If you’re out shopping for a home this week, or trying to lock a mortgage rate, with Friday comes home affordability risk. Consider locking your mortgage rate today.

The March Non-Farm Payrolls report is due for release Friday morning and mortgage rates are expected to move. Unfortunately for the home buyers and rate shoppers of Austin , we can’t know in which direction that will be.

The prudent play may be to lock your mortgage rate today.

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report. More commonly called “the jobs report”, the release is a bona fide market-mover, month after month.

Depending on how the March jobs data reads, FHA and conforming mortgage rates could rise — or fall — by a measurable amount post-release. This is because today’s mortgage market is closely tied to the economy, and the economy is closely tied to job growth.

Why Are Jobs Are Connected To Mortgage Rates?

The connection between jobs and mortgage rates is basic. There are two major reasons.

Reason #1

More workers leads to higher levels of consumer spending nationwide and consumer spending accounts for the majority of the U.S. economy.

Reason #2

When more workers are paid, more taxes are paid, too.

Local, state and federal governments collect more monies when payrolls are rising which, in turn, benefits projects that purchase new goods and services, and, in many cases, results in the hiring of additional personnel.

Job creation can be a powerful, self-reinforcing cycle.

Act Now Or Forever Hold Your Peace

Between 2008 and 2009, the economy shed 7 million jobs. It has since recovered half of them.

Friday, analysts expect to count another 200,000 jobs created. If the actual number of jobs created exceeds estimates, look for stock markets to gain and bond markets to lose. This leads to higher mortgage rates — especially with the Federal Reserve zeroed in on the labor market.

If the actual number of jobs created in March falls short of expectations, however, mortgage rates may fall.

Unfortunately, by the time the report is released, it will be too late to act on it. The release is made at 8:30 AM ET and bond markets are closed for Good Friday.

The Federal Reserve has released the minutes from its last FOMC meeting, a 1-day affair held March 13, 2012.

Why Oh Why?

For the un-indoctrinated, 3 weeks after it meets, the Federal Open Market Committee, the sub-group within the Federal Reserve that votes on U.S. monetary policy, publishes its meeting minutes.

Similar to the minutes from a corporate event, or condominium association meeting, the Fed Minutes recounts the conversations and debates that transpired throughout the meeting.

The Fed Minutes is a lengthy publication, often filling 10 pages or more. By contrast, the more well-known publication from the FOMC — its post-meeting press release — tends to span 6 paragraphs or less.

The extra detail contained within the Fed Minutes is Wall Street fodder, especially given the current economic uncertainty. Investors look to the Federal Reserve for clues about what’s next for the U.S. economy.

Lately, the minutes has made an out-sized impact on mortgage rates. The Fed’s words continue to swing the mortgage-backed bond market.

Today Is No different.

March’s Fed Minutes is a dense one and markets are reacting. The text shows a central bank softly divided on future U.S. economic policy, and in debate about whether existing market stimulus should be removed.

The Fed has said that it’s expecting high levels of unemployment and low levels of inflation in the coming months, an outlook that leaves little reason to introduce a third round of stimulus. This is the primary reason why mortgage rates in Austin have been climbing since the Fed Minutes’ release.

Since mid-March, mortgage rates dropped on speculation that the Federal Reserve would introduce a mortgage bond purchase program this quarter. Today, those expectations have reversed.

According to the minutes, the Federal Reserve believes that additional market stimulus would only be necessary “if the economy lost momentum”, or if inflation remained too far below 2 percent per year. Currently, Core PCE — the Fed’s preferred gauge of inflation — is running slightly below 2 percent.

What’s Next?

The Federal Reserve’s next scheduled meeting is April 24-25, 2012 — its third of 8 scheduled meetings this year.

You might want to get your application in gear today.

Yes, Federal Housing Administration Premiums Are Rising

Beginning next week, the Federal Housing Administration (FHA) is changing the way it charges mortgage insurance to U.S. homeowners. For the fourth time since 2010, FHA mortgage insurance premiums are rising for all FHA-backed homeowners.

For FHA Case Numbers assigned on, or after, Monday, April 9, 2012, there are two planned changes.

