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Rates Ascend, but Stocks and Median Incomes Look Strong

September 18, 2017


We’ve counseled borrowers to lock on the dips in recent months. The latest dip was deeper and more prolonged than most, but it was still a dip. It has become less of one this past week.

Many investors have cycled out of the haven investments — namely U.S. Treasury securities — and cycled into riskier investments, namely stocks. Treasury prices are down, stock prices are up. This means Treasury yields are up as well. The yield on the 10-year U.S. Treasury note is up 10 basis points in the past week. Mortgage rates have been up nearly as much. 

Despite the rise, opportunities still exist to lock a 30-year fixed-rate conventional mortgage below 4% on a best-case scenario. The opportunity, though, has become less prevalent in recent days. The opportunity could become even less prevalent in subsequent days.

Across the Atlantic, consumer-price inflation made a surprise appearance. Inflation in Great Britain spiked to 2.9% on an annualized rate. The unexpectedly high inflation number stoked speculation the Bank of England may raise interest rates sooner than later. 

Because markets are interdependent, it’s hardly beyond the realm of possibilities that the same surprise could occur on our side of the Atlantic. We noted last week that inflation may not be manifest in consumer prices, but it has been manifest in investment and asset prices. It’s just a matter of time before inflation manifests in consumer prices. When it will manifest is anyone’s guess. Because it’s anyone’s guess, borrowers assume a risk for waiting. 

Why the focus on inflation?

Few factors influence the long-end of the credit yield curve as much as consumer-price inflation. Even if we get only a whiff that a change is in the air, long-term interest rates will be the first to experience it. Rates can spike higher with little warning. 

As for the here and now, quite a few prescient borrowers have exploited the latest dip. Mortgage purchase applications rose 11%, according to the latest weekly data provided by the Mortgage Bankers Association. The increase lifts the year-over-year gain to 7%. 

The MBA also tells us that credit availability is again on the rise. The MBA’s Mortgage Credit Availability Index increased 0.7% to 180.2 in August. The purse strings aren’t quite as loose as they were this past spring, but they’re close enough.


Good News: Middle-Class Rising

So much for the meme on the stagnating middle class. 

The U.S. Census Bureau reports that America’s middle class had its highest-earnings year ever in 2016. 
The Census Bureau reports that median household income rose to $59,039. The previous high was $58,655 in 1999. (The figures are presented in inflation-adjusted, not nominal, dollars.) The Census Bureau chalks up the rise in earnings to more people finding full-time jobs, or better-paying jobs, last year.

Stagnation was (and is) unlikely even without rising wages. We’re continually better off because our wages continually buy more for less. Thanks to Moore’s Law, we frequently pay less for superior quality.

For example, purchasing a television demanded 127.8 hours of work from the average worker in 1959. The average worker in 2013 could purchase a television with only 20.7 hours of work, according to data from the American Enterprise Institute. And let’s not overlook quality. The 2013 television far exceeds the quality and features of the 1959 television. We’re all getting a bigger bang for our bucks. What’s more, we’re all getting a bigger bang, even if the bucks are held constant. 

The good news is that the bucks aren’t held constant. The latest Census Bureau data prove that the middle-class wages are rising. We’re confident that the rise will propel housing forward. After all, less money as a percentage of income spent on reoccurring consumer goods, means more money available to spend on higher-priced durable goods. Owner-occupied homes are a higher-priced durable good.

What are Mortgage Points?

September 14, 2017


The mortgage process is complicated, and some of the terms used can be confusing. One term that is often found in a home loan application or a mortgage refinance alongside the discussion of interest rates is “points,” also called “discount points.” These points are a way of describing how you will pay off your mortgage and what sort of discounts you will be afforded by your lender. They come in several different varieties. 

What are points?
In their simplest form, points are equal to 1 percent of the total loan amount. This means that, on a loan of $200,000, one point would equal $2,000. Points are typically paid to the lender upon closing of the loan, and a lender can choose to charge a borrower one or more points. Two or three points are the typical amount.

