There is no such thing as a “national real estate market”. 

Real estate is local.

We know this is true because even cities don’t have their own real estate market.

This chart shows how home prices have diverged across adjacent zip codes over the last 12 months.

Some influencing factors:

• School systems
• Infrastructure
• Proximity
• Supply of homes

Stories about “The U.S. Real Estate Market” are irrelevant.  In each city in America — and on a street by street level — real estate markets can be vastly different.

(Image courtesy: Wall Street Journal)

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When mortgages began to sour last Fall, Fannie Mae and Freddie Mac instituted “loan-level pricing adjustments”.

The concept is basic: For mortgage applicants with less-than-ideal credit profiles, mortgage pricing is adjusted to compensate for the added risks. 

It’s still a conforming loan, but with adjustments.

Effective March 6, though, Fannie and Freddie’s definition of “high-risk” changed and the adjustments got much more expensive.

Some of the more impactful changes include:

• Regardless of credit score, cash out refinances above 75% loan-to-value are subject to price adjustments
• All LTVs greater than 60% are subject to price adjustments
• All 2-units will be adjusted by 0.500%, regardless of LTV
• All 3- and 4-units will be adjusted by 1.000%, regardless of LTV

If your mortgage application is a conforming loan destined for Fannie Mae or Freddie Mac, these adjustments may already be on your loan officer’s rate sheets but be sure to ask. 

If the adjustments are built-in yet, consider whether your should lock your mortgage rate right away.

So, even though mortgage rates fell Wednesday, new Loan-Level Pricing Adjustments pushed the underlying payment higher for a lot of Americans.

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The Unemployment Rate fell to 4.8 percent in February. 

This is 0.1% lower than from January and that’s confusing to a lot of people; it’s been highly publicized that U.S. companies shed 63,000 jobs last month.

Americans are losing jobs at the same time that the Unemployment Rate is falling.  Seem strange?

Well, it’s possible because the Unemployment Rate measures workers unemployed versus workers in the workforce.

The “jobs number”, by contrast, measures active workers collecting actual paychecks.

So, when the government reported that Unemployment Rates fell in February, it happened because the “workforce” figure used to calculate the unemployment was 644,000 less than the workforce figure from January.

644,000 people have left the workforce entirely.  This not only includes those retiring, but the government specifically excludes Americans from the workforce that:

1. Hadn’t looked for a job in the last 4 weeks, or
2. Felt “discouraged” by their prospects and didn’t look for a job at all

And that’s why the Unemployment Rate fell in February even as companies were laying off workers — the total workforce size was reduced by more than the total number of jobs lost.

On paper, it looks like the jobs market may be improving but after a closer look, the opposite may be true.

Similar to mortgage-related stories, there is always more to know than just the headline — you have to dig deeper to find out what the news really means and how it applies to you.

(Image courtesy: Wall Street Journal)

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Gasoline prices reached an all-time, inflation-adjusted high yesterday, averaging $3.23 per gallon nationwide. 

According to GasBuddy.com, this represents a 25% increase in the last 12 months.

Higher gas prices are leaving Americans with fewer discretionary dollars to spend and that is playing a role in the U.S. economy’s slowdown.  It’s one reason why mortgage rates have stayed low despite steady upside pressure from inflation.

High gas prices are also a reason why Thursday’s Retail Sales data will be closely watched; markets will gain insight into whether Americans are cutting back on personal spending because of rising energy costs.

Retail Sales are expected to have risen by a slight 0.1%.  If the actual number is lower, mortgage rates should fall on recession fears.  If it’s higher, rates should rise.

(Image courtesy: GasBuddy.com)

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Between Tuesday and Thursday, mortgage rates rose as much as during any three-day period in recent memory before settling back a bit on Friday’s jobs data.

Fourteen speeches from members of the Federal Reserve were partly to blame for the mortgage rate chaos, but several other factors played a part, too.

One of the biggest other factors last week was that multiple big-name investors were “margin-called”.

Now, margin is a basic financial concept, but to do a good job explaining it requires a lot of numbers and math.  So — if you’re curious — visit Wikipedia for the complete run-down.

Or, just know that last week’s margin calls forced the investors to sell ther mortgage bond holdings into a falling mortgage bond market.  This accelerated the mortgage bond markets freefall for home buyers and rateshoppers alike.

The extra supply from the margin calls created a stronger push downward on mortgage bond prices than markets would have seen without the margin calls. 

This, of course, caused mortgage rates to rise faster than they would have without the margin calls, too.

Only after February’s weak job numbers were reported Friday did mortgage rates recover.  Overall, rates were higher on the week and — at one point Thursday — touched their highest levels in several months.

This week will be fairly light on data and lacking of Federal Reserve speakers.  Therefore, watch for momentum trading to take hold.

