Austin Mortgage Blog

Archive for March, 2010

Trouble with ADP is that they have a history of missing the number, and by huge margins more often than they get close

ADP’s Employment Report shocked the market with its “guess” for Friday’s payroll data estimate of minus 23K.  While ADP does not factor in any government hiring, economists had expected their estimate to be plus 40K.  With the “street” bulled up for a 200K to 300K positive jobs number, maybe ADP just threw a little cold water on their party.  Trouble with ADP is that they have a history of missing the number, and by huge margins more often than they get close.  To them, within tolerance is 3 standard deviations!

Chicago PMI was also released, down 3.8 points to 58.8.  The market was looking for a print of 61.  Within the index, the production component fell nearly 5 points but new orders fell only slightly.  Cutting to the chase, the market rallied off the data with mortgage backs up 4/32’s at their best levels.  The green on the screen was short lived as fast money types and hedgers used the opportunity to sell.  Fits well with what we’ve been talking about lately.  With the 10 year note up 6/32’s (yield 3.84%) and mortgage backs now off 3/32’s (widening spreads), price changes for the worse are in vogue.  Don’t miss the bus.  More in a few.

Given all the possibilities and potential market moving data, best bet is to use the float down and lock your Austin mortgage rates

Light volume and a lack luster trade seems to be the theme as we move into the afternoon.  Treasuries have come back a bit as the 10 year note is only off 2/32^nd to yield 3.87%.  Trouble is that mortgage back spreads have widened as sellers continue to hit the market.  Current coupon MBS are still off 7/32’s.  Part of this can be traced to quarter end window dressing (profit taking) and the winding down of the Fed’s MBS purchase program (2 billion left in the checkbook).

The spread widening seems to be uniform across the “stack”, a term used for every coupon that is traded.  This means that every mortgage interest rate is down the same amount of basis points.  Mortgage banker selling as the month comes to an end has also pressured the market.  Stocks have turned lower with the Dow off 5 points.

We still feel that valuations are in nose bleed territory and if they roll over, a 10% correction could be in the cards.  That would help mortgage pricing as well.  Given all the possibilities and potential market moving data, best bet is to use the float down and lock your Austin mortgage  rates.

In a nutshell, borrowers need to be wary of waiting to lock in this market

The early trade was flat, treading water in both bonds/stocks and then Consumer Confidence came along.  The March index jumped 6.1 points to 52.5, reversing February’s sharp decline.  The Present Situation component rose to its highest level since August while Future Expectations jumped over seven points.  The rebound was expected but maybe not to this level after February’s weather, etc. depressed the figures.

Case Shiller 20 city home price index was also released, down .7% year on year.  The reading was in line with economist’s expectations.  While a number of cities are starting to see improvement (San Diego, Dallas, Charlotte) on a year over year bases, only San Diego had a month on month increase.  Stability is starting the creep in but it will still take time for a bottom to form.

With month end/quarter end upon us, the sideways to upward bias we have seen in mortgage pricing will come to a halt.  Post data, the 10 year note sold off 8/32’s and mortgage backs went from unchanged to down 7/32’s.  Plain and simple, we are developing a better bias for higher treasury yields and Austin mortgage rates as the economy looks to pick up steam and the Fed’s quantitative easing measures go away.

Bearish trend signals remain good on daily charts but the market has been correcting and may continue to hang in there until Friday’s Employment Report.  What troubles us with the chart is the lack of any substantial rally given the support of month end buying, short covering, and very oversold conditions.  Since the selloff last week, we have only rallied for three eights of a point.

In a nutshell, borrowers need to be wary of waiting to lock in this market. The potential for worsening Austin mortgage prices is high as our work projects 4.0% on the 10 year before we see 3.75% (currently 3.88%).  If there is a White Knight, it could come via an Employment Report (7:30 am cst Friday) that is well below expectations, say flat to negative.

With the “street” looking for plus 200K and whisper numbers running as high as plus 400K, stock traders are all bulled up and bond traders are decidedly nervous.  The other shoe that could drop might be a flight to quality treasury buy due to a domino effect in sovereign debt.  With Greece on the ropes, talk has turned to Portugal and Spain and the downgrades that are certainly possible.  Could be a rolling thunder.

