Robin Ricks' Home Loan Updates

Market Recap for June 27, 2011

2011-06-29T09:42:00.000-07:00

When transactions are your livelihood, it can be difficult to muster a smile when there are fewer of them. There were fewer transactions in existing-home sales, which fell 3.8 percent to a 4.8 million annualized rate in May. Supply on the market, at 3.72 million units, is falling, but not enough relative to the sales pace, as inventory rose to 9.3 months versus April's 9.0 months.

Price stabilization was the positive takeaway, with the median sales price rising to $166,500. Another plus is that sales of single-family homes, the central component in the report, fell at a slower rate at 3.2 percent. Floods and tornado-ravaging storms in the Midwest were mitigating factors. Blaming the weather is often the easy way out, but this time it appears valid.

Sales of new houses also fell for the first time in three months, by 2.1 percent to a 319,000-unit annualized pace in May, showing that the industry continues to struggle to gain momentum. The good news is that prices continue to rise, with the median price inching up to $222,600 from $217,000 in April, while inventory continues to fall, with supply dipping to 6.2 months from 6.3 months.

Sales are down, but prices are up, which suggests to us that the days of simply giving away homes are over (even with the putative 1.8 million homes in shadow inventory). MacroMarkets, an economic data compiler, surveyed real estate experts on home-price trends. The consensus estimate was for an average annual growth rate of 2 percent, which MacroMarkets co-founder Robert Shiller opined “will not inspire a lot of consumer confidence.”

We disagree, because price growth isn't price contraction. Two percent average-annual growth on a $200,000 home means the home is worth more than $220,000 after five years. What's more, home equity will grow as the mortgage is amortized. Five years is a long time, and no one can know with certainty what the average annual rate of appreciation will be. Given the low price of homes today, though, we would not be surprised to see homes appreciate at a rate greater than 2 percent annually.

Now, we would like to see mortgage rates start to rise. Without artificial support from the Federal Reserve, interest rates would naturally move higher. That's not bad; the market needs to get back to equilibrium – with more private mortgage money and private mortgage-backed securities, so we can have more choices and more lending alternatives. A rising-rate environment also implies that there are other positive things happening in the economy.

Mortgage rates continue to hold historical lows. Low rates coupled with stable-to-rising prices in many parts of the country point to a near-perfect storm of a market for buying residential or investment real estate.

A Market for Leveraged Real Estate

When the National Association of Realtors released its existing home sales report on Tuesday, it reported cash sales, which accounted for 30 percent of all transactions, up from 25 percent last year. Prior to 2010, the NAR did not routinely report all cash purchases, since they were an insignificant part of the market.

Many of the all-cash purchases were from vulture investors – investors seeking a bargain-basement deal. Vulture investors aren't bad; to the contrary, they help clear the market of excess inventory. Our issue is that there should be more leveraged buyers, because most of us can't afford to pay all cash, unless it is for a fixer-upper in the sorriest section of town.

That aside, we think leveraging real estate from a low cost basis is the more savvy financial option anyway. Mortgaging real estate in what we expect to be a rising housing market enhances return. It also enables the purchaser to buy more house for the money.

Not surprisingly, our soapbox issue is lending diversity. Yes, we have leeway to help many borrowers, but we have the knowledge and expertise to help a lot more. If the tethers were loosened on mortgage lending, we think the housing market would be opened to a far wider array of potential buyers, and that would help the market recovery immensely.

2011-06-13T08:58:00.000-07:00

Negative equity pushed aside home price trends as the hot topic this past week. CoreLogic, which had a lot to say the previous week on prices, also had a lot to say about negative equity.

CoreLogic reports that 22.7 percent of all U.S. homeowners owed more than what they owned at the end of the first quarter of 2011 (which is actually an improvement from the 23.1 percent posted in the first quarter of 2010). CoreLogic states that 10.9 million borrowers are underwater and another 2.5 million borrowers are in a near-negative equity position, defined as having less than 5-percent positive equity.

We are obviously on the inflated end of the negative-equity scale, considering that CoreLogic was reporting 7.5 million borrowers were in a negative-equity position in 2008. However, do elevated negative-equity levels mean we are looking at another surge in foreclosures? Not according to the Federal Reserve Bank of Boston , which studied the relationship between the two. Based on data from the 1990s, the Boston Fed found that fewer than 10 percent of homeowners underwater lost their homes to foreclosure.

Self-interest, not surprisingly, was the deciding factor. Fed economists found that borrowers with negative equity who had ample liquid wealth would usually find it in their economic interest to stay in their homes. Economic interest is usually tied to the job market and regional economic growth. The good news is that job and economic growth for the country as a whole continue to trend higher. The bad news is that they haven't been trending quite as high in the past month.

As for mortgage rates, they continue to trend lower. Rates dropped again this past week to hit their lows for the year. We've obviously been on the wrong side of this bet over the past couple months. Given the Federal Reserve's massive injection of money into the banking system, the rising costs of many consumer staples, and the expectations for economic growth, we thought we would be looking at rates a quarter to a half percentage point higher than what we had at the start of the year.

The economic variables noted above have been overpowered by debt worries in Europe and the various crises in the Middle East , which have many investors flocking to the haven of U.S. government debt. The influx of money into U.S. debt markets coupled with slack aggregate mortgage demand has pushed mortgage rates lower. That said, high money levels, rising prices, and economic growth remain, which is to say that they are capable of moving to the foreground and pressuring interest rates higher in coming months.

STILL SOLD ON REAL ESTATE

Over the past six months, we've proselytized frequently on why we think real estate is today's best investment. The Wall Street Journal, in an article titled “Why It's Time To Buy,” encapsulates and expounds many of the reasons we've previously stated on why we think real estate is such a wonderful opportunity.

For one, the ratio of home prices to income is now 20-percent lower than the 15-year average through 2010, and 12-percent lower than the 1989-2004 average, according to Moody's Analytics. Moody's data also show that household formation increased to nearly 950,000 last year, and should average 1.2 million over the next decade. Greater demand leads to higher prices, and, eventually, to greater new-home supply.

The short-term outlook looks discouraging, though: job growth has slowed and foreclosures and inventory still weigh on pricing. However, longer-term – three-to-five years out – job growth won't be sluggish and inventory will have returned to more normal levels. In other words, buyers today will likely be looking at positive equity in the not-to-distant future. This is an important message to convey to our buy-side clients, many of whom remain hesitant to make what will likely be a very profitable investment.

Buying Rental Properties...Is Now The Time?

2011-04-18T08:37:00.000-07:00

Though it might not always feel like it, the economy is recovering. That's what the Federal Reserve tells us anyway (and we agree). The Fed’s recent reading of regional economies for the February and March period suggest continued economic growth, albeit at a moderate pace.

As for housing, the Fed says it continues to lag other sectors, but housing is showing signs of improvement. Realtor.com reports that inventory currently sits 9.8 percent above March 2010 levels. At the same time, the number of households searching for homes is growing, suggesting that demand may be strengthening in relationship to overall supply.

Freddie Mac also thinks demand is picking up heading into the spring home-buying season. Its data show that the rate of inventory growth is slowing: the median age of housing inventory in March sits at 160 days, down 2.4 percent from February.

We don't expect a miraculous turnaround in housing, just a steady, plodding improvement that is drawn along, hand-in-hand, with the overall economy.

Small business is always a reliable compass on the direction of the economy. On that front, the Federal Reserve reports that small businesses are more optimistic about their sales prospects and their ability to secure financing on more favorable terms. More sales, in turn, mean more investment in plants and inventory and more employee hires. As we are quick to say: as the economy goes, so will go housing.

A big concern remains, though. Will rising interest rates be the monkey wrench that grinds the recovery gears to a screeching halt? We don't think so, because as long as the economy continues to grow and more people continued to be hired, interest in housing will grow.

That said, rising mortgage rates are in our future, because more inflation is in our future. In fact, inflation is already here. Producer price inflation is running at a 5.7-percent annual clip. We expect the rate at which producers will pass their higher costs onto consumers will accelerate in coming months, and we are not alone in that sentiment: Wal-Mart CEO Bill Simon recently stated, “Inflation is going to be serious. We are seeing cost increases starting to come through at a pretty rapid rate.”

For now, mortgage rates remain subdued; namely due to economic and political uncertainties in other parts of the world. Events in the foreign debt markets, the disaster in Japan and the upheaval in the Middle East have helped keep rates low over the past few weeks. However, today's upheaval will be short lived and pressure for higher rates will continue to rise.

Is Rental Real Estate the Next Big Opportunity?
It could very well be. Residential r ental vacancy rates are below the 10-percent mark, where they had been lodged for most of the past three years. Peggy Alford, president of Rent.com, predicts that by 2012 the vacancy rate will hover at a mere 5 percent.

Since 2002, rental rates have been flat, and down of late (inflation-adjusted). If Rent.com projections are anywhere close to expectations, we could see a rise in rents of 15 percent over the next two years. That would be a significant reversal of fortune: rent hikes have averaged less than 1 percent annually over the past decade, according to Commerce Department statistics.

Pent up demand appears real: More than 1.2 million young adults moved back with their parents from 2005 to 2010, according to John Burns Real Estate Consulting. Many others doubled up together. Now that the recession is over, many of these young people are ready to find new living quarters, mostly as renters. Where there are renters, there must be property owners (even if they are not occupants). As rental rates increase, the capitalized market value of property increases too – that means rising real estate prices.

We've frequently noted that opportunities always abound, regardless of the perceived direness of current circumstances. The outlook in the rentals is another reason we think they abound in the residential real estate market.

2011-04-03T15:09:00.000-07:00

Keeping you updated on the market!
For the week of

April 4, 2011

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MARKET RECAP

The monthly S&P/Case-Shiller home-price index always attracts a good deal of media attention. This month's edition was no different. In fact, because of a strong pessimistic bias, it probably drew more attention than it should have.

