Several housing reports were released this past week reflecting a market still in recovery, but struggling with an inventory that is below what is needed. Data is showing that homes sales are down while prices continue to rise. According to the National Association of Realtors, the Pending Home Sales Index dropped 0.4% to 104.8 for the month of February as a result of the shortage of homes for sale.
The Commerce Department reported that February new home sales fell 4.6% to an annual rate of 411,000 but were still up 12.3% from last year at the same time. The supply, which is approximately at 4 1/2 months, remains tight since fewer new homes have been built in recent years. This lack of supply for both existing and new homes for sale is sending home prices higher. The S&P/Case-Shiller Home Price Indices showed an increase in average home prices for the 12 month period ending in January for all 20 cities tracked.
The 10 City Composite rose by 7.3% and the 20 City Composite rose by 8.1%; both having the highest year over year increase since the summer of 2006. Looking towards the near future, construction spending increased 1.2% in February to a seasonally adjusted annual rate of $885.1 billion and is 7.9% higher than a year ago, according to the Commerce Department. This increase was led by private residential construction which rose 2.2% and is the highest since November of 2008.
Mortgage applications rose 7.7% on a seasonally adjusted basis for the week ending March 22nd, according to the Mortgage Bankers Association's Market Composite Index. According to the most recent survey of wholesale and direct lenders done by FreeRateUpdate.com, conforming 30 year fixed mortgage rates are as low as 3.250%, 15 year fixed mortgage interest rates are as low as 2.375% and 5/1 adjustable mortgage rates are as low as 2.375%, all remaining the same.
Obtaining low interest requires that borrowers have a history of good credit. Purchase applications rose 7% on both a seasonally adjusted and unadjusted basis. Refinance applications increased 8% and accounted for 75% of the total volume of business. Of the refinance applications, 29% represented HARP loans. The HARP 2.0 refinance program continues to be active, especially since this is the last year that HARP will be available. HARP refinances, which are for loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009, do not have loan to value caps so that underwater borrowers can move to a better mortgage. In most cases, HARP does not require an appraisal.
With the increase in home prices, many homeowners have moved from negative equity to positive equity in recent months. Since HARP loans require an LTV above 80%, some borrowers may need to use a traditional mortgage refinance. For this reason, anyone who is still HARP eligible should inquire now about obtaining this streamlined refinance.
FHA home loan rates have decreased this week. Current FHA 30 year fixed mortgage interest rates are as low as 3.125%, FHA 15 year fixed mortgage rates are as low as 2.250% and FHA 5/1 ARM loan rates are as low as 2.250%. New guidelines for FHA mortgages are now in effect which may prevent some consumers from considering a home purchase. Overall, FHA traffic should remain the same since most of the new FHA restrictions were already in place by lender overlays.
The new FHA standards require that borrowers have a minimum credit score of 620 and debt to income ratio no higher than 43% in order to obtain approval through automated underwriting. In addition, the annual mortgage insurance premium has been increased. FHA still allows seller concessions to be used to offset the higher FHA closing costs (APR) which is due to the upfront mortgage insurance premium and other FHA fees.
These new guidelines do not affect the FHA streamline refinance with no cash out. This streamline program does not require an appraisal or any other documentation, but does require a satisfactory record of mortgage payments. For homeowners who have loans that were endorsed prior to June 1, 2009, FHA has reduced upfront and annual mortgage premiums which will continue to be offered until the end of 2013.
Remaining the same, jumbo 30 year fixed interest rates are as low as 3.500% and jumbo 5/1 ARM loan rates are as low as 2.500%. Jumbo 15 year fixed mortgage rates have decreased and are now as low as 2.750%. Low jumbo rates are offered to borrowers who have excellent credit, as well as, good qualifications.
Qualifying requires documentation for employment, income and assets which will be verified by the lender. As FHA guidelines have now been updated, it is expected that fewer borrowers will use the FHA jumbo loan and will turn to traditional jumbo mortgages again. This market has been growing as more lenders are offering competitive jumbo loans with rates that are not much higher than regular conventional loan rates.
MBS prices (mortgage backed securities) have an influence on mortgage rates which move in the opposite direction. The past week was relatively quiet with little impact from mixed U.S. economic data. The uncertainty in Europe and its influence on global economic growth were the main concern for investors who favored safe assets which kept mortgage interest rates down. The Conference Board, a private research group, reported that consumer confidence fell approximately 8 points to 59.7 in March from a revised 68.0 in February.