That scenario has a high probability (in our opinion) and brings with it lower Austin mortgage rates

Meant to post this Austin Mortgage Blog entry yesterday:

The week has gotten off to a slow start with the 10 year note off slightly and mortgage backs following suit.  The stability can be linked to month/quarter end adjustments by money managers and hedge funds to bring their bogey in line with the Barclays Index.  That buying should continue through tomorrow as the index needs are .16 years (duration add).  Earlier today, Personal Income/Spending hit the tape unchanged and up .3%.  Economists were looking for Income to be up .1% and Spending to be up .3%.  No great shakes here.

The balance of the week could get a little dicey however with Housing and Consumer Confidence tomorrow, ADP Employment “guess” on Wednesday, Construction Spending, ISM Index, and Weekly Claims on Thursday, and Big Daddy, the Employment Report for March front and center on Friday (7:30 am cst).

For now, the tactical bias is neutral/defensive into what the market feels is going to be a positive jobs number (plus 200K).  The weakness of the past few trading days has changed the trend to bearish.  The little bit of stability we’re seeing is only due to month end.  That can only mean one thing as seller are waiting in the wings.  We would advise borrowers to lock their Austin mortgage interest rates, expecting that we will see 4.0% on the 10 year note before we see 3.75%.  The interest rate landscape (lower Austin mortgage rates) is not over, just on hold.

Given the Fed’s exit from MBS purchases, their steering of quantitative easing ala Austin mortgage rates hike sooner than later, and a fragile housing market that must be content will mean more inventory and less stimulus, a case for the double dip can certainly be made.  That scenario has a high probability (in our opinion) and brings with it lower Austin mortgage rates.

Hang in there.

Correction for Earlier Austin Mortgage Blog Post

Correction:

The March 29 edition of Inside Lending reported on maximum seller contributions for FHA loans that will go into effect Monday April 5. The reduction of allowable seller concessions from 6% to 3% for FHA loans is a proposed change. The FHA has NOT announced if or when this change will be put in place.