Once again, falling home prices elevated fears of a double-dip recession in the home-buying market and a longer slog toward recovery than once anticipated. According to Case-Shiller, the average sale price of single-family homes in 20 major metropolitan areas fell 1 percent from December and 3.1 percent from a year ago. Only two areas – San Diego and Washington – recorded price increases year-over-year.

We offer our usual caveats with the Case-Shiller index: For one, it's two months in arrears. Recent data on home prices have been less dour. In addition, 20 metropolitan areas is hardly a complete picture. Real estate is much more localized than it was during the recession. Even within major metropolitan areas, we see differences in pricing trends. So, yes, on a national level prices have fallen, and have fallen 31 percent since the 2006 highs. However, prices, like mortgage rates, can go only so low, and there isn't much room on the downside, as many local markets have already shown.

It's also worth noting that the pending home sales index rose 2.1 percent in February, which is encouraging when considering how miserable the weather was in February. What's more, the pending home sales index has trended higher since bottoming in June, with contract activity 20 percent above the low point. More activity isn't a price panacea, but it helps.

Shadow inventory has been the counterclaim, because it continues to apply downward pricing pressure. The good news is that shadow inventory is improving. CoreLogic reports that 1.8 million properties make up the shadow inventory of foreclosures, but that's down 11 percent from a year ago. We expect this inventory to dissipate further, thanks to robust economic growth and a pickup in job creation and wage growth.

Low financing rates will also help the liquidation process. A quote below 5 percent on a 30-year fixed-rate mortgage remains the norm. To be honest, the norm has held longer than we had expected. That's a good thing, to be sure, but it does tend to induce complacency and procrastination at times.

Buyers these days have to balance high inventory levels against the likelihood of higher mortgage rates. Excess supply is a persuasive argument to house shop at a leisurely pace. However, just because rising prices aren't an immediate concern doesn't mean rising mortgage rates aren't. We noted in last week's commentary that buyers have the best of both worlds – low mortgage rates and low home prices. We doubt we will be saying that this time next year.

Although rates have headed higher, but not as high as many, including us, would have thought. Granted, we were right in saying that rates holding under 4 percent were unlikely, but that was an easy call. Four percent simply isn't sustainable when inflation is the norm.

Inflation is the reason we still think rates are headed higher. Many market watchers have been lulled into a false sense of security because consumer and producer prices – though rising in the past two months – haven't spiked out of control.

There are many variables that go into prices – productivity gains, technology, consumer demand – all of which can offset the increase in money supply that has occurred over the past two years. It can't last forever. If we peruse any long-term chart of consumer and producer prices, we see that prices rise persistently higher. As a corollary, when we peruse a chart of the US dollar, we see a persistent drop in value.

Eventually, all the new money in circulation will begin chasing consumer goods, and then we will see an increase in price inflation. We expect the bond market to anticipate this event, which is why we think mortgage rates will head higher before price inflation becomes more of a front-burner issue.

Owning a home is still a great place to invest!

2011-03-21T08:15:00.000-07:00

MARKET RECAP

The headline was ominous: “Housing starts drop 22.5 percent in February.” And for that matter, so were the numbers: the annualized pace of starts tumbled to 479,000 units – a 101,000 shortfall compared to the consensus forecast for 580,000 units.

However, when we delve into the facts, we find that things aren't necessarily bad. For one, January's spike in starts was way above the trend, so some reversal should have been expected. Second, winter months are notoriously volatile, and starts were hampered by severe weather in many parts of the country.

Homebuilders are still struggling, to be sure, but they might not be struggling as badly as the headlines suggest. In fact, homebuilders are actually feeling more upbeat these days. The March housing market index posted at 17, the best posting since the buyer-stimulus tax credits expired last April.

It is also worth noting that the housing market index is skewed by the small builder makeup of the National Association of Home Builders. With smaller builders feeling the heat more acutely than their larger brethren, and with their heavy inclusion in this index, the housing market index has a natural bias to accentuate the negative. Over recent months, many executives of the larger, publicly traded builders have offered news of better ordering trends than is reflected by the housing market index.

The recent trend in mortgage rates could further lift homebuilder sentiment. Investors have been pouring money into Treasury securities and mortgage-backed bonds in recent weeks because of Middle-East unrest and the Japan disaster. That means yields on Treasuries and mortgage-backed bonds have dropped, and so too have mortgage rates. Quotes below 5 percent for the 30-year fixed-rate loan were the norm across the nation this past week.

We don't expect it to last, though. Events in the Middle East will pass and fears over Japan 's ability to extract itself from its predicament will abate. The bigger issue, at least for mortgage rates, is price inflation. On that front, the embers are not only stoked but also starting to flame. Producer price inflation is red hot, posting a 1.6 percent increase in February. Year-over-year producer prices have jumped to a worrisome rate of 5.8 percent. On the consumer side, prices jumped 0.5 percent in February, following a 0.4 percent boost in January. Year-over-year, overall consumer-price inflation has increased 2.2 percent.

Energy costs have been the main driver of price increases, and they can be volatile. Nevertheless, a recovering economy tends to increase sustained-energy demand, so we doubt we will see much improvement in energy prices through the summer months. Bottom line: now is a very good time to take advantage of the lull in mortgage rates.

Warren Revisited
A couple weeks ago, we mentioned Warren Buffett and his investments in housing. We think it is worthwhile to revisit Mr. Buffett, because many of his views on housing and the mortgage market are in line with what we've been saying for the past year.

On the issues of FICO scores and employment, Mr. Buffett writes, “Your banker will tell you that people with such scores are generally regarded as questionable credits. Nevertheless, our [mortgage] portfolio has performed well during conditions of stress. Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc.”

On home ownership, Mr. Buffett offers the following, “Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home...For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come.”

Admittedly, it might be self serving for us to selectively pick quotes that affirm our convictions, though there are at least two tangential insights worth pondering: First, mortgage markets would be more efficient and more borrower-friendly if they relied less on mechanical scoring and more on broker and banker acumen (which is why we look forward to more private-investor participation). Second, home ownership is far from dead like so many pundits were saying last year. In fact, we would be surprised not to see a home-buying Renaissance emerge in the near future.

Where are mortgage rates going?

2011-03-14T06:11:00.000-07:00

March 14, 2011

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MARKET RECAP

Some people just can't help themselves; that is, they can't help but see the glass as half empty. RealtyTrac is finding itself slotted into that category more often than not. For instance, RealtyTrac reported that lenders filed foreclosures on or repossessed 27 percent fewer properties in February than in January, the lowest in three years and the biggest yearly decrease since 2005.

This sounds like good news to us. However, the overly pessimistic spin from RealtyTrac was that the slowdown was due mostly to mortgage servicers being disrupted by processing issues. "While a small part of February’s decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures," said RealtyTrac CEO James Saccacio.

We don't want to disparage Mr. Saccacio, because there is some truth to what he says. Yes, the weather was bad in February, and, yes, mortgage servicers are trying to right a listing ship. But real improvement is there nonetheless – both in the overall economy and housing. We mentioned last week the significant improvement in the employment numbers, which is a direct reflection on the state of the economy. As employment improves so will the housing market, despite the intimidating numbers on foreclosures and inventory that worry economists.

These same economists tend to be drawn to repetitive language. “Shadow inventory” is part of that language, and the term was recently invoked by the Director of Research at Radar Logic, who referred to the concern of “severe supply of overhang” and “shadow inventory of homes in default or foreclosure.” We are compelled to ask the obvious: Because we are all aware of the problem, is shadow inventory really in the shadows anymore? What's known is rarely the issue; it's the unknown that's the real issue.

Radar Logic went on to report that its price-per-square-foot index, covering 25 metro areas, is near an eight-year low. At $183.18 a square foot, the index price is 34 percent lower than its peak price of $278.32 a square foot, set in June 2007.

The text in which Radar Logic's data were delivered hinted at pessimism, but it's not pessimistic at all. This is good news; heavy discounting is over and recovery is much more likely than not. Today's market is a buyer's market, to be sure, but markets aren't the Harlem Globetrotters versus the Washington Generals (the hapless team offered as a sacrifice). The market will turn to favor sellers who bought at a low-cost basis. In other words, today's buyers.

In the meantime, today's mortgage rates remain favorable to all. Rates have held steady for the past month, and they are still lower than they were this time last year. This time next year, though, we would be very surprised not to be saying the opposite.

What Bill Says About the Bond Market
Bill Gross isn't as famous as Warren Buffett, though he is just as influential to bond investors. Gross runs the world's largest bond fund, PIMCO, and has been very successful over the years. Therefore, it's worthwhile to mention that his fund has eliminated all government-related debt, because Gross believes domestic interest rates are going higher. He says that yields on Treasury securities are about 150 basis points (1.5 percentage points) too low when viewed from a historical perspective.

This is important insight to borrowers. Mortgage rates, by way of mortgage-bond prices, track the yield on 10-year Treasury notes. The historical spread between the two is roughly two percentage points. The current 10-year Treasury note is yielding around 3.4 percent. Add 150 basis points and the same note would yield 4.9 percent. Add two percentage points to that, and we get 6.9-percent 30-year fixed-rate mortgages.

Over the past year, the 30-year fixed-rate mortgage has been around 160 basis points above 10-year Treasury yields, but that's due mostly to Federal Reserve intervention. However, the Fed isn't going to be intervening into perpetuity. When it stops, the spread will likely return to historical norms. So will mortgage rates.

Should We Buy Now?

2011-03-07T11:35:00.000-08:00

MARKET RECAP

There wasn't much new to report on housing this week, which is probably a good thing. Most of the news has been tepid at best lately, making it seem as though we are stuck in some sort of holding pattern.