First Change: $1,750 per $100k Borrowed

First, FHA Upfront Mortgage Insurance Premiums (UFMIP) will increase by 75 basis points to 1.75%, or $1,750 per $100,000 borrowed. Upfront Mortgage Insurance Premium is paid at closing, and typically added to an FHA borrower’s loan size.

The current UFMIP rate is 1.000 percent.

Second Change: $100 Per $100k Borrowed, Per Year

Second, annual FHA mortgage insurance premiums are rising. All new FHA-backed loans will be subject to a 10 basis point increase in annual mortgage insurance premiums, costing homeowners an extra $100 per $100,000 borrowed per year.

The new FHA annual mortgage insurance premium schedule:

• 15-year loan term, loan-to-value > 90% : 0.60% MIP per year
• 15-year loan term, loan-to-value <= 90% : 0.35% MIP per year
• 15-year loan term, loan-to-value <= 78% : 0.00% MIP per year
• 30-year loan term, loan-to-value > 95% : 1.25% MIP per year
• 30-year loan term, loan-to-value <= 95% : 1.20% MIP per year

How To Calculate Your MIP – Mortgage Insurance Premium

To calculate your monthly MIP obligation as a FHA homeowners, multiply your starting loan size by your insurance rate from the list above, then divide by 12 (yes, that easy).

Note that the FHA mortgage insurance changes apply to new FHA Case Numbers only. If you have an FHA mortgage approval in-process, or an existing FHA home loan, you are not subject to the new MIP schedule. To avoid paying the FHA’s new MIP schedule, begin your FHA mortgage application today.

Once your FHA Case Number is assigned, you’re locked in to today’s lower premiums.

Back Under 4%

After a brief run-up two weeks ago, mortgage rates are back below 4 percent. It’s good news for home buyers and mortgage rate shoppers of Austin, Texas because with lower mortgage rates come lower mortgage payments.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, the national, average 30-year fixed rate mortgage rate fell to 3.99 percent this week from last week’s 4.08 percent.

Last week had marked the first time since December 2011 that the benchmark rate crossed north of 4 percent — a span of 16 weeks.

And, it wasn’t just rates that got cheaper this week — closing costs dropped, too.

Freddie Mac’s survey showed that the average number of discount points to accompany a 30-year fixed rate mortgage fell one-tenth of a percent this week to 0.7, where one discount point is equal to one percent of your loan size.

Real Life Example

As a real-life example, a $200,000 Austin, Texas mortgage with an accompanying 0.7 discount points would be subject to an additional $1,400 one-time closing cost. Last week, that cost was $1,600.

Note, though, that these are average mortgage rates for the nation. On a local level, rates may be higher or lower, and so may the accompanying number of discount points.

For example, in this week’s Freddie Mac survey, each U.S. region boasts its own “average rate” :

• Northeast Region : 4.00% with 0.7 discount points
• West Region : 3.94% with 0.9 discount points
• Southeast Region : 4.01% with 0.8 discount points
• North Central Region : 3.99% with 0.6 discount points
• Southwest Region : 4.02% with 0.8 discount points

These rates are each well below the average rates of a year ago when the average 30-year fixed rate mortgage was 4.86%.

Will It Last Forever?

Obviously, nothing in life lasts forever.

And yes, you’ve been hearing it for years that “historically low interest rates” means you should “buy, buy, buy.” But honestly, that’s not always the case. Just because you CAN buy doesn’t always mean you SHOULD.

But, the fact remains that low mortgage rates can’t last forever.  If you’ve been wondering whether now is a good time to buy a home or refinance one; or whether rising rates will harm your monthly budget, the answer MIGHT be yes. A weak economy held mortgage rates low last year. An improving economy should push rates higher this year.

Talk to your loan officer and review your home loan options. Looking ahead to spring and summer, mortgage rates appear poised to rise. Don’t have a loan officer? No problemo, we’d be happy to connect you with one of our preferred lenders, just give us a ring.

Finally Recovering?

Recent data suggests that the U.S. housing market is in recovery, or is it? The data also shows this to be an uneven recovery.

Only 3 out of 20 Markets Rising. Really?