Austin Mortgage Market Update – For the week of March 29, 2010

For the week of March 29, 2010 – Vol. 8, Issue 13

>> Austin Mortgage Market Update INFO THAT HITS US WHERE WE LIVE February existing home sales were down for the third month in a row, but the 0.6% drop was less than expected. We had severe winter weather putting a damper on things and we’re still seeing the hangover from sales pushed into October and November when everyone thought the homebuyer tax credit was going away. February new single-family home sales were down 2.2%. But the median price of $220,500 was UP 5.2% over last year and the average price of $282,600 was a strong 9.3% UP from a year ago. The Mortgage Bankers Association (MBA) expects existing home sales to be UP almost 4% this year to 5.34 million, going to 5.72 million in 2011. They see new home sales hitting 398,000 in 2010 and 528,000 the following year. The Federal Housing Administration (FHA) announced new measures that will go into effect for borrowers next Monday, April 5. Here’s what they mean: 1) The upfront Mortgage Insurance Premium (MIP) will go from 1.75% to 2.25%. 2) Even though FHA’s official FICO score minimum is less, borrowers need a score of 620 or higher to have a realistic chance of getting an FHA loan with a minimum 3.5% down payment. 3) The maximum seller contribution has been reduced from 6% to 3%. So FHA borrowers will now have to look better on paper and pay a little more upfront MIP. We’re happy to answer any questions on these new FHA requirements. To take advantage of the homebuyer tax credit (along with today’s low mortgage rates) buyers have just one month left to sign a contract — that’s April 30. And they have to close by June 30. >> Review of Last Week UP AGAIN… It was another week that ended UP for all stock indexes. The market hit an 18-month high during the week, although Friday saw just a 9-point gain. Investors are still worried about Greece’s debt, but their European neighbors announced a bail-out plan that sounded encouraging. Wall Street took the above housing news in stride. Then February Durable Goods came in UP 0.5% and up at an 18% annual rate in the past six months, a healthy level of business investment. Initial unemployment claims dropped by 14,000, to 442,000, and the four-week moving average fell to 454,000, the lowest since September 2008. Continuing claims dropped to 4.65 million, the lowest in fifteen months, spurring further talk that this Friday’s Employment Report will show substantial job gains. Friday, real Q4 GDP was revised from a previous 5.9% estimate to a 5.6% annual rate, still a booming number. Many economists expect this rate to decline in Q1 because of the harsh winter weather, but some still see GDP growth for the first six months of 2010 at a healthy 4.5% rate. The report showed Q4 corporate profits increased at a 36% annual rate and are up 31% over a year ago. Observers say this spurred the increased equipment investments we’ve seen and will soon give us a big improvement in the job market. For the week, the Dow headed UP 1.0%, to 10850.36; the S&P 500 was UP 0.6%, to 1166.59; while the Nasdaq went UP 0.9%, to 2395.13. It was a tough week in the bond market, though prices recovered a tad on Friday. There is understandable uncertainty around the Fed’s ending their purchases of Mortgage Backed Securities this Wednesday. The FNMA 30-year 4.5% bond we watch ended down 43 basis points from the week before, closing at $100.41. Average mortgage rates, as reported in the Freddie Mac Survey, were up a smidge, but still at historically low levels for now. >> This Week’s Forecast INFLATION, MANUFACTURING, JOBS… Everyone will be waiting with bated breath for Friday’s Employment Report, when even pessimistic observers are predicting the recovery’s first serious increase in payrolls. Markets will be closed for Good Friday, although the Federal government will be open. But let’s not forget about Monday’s PCE reading, which is the Fed’s favorite look at inflation. Any rise here could bring the Fed closer to a rate hike. Finally, we get two looks at the strengthening manufacturing sector with the Chicago PMI and the ISM Index. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of March 29 – April 2 Date Time (ET) Release For Consensus Prior Impact M Mar 29 08:30 Personal Income Feb 0.1% 0.1% Moderate M Mar 29 08:30 Personal Consumption Expenditures (PCE) Feb 0.3% 0.5% HIGH M Mar 29 08:30 Core PCE Feb 0.1% 0.0% HIGH Tu Mar 30 10:00 Consumer Confidence Mar 50.0 46.0 Moderate W Mar 31 09:45 Chicago PMI Mar 61.0 62.6 HIGH W Mar 31 10:30 Crude Inventories 3/27 NA 7.25M Moderate Th Apr 1 08:30 Initial Unemployment Claims 3/27 440K 442K Moderate Th Apr 1 08:30 Continuing Unemployment Claims 3/20 4.600M 4.648M Moderate Th Apr 1 10:00 ISM Index Mar 57.0 56.5 HIGH F Apr 2 08:30 Average Workweek Mar 33.9 33.8 HIGH F Apr 2 08:30 Hourly Earnings Mar 0.2% 0.1% HIGH F Apr 2 08:30 Nonfarm Payrolls Mar 190K –36K HIGH F Mar 26 09:55 Unemployment Rate Mar 9.7% 9.7% HIGH >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months The Fed still says it will “keep rates low for an extended period”. But with the economy picking up, more economists think we will see a hike in the Fed funds rate in the second half of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Apr 28 0%–0.25% Jun 23 0%–0.25% Aug 10 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Apr 28 <1% Jun 23 10% Aug 10 28%

Ready, set, buy! How to trade in your house for another by summer

Austin American-Statesman

Sunday, March 28, 2010

The weather is warming up and spring break is over. In the real estate world, that means the year’s most action-packed season is just around the corner. If you want to sell your house and move into a new one, now is the time.

Follow our step-by-step guide to be in a different house by summer.

Get preapproved for a mortgage

This is a simple process you should undergo before you start looking for a house, so you know how much of a loan you qualify for, says Max Leaman, a senior loan officer for PrimeLending in Austin. Make an appointment with a loan officer. Make sure you bring 30 days worth of pay stubs (for both of you if you are buying as a couple), two months’ worth of bank statements and the last two years’ W-2s and tax returns.

“Once we get an idea of what their income is, we can get them preapproved within 24 hours of the time they fill out an application,” Leaman says.