What kind of points are there?
Points come in two basic varieties:

  • Origination points. These are used to pay loan officers for costs related to closing on a loan. They are not tax-deductible, but can be waived by the lender at its discretion. 
  • Discount points. Discount points are essentially prepaid interest fees, meaning that the more points paid on a loan, the lower the interest rate will be. Discount points are tax deducible. 

Should I pay points?
Answering whether or not a buyer should pay points can be tricky, but it largely boils down to how long you plan to stay in the home. While paying more points may be a high upfront cost, the lower interest rate can save you money that can well exceed what you paid in points in the long run. However, if you are thinking of selling after a few years, the higher interest may end up costing you less.

Why Use a Real Estate Agent?

September 7, 2017


Buying a home, and even selling one, are often expensive ordeals, so it makes sense that we want to keep costs as low as possible. Some look to trim their budgets by taking a second look at some expenses like contracting a real estate agent – but is this really worth it?

According to the facts available, it’s clear that using an agent to help buy or sell tends to pay off, even in a home market that’s easier to search through.

Whether working as a buying agent or helping you sell your home, real estate agents do come with a number of tools and expertise that the average homeowner wouldn’t have access to otherwise. explained some of the biggest advantagesgained by working with a trusted professional:

  • Experience and insider knowledge: Buying or selling a home is an extremely complex affair, with plenty of technical terms and legal hoops to jump through. One of an agent’s primary goals is helping their clients navigate this minefield of jargon and regulations.
  • More search tools: Agents specialize in taking their customer’s exact needs for a new home or from a new buyer, and tailor their search accordingly. While a variety of online tools help non-professionals do the same, doing a really thorough search for a new home still takes a significant amount of time for the average person.

Bidding wars: In the last few years, the housing market has been heating up, to the point that it’s white hot in some parts of the U.S. In these areas, sellers can expect to juggle multiple offers while buyers need to think strategically and act quickly. Without an agent handling these negotiations, both buyers and sellers can expect to be left in the dust.

How to work with an agent

Clearly, there is a lot of value in bringing on a real estate agent to help you with your next home deal. But there are a few things buyers and sellers can do to help their agent succeed, according to The Balance.

First, it’s not a bad idea to take time to search for the right agent to fit your needs. You will obviously want someone with local expertise, but there are several other desirable qualities worth looking for. To figure out who is the best fit, schedule a brief interview with a few agents to get a better sense of their experience.

Another often overlooked tip for either buyers or sellers: Take the open house seriously. For sellers especially, it’s crucial that schedules for viewings are rock solid, and that the house is in perfect shape for potential buyers. If you’re on the buy side yourself, punctuality is equally important, but so is attitude. Let your agent do most of the technical talking and focus on how the home looks and feels.

Real estate agents are there to help buyers and sellers succeed. Don’t overlook this advice when it’s time to enter the housing market on either side of the equation.

How Agents Sell Homes Faster

August 30, 2017


In many parts of the U.S., the local housing market is undeniably in favor of the seller. For real estate agents themselves, that doesn’t mean the process will be a total cakewalk from start to finish. According to agents who spoke with, it’s quite the opposite:

High-quality homes of all kinds are in high demand, but most homeowners selling their home are simultaneously buyers of another one. That puts extra pressure on their agent to close deals quickly and at an ideal price.

To navigate the ever-evolving real estate marketplace from the sales side, here are some basics to know:

Price is priority

The first piece of advice given to anyone looking to sell a home quickly involves setting the right price from the very beginning. This is especially critical in the modern homebuying environment, where information regarding past and current sales trends is available to anyone with an internet connection. As one agent explained in an interview with, buyers know from the outset if a home is overpriced, so agents can’t expect to pull a fast one by starting out with a list price above the market. Aim for the going market rate, and in the right area, offers high above that level will almost certainly come.

Negotiation tips

Once you’ve found interested buyers, then the real strategic work begins. As Redfin explained, a buyer’s agent will likely make an initial offer that’s more favorable to them, but there’s always room for negotiation.

