Example 30 year mortgage rates (from myfico.com – see site for current rate estimates). Previous posts on this topic: Feb 2008 – August 2007 – May 2007. Since the last post both jumbo and conforming mortgages rates are up (and are up most for high credit scores).
| FICO score | APR Aug 2008 | APR Aug 2008 – jumbo | APR Feb 2008 | APR Feb 2008 – jumbo | APR Aug 2007 | APR May 2007 |
|---|---|---|---|---|---|---|
| 760-850 | 6.12% | 7.00% | 5.53% | 6.61% | 6.27% | 5.86% |
| 700-759 | 6.34% | 7.22% | 5.75% | 6.83% | 6.49% | 6.08% |
| 660-699 | 6.62% | 7.50% | 6.04% | 7.12% | 6.77% | 6.37% |
| 620-659 | 7.43% | 8.31% | 6.85% | 7.93% | 7.58% | 7.18% |
| 580-619 | 9.45% | 9.63% | 9.22% | 9.40% | 9.32% | 8.82% |
| 500-579 | 10.31% | 10.49% | 10.20% | 10.37% | 10.31% | 9.68% |
For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.
Since February the premium for jumbo loans has decreased to 88 basis points (from 108) for all credit scores above 620 (the combination of higher down payment and higher regular interest rates below 620 result in very little premium from Jumbo loans, under 20 basis points.
Related: 30 Year Fixed Rate Mortgage Rate Data – Learning About Mortgages – How Much Worse Can the Mortgage Crisis Get? – Real Free Credit Report (in USA)
Foreclosure Filings Continue to Rise
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last week the Mortgage Bankers Association reported that about 2.47 percent of home mortgages were in foreclosure during the first quarter of the year, almost double the 1.28 percent rate of a year earlier, and the highest point since the group began compiling such figures in 1979. A Credit Suisse report this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes.
There numbers really are astounding. How lame were the decisions of banks and mortgagees that nearly 1 in 40 mortgages are in default (and that number likely increasing in the next year to much more?
Related: Homes Entering Foreclosure at Record (Sep 2007) – Homes Entering Foreclosure at Record – Ignorance of Many Mortgage Holders
Assessing how much further house prices are likely to fall gets even trickier. One route is to look at market expectations: investors expect a further 20% drop, judging by the prices of futures contracts linked to the Case-Shiller 10 city index. But the futures market is small and illiquid and may overstate the possible declines.
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Using a model that ties house prices to disposable incomes and long-term interest rates, analysts at Goldman Sachs reckon that the correction in national house prices is only halfway through. They expect an 18-20% correction overall, or another 11-13% decline from today’s levels. But their models suggest that six states – Arizona, Florida, Virginia, Maryland, California and New Jersey, could see further price declines of 25% or more.
Optimists dispute this gloomy assessment, pointing out that some measures of housing affordability have dramatically improved. According to NAR figures, monthly payments on a typical house with a 30-year mortgage and 20% downpayment were 18.5% of the median family’s income in February, down from almost 26% at the peak – and close to the historical average. But this measure of affordability is misleading, not least because credit standards have tightened so much.
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Given the typical pace of rental growth, Mr Feroli reckons house prices (as measured by the Case-Shiller index) need to fall by 10-15% over the next year and a half for the rent/price yield to return to its historical average.
Actually predicting the where the declines will stop is very difficult. But this articles provides some very good thoughts on what the future holds. While things may not go as those quoted guess their guesses seem pretty reasonable and the explanations make sense.
Related: Home Values and Rental Rates – Housing Prices Post Record Declines – Housing Inventory Glut – mortgage terms
Housing prices posted large declines over the last year. One important thing to keep in mind when looking at the recent results is how rare significant declines in housing prices have been. In general housing prices decline very little (less than 10% drops and normally less than 5%). Normally the turnover just decreases dramatically as people refuse to sell at lower prices and just stay in their house until prices recover. Housing Prices Post Record Declines:
Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips. The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since its launch in 1987
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Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they’ve fallen 20.8%. Of the 20 cities Case/Shiller tracks, only Charlotte, N.C. showed higher prices, up 1.5% over the 12-month period.
Other metro areas recorded only modest price declines, including Portland, Ore., down 2.0%, Seattle, off 2.7% and Dallas, 4.1%. In the nation’s largest city, New York, metro area prices dropped a modest 6.6%.
