For the first time in a year, homeowners with adjusting mortgages are facing rising mortgage rates. The interest rate by which many adjustable-rate mortgages adjust has climbed to its highest level since September 2010, and looks poised to reach higher.

This is because of the formula by which adjustable-rate mortgage adjust.

Each year, when due for a reset, an adjustable-rate mortgage’s rate changes to the sum of fixed number known as a “margin”, and a variable figure known as an “index”. For conforming mortgages, the margin is typically set to 2.250 percent; the index is often equal to the 12-month LIBOR.

LIBOR stands for the London Interbank Offered Rate. It’s a rate at which banks lend to each other overnight.

Expressed as a math formula, the adjusting ARM formula reads : More… »

Home affordability slipped slightly last quarter, dragged down by rising mortgage rates and recovering home prices in Massachusetts and nationwide.

The National Association of Home Builders reports a Q2 2011 Home Opportunity Index reading of 72.6. This means that nearly 3 of 4 homes sold last quarter were affordable to households earning the national median income of $64,200.

Q2 2011 marks the 10th straight quarter — dating back to 2009 — in which the index surpassed 70.

Prior to 2009, the index had never crossed 70 even one time.

However, we must remember that the Home Affordability Index is a national survey. From region-to-region, and town-to-town, home affordability varied.

In the Midwest, for example, affordability was highest. 14 of the 15 most affordable markets nationwide were spread throughout Ohio, Michigan, Illinois and Indiana. Only Syracuse (#9) cracked the list from other regions.

The top 5 most affordable cities in Q2 2011 were: More… »

Mortgage guidelines appear to be tightening with the nation’s largest banks.

In its quarterly survey to senior loan officers nationwide, the Federal Reserve uncovered that a small, but growing, portion of its member banks is making mortgage approvals more scarce for “prime” borrowers.

A prime borrower is described as one with a well-documented payment history, high credit scores, and a low monthly debt-to-income ratio.

Of the 53 responding “big banks”, 3 reported that mortgage guidelines “tightened somewhat” last quarter. This is a tick higher as compared to prior quarters in which only 2 banks did.

46 banks reported guidelines unchanged from Q1 2011.

When mortgage guidelines tighten, it adds new hurdles for would-be home buyers in Fitchburg. Tighter lending standards means fewer approvals, and that can retard home sales across a region.

Just don’t confuse “tighter standards” with “oppressive standards”. More… »

The U.S. economy is no longer adding new jobs.

Last Friday, in its monthly Non-Farm Payrolls report, the Bureau of Labor Statistics reported that the U.S. economy added exactly zero new jobs in August as the national Unemployment Rate held steady at 9.1 percent.

Despite the “zero” reading, the jobs figures were in the red. This is because the BLS issued revisions to its June and July figures that adjusted the two months of data down by 58,000 jobs.

Economists had expected a monthly reading of +75,000. Their estimates missed.

The weaker-than-expected jobs data fueled a stock market sell-off that pushed stocks down 2.5% and spurred a bond market rally.  More… »

Has housing turned the corner for good?

The June 2011 Case-Shiller Index reading posted strong numbers across the board, with each of the index’s 20 tracked markets showing home price improvement from May.

Some markets — Chicago and Minneapolis — rose as much as 3.2 percent.

The rise in values is nothing about which to get overly excited, however. The Case-Shiller Index is just re-reporting what multiple data sets have already shown about the summer housing market; that it was stronger than the spring market, and that a recovery is underway, but occurring locally, at different rates.

For example, the June 2011 Case-Shiller Index shows the following :

• Denver, Dallas, Washington D.C., and the “California Cities” bottomed in 2009. Each has shown steady improvement since.
• None of the Case-Shiller cities showed negative growth between May and June 2011.
• 12 of Case-Shiller’s tracked cities have improved over 3 consecutive months.