Figure out where you want to live

Todd Smith and Shaunna Terry, real estate agents and co-owners of Fine Austin Living, recommend visiting the neighborhoods you are interested in during the evening. You’ll get a truer feel for what living there would be like, they say.

“You see if the kids are out, or not. You can stop and ask the guy you see in his front yard how he likes living there and why,” Smith says.

Terry recommended visiting the neighborhood amenities – parks, pools or walking trails – during the weekend to get a feel for the neighborhood’s atmosphere. You also should plan on doing both the morning and evening commute from that location to your workplace, so you have a realistic idea of commute time.

Find a real estate agent

You’ll need a professional to act as the seller’s agent for your current home and as your buyer’s agent for the house you purchase.

“A good Realtor will take the time to interview you about your personality and lifestyle,” Terry says. “You can tell them what you are looking for in terms of schools, recreation, price point, closeness to work.” The real estate agent should ask, “Why are you doing this?” Smith says.

“Both the client and the Realtor need to understand why you want to move.”

Get current home inspected; do repairs

It’s a good idea to have your current home inspected and make any necessary repairs before you put the house on the market, says Randal Pitts, a licensed home inspector and the owner of Home Inspections Austin. He offers a pre-list inspection that goes over all the areas a regular home inspection would.

This way, when your potential buyers bring their own home inspector in, you are ready.

“I give them a list of things that need to be done. You can choose to have it repaired. It can help your home sell faster and for more money,” Pitts says. “Buyers are walking away from homes that have a lot of problems in this market. It prevents deal-killing inspections at the last minute.”

In addition, houses that are within the Austin city limits, receive energy from Austin Energy and are more than 10 years old are required to get an ECAD (Energy Conservation Audit and Disclosure) audit from a certified auditor. There are some exceptions. Make sure you have an audit done if your current home requires one, and ask to see an energy audit report for homes you are considering purchasing.

Stage your house to sell

Karen Sue Graves, the owner of Sellright Homes Staging in Austin, has staged more than 300 houses in the six years she has owned her business. A good stager can rearrange your current furniture to make the house look more attractive, as well as place their own pieces in your house to improve its appearance.

She recommends that people rent a storage unit and put away most of their stuff. Remember to “clean, clean, clean, so it looks like there is plenty of space,” Graves says.

Graves meets with her clients for consultations, and gives them an estimate of what her staging would cost. The actual staging usually only takes one day.

Graves also recommends hiring a professional photographer. A well-staged and well-photographed home will draw more attention more quickly and usually sell faster than a property that was not staged or photographed well, Graves says.

Find a house you want

At the same time as you negotiate with the sellers for a home you want to buy, negotiate with interested buyers for the sale of your current home. Keep in mind, your perception of what your current house is worth might not be the same as the market value of your house, Terry says. Many times, people have a number in mind as the price they want for their house, but realistically in their neighborhood at this time, it is not a price they will get.

“The market value dictates what the house will sell for,” Terry says.

And when it comes time for you to make an offer for a house that you want, make an intelligent offer, Smith says. It’s also important to pay attention to what the market is like in Central Texas right now, Terry says. You might know someone in Florida who says properties there are selling for far less than their list prices, but we have a different and healthier market here.

Get your new mortgage

Although you have already been preapproved, it’s a more serious process to have the mortgage on your new property approved.

If you have a good loan officer, “by the time you are under contract, we should have everything we need to know,” Leaman says. If it’s been a while since you were preapproved, you might have to provide more recent documentation of your income.

The loan officer will lead you through the process of getting the title work done, obtaining insurance and getting an appraisal of the house.

Although there is a perception that obtaining a mortgage is much more difficult since the recession began and loaning laws changed, for most people it’s still a relatively easy process, Leaman says. It is more difficult for self-employed people to get mortgages than it used to be, but if you are a regular salaried or hourly employee who receives a W-2 statement, and your credit score is above 620, you should have no problems, he said.

Close on both homes

The day you close on the purchase of your new home is an important one. As the buyer, make sure you have a cashier’s check or are wiring the money for the funds you will need the day of the closing, Leaman says – a personal check or cash will not work. Review the settlement statement before you go to closing, Leaman says. If you’ve done your homework, everything should go smoothly, and all that’s left to do is to move into your new home.