The pending home sales index is the latest example. The index fell 2.8 percent in January to 88.9, which suggests sluggish existing home sales in February and March. This really isn't news; February was a sluggish month for sales in many parts of the country, but most of us knew that. Weather for the first two months of the year was unusually snowy and cold across the nation. To state the obvious: no one house-hunts in a snow storm.

Inventory and regressing prices continue to be popular laments, but ones we think are overblown. Both are an outgrowth of a sluggish employment market, but that's improving. In fact, based on February employment numbers, the economy and the employment market might be improving better than most economists had forecast. Private-sector employers reported that payrolls rose by 192,000 last month, dropping the official unemployment rate to 8.9 percent, the first time in nearly two years it has been below 9 percent.

For the past five months, the trend in new hires has been volatile, but up. We expect hiring to continue to accelerate in coming months. In the early stages of a recovery, payroll gains tend to surge to 250,000 per month compared to the mature stage, where monthly payrolls gains of 150,000 are the norm.

More people working mean more robust markets all around. Jobs are natural curatives. Many of the problems of bloated housing inventory and foreclosures aren’t about negative equity; they're about paying the bills. Work enables us to do that. Someone might not like the idea of his house being worth less than the balance on the mortgage, but the mortgage will be paid if the job allows it.

The mortgage market will likely feel an immediate impact from rising employment. Economic recoveries tend to be inflationary, especially when interest rates are set as low as they are today. Inflation will likely become a greater concern heading into the prime buying season.

The Treasury Department could also be a factor in the mortgage market. Its initiatives to move the market away from government-sponsored agencies Fannie Mae and Freddie Mac to private markets are gaining support among politicians. We think the initiatives are good for the stability and long-term viability of both the housing and mortgage markets. Just as important, private markets are more flexible and better able to develop products that meet consumer needs. The downside is that private markets are also more expensive.

What Warren Says About Housing
It's that time of the year when über-investor Warren Buffett releases his annual letter to shareholders of Berkshire Hathaway. The letter is, of course, of interest to Berkshire shareholders, but it's also of interest to just about anyone who invests. After all, Warren Buffett is the greatest investor of the past 50 years.

Buffett isn't right all the time, but he's right enough, which is why our interest was piqued by his comments on housing. Says Buffett, "A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point."

It's an understatement, and one not particularly prescient, but it's one worth noting anyway, because Buffett has been investing in Berkshire 's housing-related properties. Acme Brick acquired the leading manufacturer of brick in Alabama at a cost of $50 million; Johns Manville is building a $55 million roofing membrane plant in Ohio ; Shaw Industries (carpeting) has planned $200 million worth of spending on its U.S.-based plant and equipment. Berkshire is also a big investor in USG Corp., the Sheetrock Company, and it owns Clayton Homes .

It's nice to say a housing recovery is on the way, but it's even nicer to see someone of Warren Buffett's standing backing the recovery with his money.

Why Wait to Buy?

2011-02-21T08:30:00.000-08:00

MARKET RECAP

We knew it was only a matter of time, and now it appears the time, if not here, is close at hand. We are speaking of inflation, which is more real and tactual these days. Producer prices, which have been climbing over the past seven months, continued their march north. In January, the producer price index spiked 0.8 percent over December. However, the core number, which excludes energy and food prices, was even more disconcerting, posting a 0.5 percent gain – the most since October 2008.

Rising prices on the producer side are eventually felt on the consumer side, so it was no surprise that consumer prices also rose in January, with the consumer price index posting a 0.4 percent increase. Consumer prices still appear subdued, posting a 1.6 percent increase for the past 12 months, but the data include big-ticket and infrequently purchased items, such as automobiles and airline tickets. Most of us are aware that day-to-day purchase prices are increasing at a higher rate.

This latest data on price inflation points to upward pressure on mortgage rates; even though rates held steady this past week. Is there a reasonable estimate to how high rates will go? PMI Mortgage Insurance sees the 30-year fixed-rate mortgage hitting 5.5 percent by the end of this year and then increasing to 6.5 percent by the end of 2012. (For the record, PMI also predicted the 30-year loan would average 5.5 percent at the end of 2010.)

We think 5.5 to 5.75 percent is a reasonable range, with a few caveats, of course, starting with the Federal Reserve. Fed Chairman Ben Bernanke has said that the Fed will keep buying Treasury securities through June to support the economy, but a couple Fed officials have argued that keeping the easy-money policy intact for too long could crimp the Fed's ability to bring inflation under control. The truth is that timing these things is obvious in theory, but very difficult in practice.

However, even if we are wrong on price inflation and about the Fed's ability to optimally manage the money supply, other factors could keep mortgage rates moving higher. Pressure is building to wind down Fannie Mae and Freddie Mac, which have guaranteed more than nine out of every 10 mortgages since the financial meltdown. The White House has proposed increasing Fannie and Freddie's prices, phasing in a 10-percent down-payment requirement, and winding down their investment portfolio. These initiatives would put private capital and government capital on a more equal footing.

We are in favor of more private investment, because it means more diversity in product offerings and more latitude in pricing and qualifying mortgage loans. Of course, the downside will be higher price loans, but that won't be so bad as long as the economy and the job market continue to improve. A 5-percent 30-year fixed-rate loan is nice, but a broader market of qualified applicants in a 5.5-percent loan market would be even nicer.

Bubble Trouble?

We don't think so, but Robert Shiller of the Case-Shiller home price index does. Mr. Shiller recently cautioned that housing prices are likely to “stay in the doldrums for years,” but he added an alternative scenario where a growing speculative component could cause prices to overshoot on the upside.

It is an unlikely scenario; rarely do consecutive bubbles form in the same market. Stocks that burst with the bursting of the tech bubble in 2001 are an obvious example. In addition, the common value matrices – such as median-income to median-home prices and rent to home-price appreciation are where they were around 2002. To be sure, they are still a little high by historical measures, but they are much more reasonable compared to 2006 – the apex of the housing bubble.

The bigger concern is that the number of buyers who could buy won't. The New York Times recently interviewed Dan Cunningham, a 41-year-old renter. Here's what Mr. Cunningham told the Times reporter: “We would love to have a house; I have more than enough for a down payment. I’m pre-approved for a loan. But I have to have confidence it’s not going to lose another 20 percent.” The Times also reported that Cunningham plans to wait until he sees prices rising before making any offers.

And that's the mindset we need to overcome. People like Dan Cunningham more often than not wait too long and find themselves chasing a less favorable, more expensive market. That's an important insight, and it's one the Dan Cunninghams of the world need to know.

Update for Feb. 14, 2011

2011-02-14T07:37:00.000-08:00

February 14, 2011

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MARKET RECAP

When housing-sector pundits spoke last week, they spoke mostly about foreclosures and pricing. RealtyTrac reported that lenders repossessed over 78,000 properties in January, down 11 percent from a year ago, but up 12 percent from December, thus implying that any improvement was an anomaly due solely to the foreclosure moratorium. Therefore, we should expect more inventory to hit the market, and more inventory means lower prices if demand fails to keep pace.

That wouldn't be good news; Zillow reported that home values posted their largest quarter-over-quarter decline, 2.6 percent, since the beginning of 2009. Zillow's price data corroborates recent data from Case-Shiller and the Federal Housing Finance Agency, which shows prices are backsliding.

That fear is that sliding prices mean an increase in negative equity, which is already a concern. Zillow reports that 27 percent of borrowers were upside down on their loans in the fourth quarter of 2010, up from 23 percent in the third quarter. An increase in negative equity could mean more foreclosures, which means more inventory, which means more pricing pressure. You get the picture; it's a vicious circle.

However, it might not be all that vicious. We are talking about national averages, after all. In the past, we've offered the example of Warren Buffett, Bill Gates and 10 of us ordinary-folk in a room. If you were to average the wealth, it would suggest that everyone in the room is a billionaire, which is why averages can mislead. CoreLogic produced a table of the counties with the most negative equity, and it was heavily concentrated in Nevada , Florida , and the mid-inland regions of California .

The national data might be alarming, but it is likely irrelevant to your neck of the woods. Take Denver , for example: The Denver metropolitan area reported that the median price for single-family homes increased 7.1 percent year-over-year in January, while listings increased 5.7 percent. Denver hardly resembles the national averages, which is the case for most local markets.

The mortgage market is another matter. Lending is homogeneous; there's not much difference between a prime 30-year fixed-rate loan in Texas and one in Pennsylvania . Supply and demand and sources of financing are unique variables, to be sure, but the differences tend to be less than 40 basis points. A lot of what happens nationally (and internationally, for that matter) influences prices locally.

That said, whether someone lives in Texas , Pennsylvania , or anywhere else, rates are moving higher. This past week they hit a 10-month high. We doubt that they will reverse course any time soon, given the outlook for economic improvement and the growing price-inflation threat. Any rate pullback is an invitation to lock.

Life Isn't Linear

People are naturally drawn to trends. We like to think that there is order in the world and that life progresses one step after another. For that reason, we are attracted to graphs that are neat and tidy and move left to right in an upward trajectory.

Unfortunately, life doesn't work that way. Life is two steps forward, one step back, with a step or two to the side. That's why it is important to keep the long term in mind, even though our daily lives are focused on the short term.

In the short term, it appears rates have gotten away from us and that national housing prices are falling. (As we've explained above, that's not as important as the media lead us to believe.) This short-term perception has undoubtedly kept many naive home shoppers out of the market.

However, real estate is a long-term proposition. Over the long term, real estate is a good deal, and never more so than when purchases are made in a temporarily price-depressed environment with very favorable financing rates (and 5-percent 30-year fixed-rate loans are very favorable). We've been repetitive on this sentiment over the past couple months, but only because it's worth repeating.

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Mortgage Market Update For February 7, 2011

2011-02-06T07:54:00.000-08:00

MARKET RECAP

After getting off to a rough start in 2011, the data on housing has continued to turn for the better. This past week, Clear Capital's home price index showed that prices stopped declining in early January and increased for the first time since August. The change in prices, especially during a point in the year when sales are slow, is a sign that demand is returning. Even more encouraging, Clear Capital said that the slowing rate of sales of REO properties was the main reason for the price increase.