  • Sellers are often motivated to close quickly, but so are many buyers. If a fast close is important to you or your client, take this as a positive step, but don’t allow it to detract from the final closing price.
  • Sweetening the pot with a high offer is music to every seller’s ears, but concessions in the closing process allow the buyer to gain back some of that leverage. Remember that issues found in a home inspection or appraisal could cancel out a high offer as well as drag out the time to closing.
  • Don’t forget that seemingly minor issues at the last minute could derail the entire offer. One common issue involves the title on the house. If any liens or other problems exist in the home’s documented past, this is grounds for most buyers to walk away. Agents should exercise due diligence in title research to nip these in the bud, which may require help from a legal professional.

Finishing touches

Besides being a responsive agent and a diligent negotiator, some of the best ways to ensure a fast sale are also among the easiest to implement. Trulia recommended taking time to stage the home properly and increase curb appeal to reel in more buyers and allow them to see themselves in the home. These tiny details go a long way toward helping everyone get what they are looking for out of a home transaction.

Builders See Blue Skies

August 24, 2017


Home builder sentiment perked up noticeably this month. 

The Home Builders Sentiment Index, having drooped to the low 60s from the low 70s, spiked to 68 in August. This was a four-point increase over the July reading. A reading above 50 is considered positive.

Home builders are seeing an increase in immediate sales. They also see higher sales holding for the next six months. Traffic is the only area where builders are opaque. Traffic is frequently composed of young first-time buyers. Unfortunately… this demography continues to be locked out of the market because of high prices and low supply.  

Construction hasn’t quite kept pace with optimism. Housing starts fell in July, posting at 1.155 million on an annualized rate.

When we dig a little deeper, though, we find most of the decline is confined to the multi-family segment. This is no surprise. The news has been replete lately with stories about declining apartment rents. Apartment and condo builders appear to have gotten ahead of themselves in many markets.

As for single-family starts, they held steady at 856,000 units on an annualized rate. Year over year, single-family starts are up 11%. 

Home builders (and all home sellers, for that matter) continue to be supported by mortgage rates holding near 2017 lows. A bit of warbling occurred last week when North Korea’s leader Kim Jong Un (easily recognized by his whitewall haircut) threatened to lop a nuclear bomb in the direction of the United States. Kim Jong Un subsequently backed away from his threat, not that it was taken seriously by most Americans.  

Quotes on the 30-year fixed-rate loan continue to hover around 4%, where it has hovered for the past two months. Most quotes on other mortgage products continue to hover as they’ve hovered for the past two months as well. 

This leads us back to our mantra: Dips offer an opportunity to lock.

Though the Federal Reserve raising the federal funds rate has had little impact on most mortgage rates, additional Fed action could up the pressure. Fed officials have become increasingly vocal on their desire to “normalize” the Fed’s balance sheet. Normalizing means no longer reinvesting maturing-security proceeds into new securities — Treasury securities and mortgage-backed securities. It could also mean actual security sales. Such action on part of the Fed would pressure longer-term interest rates to rise (because the selling would pressure bond prices to fall).

Consumer-price inflation is the only hold-back. Fed officials wait for inflation to kick in before normalizing. They might not have to wait long. The minutes from the latest Fed meeting show a consensus forming that inflation is expected to pick up soon.

Of course, Fed officials could be wrong, but we sense that many of them are eager to move interest rates to levels that comport with historical norms. In other words, this could be about as good as it gets on the mortgage-rate front for 2017 and beyond. 

Debunking the Biggest Homebuying Myths

August 16, 2017


The process of buying or selling a home is incredibly complex, especially for those diving in for the first time. That’s why it might not come as a shock to learn that many misconceptions and myths persist regarding various steps of the homebuying process. Here are the most pervasive points of confusion for homebuyers of all stripes:

Down payments

A recent survey of mortgage industry executives from Genworth Mortgage Insurance revealed some surprising insights from real estate professionals related to the typical consumer:

  • 28 percent said most consumers hold the incorrect assumption that the 20 percent down payment is an absolute requirement for any home purchase.
  • At the same time, 41 percent said that even among consumers familiar with low down payment options, it was still common to assume that buying a home was difficult without putting 20 percent down.

Nearly 40 percent of industry professionals surveyed said misconceptions such as these were contributing factors in the lack of demand among first-time homebuyers. This was a notably more common belief among mortgage professionals than the notion that low inventory or excess student debt was to blame for sluggish demand in this sector.