According to the monthly S&P/Case-Shiller Index, for example, home values rose in three of 20 tracked markets between December 2011 and January 2012. 17 tracked markets showed home prices still in decline.

It’s easy to point to the Case-Shiller Index as evidence that the housing market in Texas has yet to bottom, but we have to consider the Case-Shiller Index’s shortcomings — specifically in a recovering economy.

For example, the Case-Shiller Index is based on changes in home prices of a single home, through successive sales. This means that to calculate its home price index, the Case-Shiller searches for sales of the same home over a period of time and calculates the difference in contract price.

This methodology can distort the home price tracker downward during times of weak economy because there is no distinction made for homes sold in foreclosure or as a short sale.

35% Of Homes Sold Were “Distressed”

35% of all homes sold in January were “distressed”, says the National Association of REALTORS®.

Multi-Family Not Included

Another distortion in the Case-Shiller Index is that the model neglects all home types that are not of type “single-family residence”. This means that multi-unit homes and condominiums are excluded from the Case-Shiller Index model.

In some markets, such as Chicago and New York City, condominiums account for a large percentage of overall sales.

60 Day Delay

Lastly, the Case-Shiller Index is published with a “lag”, which renders it useless to buyers and sellers of Austin in search of real-time, relevant data. The most recent Case-Shiller Index is published with a 60-day delay, and accounts for home purchase contracts written between October and December 2011.

Since October, the U.S. economy has added more than 1 million jobs and the economy has moved into “moderate expansion”, according to the Federal Reserve. Data that’s two seasons old does little to help us today.

Case-Shiller Index Is A Slow Poke

Making sound real estate decisions is about having timely, relevant data at-hand when it’s needed. Naturally, the Case-Shiller Index fails in that respect.

It’s good for highlighting the U.S. housing market on the whole, as it existed in the past. For real-time market data, though, you’ll want to talk with an active real estate agent.

Reports are indicating that buyer foot traffic through new construction is up nearly threefold since 2009. 

Unless, of course, they release that their estimates are “materially incorrect” five years later like The National Association of Realtors did in December of 2011.

Oh well, let’s hope not.

But wait, what does this “nearly threefold” increase really mean?

What Goes Down, Must Go Up….Slowly

Home builder confidence in the newly-built, single-family housing market is rising.

In March, for the second consecutive month, the National Association of Homebuilders reports the Housing Market Index at 28 — a doubling of the reading from just 6 months ago and, along with last month, the highest HMI value since June 2007 (right before the Great Recession).

“While builders are still very cautious at this time, there is a sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Florida. “This is demonstrated by the fact that the HMI component measuring builder expectations continued climbing for a sixth straight month in March, to its highest level in more than four years.”

Are We Moving Towards Favorable Building Conditions?

When home builder confidence reads 50 or better, it reflects favorable builder conditions in the single-family, new home market. Readings below 50 suggest unfavorable builder conditions.

The HMI itself is a composite reading. It’s the result of three separate surveys sent to home builders by the trade association. The NAHB asks builders to report on their current single-family home sales volume; their projected single-family home sales volume for the next 6 months; and, their current buyer “foot traffic”.

Approximately 400 surveys are returned each month. The results are compiled into the NAHB Housing Market Index.

In March, home builders provided mixed replies to the survey questions :

• Current Single-Family Sales : 29 (-1 from February)
• Projected Single-Family Sales : 36 (+2 from February)
• Buyer Foot Traffic : 22 (Unchanged from February)

It’s noteworthy, despite slowing sales in March, that home builders expect a surge in new home sales over the next 6 months. The reasons for this are several and should be of interest to today’s home buyers.

3 Reasons Why Confidence is Up

First, the jobs market is heating up. The U.S. economy has added more than 1 net new million jobs over the last 6 months and that is increasing the pool of potential home buyers in Texas and nationwide.

Second, the housing market, in general, is improving. Yes, I believe real estate is local but as a whole, “experts” believe it’s improving. Home sales are brisk in many U.S. markets and home supplies are dropping. This creates pressure on home prices to rise.

And, third, low mortgage rates have helped pushed home affordability to all-time highs. 3.75% interest rates for a 30 year fix rate. Are you serious?!? I bought a home in 2009 and was ecstatic about locking down 5% (Thank you Uncle Sam for the $8K tax boost). More home buyers earning the national median income can afford a median-priced home than at any time in history.