REO properties remain a market concern. We are all familiar with the distressed property overhang that weighs on prices. Clear Capital reports that in the fourth quarter of 2010, REO saturation increased 1.4 percent, but that is actually a drop from the 3.2 percent increase posted in the previous period. If the deceleration trend continues, Clear Capital says, home prices could be poised for future gains.

Of course, not everyone is on board with a rising-price environment. Fiserv expects home prices to decline another 5.5 percent nationally in 2011, though Fiserv also notes that three-fourths of the 375 metro areas it tracks will see prices stabilize by the end of the year, with all markets stabilizing by the end of 2012.

Our view continues to support more price-stabilization, with rising prices in certain locales. In fact, we expect that the most over built locales – Las Vegas , Phoenix , Central Florida – will see the most pricing improvement. There is no science behind our prognostication, just common sense. The sun-and-sand areas are still desirable, and they've suffered the most price depreciation since the financial crises began in 2007. We expect that they will likely post the best percentage improvement – albeit because they are coming over a very low base.

Mortgage rates moved off a very low base in the waning months of 2010, but they continue to hold steady, in that the prime 30-year fixed rate loan is still hovering in the 5-percent vicinity. Rates are better on some days than others, to be sure, but that's usually due to a surge in Treasury-security activity, which occurs when investors panic over some conflagration in a distant part of the world, most recently in Egypt .

However, conflagrations fade quickly and rates return to domestic influences, with inflation being the strongest influence. Price inflation is readily evident in oil, which has risen to over $100-a-barrel. Meld rising oil prices with growing consumer demand for all goods and services (an outgrowth of an improving economy) and an extraordinarily large money base and we are looking at the potential for wide-spread price inflation (which, by the way, will eventually become evident in housing prices).

The Power of Optimism

Our bias is toward optimism, and not because we like to indulge in wishful thinking. An optimistic outlook focuses the mind on searching for opportunities, which also tends to make obstacles that much easier to clear.

For the past year, we've been saying that opportunities abound: home prices are low, mortgage rates are low, the economy is recovering. That's good and bad news. Good in that the economy is improving, bad in that the best deals are fading away. For those with the courage to buy or invest when the popular financial media are predicting the end of the word (and fewer in the media are doing that these days), the rewards nearly always pan out over time.

And time is a key factor to focus on; real estate isn't about flipping, which is a niche market for sharp-penciled types who are obsessive about time-management, contractor-oversight, and cost control. Most of us aren't obsessive. But real estate still works. The key is to get in at a low-base price and finance at a low interest rate; positive cash flow is easier to generate (for investors) and price appreciation will likely be realized when it comes time to sell.

Deals are still available if you are willing to seek them in negative situations, because the long-run opportunities don't avail themselves when the outlook is the sunniest. Today, pessimistic commentators continue to lament what the foreclosure overhang is doing to the market. The optimistic actor, meanwhile, continues to focus on the opportunities the overhang is creating, because he knows the overhang and the opportunities will not last forever.

Mortgage Market for Jan. 31, 2011

2011-02-02T11:36:00.000-08:00

Keeping you updated on the market!
For the week of

January 31, 2011

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MARKET RECAP

We hope we see marked improvement in the home-builder sentiment index on its next release, because the news on new home sales in December was better than just about anyone expected, jumping 18 percent to an annual unit rate of 329,000. What's more, supply came down and prices jumped. The former fell to 6.9 months, versus 8.4 months in November, and the latter jumped 12 percent to a median $241,500.

We did say “marked” and not “phenomenal.” As encouraging as the news on new-home sales was, it wasn't perfect. The fall off in purchase applications over the past few weeks points to a fall off in new-home sales for January. In addition, much of the improvement was concentrated in the West, not evenly distributed throughout the regions. Then again, it rarely is. Real estate is, after all, local.

Overall, though, we remain encouraged. This and the previous week's existing-home sales report is good news for housing. Now it's a matter of seeing if the winning streak can be strengthened and extended.

Some in the financial media speculated that the buying rush was tied to December's jump in mortgage rates, which encouraged home shoppers to hop off the fence and act. We tend to agree with the speculators. We've been saying over the past half-year that rising rates would be more stimulative than dissuasive. Expecting lower prices and then getting them over an extended period lulled people into an unwarranted sense of certainty and nonchalance. The rate hikes over the past two months have shocked the market back to reality and motivated many people to act.

Another shock could be forthcoming for price-deflation proponents. The S&P/Case-Shiller home price index showed a year-over-year price decline in November, with a 0.4 percent decline for the composite 10 index and an adjusted 1.6 percent decline for the composite 20 index. David Blitzer, chairman of the index committee at S&P, warned that "A double-dip could be confirmed before Spring.” Blitzer defined a double-dip as both the 10- and 20-city composite indexes setting new post-peak lows.

We are not so sure in light of December's data on median home prices. There is also the issue of money supply, which has increased dramatically over the past two years and is set to continue increasing this year. The Federal Reserve is confident it can manage any spike in inflation, but we remain circumspect. Inflation often works like pouring a new bottle of ketchup: You keep smacking the bottom of the bottle repeatedly and nothing comes out. You smack it again and find you have ketchup (and price increases) all over the place.

The prospect of sudden inflation is a primary reason we continually warn borrowers and buyers not to procrastinate. Mortgage rates continue to hold steady, and to us, that's an opportunity to act. However, the 30-year fixed-rate loan continues to parallel movement in the 10-year Treasury note, and the 10-year Treasury yield is itching to move higher.

Correlations between asset classes are always on the move and always changing: when one asset class gets hot, the others tend to cool. In case no one has noticed, the stock market is hot these days. In fact, the two leading stock-market benchmarks – the Dow Jones Industrial Average and the S&P 500 Index – are posting multi-year highs.

We broach this point to note that money invariably moves to the hot asset class, and in today's market, that's stocks. This money also invariable moves at the expense of the former hot asset class, and the former hot asset class is Treasury securities. As money leaves an asset class, the required expected return on that class rises to reflect its diminishing popularity and to entice money to return.

As we noted above, mortgage rates are tethered to Treasury rates. We also noted that inflation would get rates moving higher, but so will money moving away from Treasury securities into other asset classes. We think this notion of asset rotation is one more arrow in the quiver of those of us expecting higher mortgage rates in 2011.

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Mortgage Market for Jan. 10, 2011

2011-02-02T11:32:00.000-08:00

Keeping you updated on the market!
For the week of

January 10, 2011

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MARKET RECAP

Home prices are the leading concern as we begin the new year. Clear Capital reports that prices dropped 4.1 percent across the nation in 2010, and it was a volatile decline at that. Values declined 5.3 percent over the first 12 weeks of the year, then spiked 9.7 percent through mid-August, only to drop 9.4 percent through year's end. Clear Capital sees prices dropping another 3.9 percent through 2011.

Another analytics firm, Altos Research, also reports less-than-encouraging pricing news. According to Altos, home prices dropped 1.6 percent in December, with new listings actually hitting the market lower than that. The good news from Altos is that prices will “likely” increase modestly as we head into the spring season. Shadow inventory remains a concern, but Altos reports that inventories were cut nearly 6 percent in the 10 largest markets in December.

The latest spat of negative data doesn't mean we should throw in the towel on price stability, or that buyers should wait for lower prices before taking the dive into the housing pool. The heavy across-the-board discounting is over. Changes in prices going forward will be incremental and specific to local markets – some markets will see additional discounting, some won't.

What's more, markets are dynamic: money saved from any additional discounting could easily be offset by mortgage-rate increases. Goldman Sachs expects that the Federal Reserve will end its second round of quantitative easing in June, and that 10-year Treasury yields (a benchmark for 30-year mortgage rates) will climb to 3.75 percent by year-end, and then advance to 4.25 percent by the close of 2012. The historical average spread between a prime 30-year fixed-rate mortgage and the 10-year Treasury note is around two percentage points, which means if Goldman Sachs proves accurate on its prediction, we could be looking at 5.75 percent 30-year loans this year and 6.25 percent loans in 2012.

Of course, a forecast is no sure thing. In fact, forecasts are often wrong, but there are mitigating circumstances to consider. A majority of top decision-makers at the Federal Reserve believe that concerns over falling prices have eased and that inflation will gradually rise. Recent data support that belief: employment is improving – ADP Employer Services reports that 297,000 new private-sector jobs were created in December, triple the consensus estimate; manufacturing has expanded for 17-consecutive months; stocks continue to trend up; and rising food, energy, and commodity prices are stoking inflation fears.

Our advice remains the same as it has for the past two months: get the mortgage application in, and, unless you have a strong gambler's constitution, lock instead of playing the floating-rate game. We don't think borrowers will be giving up much. Let’s remember that we are still within 50-basis points of a 50-year low.

Let's Not Forget the Other Half
Actually, it's much more than half. Most media accounts are peppered with sad stories of people who are under water or who are facing foreclosure because of job loss or because they simply took on too much house and too much financing. The fact is that the vast majority of mortgagors have a job and are current on their payments.

Many of these folks are underwater, to be sure, but most are not, so there is still plenty of opportunity for plenty of people to buy, invest, or sell. While there is currently some slack in demand, reduced prices and low interest rates should keep home purchases attractive. The market is now simply waiting on a robust recovery – most likely lead by job growth – to spur consumers into taking advantage of very affordable conditions.

A strong recovery appears to be at least a year, or possibly two, away. But as we've stated, if we wait for a strong recovery to be in full force, the bargains (and the low financing rates) will be gone. That's a lesson worth imparting to the half that is still fearful of the recent past or needs a consensus backing it before it will act.

