Despite turmoil on Wall Street, the housing sector continues to deliver good news.
Last month, led by a 22 percent surge from the West Region, New Home Sales rose 2.7 percent over August.
A "new home" is a newly-built residence, never before lived in. New homes are usually built and sold by real estate development companies and their respective marketing firms.
The surge in New Home Sales volume is consistent with the other good news we've seen from the housing sector. It marks the 4th positive signal in the last two weeks.
However, it can't be ignored why housing is showing a statistical improvement. The main causes are two-fold:
Both of these factors drive down home sales prices nationwide which, in turn, draws value-seeking home buyers back to the market. In addition, because the number of active sellers dwarfs the number of active buyers, today's home seekers enjoy a tremendous amount of negotiation leverage, making real estate even more attractive.
But, as with everything in business, markets seek balance. As home supplies dwindle, buyers' ability to negotiate sales prices and closing costs will fall. It's Supply and Demand -- as supplies drop, relative demand rises, and prices rise with it.
In every American neighborhood, homes that are priced "right" are selling quickly. And now that banks and builders have figured out the formula, more homes are going under contract than at any time since 2007.
Much of the current economic climate is being blamed on housing. If the data is accurate, though, we can infer that the climate may not last much longer.
(Image courtesy: AP.org)
Mortgage markets followed the recurring trading pattern of 2008 last week -- volatility, volatility, and more volatility.
After opening with a strong performance that drove rates down, late-week fears of a global recession reversed that path. Mortgage rates ended the week unchanged.
This was an unexpected outcome for the week considering that:
Each of the above factors usually helps to generate new demand for mortgage bonds, pressuring mortgage rates lower.
But, this market is anything but normal. Because of the stock market's weak showing last week, several hedge funds were forced to liquidate their holdings and move into cash. The rampant selling dumped an excess supply of mortgage bonds onto the market, offsetting the favorable bond market conditions, and causing mortgage rates to rise sharply from Wednesday to Friday.
Unsuspecting rate shoppers found this out the hard way.
This week, mortgage markets should be similarly unpredictable -- there is a bevy of economic news and government news on which markets will chew, digest, and attempt to swallow.
On the economic side, the two most influential data points are the Consumer Confidence survey, and Personal Consumption Expenditures. The former will be used to predict Holiday Season shopping -- a weak reading should cause mortgage rates to rise -- and the latter is the Federal Reserve's measure of inflation.
If PCE is low, expect calls for more economic stimulus which would help mortgage rates to recede.
And, on the government side, the Federal Reserve will hold its scheduled 2-day meeting Tuesday and Wednesday. It's widely expected that the Fed will lower the Fed Funds Rate by at least 0.250 percent, maybe more.
Often, when the Fed Funds Rate falls, mortgage rates rise in the immediate wake of the announcement. Be aware of this if you are currently floating a mortgage rate.
(Image courtesy: Wall Street Journal)
Statistics are what you make of them, but sometimes, they can provide good perspective.
For example, from its peak in 2005 to its trough in late-2007, the number of "used" homes sold nationwide plunged.
Through all of 2008, though, Existing Home Sales volume has been essentially flat. Some months up, some months down, but always hovering near the 5 million unit mark.
The data from September is no different.
For the 13th consecutive month, the number of home resales nationwide straddled the 5 million benchmark, clocking in at 5.18 million units. This tells us that everyday Americans are still buying and selling real estate at a fairly steady clip -- despite what the news keeps telling us.
Versus August, September sales volume grew by 5.5 percent.
Now, couple this two other data points and we can see that the housing market is showing multiple signs of strength:
Again, though, statistics are what you make of them. Just as there are positive signals about real estate, there are negative ones, too. The credit markets are one example of that.
But, either way, with a full year of stable sales volume behind us and stories of recovery in beat-up markets like California, we can't ignore the idea that housing may be done trolling its bottom.
It takes willing buyers and willing sellers to turnaround a market. It appears that housing may have both.
(Image courtesy: The Wall Street Journal Online)
According to foreclosure-tracking service RealtyTrac, the foreclosure rate is falling nationwide.
Versus August, foreclosures fell by 12 percent in September 2008 as more than half of the states showed month-over-month improvement.
Most interesting in the data is that several states that led the foreclosure boom in 2007 now appear to be leading the charge out of it.
For example:
But despite September's promising data, the press is choosing to report that foreclosures are up 71 percent over the same period last year. The data is accurate, but not necessarily relevant.
When home buyers and sellers engage real estate markets, they rarely think in annual terms. For them, it's about buying or selling this month, or next month, or the month after that. When someone is "in" the market, their mentality is "right now".
In other words, annual data is more befitting of an economist, while month-to-month data is more befitting of you. Of course foreclosures are up 71 percent since last year -- a lot has happened since then. But on a monthly basis, signals point to improvement.
September's foreclosure data may be a signal of market recovery, or it may just be a blip. Time will tell, really. Either way, RealtyTrac's foreclosure data reinforces what most real estate professionals already know and that's that markets all over the country are showing signs of life.
In the widest definition possible, amortization (pronounced: am-ohr-tih-ZAY-shun) is the scheduled process by which a loan's principal balance pays down to $0.
The opposite of an amortizing loan is an interest only loan for which there is no scheduled principal repayment schedule.
With respect to mortgages, amortization is what determines how much of a monthly payment goes to principal, and how much goes to interest. Amortization schedules are the same for all fixed rate, non-interest only home loans including 15- and 30-year fixed rate mortgages, as well as all non-interest only ARMs.
Monthly principal and interest payments on a mortgage are based on the mathematical formula above, where:
Now, if you've ever paid on an amortizing home loan, you don't need to use the formula to know that mortgage amortization schedules are dramatically front-loaded with interest.
In other words, in the early years of loan, the interest due on a mortgage is relatively high versus the principal due. And, if you've ever heard someone say, "You don't pay down much of a loan in the first few years," now you know -- mathematically -- why that is.
This interest-heavy mortgage repayment schedule helps banks to collect as much loan interest as possible up-front, offsetting potential loan losses.
But, just because the bank sets an amortization schedule doesn't mean that a homeowner can't change it. In any given month, a borrower can prepay extra principal to the lender, thereby changing the formula and accelerated the loan payoff date.
There are calculators online that do the prepayment math for you, but before making extra payments, talk with your loan officer or financial advisor first. Prepaying your mortgage could trigger a stiff penalty from your lender, or put your liquid assets at risk. Prepayment is not a bad plan, but it may be a bad plan for some.
(Image courtesy: Mortgage News Daily)
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