Glass Half Full

It’s all culminated in a monthly Buyer Foot Traffic reading which, at 22, is nearly triple the foot traffic reading from just three years ago.

Yes, I know I said home builder confidence that reads 50 or better reflects favorable conditions. In that case, a reading 22 sucks. BUT, we’re making progress in the right direction. Hopefully, the HARP 2.0 program can help the 6 million homeowners underwater refinance, prevent additional foreclosures, and increase consumer, homebuilder, and America’s confidence in the real estate system.

Regardless, if you’re looking to buy new construction in the second half of 2012, you might consider moving up your time frame. Home buyers — in Austin, Texas and everywhere else — are out in full-force, capitalizing on today’s buyer-friendly market. Market conditions are constantly changing, and may move out of your favor. As builder optimism increases, the price you pay for your new home may increase, too.

But remember, just because you CAN buy it, doesn’t mean you should. Always use Common Cents.

You might just be in luck if you qualify for HARP 2.0.

What’s this HARP non-sense?

Let me explain.

HARP 2.0: Home Affordable Refinance Program

The new, revamped HARP program is now available in Texas and  nationwide. It was officially released Saturday, March 17, 2012 by Fannie Mae and Freddie Mac.

HARP stands for Home Affordable Refinance Program. HARP is the conforming mortgage loan product meant for “underwater homeowners”. Under the HARP program, homeowners in across Austin can get access to today’s low mortgage rates despite having little or no equity whatsoever.

HARP is expected to reach up to 6 million U.S. homeowners who would otherwise be unable to refinance.

HARP is not a new program. It was originally launched in 2009. However, the program’s first iteration reached fewer than 1 million U.S. households because loan risks were high for banks, and loan costs were high for consumers.

With HARP’s re-release — dubbed HARP 2.0 — the government removed many of HARP’s hurdles.

Do you qualify? 3 Qualifying Factors

In order to qualify for HARP, homeowners must first meet 3 qualifying criteria.

Factor 1 – Fannie Mae or Freddie Mac backed?

First, their current mortgage must be backed either Fannie Mae or Freddie Mac. Loans backed by the FHA or VA are ineligible, as are loans backed by private entities. This means jumbo loans and most loans from community banks cannot be refinanced via HARP.

• To check if your loan is Fannie Mae-backed, click here.
• To check if your loan is Freddie Mac-backed, click here.

Factor 2 – June 1, 2009

The second qualification standard for HARP is that all loans to be refinanced must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009. Mortgages securitized on, or after, June 1, 2009 are HARP-ineligible.

There are no exceptions to this rule.

Factor 3 – Do You Have Strong Repayment History?

And, lastly, the third HARP qualification standard is that the existing mortgage must be accompanied by a strong repayment history. Homeowners must have made the last 6 mortgage payments on-time, and may not have had more than one 30-day late within the last 12 months.

If the above three qualifiers are met, HARP applicants across Austin and the nation will find mortgage guidelines lenient overall:

• Refinancing into a fixed rate mortgage allows for unlimited loan-to-value.
• The standard 7-year “waiting period” after a foreclosure is waived in full.
• Except in rare cases, home appraisals are NOT required for HARP.

Furthermore, HARP mortgage rates are on par with non-HARP rates. This means that HARP applicants get access to the same mortgage rates and loan fees as non-HARP applicants. There’s no “penalty” for using HARP.

To apply for HARP, check with your loan officer or shoot us an email and we can connect you with our preferred lenders.

But mortgage rates are going up after the retail sales report.

Mortgage rates are higher by 1/4 percent since the Retail Sales data was released — roughly $16 per $100,000 borrowed — and are expected to rise more throughout the spring home purchase season.

Why?

Well, the U.S. economy is expanding, fueled by a renewed consumer optimism and increased consumer spending.

As reported by the Census Bureau, Retail Sales in February, excluding cars and auto parts, rose 1 percent to $335 billion as 11 of 13 retail sectors showed improvement last month.

February markets the 19th time in twenty months that U.S. Retail Sales increased on a month-over-month basis.