Mortgage Matters

2010-10-25T07:31:00.000-07:00

October 25, 2010

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MARKET RECAP

We can't say that the post-tax credit lull is officially over, but recent housing data lead us to believe it is. Housing starts again surprised on the upside, increasing 0.3 percent in September to 610,000 seasonally adjusted annual units, after jumping 10.5 percent in August. More importantly, single-family starts were noticeably stronger, increasing 4.4 percent month-to-month.

Gains in the immediate future might be tougher to come by. Permits declined 5.6 percent, lead by an acute decline in the multi-family segment, which tumbled 20.2 percent after a 9.8 percent rise in August. The bad news on multi-family permits – which tend to be volatile anyway – is offset somewhat by the good news that single-family permits edged up 0.5 percent.

Improving sales and more construction helped lift the Housing Market Index – a gauge of homebuilder sentiment – to a 16 reading in October after posting at 13 in September. Although the sentiment is still low, it should continue to improve: the HMI component for sales expected in the next six months rose to 23 from September's 18.

We don't want to minimize legitimate concerns, but the tendency is to extrapolate near-term news farther into the future than it probably deserves. Admittedly, news has been underwhelming due to tax-credit expirations, sluggish job growth, shadow inventory build up and foreclosure-gate, but these things can pass as quickly as they come. Indeed, we are already seeing reports that last week's fears of a country-wide foreclosure meltdown were seriously overdone.

In the meantime, mortgage rates remain stable (which also means they show little inclination to go lower), as do home prices, so it's important to keep the long term in perspective. Few people doubt that there's a high probability that a refinance or a home purchase today will look like a very savvy investment five years hence.

Another Reason We Think Home Prices Have Bottomed
Last week we discussed quantitative easing and the prospect of the Federal Reserve injecting more money into the banking system. The scuttlebutt on the street says the Fed could pump another trillion dollars into the system through Treasury-bond purchases. It's no slam-dunk, though; the money supply is already at an all-time high, according to the St. Louis Bank of the Federal Reserve.

Because of heightened uncertainty, new money has had only a minor impact on consumer prices. In other words, consumer-price inflation remains low (though prices haven't been falling either). Much of the inflation associated with the new money has shown up in the investment markets instead, particularly in stock and gold prices.

We think it's only a matter of time before consumer prices come under inflationary pressure. The fact is that even if the Federal Reserve doesn't add more money to the system, the banks could. They are sitting on $980 billion of excess reserves, which could easily be drawn into the loan markets, thus further expanding the money supply.

All this money and the potential for even more money will help keep home prices stable in nominal terms. And it's these nominal values that serve as the basis for home appraisals and loan amounts. In other words, if the Fed's goal were to maintain a median home price of $200,000, it could theoretically pump enough money into the economy to make it happen. It wouldn't necessarily be a good idea, but it is an option if price stability were the goal.

Housing Market Today

2010-09-13T09:42:00.000-07:00

Keeping you updated on the market!
For the week of

September 13, 2010

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MARKET RECAP

Thanks to the Labor Day holiday, little housing news hit the wires this past week. But the dearth of hard data gave bloggers and pundits more time to voice their opinions.

At Housingwire.com, real estate data provider Clear Capital reported that home prices gained 5.7 percent over the three months ending in August. That would appear to be good news, but the analysts at Clear Capital were quick to note that price growth has slowed and will drop next year, possibly dropping below 2009 levels.

It's worth noting that Clear Capital's 5.7 percent gain is a national average. Real estate is local, and becoming even more so. Clear Capital noted that with the various government incentives, residential real estate nationally tended to move in the same proportions in the same direction. That's no longer the case. Today, we are seeing real estate respond more to the vagaries of local markets than to national trends. In other words, prices could weaken nationally, but that doesn't preclude local markets from stabilizing and even appreciating. After all, it takes only one outlier to skew an average. (For example, if Warren Buffett, you, and eight of your closest friends were in a room, the average net worth of each person in that room would exceed $5 billion.)

Meanwhile, over at the New York Times, various bloggers of various reputations were lamenting that markets still aren't clearing at today's prices, which means prices must continue to fall. The logic appears sound: lower prices do stimulate demand and will clear inventory. But that logic is more applicable to trade-value goods – goods that are produced to be sold. Housing is different; it has a use-value component (at least existing homes do). Most of us buy a house as a dwelling, not as good to trade. If we don't like the price when we consider selling, we're more likely to remove our house from the market, thus lowering supply, which, in turn, tends to stabilize and raise prices.

In short, no one knows where housing prices will be this time next year. We think they will correlate negatively with the unemployment rate: if the rate drops, prices will rise and vice versa.

We also think mortgage rates will correlate negatively with the unemployment rate. As the unemployment rate drops, mortgage rates will move higher. Granted, that doesn't seem to be much of a concern today, with the unemployment rate stubbornly holding at 9.6 percent, but things can change in a hurry (on one bullish employment report or one spike in the consumer price index), which is why it's worth remembering that sub-five percent 30-year fixed-rate mortgages are the anomaly, not the norm.

The Perspective from the Great White North
Sometimes it's good to get an outside perspective of things, which is what the Financial Post, a Canadian national newspaper, provided a week ago. While a pile-up of weak US economic data has turned domestic consumer and investor sentiment sour over the past few weeks, the view from north of the border is that things aren't really that bad down here.

Indeed, many money managers in Canada are taking a hard look at our markets and investing more of their money. The smart money managers (it's worth noting that Canada avoided the banking implosion that rocked the United States and Europe ) are taking their time to analyze the news. After weighing some of the disappointing data of recent weeks, including weak jobs and home sales numbers, against more positive indicators such as the latest ISM survey, they have seized the opportunity to buy assets on the cheap.

While there is no question that the US economy has stalled and growth moving forward will be modest, many Canadians are convinced that the recovery is sustainable and the chance of a double dip is low. Perhaps we should heed their business acumen and consider the opportunities that have presented themselves.

The Housing Market

2010-09-07T05:26:00.000-07:00

Keeping you updated on the market! For the week of

September 6, 2010

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MARKET RECAP

Most people would agree that it's best to maintain an even keel – don't get too up or too down about circumstances. That advice is particularly pertinent when following the weekly housing and mortgage data. The most recent fortnight serves as a perfect example: Last week, the data were mostly down; this week, the data are mostly up.

This week, the S&P Case-Shiller home price index posted a 1 percent rise in June, with 18 of 20 metropolitan areas posting price increases. The Case-Shiller index has been relatively steady over the past few months, and that's encouraging, but we need to keep in mind that the index will be presenting a post-tax-credit market going forward, so we wouldn't be surprised to see some price easing, as long as the mix of homes sold hasn't substantially changed.

This week also gave us news that the number of buyers who signed contracts to purchase existing homes rose in July, with the Pending Home Sales Index rising 5.2 percent to 79.4. The optimist in us believes this could lead to an increase in existing-home sales in September, but the pessimist in us still sees a double-digit months supply for some time.

On the other hand, “some time” might not necessarily be a long time. Economist Karl Case (of the Case-Shiller home price index) provided a useful (if not obvious) perspective on just how affordable houses are these days. In short, Case notes that four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of 6.6 percent was $1,533. Today that $300,000 house would sell (on average) for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. What's more, the 20-percent down payment would be knocked down to $42,600 from $60,000.

Case makes another cogent point in noting that in a given year, the number of completed sales is about 4 percent to 5 percent of the housing stock. Therefore, it doesn’t require a large number of buyers to change the overall direction of the market. That's a point we've been making over the past year. And even though sentiment hasn't turned for the better, it's worth noting that it can turn on a dime.

We've also noted that mortgage rates are apt to turn on a dime. To be sure, rates seem to post new lows each week, but the drops have been marginally incremental in many cases. At this point, we think it's more of a game of chicken – holding out for small return at big risk – than anything else. New data, like Friday's employment report, which showed a better-than-expected net loss of 54,000 jobs (mostly temporary census workers) while the private sector added a better-than-expected 67,000 new jobs, can easily produce dime-turning moments.

. A More Sensible Solution
Franklin Roosevelt famously said in his 1932 inaugural address “the only thing we have to fear is fear itself.” Roosevelt went on to define fear as “nameless, unreasoning, unjustified terror.”

Fear is one emotion holding back the housing market today. In this case, though, it isn't nameless, unreasoning or unjustified. It's really a fear of potential conflicts. The New York Times reported how a maze of government incentives and regulations are working against each other and Fed policy to keep a floor from forming in the market. In short, one incentive for one segment of the market tends to counteract the progress in another segment.

More market participation is one incentive the government could provide that wouldn't hamper any segment. More demand is the best way to soak up excess supply and stabilize prices.

We think more flexible underwriting standards would be the most inclusive and effective way toward achieving that goal. Convincing Freddie Mac, Fannie Mae, and FHA to jettison FICO scores might be a good start. The past couple years have roughed up the FICO scores for many potential borrowers who would be good credit risks today. Focusing on the basics, such as sufficient residual income and adequate reserves to cover loss of job or increase in liabilities, can be just as insightful as FICO scores at vetting lending risk while at the same time expanding demand.

Would this be a good time to buy a home?

2010-08-25T05:51:00.001-07:00

Keeping you updated on the market!
For the week of

August 23, 2010

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MARKET RECAP

Charles Dickens famously begins A Tale of Two Cities with “It was the best of times, it was the worst of times.” Further into that first sentence, and keeping with the opposing theme, he writes “it was the spring of hope, and the winter of despair.” Dickens obviously wasn't referring to the housing market, but maybe the sentiment applies.

It just might be the best of times for some (discussed below), though the worst of times is more easily grasped. Look no further than homebuilders: a few are feeling like it is the worst of times, at least when gauging sentiment. On that front, the housing market index fell for a third-consecutive month in August, posting at 13. To put current sentiment in perspective, a reading above 50 indicates more builders view sales conditions positively. The index hasn't seen 50 in more than three years.

