to the National Association of REALTORS®’ Pending Home Sales Index. However, tight credit conditions continue to be a barrier for many borrowers, NAR notes.

The Pending Home Sales Index rose 0.3 percent in September to 105. That’s 1 percent above the September 2013 reading and the second-highest level since that time.

But sales are being held back because of potential buyers who are still unable to qualify for a mortgage. About 15 percent of REALTORS® in September indicated that the main reason for not closing on a deal was because their clients could not obtain financing.

Lawrence Yun, NAR’s chief economist, says the final qualified residential mortgage rule will likely improve access to credit next year.

“The rule provides clarity for lenders and is a win for creditworthy consumers by ensuring they continue to have access to safe and affordable loan products without overly burdensome down payment requirements,” Yun says.

Also, low mortgage rates, moderating price growth, and sustained inventory levels should help more buyers enter the market, Yun says.

“Housing supply for existing homes was up in September by 6 percent from a year ago, which is preventing prices from rising at the accelerated clip seen earlier this year,” Yun notes.

In September, the Pending Home Sales Index rose in the South and Northeast but decreased in the Midwest and West.

Pending home sales were up by the highest percentage in the South — 1.4 percent month-over-month to a reading of 118.5. That was 1.7 percent above September 2013. Pending home sales also rose in the Northeast by 1.2 percent to 87.5 and are 2.9 percent above year-ago levels.

Meanwhile, pending home sales fell 1.2 percent in the Midwest to 101.2 in September and are now 4 percent below year-over-year levels for that region. Pending sales also fell in the West, dropping 0.8 percent last month to 101.3 but are still 3.6 percent above a year ago.

Source: National Association of REALTORS®