Unfortunately, what’s good for the economy may be bad for Austin home buyers and mortgage rate shoppers. Home affordability is expected to worsen as the U.S. economy improves.

The connection between Retail Sales and home affordability is indirect, but noteworthy — especially given today’s broader market conditions.

First, let’s talk about affordability.

Last week, the National Association of REALTORS® released its monthly Housing Affordability Index, showing that homes are more affordable to everyday home buyers than at any time in recorded history. For buyers with median earnings buying median-priced homes, monthly payments now comprise just 12.1% of the monthly household income.

The real estate trade group considers 25% to be the benchmark for home affordability. Today’s payment levels are less than half of that.

The reasons why today’s homes are so affordable are three-fold :

1. Home prices remain relatively low as compared to peak pricing.
2. Fixed- and adjustable-rate mortgage rates remain near all-time lows.
3. Average earnings are increasing nationwide.

Rising Retail Sales, however, can derail the trend. This is because Retail Sales measures consumer spending and consumer spending accounts for roughly 70 percent of the U.S. economy. As the economy expands, the forces that combined to raise home affordability so high begin to wane.

First, in a recovering economy, mortgage rates tend to rise and, throughout 2012 and 2013, home prices are expected do the same. Second, as average earnings increase, it can spur inflation which is bad for mortgage rates, too.

Home affordability is at all-time highs today. But, in part because of February’s Retail Sales data, we should not expect these levels to last.

For the fourth consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. It is expected to remain near-zero through 2014, at least.

In its press release, the Federal Reserve noted that the the U.S. economy has “expanded moderately” since the FOMC’s January 2012 meeting, adding that growth is occurring despite “strains in the global financial markets” that pose “significant downside risks” to long-term outlooks.

The Federal Reserve now expects moderate economic expansion through the next few quarters and a gradual easing in the national unemployment rate.

The Fed also noted that :

1. The housing sector remains “depressed”
2. Labor conditions have “improved further”
3. Household spending has “continued to advance”

With respect to inflation, the Fed said that rising oil and gasoline prices will “push up” inflation temporarily, but not over the long-term.

At its meeting, the Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs. The Fed re-affirmed its intentions to hold the Fed Funds Rate at “exceptionally low” levels through late-2014, and to buy mortgage-backed bonds in the open market.

Immediately following the FOMC’s statement, mortgage markets worsened slightly, pressuring mortgage rates higher across the country.

The FOMC’s next scheduled meeting is a two-day event slated for April 24-25, 2012.

The Federal Open Market Committee is the 12-person sub-committee within the Federal Reserve that votes on the nation’s monetary policy. Led by Federal Reserve Chairman Ben Bernanke, the FOMC’s most prominent role is as steward for the Fed Funds Rate.

The Fed has said repeatedly that it intends to keep the Fed Funds Rate near 0.000 for an “extended period of time”, through 2014 at least.

Unfortunately, this doesn’t mean that Austin mortgage rates will remain low as well. Mortgage rates are not set by the Federal Open Market Committee. Mortgage rates are set by Wall Street.

As proof that the Fed Funds Rate is distinct from mortgage rates, consider that, since 2000, the difference between the Fed Funds Rate and the average, 30-year fixed rate mortgage rate has been as wide as 5.25% and as narrow at 0.50%.

If the Fed Funds Rate was tied to mortgage rates, the chart at right would be linear.

That said, the FOMC can influence mortgage rates. 

After its meetings, the FOMC issues a standard press release to the public which reflects the group’s overall economic outlook. When the FOMC statement is generally “positive”, mortgage rates tend to rise in response. This is because investors often assume more risk in an improving economy and this can harm bond market prices — including those for mortgage-backed bonds.

Conversely, when the Fed is generally negative in its statement, mortgage rates can improve.

Since the FOMC’s last meeting, there has been little about which to be negative with the U.S. economy. Housing and manufacturing are improving; employment is higher; and global markets are regaining their respective footing. The Fed may make note of it. Or, it may not.

Regardless, mortgage rates are expected to move so consider locking your mortgage  rate ahead (or at least be mindful of this info) of today’s 2:15 PM ET statement.

There is too much risk in floating.