Not surprisingly, homebuilders are expressing the same concerns that most of us are expressing: they sense that the economy, in general, and the job market, in particular, are losing traction. The trend in job creation is particularly worrisome. Weekly jobless claims continue their upward climb, posting a 2.4 percent increase for the week ended August 14 to hit a nine-month high.

The news wasn't all cold porridge and damp weather, though. Housing starts in July posted a modest comeback, rising 1.7 percent, to an annualized pace of 546,000 units. Granted, the gain was due primarily to a technical rebound in the multifamily component, but it's still good news nonetheless. As for the single-family component, it slipped slightly on both starts and permits.

At least mortgage rates continue to help keep the affordability quotient high. Rates did rise slightly across the board this past week, but they remain near multi-decade lows. That said, we continue to advise –yet again – not to wait on either a refinance or a purchase. We still see too much complacency in the market: borrowers thinking that low rates are going to be around forever. They won't, and they can rise in a hurry.

We understand that frustration is keeping many potential borrowers on the sidelines. On the one hand, they read about federal programs aimed at boosting home sales and refinances, and then on the other hand, they face the reality of Fannie Mae's and Freddie Mac's lending standards. Our advice: Try anyway. Borrowers are often surprised (pleasantly) that solutions really do exist.
More Solutions We'd Like to See
For many mortgage-loan and housing investors, the current market just might be the best of times, particularly for those investors pejoratively known as “vulture” investors – investors who seek value in distressed situations.

In one incarnation, vulture investors acquire mortgage loans at a deep discount and then renegotiate terms with the borrower to repay at a substantial discount. For example, if investors pay $100,000 for a loan with a $200,000 balance due, they might negotiate a $140,000 balance with the borrower.

It's an obvious win-win situation: the investor still makes money on his investment and the homeowner still keeps his home, with lower payments and a reduced balance. What's more, cutting the loan balance might be the most effective way to motivate borrowers to resume payments, because it gives them more hope of eventually owning the home.

Over the past two years, less than $25 billion of delinquent mortgages have been sold to “vulture” investors. This represents only 0.25 percent of US home loans outstanding, according to the Wall Street Journal. But the percentage is likely to grow as banks try to clean up their books before year end.

Let's hope that's the case, because vulture investors aren't as ugly as the name implies. In fact, they might be a real beauty for us, clearing the market much more expediently of unwanted inventory than either the big banks or the federal government.

Mortgage Market for Aug. 16, 2010

2010-08-16T07:19:00.000-07:00

August 16, 2010

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MARKET RECAP

Since the beginning of the year, we've been saying the housing recovery is predicated on a jobs recovery. And although we've been encouraged that we've been making progress on the jobs front in recent months, the latest weekly unemployment-insurance claims news leaves us a little concerned – with claims growing to a six-month high of 484,000. We'd like to say it's an anomaly, but the four-week average has been moving up as well. Unfortunately, this trend doesn't bode well for the August employment report.

We can take some comfort knowing that foreclosure filings dropped 9.7 percent in July, compared to the same year-ago period, to post a second-consecutive month of year-over-year declines, according to RealtyTrac. Nevertheless, there were over 325,000 properties that received a filing, which marks the 17th-consecutive month that foreclosure activity exceeded the 300,000 level. The good news is that the trend remains mostly down in the top-ten metropolitan-statistical areas RealtyTrac follows and that the usual suspects – Nevada , Arizona , and Florida – continue to skew the data.

Even though job growth is weakening, we still think home prices will remain stable. The NAR reported that the median price for resales of single-family homes increased in 100 of the 155 metropolitan areas it tracks, with the national median price for a single-family home posting at $176,900 in the second quarter of 2010, a 1.5 percent gain compared to the second quarter of 2009.

We'd be remiss not to mention the obvious: the NAR's report included a rush to take advantage of expiring federal tax credits. This artificial stimulus has a few pessimistic market watchers expecting home prices to ease in subsequent months. To be sure, the NAR's third-quarter report could show some price easing, but recent monthly price data from Case-Shiller and the Federal Housing Finance Authority suggest, if not an up trend, at least a stable pricing environment in most metropolitan areas.

Mortgage rates, in contrast, are in an obvious downtrend. We regularly see the 30-year fixed-rate mortgage quoted in the 4.25 percent vicinity (with points and no risk adjustments), and the 15-year fixed-rate loan regularly quoted in the 3.75 percent-to-4.00 percent range.

So why the relentless downtrend in mortgage rates? The most recent decline came courtesy of a rush to buy Treasury 10-year notes, which pushed their yield down to a 16-month low. (Treasury yields influence mortgage rates.) In addition, Federal Reserve officials announced plans to buy $18 billion of Treasury debt and Treasury Inflation Protected Securities through mid-September. These purchases could further constrict Treasury yields; thus, helping keep mortgage rates low – likely through the end of summer.

What Does Warren Think?
We are speaking of Warren Buffett of course, Omaha , Nebraska 's legendary investing sage. In August 2009, Mr. Buffett penned a New York Times op-ed warning that lawmakers will be tempted to let the Federal Reserve print money (an inflationary, usually interest-rate raising strategy) to deal with the growing national debt.

Today, Mr. Buffett is taking no chances. He recently shortened the duration of the portfolio of bonds held by Berkshire Hathaway (investors shorten bond duration when they expect inflation, lengthen it when they expect deflation), the company in which he serves as CEO. In short, Mr. Buffett is expecting inflation, not deflation, to be the overriding economic concern in the not-too-distant future.

Mr. Buffet has been right, in that the Fed has printed more – a lot more – money over the past year, but so far has done so with impunity. But it's worth keeping in mind that within a system as complex and as unwieldy as our national economy, inflation doesn't just pop up when expected; the timing is unpredictable, and it will likely happen faster than the market anticipates. Therefore, we still don't believe procrastinating for lower rates is a worthwhile strategy, nor do we believe it's a worthwhile strategy to bet against someone who has been so often right as Warren Buffett.

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Update June, 21, 2010

2010-06-21T09:32:00.000-07:00

June 21, 2010

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MARKET RECAP

Some people are just unsure of where they're going. We'll slot homebuilders into this category. After posting steady gains over the past few months, the National Association of Homebuilders/Wells Fargo Housing Market Index tanked five points to 17, which means homebuilders have turned sour once again.

The mood change is understandable, given that housing starts sank to their lowest levels in five months. The numbers are hardly encouraging: starts fell 10 percent in May from April to a seasonally adjusted annual rate of 593,000 units. The good news is that compared to the same time last year, starts are up 7.8 percent.

The drop should have been anticipated. In the previous two months, improvements were driven by federal tax credits, which are now gone. We've noted in past editions that the current activity pattern isn't unprecedented, using the purchasing patterns in automobiles as an example. After the cash-for-clunkers program expired, auto sales plummeted, but then recovered steadily over subsequent months. The fact is, we are transitioning from a government-aided recovery to a more-sustainable market-based one. And while it takes time for the transition to occur, it won't be pain free.

Even though new homes aren't getting the attention from potential buyers that homebuilders desire, more people are buying – at least that appeared to be the case last week. The Mortgage Bankers Association reported that purchase activity rose 7.3 percent, halting a plunge that took the measure the prior week to the lowest level since 1997.

Refinances were also on the upswing last week, thanks to more borrowers believing mortgage rates are about as low as they can go. Our mantra on the subject remains unchanged: rate decreases will be marginal at best. Many borrowers, though, are relentless bargain hunters and want the absolute best rate possible, which leads to the inevitable question: should I lock shortly after applying or wait until the closing date is near?

Sometimes the decision is made for you; some banks require a lock when the application is sent. Many borrowers wish to lock as soon as possible anyway. We suggest that once the rate is locked you stop checking rates; there is no sense stirring up feelings of remorse over a few basis points. Life is too short.

On the other hand, some borrowers are risk accepting (at least that's what they say), and they want those few basis points. To those people we say “go for it,” but only if they are willing to accept the very real risk, and won't be driven to agony, by a rate spike. No one, us included, can know with certainty where rates will be 30 days from now. But if the choice is between noticeably higher or noticeably lower, we'd side with the former.

How Risky is this Market?
The May/June edition of the Financial Analyst Journal featured an article titled “Dimensioning the Housing Crisis” (available for download at CFAinstitute.org). The article is noteworthy for encapsulating the problems of the housing market in a mere 12 pages.

The article is replete with sundry graphs, most of which accentuate just how bad things got over the past two years. One graph features the spike in first-time defaults; another features the seemingly exponential growth in housing overhang; yet another features the precipitous drop in cure rates for 30-day, 60-day, and 90-day delinquencies. The author notes, in pointed prose, that “we have a housing problem that affects 11 million to 12 million units. If nothing is done, more than one homeowner out of every five will face eviction.”

It's a pessimism-inducing article, to be sure, but we remain upbeat nonetheless. Reason being, these problems are well documented today, which means there are few shocks left to rock the market. What's seen isn't what kills, it's what's unseen.

Savvy buyers know that the time to buy isn't when everything is dear but when everything is disdained. Everything in housing isn't disdained, but sentiment remains low. So, we ask ourselves, was it riskier to buy a house in 2006 or is it riskier to buy one today? The sentiment feels riskier today, but the data show that 2006 was overwhelmingly riskier.

2010-06-08T13:04:00.000-07:00

Keeping you updated on the market!
For the week of

June 7, 2010

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MARKET RECAP

Few housing market participants were surprised when the NAR reported that its pending home sales index increased again, 6 percent in April, to 110.9 (100 is the base set in 2001) thanks to a surge in sales contracts. April, not-so-coincidently, happened to mark the end of the extension of the federal homebuyer’s tax credits. NAR chief economist Lawrence Yun was upbeat on the new business, nonetheless, noting, “The homebuyer tax credit brought close to one million additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation."

