The Mortgage Minute Blog - Peter Grimm

Mortgage rates and home affordability have improved lately, thanks to an unlikely ally — Mother Nature.

In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.

It’s a drag on commerce that’s spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table. 

In trading circles, it’s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets.  This includes government-backed securities — mortgage-bonds among them.

Demand for bonds rise, pushing up prices and driving down rates.

Conforming and FHA mortgage rates in Connecticut touched a 3-week low earlier this week.

Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There are literally thousands of influences on the U.S. mortgage market.

If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.

When that happens, mortgage rates will rise.

Therefore, use the seismic uncertainty to your advantage.  Consider locking your mortgage rate sooner rather than later while rates are still low.

After a strong March showing and a surprise upward-revision for February, Housing Starts are once again, trending better.

It’s yet another signal that the housing market in Connecticut and nationwide is stabilizing.

A Housing Start is a new home on which construction has started, over the last 6 months; home builders are averaging one half-million starts per month.

This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago.  Revisions to prior data have all been higher.

Even more interesting, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.

Housing permits are an important data point in housing because permits are precursors to actual housing starts.  According to the Census Bureau, 82% of homes start construction, starts within 60 days of permit-issuance.

Therefore, because March’s housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.

This too, reflects well on housing because the federal home buyer tax credit won’t be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even after the tax credit expires.

Non-military members must be under contract by April 30, 2010 and closed by June 30, 2010 in order to claim up to $8,000 in federal tax credits.

Mortgage markets improved last week for the second week in a row, also for the second week in a row, rates were down on “safe haven” buying — just not for the same safe haven reasons as before.

If you’ll remember, safe haven buying is when investors sense market risk, then move money toward less risky investments.

Because the U.S. government backs the bonds of Fannie Mae and Freddie Mac, mortgage bonds tend to fit the “less risky” description and as Iceland’s volcanoes shut down air traffic in Europe, mortgage bonds benefited.

That was early in the week.

Then on Friday, when the SEC announced fraud charges against Goldman Sachs, a second wave of bond buying began as Wall Street fled the stock market. Mortgage rates fell a second time and the improvement carried through the market’s weekly close.

Conforming and FHA rates are as low as they’ve been since March.

This week, there’s not much data due until Thursday, but even Thursday’s releases won’t make a huge impact on rates.

1. Initial Jobless Claims: Important employment figures. A strong number could push rates up.
2. Existing Home Sales: Housing remains a key part of the economy. Strong sales are expected because of the tax credit.
3. Producer Price Index: A “Cost of Living” index of business. A weak reading is expected because inflation is low.

Then Friday, New Home Sales are released.

The bigger risk to home buyers this week than data is the reversal of the safe haven buying patterns that have kept mortgage rates down over the past 10 days.  Keep an eye on the markets and your loan officer on speed dial.  Markets can — and do — change quickly. 

Foreclosure filings rose close to 20 percent nationwide last month versus February, according to foreclosure-tracking firm RealtyTrac.com, and for the 13th straight month, total filings topped 300,000.

In addition, bank repossessions reached an all-time, quarterly record. Through the first three months of 2010, banks reclaimed more than 257,000 homes.

Nonetheless, 4 states dominated foreclosure activity nationwide.

California, Florida, Arizona and Georgia accounted for more than half of all bank repossessions. It’s a disproportionate distribution of foreclosures. Together, the 4 states represent just 23 percent of the overall U.S. population.

The RealtyTrac report revealed some other interesting statistics too.

• Foreclosure activity was up in 40 out of 50 states last month
• Bank repossessions rose 9 percent versus the same quarter last year
• For the 13th straight quarter, Nevada topped the state foreclosure rate

Regardless of where you’re buying, foreclosures and REO are making a profound impact on pricing and product. Distressed homes are 35 percent of the overall resale market.

There’s excellent value in foreclosures out there if you know where to look, but keep these points in mind:

1. Buying bank-owned homes can take 120 days to close or more, so be flexible.
2. Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held.
3. Bank-owned homes are often sold “as is”. There may be defects that render the homes mortgage-ineligible.

The REO market can be different from the traditional “existing home” market.  Therefore, if you have an interest in buying REO, be sure to talk with an experienced real estate agent first.

The federal home buyer tax credit expires April 30 and the deadline is sparking a home sale surge. It figures to burden real estate, mortgage and title offices nationwide over the next 60 days so plan your closing date accordingly.

Especially because the last Friday in May is the Friday before Memorial Day.

Now, if the connection between the tax credit and Memorial Day is not immediately clear, think of your own place of work on a 3-day weekend’s Friday. Some of your colleagues take a half-day of work; others take the entire day off.

Company-wide, productivity drops.

The same is true in the real estate space. Offices are short-handed ahead of a holiday so, if you’re under contract for a home and plan to close in May, consider a closing date other than Friday May 28, 2010. 

And meanwhile, with 6 weeks until Memorial Day, here’s some steps you can take today prepare for other people’s time off later.  

1. Notify your lender of your planned vacation time between now and your scheduled closing
2. Purchase a homeowners insurance policy and prepay the first year. Send proof of payment to your lender.
3. Have Power of Attorney forms lender-approved and signed by all parties in advance, if applicable
4. Deposit gift monies and/or retirement fund withdrawals into an acceptable bank account, if applicable
5. Schedule your final walk-through as far in advance as is realistic so there’s time to make “fixes”, if needed
6. Have your closing funds ready at least 1 day in advance

The tax credit’s expiration is around the corner and as it gets closer, real estate-related businesses are taking on more work. Basic title and mortgage tasks are taking longer to complete and that should persist for a while.

Get ahead of the curve and beat your contract dates handily. Use the checklist above and be responsive to your lender’s requests. 

And, if at all possible, avoid closing on the Friday before Memorial Day and even the Tuesday after, it’s when office staffs are at their smallest.