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Increasing Mortgage Rates and Prices; Will it Continue?

July 1st, 2013 by Bill Collins Leave a reply »

Increases in Mortgage Rates and Rising Prices: Will it Continue?

As documented throughout this newsletter, during the past week mortgage interest rates have been moving upward rapidly at the same time sale prices and market activity have been increasing.

While many feel that mortgage interest rates are due for a downward correction (see HSN Market Trends in “Rates and Dates”), it seems clear that the historically low rates of the past several years are not likely to return.  The big story for appraisers this week involves challenges related to forecasting future market conditions in their appraisals and dealing with the ramifications that higher interest rates will have on their mortgage appraisal business.

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Recent Real Estate Reports

On June 25th, the S&P Case-Shiller Home Price Index for April was released.  It showed that average home prices rose by 11.6% and 12.1% respectively in their 10 and 20 City-Composites year to year with gains of 2.6% and 2.5% from the previous monthly report.  For the fourth consecutive month, all twenty cities and both composite indices reported increases on a year to year basis.  Detroit was the only city not showing an increase from the previous month. David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, noted that both composites posted their largest monthly gain in the history of the indices.

A link to the news release which includes breakdowns by city is found here: Home Prices Set Record Monthly Rise in April 2013 According to the S&P/Case-Shiller Home Price Index

Also on June 25th, the Federal Housing Finance Agency (FHFA) reported that their House Price Index rose by 0.7% in April from the previous month.

Yesterday, the FHFA released their Foreclosure Prevention Report for the First Quarter of 2013.  It reported that there were nearly 130,100 completed foreclosure prevention actions during the quarter, raising the total number to 2.8 million since September of 2008.  The FHFA report noted that approximately 2.3 million of this total involved helping troubled borrowers save their homes including permanent mortgage modifications of almost 1.4 million.  Deeds-in-lieu of foreclosure and completed short sales declined by 7% during the quarter to 30,300, bringing the total since September 2008 to over 476,300.

The FHFA reported that loans greater than 60 days delinquent dropped by 11% in the first quarter to the lowest level since the first quarter of 2009.  Loans classified as seriously delinquent declined to 3.0% compared with 8.0% for FHA loans and 4.2% for VA loans. Other findings: foreclosure and third-party sales continued trending downward while foreclosure starts grew and REO inventory dropped with property dispositions outnumbering property acquisitions.

A link to the FHFA report (which includes numerous graphical depictions) is found here:
Federal Housing Finance Agency Foreclosure Prevention Report Q1 2013

Another report released yesterday was by Fitch Ratings which cited a substantial decline in the number of CMBS loans (commercial mortgage backed securities) transferred into “special servicing” this year to date. 

On June 27th, the National Association of Realtors (NAR) reported that pending home sales in May rose 6.7% from (a downwardly revised) April to the highest level since late 2006.  The chief economist for the NAR, Lawrence Yun, raised projections for sales of existing homes in 2013 from a previously forecast year over year 8.5% to 9.0%.  Mr. Yun also raised the projected year over year increase in price to more than 10% which would represent the largest annual increase since 2005 when prices increased by 12.4%. 

The NAR reported that pending home sales in the Northeast were unchanged in May from the previous month but up 14.3% year over year.  The Midwest saw an increase of 10.2% from the previous month and 22.2% year over year.  Increases in the South were 2.8% month to month and 12.3% year to year while the respective figures for the West were 16.1% and 1.1%.

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Food For Thought

Writing in Statista.com on June 28th, Felix Richter noted the forecast of eMarketer released that day calling for an increase of 17% in business to consumer e-commerce sales to $1.2 trillion globally this year.  The study noted that 72% of internet users in the North America and Western Europe are expected to purchase goods or services online this year.

Message for appraisers: the formula for a healthy appraisal practice in this period of sharply declining refinance appraisals is to let prospective private clients see your appraiser qualifications and areas of special knowledge by increasing your online exposure.

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Rates & Dates

Freddie Mac, the Mortgage Brokers Association (MBA) and HSH Market Trends all reported large increases in mortgage interest rates in their most recent surveys. 

On June 27th, Freddie Mac reported that 30-year fixed-rate mortgages surged to 4.46% from the previous week’s rate of 3.93%. Freddie Mac reported that this was the highest rate since July 28, 2011 and represented the biggest weekly rise in over 25 years.  They also noted that last year at this time the 30-year rate was 3.66%. 

The MBA in its most recent Weekly Mortgage Applications Survey released June 26th, for the week ending June 21st, reported that 30-year rates with conforming loan balances ($417,500 or less) jumped to 4.46% (the highest rate since August 2011) from the previous week’s rate of 4.17%.   The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) rose to 4.52% (the highest rate since March 2012) from 4.23% one week earlier.  Rates for FHA backed mortgages also increased to 4.20% (the highest rate since August 2011) from the previous week’s rate of 3.85%. 

In their press release of June 26th, the MBA reported a decline of 3.0% in mortgage applications to the lowest level in almost two years.  Refinance applications dropped to 67% of all applications, the lowest percentage since July 2011. 

On June 28th, HSH Market Trends also reported a sharp increase in 30-year mortgage rates with an increase to 4.62 from 4.19% the previous week.  Rates for FHA-backed mortgages jumped from 3.81% to 4.30%.

HSH projects a pull back from these sharp increases next week with a decline of approximately 12 to 15 basis points.

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

Additional information from HSH can be found by going to: HSH.Com

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Ask Angie

We would first like to congratulate our most recent winner: Louis E. Camblor, SRA of Louis E. Camblor Real Estate Appraisers in Charleston, South Carolina.  Louis E. Camblor Real Estate Appraisers covers the counties of Charleston, Dorchester and Berkeley in southeastern South Carolina.  Louis was the first to answer correctly that Groucho Marx (!) was the author of the three quotes in our last contest: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies”; “I, not events, have the power to make me happy or unhappy today. I can choose which it shall be. Yesterday is dead, tomorrow hasn’t arrived yet. I have just one day, today, and I’m going to be happy in it”; and “A black cat crossing your path signifies that the animal is going somewhere”.

Today’s questions:

1. Who Said: "If you torture the data long enough, it will confess."

a) Ronald Coase, Processor of Economics at University of Chicago
b) Robert Shiller
c) Lawrence Yun
d) Edward Snowden
e) None of the above

2. Who said: "You have to love a nation that celebrates its independence every July 4, not with a parade of guns, tanks, and soldiers who file by the White House in a show of strength and muscle, but with family picnics where kids throw frisbees, the potato salad gets iffy and the flies die from happiness. You may think you have overeaten, but it is patriotism."

a) Erma Bombeck
b) Dwight Eisenhower
c) Oprah Winfrey
d) Kim Jong-Un
e) None of the above

The first person to respond with the correct answers wins a choice of one of the following:

One Free Regular Listing on AppraiserHelp.com

A Free Copy of the Directory of Appraisal Management Companies (Available to Members of AppraiserHelp.com and FHAAppraisers.com FREE!)

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: bill@appraiserhelp.com with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at www.appraisernews.com

Regards,

Bill Collins, Appraiser Help Inc.

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