“There are various low down payment options available today that allow prospective homebuyers to reach their dreams of homeownership sooner,” Genworth CEO Rohit Gupta said in a statement. “It is crucial that, as an industry, we proactively educate eligible borrowers about solutions that will enable them to buy a home when they’re ready.”

Buying and selling

Other common points of confusion center around what it takes to facilitate the buying or selling process. Zillow found that younger homebuyers may be led to conclude that they don’t need a real estate agent, and can instead conduct all the necessary research online.

While the internet and new real estate services have made the homebuying process smoother in some ways, they still haven’t replaced the experience and hands-on ability of a good real estate agent.

“It’s no longer about agents having access to the proprietary data — it’s all out there,” Zillow explained. “But since buying a home is such an infrequent transaction in your life, you need someone along on your journey who knows and studies the market, understands the process and can act as an adviser to help you interpret the data.”

In a similar vein, Zillow noted that the practice of hosting an open house for prospective buyers had also been falling by the wayside. This trend may have also been set off by new digital services that offer virtual tours of homes from the comfort of a desktop computer. But of course, this pales in comparison to the experience of seeing a home up close and in-person. After all, this is a place that could be your own for many years to come, so it’s essential to know how it looks and feels.

Buying a home is full of questions but light on easy answers. Working with a trusted professional throughout the process is a great way to ease that burden.

September Rate Hike Unlikely

August 14, 2017


Mortgage rates appear to have gone on a fly-and-flop vacation. We’ve seen little movement over the past week. Even an exceptionally strong employment report for July did little to roil lending rates. Credit-market participants responded mostly with a collective shrug.

It wouldn’t surprise us to see today’s rates hold until Labor Day. Of course, an outlier event (unknown to all) could move the market, but outlier events are in themselves outliers: They happen infrequently. 

Looking further afield, Federal Reserve officials meet again on September 20, but no one expects much. Traders bet there’s a 96% chance of the status quo prevailing. And if it didn’t, it might not matter. 

Consumer price inflation, as measured by the Bureau of Labor Statistics, has gone nowhere. Even if Fed officials did a head fake and raised the fed funds rate next month, it could still be meaningless.

Inflation expectations, more than anything, influence long-term lending rates. If market participants are convinced inflation remains muted, Fed officials can continually raise the fed funds rate (an overnight lending rate) and long-term rates, such as those quoted on long-term mortgages, will remain staid.  

All that said, the Fed’s bias is for higher interest rates. (At least that’s what it is has foreshadowed.) Somewhere over the horizon, they likely loom. This suggests to us that this is as good as it gets. As we’ve noted frequently over the past month, rate dips have provided a good opportunity to lock-in a mortgage rate. Our opinion remains unchanged.

Should We Blame the Old Folks?

Bloomberg featured an article last week titled “Baby Boomers Who Won’t Sell Are Dominating the Housing Market.” The article touches on a couple points most of us know: Millennial first-timers are having a hard time entering the market is one; low supply impeding entrance is the other. 

The article is somewhat anecdotal. It’s peppered with interviews with senior citizens from various U.S. burgs. The feature character, though, is a 23-year-old painter on a home search. The enterprising painter scours older neighborhoods in Philadelphia seeking a home to buy, but to no avail.

Less anecdotal is the trend in older people refusing to sell. Leaning on Trulia data, Bloomberg tells us that those 55-and-older own 53% of owner-occupied houses. This is the largest share since the government started collecting data in 1900. The number has surged 10 percentage points over the past decade.  

On the other end, those ages 18 to 34 own just 11% of owner-occupied homes. Baby boomers (those born between 1946 and 1964) owned twice that level when they were the same age. 

The solution? 

Market solutions are frequently the most sustainable solutions. Builders and lenders have both been weighed down with excessive regulation and restrictions. Entrepreneurship — solving problems profitably — has been stultified.  

If we want to get Bloomberg’s 23-year-old painter into a home, we all need more leeway (and less paperwork) to do our jobs.  We have seen some regulatory easing in recent years, but until we see more Bloomberg’s 23-year-old painter will continue to find the row tough to hoe in his home quest. Just don’t blame the older generation for his excessive laboring.

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