For sellers, the day of closing is also a much-anticipated day. Leaman advises sellers to examine the settlement statement closely beforehand.

Here is what happens on the day of closing: The buyer’s mortgage company wires the loan money to the title company. The title company disburses commission to both the buyers’ and sellers’ real estate agents. Typically, the agents each get 3 percent of the sales price. These commissions are written into the settlement statement. The title company then disburses the rest of the loan money to the sellers, as their profit. These disbursements can be wire transfers or cashier’s check.

In most cases, the sellers have moved out of the home already, and “all that’s left is for the buyers to get their keys,” Leaman said.

Although the market has done better today, the reflex rally has yet to do anything impressive

Late yesterday, sellers were starting to run out of bullets, allowing the market to steady out and start to recover.  That trend has continued this morning with the 10 year note currently up 9/32’s (yield 3.86%), mortgage backs up 6/32’s, and stocks up 40 something on the Dow.

Final 4^th Quarter GDP was revised lower from 5.9% to 5.6% and Consumer Confidence hit the tape unchanged month on month.  Regional Unemployment Rates remained unchanged according to the BLS.  The top spots for unemployment were Michigan (14.1%), Nevada (13.2%), Rhode Island (12.7%), California and South Dakota (12.5%), and Florida (12.2%).  It’s easy to see that states with a large auto presence and/or states that experienced stealth rallies in housing, leading to a bubble, have been hit the hardest.

Although the market has done better today, the reflex rally has yet to do anything impressive.  Typically this leads to a neutral, inside day with the pattern not strong enough to overtake the bearish sentiment of the past two days.  Usually, this type of short term bottom leads to a period of stalls and allows the moving averages to “catch up” to the market.  We expect that with month end buying, the market could make a run for 3.83% yield on the 10 year note (currently at 3.86%) before rolling over and retesting the bottom ( heading back to 3.93%).

Have a great weekend.

Austin Mortgage Rates Rise on Weak Auctions

A combination of factors was negative for mortgage markets this week, and Austin mortgage rates ended higher. Large budget deficits and economic troubles in smaller European Union nations made bonds less attractive to global investors. In addition, stock market gains sent the Dow to an 18-month high, which pulled funds out of fixed income investments. Finally, with just one week remaining for the Fed’s MBS purchase program, comments from Fed Chief Bernanke about potential future MBS sales added to the pressure in mortgage markets.

For months, investors have been concerned that the enormous supply of debt needed to fund US government spending would force yields on US Treasury securities to rise to attract purchasers. This is what took place this week. Demand was surprisingly weak at all of this week’s record Treasury auctions, especially from foreign investors, and yields were pushed higher. Since mortgage-backed securities (MBS) compete for investors with Treasuries, MBS yields rose as well, pushing Austin mortgage rates higher.

In a speech on Thursday, Fed Chief Bernanke added to the volatility in mortgage markets with his comments about the possible timing of future sales of MBS from the Fed’s portfolio. To support the economy, the Fed has purchased almost $1.25 trillion of MBS since the start of 2009. The Fed has made clear from the start that it was a temporary measure and that it would eventually sell its MBS holdings when the economy was healthy enough. Earlier this month, Bernanke stated that he did not expect the Fed to sell assets “in the near term”. On Thursday, however, his language changed a little. While Bernanke assured investors that MBS sales would be gradual and that they would only take place if the economy were strong enough to handle it, he opened the door for the start of Fed MBS sales at an earlier date than previously anticipated.

Austin Mortgage Update – 7-Year Note Auction

32 billion of the odd ball Treasury just hit the tape to yield 3.374% with 41.9% taken by Indirect Bidders.  Stateside account took only 8.1% with the bid to cover 2.61 to 1.  The issue created a .4 bps tail, just like the 5 year.  The “Street” have given this one a grade of D.  Post auction, selling tanked the market for another ½ point in the 30 year bond.  With mortgage backs off a smooth 17/32’s, there is no place to hide.  Buckle up and stay defensive until the shootin’ stops!