Related: Home Price Declines Exceeding 10% Seen for 20% of Housing Markets (Sep 2007) – How Not to Convert Equity – Housing Inventory Glut (Aug 2007) – Mortgage Defaults: Latest Woe for Housing (Feb 2007)
Home Prices Drop Most in Areas with Long Commute by Kathleen Schalch
The Washington, D.C., metropolitan area has been hit hard. Prices tumbled an average of 11 percent in the past year. That’s the big picture. But a look at Ashburn, Va., about 40 miles from the center of town, finds a steeper fall.
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Jonathan Hill, vice president of Metropolitan Regional Information Systems, which tracks home sales, sat in his office recently, clicking through page after page of price data sorted by ZIP code. There were a lot of negative numbers, but not in places that are close in or near public transit.
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David Stiff, chief economist for the company that produces the Case-Shiller Home Price Index, saw the trend in other cities, as well – including Los Angeles, San Francisco, New York, San Diego, Miami and Boston. Stiff recently matched home resale values against commute times and found that in most of these major metropolitan areas, the trend is the same. The longer the commute, the steeper the drop in prices.
Related: Urban Planning – How Walkable is Your Prospective Neighborhood – Exurbs Hardest Hit in Recent Housing Slump (Feb 2007)
How bad is the mortgage crisis going to get?
This interview of Paul Krugman is worth reading. And it does seem to me the magnitude of the mortgage crisis is very large and likely will result in national declines in home prices of over 15% from the peak. Which is a very large decline. And in local markets declines of 35% seem likely.
Related: Home Price Declines Exceeding 10% Seen for 20% of Housing Markets (Sep 2007) – Home Values and Rental Rates – Real Estate Median Prices Down 1.5% in the Last Year (Aug 2007) – Real Estate articles
Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns
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About 370,000 new homes are for sale because people who initially contracted to buy them backed out, according to estimates in a Feb. 15 report from analysts at New York-based CreditSights Inc. An additional 216,000 homes are under construction, according to Commerce Department data.
In January 1973, the number of finished new homes for sale was 97,000, when the U.S. population was about 212 million, according to the U.S. Census Bureau. In December 2007, 197,000 completed homes were on the market and in January 2008 there were 195,000. The current population is 303.5 million.
Home prices may fall at least 8 percent nationwide and by as much as 26 percent from the third quarter of 2007 before hitting bottom, according to a Feb. 13 report from New York- based Deutsche Bank AG analyst Karen Weaver, the firm’s global head of securitization research.
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“The builders are looking for ways to accelerate sales and get inventory moving,”
The news certainly continues to be quite bad on the home front.
Related: Housing Inventory Glut (August 2007) – Home Price Declines Exceeding 10% Seen for 20% of Housing Markets – Ever Larger Houses – Exurbs Hardest Hit in Recent Housing Slump
A house is where you live–not an investment
Very good point – as long as you fall into that category of living there until you die. True for some people but far from all. Also, even for those people, it is not a complete view of the financial situation.
A reverse mortgage will allow you to sell the house and get paid for the rest of the time you live there. So you can build up equity over 20,30,40 years and then take a reverse mortgage and get payments every month (based on your investing in your house). Reverse mortgages, like many financial tools, can be applied poorly and is I would guess unethical behavior related to them is fairly high (so be very careful!). If you think of such an option you need to do your research and actually understand what you are doing – you can’t afford to be like the many ignorant mortgagors. The AARP offers information on Reverse Mortgages.
Additionally, you lock in a large part of your housing cost (you still have maintenance and taxes but you do not have every increasing rent. Now ever increasing rent is not a certainty but for many it is very likely rent will go up on average over the long term. Ownership of your home removes the risk of being priced out of the area you want to live by increasing rental prices over time. You also lose the potential of benefiting if rent prices fall over time, but I would say the more valuable of those options is avoiding the risk of rising rental prices.
Related: How Not to Convert Equity – Housing Inventory Glut – articles on home ownership and real estate
Sorry but that is a symptom of massive ignorance. Not knowing an incredible important aspect of your largest financial decision is like not know what days you are suppose to show up for work. There is a minimum amount of knowledge people should have that sign a mortgage. I think at least 34% of mortgage holders need to read this blog. Ok, I probably alienated all of them, so if that is the case then they should read some of the blogs we list in our blogroll.
There is a big problem in that logic – it could maybe make sense if you had good reason to believe rates will be lower in the future than when you took out the loan (but that is a very questionable). I don’t know why someone would think that in the last couple of years – the risks have been much better than rates would go up a few hundred basis points than down that much. Basically I can see someone that is very financially savvy using an adjustable mortgage to qualify and if they know they will move in a fairly short period…
Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – How Not to Convert Equity – 30 year fixed Mortgage Rates