We can't say with certainty whether Yun's analysis is correct. We've stated in past editions that tax credits bring buyers forward, but don't increase aggregate demand. Look no further than the automobile tax credits from last year. Once the $4,500 cash-for-clunkers purchase program ceased, sales dropped like a rock. Does that mean we should expect home sales to do the same?

We don't think so. Automobile sales have recovered, and have recovered quite nicely. In May, sales for General Motors increased 16.6 percent from the same year-ago period, while Ford's increased 23 percent. Not to be outdone by its larger competitors, Chrysler posted a 33 percent increase. What's more encouraging, the robust recovery in auto sales had nothing to do with tax credits; it had everything to do with an improving economy and improving consumer confidence.

These same factors will likely work favorably for the housing sector in coming months. In fact, they already are. Home prices climbed 6.8 percent in May 2010 from the same year-ago period, posting the largest yearly increase since July 2006, according to real estate data provider Clear Capital. Meanwhile, the number of REO properties on the market seems to be dropping. Clear Capital reports that the national REO saturation rate dropped to 27.8 percent, down from 41.7 percent last year.

We think this is a near-perfect market for homebuyers: home prices are low but stable, while mortgage rates continue to hug historical lows. In many parts of the country, buying a home is cheaper than renting.

But this scenario won't last indefinitely. More Federal Reserve Bank presidents (of which there are 12) believe the economy is sufficiently stable to begin raising interest rates. Kansas City Federal Reserve Bank President Thomas Hoening said that the US economic recovery has the momentum to sustain itself and called for an increase in the target federal funds rate to 1 percent by the end of summer. It's currently hovering near zero. Other Fed presidents have stated that they are “uncomfortable” with Federal Reserve Chairman Ben Bernanke's use of “extended period” as it is applied to low rates.

The bottom line is, when the Federal Reserve starts raising the federal funds rate – the influential rate at which banks lend to each other – mortgage rates won't be far behind.

Up, Up, But Not Quite Away

We were expecting a little more, but at least it's trending in the right direction. We are speaking of the employment report, which showed payrolls rose by 431,000 last month.

That would be very good news, if not for the fact that 411,000 of the new hires were related to the census. Nevertheless, that still leaves a net positive for the private sector. The increase was enough to push the unemployment rate down to 9.7 percent (though some pundits argue the drop was really due to a lower participation rate).

You never want to read too much into a single month of data, but we remain encouraged: job growth and wages picked up from April to May, while the average workweek lengthened. And although moderate compared to past post-recessions, the recovery is looking more sustainable after consumer spending and business investment rose at a healthy pace in the first quarter.

Overall, we think this latest employment report provides another reason to act now in both the mortgage and housing markets.

2010-05-19T08:21:00.000-07:00

Keeping you updated on the market!
For the week of

May 17, 2010

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MARKET RECAP

The pig is progressing through the python – the pig being the shadow inventory of foreclosures, the python being the market. According to Barclays Capital, there are currently 2.4 million loans in 90-plus day delinquency and another 2.1 million in foreclosure, totaling 4.5 million in shadow inventory. Barclays says that this inventory should reach the high-point this summer and then fall off, as the market absorbs an estimated 130,000 distressed properties per month.

New foreclosures shouldn't distend the market much further. Foreclosure filings dropped year-over-year for the first time since RealtyTrac began measuring such statistics, in January 2005. Granted, we are dropping from monumental levels, but it is good news nonetheless.

The aggregated numbers remain a little daunting, but it's worth noting how foreclosure activity is measured. RealtyTrac adds notices of default, notices of foreclosure sale, and actual foreclosures (so if a property goes all the way to REO, it will be counted three times) to arrive at activity. REOs are still at record levels, but the initial stages have declined substantially, which bodes well for the shadow inventory; hence, Barclays' optimistic prediction that the worst, if not yet over, is close to being over.

All these bits and pieces of housing data eventually work their way into home prices, which continue to stabilize, as demand for higher-priced homes (driven by improving job prospects) picks up and the sale of distressed properties cease changing hands at deeply discounted prices. On that front, the number of metropolitan areas where median prices are rising grew for the fourth consecutive time. In the latest quarter, prices gained in 91 of the 152 metropolitan areas tracked by the NAR compared to 67 in the fourth quarter of 2009 and 30 in the third quarter of 2009. In short, we're on the right path.

But the farther we go down that path, the fewer deals we'll encounter. A year ago, buyers were keeping to the sidelines because they were concerned with catching a falling knife – buying a home at $250,000 only to see a comparable property fetch $230,000 three months later. We believe those days are over, which is one reason we continue to implore those on the sidelines to get in the game.

Mortgage rates are the other reason. Yes, the 30-year fixed-rate loan continues to bob around 5 percent while the 15-year fixed-rate loan continues to bob around 4.5 percent, but they're not sinking, and they won't. Therefore, we see no reason for someone inclined to refinance or to buy a home not to, especially given the optimistic outlook on jobs and the economy and the continued expectation for higher mortgage rates.

The Post-Credit Era

We've been saying for the past month or so that we're not particularly worried about the end of the federal homebuyers tax credits. We also weren't particularly concerned when the Federal Reserve said it would cease purchasing mortgage-backed securities. After all, the only way to discover if a market is truly healthy and viable is to stop subsidizing it.

It's still early to render a verdict, but so far so good. People recognize that the combination of low rates and lower home prices represent a great opportunity, while many shoppers who failed to find a home to qualify for the tax credit remain undeterred and, just as important, rational – understanding the go-go days of the early 2000s are over. And that's a good thing. The market of that era was driven more by speculation and less by fundamentals. And though it was highly remunerative for many of us, we see how it turned out.

In housing, slow and steady wins the race, which is why we continue to advise our clients that today's market offers good fundamentally sound deals that can be financed at good economically advantageous interest rates. Sounds like a win-win deal to us.

Mortgage Market Update

2010-05-10T06:33:00.000-07:00

May 10, 2010

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MARKET RECAP

In news that surprised no one, the pending home sales index surged to 102.9 in March. We all expected the months heading into April would produce more home sales, and that's the way it's playing out. What's more, it's likely to continue to play out over the next couple months, given closings usually occur a month or two after the contract has been signed.

Of course, the expiring federal tax credits are the impetus for the spring rush. Most market watchers are expecting a drop once they've worked their way through the system, so we shouldn't be terribly disappointed if sales growth stalls after being artificially stimulated.

That said, we remain optimistic. We think the housing market is sufficiently stable to stand on its own, particularly when considering the latest pricing data released by PMI Mortgage Insurance, which shows the risk of continued price declines is shrinking. Its latest report finds that 93% of the 384 metropolitan statistical areas it follows posted declining risk scores in the fourth quarter of 2009.

In addition to finding a less risky pricing environment, buyers are also finding a more welcoming lending environment. According to the Federal Reserve's latest survey, most banks didn't tighten lending standards during the first quarter of 2010. The survey also showed more banks expressing a greater willingness to lend. We've stated in previous newsletters that an improving economy goes hand-in-hand with less stringent underwriting, because lending is perceived as less risky in a growing economy. We expect further easing as the economy continues to grow, enticing more marginal borrowers into the market.

Consumer spending is another important measure of an economy's health. On that front, personal consumption posted a 0.6 percent gain in March, following a 0.5 percent jump the month before. Economists have been saying for months that the economic recovery would be anemic until the consumer sector became healthier. It appears healthier today.

So, we have a growing economy, stabilizing home prices, and possibly easing underwriting standards. That sounds like a recipe for higher mortgage rates, but that wasn't the case last week. In fact, rates dropped across the board and held near all-time lows. Is it possible we've cried “wolf” once too often and that low rates are now a permanent fixture of the economy?

We don't think so, because the factors that most influence interest rates still point to higher rates. The financial calamity in Greece was given as the primary reason for last week's rate decrease. Money moved out of riskier European investments into safer US Treasury and government-insured mortgage-backed securities, In short, more money was available for mortgage lending; hence the lower rates. But this too shall pass, and likely sooner than most market watchers expect.

Good News on the Job Front

Employment, it's the reason we're hanging our hat on a sustained economic recovery. The numbers are, thankfully, improving. Payrolls jumped 290,000 last month, more than the median estimate after posting a revised 230,000 increase in March that was larger than initially estimated. The April gain included 66,000 temporary workers hired by the government to help conduct the 2010 census and, more importantly, a 231,000 rise in private payrolls. Yes, the unemployment rate rose to 9.9 percent, but mainly due to formerly discouraged workers becoming less discouraged and seeking work again.

The improving employment situation presages good news for the economy, but it also presages higher interest rates. The latest employment news could be the catalyst for the next move in long-term interest rates. Over the past two weeks, investors have gravitated toward the haven of US-dollar denominated investments, most notably long-term Treasury securities, and that's helped lower rates. But with a heating economy, the very real prospect of inflation igniting rises, which raises the very prospect of higher mortgage rates in the near future.

Mortgage Matters

2010-05-03T11:25:00.000-07:00

Keeping you updated on the market!
For the week of

May 3, 2010

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MARKET RECAP

The S&P/Case-Shiller home-price index is promoted as the leading indicator of the national trend in home prices, but we wonder if its worth is overstated – given that it tends to obfuscate as much as enlighten. For example, the index showed that home prices in 20 cities increased 0.6 percent in February. On a non-seasonally adjusted basis though, the 20-city home price index fell 0.9 percent to 144.03 while the 10-city home price index declined 0.6 percent to 156.8.

So what does it mean? Whether the 20-city or 10-city measure, changes to home prices have been so small nationally over the past few months that the Case-Shiller index has morphed into modern art – journalists and economists make of it what they want, which suggests they impart little value for handicapping the future. And let's not overlook the fact the data are already two months old when released – a lifetime in financial circles.