In isolation, these statistics appear promising, but it’s important to remember that the Case-Shiller Index is a backward-looking data set, focusing on just a portion of the national housing economy. More… »

If you’re shopping for a mortgage rate, today may be a good day to lock one down. That’s because Friday morning, the Bureau of Labor Statistics will release its Non-Farm Payrolls report for August 2011.

The “jobs report” tends to have a big influence on mortgage bonds and mortgage rates in Leominster.

The jobs report is a monthly issuance, providing sector-by-sector analysis of the U.S. workforce. It also report the national Unemployment Rate.

Wall Street expects the August Non-Farm Payrolls data to show 75,000 jobs created in August, down from 117,000 in July; and it expects that the Unemployment Rate will remain unchanged at 9.1%.

The jobs report’s connection to mortgage markets is straight-forward — as jobs go, so goes the economy. This is because when the number of working Americans rises :

1. Consumer spending gets a boost
2. Government tax collection gets a boost
3. Household savings gets a boost

These are each good turns in a recovering economy. More… »

Last week, at its 5th scheduled meeting of the year, the Federal Open Market Committee voted to leave the Fed Funds Rate in its target range near zero percent.

The Fed Funds Rate has been near zero percent since December 2008 and, in its official statement, the FOMC pledged to leave the Fed Funds Rate untouched for at least another 2 years.

This doesn’t mean mortgage rates will be untouched for 2 years, though. 

Mortgage rates and the Fed Funds Rate are two different interest rates; completely disconnected. If mortgage rates and the Fed Funds Rate moved in tandem, the chart at right would be a straight line.

Instead, it’s jagged.

To make the point more strongly, let’s use real-life examples from the past decade.

• June 2004, 529 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate
• June 2006, 168 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate

Today, the separation between the two benchmark rates is 407 basis points.

1 basis point is equal to 0.01%. More… »

In the second quarter of 2011, fixed-rate loans accounted for about 95 percent of refinance loans, based on the Freddie Mac Quarterly Product Transition Report. Refinancing borrowers preferred fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate, the report concluded.

An increasing share of refinancing borrowers chose to shorten their loan terms during the second quarter, according to Freddie Mac. Of borrowers who paid off a 30-year fixed-rate loan, 37 percent chose a 15- or 20-year loan, the highest such share since the third quarter of 2003. More… »

Standard & Poors released its May 2011 Case-Shiller Index this week. The index measures change in home prices from month-to-month, and year-to-year, in select U.S. cities.

May’s Case-Shiller Index showed a 1 percent increase from April 2011. Home values rose in 16 of the Case-Shiller Index’s 20 tracked markets. Only Detroit, Las Vegas and Tampa fell. Phoenix was flat.

Don’t look too far into the findings, though. Like the FHFA’s Home Price Index, the Case-Shiller Index is rife with flaws.

The first flaw of the Case-Shiller Index is its limited geography. Despite being positioned as a national housing index, Case-Schiller Index is sourced from just 20 cities nationwide. There are more than 3,100 municipalities nationwide.

The Case Shiller Index’s second flaw is that it ignores all home types excepts for single-family, detached homes in its findings. Condominiums, multi-family homes, and new construction are not included in the Case-Shiller Index.

In some markets, these excluded home types outnumber the included ones. More… »

Home builders are slowly reducing inventory.

According to Census Bureau data, the number of new homes slid 1 percent from May. On a seasonally-adjusted, annualized basis, home buyers bought 312,000 newly-built homes last month.

It’s the third straight month of falling sales and the headline data casts the Fitchburg housing market in a negative light.

Upon closer inspection, however, the numbers appear quite strong. 

First, sales are down marginally. Total units sold have dropped just 2 percent from the highs of the year. And, second, the number of newly-built homes for sale is down markedly from last year

There are 22% fewer new homes for sale today as compared to June 2010

At today’s sales pace, the complete new home inventory would be sold in 6.3 months – the quickest sell-out window since the expiration of the 2010 federal home buyer tax credit.

Builders are feeling better about their business, too. More… »