Things can change in a hurry. Consider the dynamics in the new home market over just one month. In March, sales surged 26.9 percent to 411,000 units, exceeding the consensus expectation by over 80,000 units. Meanwhile, inventory dropped to 6.7 months from 8.6 months, as did mean and median prices, suggesting a shift toward lower-priced homes.

Consumer confidence shifted just as suddenly, with consumers displaying much more optimism in April compared to March. The sentiment numbers suggest to us the labor market is improving, and consumers are much more willing to spend. In February, the mood was the polar opposite.

The one constant has been the Federal Reserve's willingness to hold the federal funds rate near zero, which it did once again after Wednesday's Federal Open Market Committee meeting. The Fed has held the rate near zero since December 2008 and said conditions are likely to justify leaving it at "exceptionally low" levels for "an extended period." The Fed also said that "economic activity has continued to strengthen” and "the labor market is beginning to improve,” which suggests that an “extended period” might not be as extended as many people think.

In short, mortgage rates are as low as they're going to go, and the Fed has proven over the past few months that there is little that can be done to move them lower.

What Now?

It's an important question, since it appears the homebuyers tax credits won't be extended. But it's a question not to be feared. We think it's time the housing market stood on its own feet anyway. After all, we can't gauge the health of a market if it's still supported with taxpayer stanchions.

But that's okay; we think the housing and mortgage markets are sufficiently healthy to stand alone. Pessimism is the intellectual position, but the fact is the economy is getting better: Despite worries that American consumers might hunker down for years — spooked by debt, lost savings, and unemployment — austerity has given way to shadows of a new shopping spree: households are replacing cars, upgrading home furnishings, and amassing gadgets. What's more, wealth – at least wealth measured by equity holdings – is booming.

On the mortgage side, private investors are returning. A California firm recently completed the first private-sector sale of a security backed by mortgages in nearly two years, potentially reopening a market slammed shut by the housing crisis. The $238-million deal was of the highest quality, to be sure, with borrowers making an average down payment of 45 percent and mortgage payments comprising less than 30 percent of income. But as the economy continues to improve and investors become less risk adverse, less restrictive mortgages will be securitized.

Bottom line: we see a growing economy, improving employment, stable home prices, and less restrictive (though higher rate) mortgages in our future. In other words, we see a market for buying and refinancing today.

2010-04-26T10:24:00.000-07:00

Keeping you updated on the market!
For the week of

April 26, 2010

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MARKET RECAP

In another sign home prices are stabilizing, Trulia.com reports that the rate of home listings where the seller made at least one reduction in asking price declined 26% in April 2010 compared to the same year-ago period. Trulia noted that 20% of asking prices were reduced at least once compared to 27% in April 2009. We weren't surprised to see the reduction. In fact, we were a little surprised a greater reduction wasn't forthcoming. We've noted in the past that sellers are much more grounded in the new-market reality of lower prices than they were a year ago.

The good news is the reality should become somewhat more bearable in coming months. Fannie Mae projects the median price for existing homes to rise from $167,200 in the first quarter of 2010 to $168,300 by year's end. Meanwhile, it expects the median price for new homes to climb from $207,200 to $214,500. Granted, it's not the pace of appreciation we were accustomed to in the past, but after enduring nearly two years of traumatizing price depreciation, we'll take whatever price appreciation the market will give.

The specter of rising prices should attract more buyers, and more buyers are needed to reduce inventory levels that still tilt toward the high side. Total housing inventory rose 1.5% to 3.58 million existing homes for sale in March, giving us an 8-month supply. The good news is that's an improvement from the 8.5-month supply at the end of February. We expect inventory levels to improve further on the March and April push to take advantage of the expiring federal homebuyers tax credits.

These credits were the most noted reason for the surge in existing-home sales, which were up more than expected, climbing 6.8% to a 5.35 million annual rate in March, according to the NAR. We expect to see a continued uptrend in May and June - perhaps to 2007 levels. We're unsure if it will occur, but we'd like to see this final tax-credit push generate enough momentum to maintain the trajectory through the summer selling season.

Of course, whatever is sold will likely need financing. On that front, mortgage rates continue to maintain their holding pattern: We're still looking at 30-year fixed-rate mortgages near 5% and 15-year fixed-rate mortgages roughly 50-basis points lower. We've been warning, and we'll continue to warn, that rates are unlikely to move much lower. We think it makes little sense to hold out for a few basis points on the downside when many basis points loom on the upside.

It's Still All About Employment

The blogosphere has been alive with ominous chatter on the “next wave of foreclosures.” Much of the discourse has centered on homeowners who continue to make payments but have seen the value of their homes plummet, thus preventing them from saving money through refinancing. A few of the bloggers have speculated that rising frustration levels could produce a surge in strategic defaults.

It's a salient, legitimate point, to be sure, but it's also worth noting that people just don't walk away because they're underwater on a loan. The most obvious example is an auto loan: Once a new car is driven off the lot, it depreciates considerably – often to the point where an immediate sale would produce insufficient cash to retire the outstanding loan. In other words, just because someone is underwater and frustrated doesn't mean he or she is walking away. Moreover, he or she is even less likely to walk away if gainfully employed.

That's why we continue to look to the employment numbers for answers. The good news is that the numbers are generally improving, which, not so coincidently, is why housing numbers are generally improving. The bottom line is, if we continue to see improvement in employment, we'll continue to see improvement in housing.

2009-12-28T14:31:00.000-08:00

It's been a newsworthy year for the mortgage business. The tax credit is extended through at least the 1st quarter of 2010, and this has given many first time homebuyers the opportunity to own a home. One of the biggest changes from my side of the industry is the new Good Faith Estimate which will be required as of January 1, 2010. This refurbished disclosure will take "some getting used to" for lenders, Realtors, and buyers. The good news for the buyer is that once a Good Faith has been issued to a buyer for a specific transaction, the lender fees cannot change and many of the other fees (title, survey, recording fees, etc.) have only a 10% tolerance in regard to amount. A buyer will also have as a part of the Good Faith a way to compare one Good Faith with another from another lender.

For those buyers or refinance clients who are in a pre-approval process or just want an idea of what a loan may cost, I will be able to furnish them a Closing Cost Analysis form.

These are needed changes and with all change, there is the need to adjust. Hopefully, this is another step toward protection of buyers from predatory lending and those who would "bait and switch."

2009-10-26T11:12:00.000-07:00

As I write today, we are looking at 35 days until the end of the current tax credit for first time homebuyers. We are all hoping for an extension of this. Many prospective homebuyers have been procrastinating thinking this is not the year to buy a home. You may be thinking, if I lose my job how will I pay the mortgage. But if you lose your job, how will you pay the rent. A home is an investiment in real estate. Your money is going toward a tangible asset with the benefit of continuing tax deductions as long as you own the property. Home ownership offers a sense of community and stability. Maybe you should re-visit the possibilities.

By the way, talking to a lender to get pre-qualified and talking to a Realtor about properties that are of interest is absolutely FREE to you!

Owning Your Own Home....do you qualify?

2009-09-09T10:44:00.000-07:00

"The American Dream" of owning your own home can be a reality for
many Americans with some wise planning, having consistant income,
frugal use of money, establishing credit, paying bills on time, and saving.

Wise planning...a mortgage professional can guide you in this to
determine when you might be ready to buy. If you want to buy a
home, it needs to become a priority ...over that new car, dream vaca-
tion, luxuries.

Frugal use of money...With your goal of owning a home firmly
before you, establish a budget of what you can spend each month
and still save toward a down-payment and closing costs. Set up a
separate account for these funds. If you are getting married, you
could let it be known that "cash" toward a down-payment would
be greatly appreciated.

Establishing credit....you need to have at least three tradelines
on your credit report. Installment loans (car, student loans, etc.) and
revolving credit. You need a credit card with a history of timely payments.

Credit Tips:
Do not totally pay off your credit cards, keep a small balance
Do not close revolving accounts....that erases history
Keep your balances to 1/3 or below of your high limit
Pay on time!!!

Employment: You need to have a job or if you are self-employed,
have had the business for two years. If you currently are employed,
but have only worked a short time because you were in college,
your college transcript will work for documentation.

As a mortgage professional, I will be happy to help you plan for owning a home!

First Time Homebuyers Listen Up....!

2009-08-24T08:24:00.000-07:00

The $8000 tax credit for first time homebuyers ( or buyers who can document they have not owned a home in the past three years) will end November 30, 2009. If you have planned to take advantage of this and have been putting off starting your home search, you need to start now. It takes a while to find the right home and close on it. The first step is to get qualified with a lender, to see what you can afford. I am happy to check your credit and furnish you some loan scenarios to get you started. I will communicate with you by email or phone....whichever is your preferred method of communication. I can originate loans in Texas or Colorado.

There are some great "deals" in homes right now. Rates on mortgages are low and availability of houses is high, so what's stopping you! Robin Ricks

Phone: 214-460-1145 Email: rricks@cenderafunding.com

Why I'm in the Mortgage Business....

2009-08-16T13:01:00.000-07:00

Since this is a new blog, I considered that it might be beneficial to a reader to have some idea of why a person would become a loan officer in the business of home financing and enjoy it! I was introduced to this business in 1992 when I was in need...in need of a job and income. I realized my college diploma had gathered a lot of dust after rearing four children and being a stay-at-home mom for 20+ years. I was now on my own. Someone invited me to go to work for them in home financing (truly Divine intervention!), appealing to my people skills and widespread network ( a term not particularly in use then). I took the challenge. I am inclined toward "self-teaching" and jumped right into a business I knew little about, even though I had been involved in buying and selling numerous homes in the Metroplex. I was forced to acquire information and "how to" in a hurry and exponentially. I've stayed with it, and have made wonderful colleagues and friends through the years. Why have I stayed in this business? I truly enjoy people, and I love the problem solving aspect of home lending. That's it in a nutshell. Next blog will be: "You, too, can own a home!"