The two data points to watch this week are:

1. Thursday’s Retail Sales data
2. Friday’s Consumer Price Index

Both are reasonable gauges of inflation in the U.S. economy and both are expected to show slowing from their previous readings.  Strength will be interpreted as inflationary and should cause mortgage rates to rise.

(Image courtesy: The New York Times)

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“Foreclosure” is the legal process by which a bank repossesses a home from a borrower and, according to RealtyTrac, 1 out of every 100 homes were in some stage of the foreclosure process in 2007. 

This figure is astounding because foreclosure is expensive to both homeowners and banks.  Both parties have an interest in avoiding foreclosure but the process has to start with the homeowner — banks are just too big to start it themselves.

Every mortgage statement has a 1-800 phone number on it.  If you’re about to fall behind on your mortgage payments, make a phone call first.  When you call the toll-free number, a customer service representative talk about your repayment options, or help you design a work-out plan to get your mortgage back to current.

Banks know that more than 80 percent of all foreclosures result from one of the following:

• Job loss/reduction in salary
• Medical issues
• Divorce
• Death

These are life events that draw compassion from banks.  They understand that bad things can happen to people. 

However, the other 20 percent of foreclosures are the result of an inability to sell, an unwillingness to pay, and budget mismanagement.  These reasons are not as acceptable to the banks.

But when a homeowner fails to forewarn his lender of a missed payment, the lender assumes the worst.  It puts the homeowner in the 20 percent category. This makes a work-out plan much less likely and can quickly lead to foreclosure and a loss of the home.

Lenders want to avoid foreclosure as much as homeowners do.  If you’re a homeowner and you’re facing trouble with your mortgage payment, give your lender a call in advance and try to work it out.

If you never call, you can’t possibly get help.

(Image courtesy: Countrywide Financial)

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One of the most popular questions that home buyers ask real estate and mortgage professionals is “How much home can I afford?”

It’s a normal question to ask, but it’s not the most effective way to plan your finances. 

Banks will almost always approve you for a home loan in excess of your household budget.

The more appropriate question is: “How much do I want to spend on housing each month?” 

By focusing on a home’s payment instead of its list price, home buyers exert more control over their short- and long-term financial goals.  List price is only one piece of the monthly payment puzzle. 

The cost of owning a home month-after-month is the sum of multiple expenses:

1. The mortgage payment
2. The real estate taxes on the property
3. The condo/management fees to an association (if applicable)
4. The cost of homeowner’s insurance
5. The cost of mortgage insurance (if applicable)

In other words, because monthly payments are combination of costs, buying a home based on its list price does very little to help plan a budget.  A home selling for $300,000, for example, may cost a homeowner anywhere from $1,800 to $3,000 monthly.

This is why “How much do I want to spend on housing each month?” is a better starting point than “How much home can I afford?”. 

Home affordability comes from more than just the list price.

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With Friday’s jobs report looming, mortgage markets are especially skittish about whether the economy is in a recession, or facing inflation.

Four Fed speakers Tuesday did little to quell the debate:

• 9:00 A.M.: Fed Chairman Bernanke stayed on message that foreclosures and falling home values are dragging down the economy.
• 10:00 A.M.: Fed Vice Chairman Kohn said that banks will “face challenges” but will not fail en masse.
• 1:00 P.M.: Federal Reserve Governor Mishkin said that deflation is more concerning to him than inflation
• 1:00 P.M.: Dallas Fed President Fisher said fighting inflation is more important than fighting recession.

Four speeches, four different perspectives. 

The speakers’ mixed messages confused market participants and, as a result, mortgage rates varied wildly from hour to hour.

The confusion was so great that several mortgage lenders had to shut down their rate lock desks on three separate occasions Tuesday to re-price rates to the “new” market.

That’s a highly unusual occurrence and the market’s volatility underscored the uneasiness exiting in mortgage markets lately.  Without a clear picture of where the economy is headed, investors are left to guess (and they’re not very sure of themselves).

Friday’s job report may add some clarity, but until Friday comes, consider locking a mortgage rate if you see one you like – it probably won’t stick around for very long.

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After briefly exceeding its all-time high, oil closed Monday at $102.45. 

Rising energy costs can lead to inflation because American Business eventually passes on its higher costs to American Consumers.

When consumers have to spend more money for the same amount of product, it’s called “inflation”. 

Another way to look at inflation is like an erosion in the value of a dollar.

The presence of inflation causes mortgage rates to rise because mortgage debts are repaid in dollars.  If those dollars are losing their value, the rates tied to those debts have to increase to “cancel out” the erosion.

This is why mortgage rates spiked Monday.  As oil prices rose, the fear of inflation grew larger.

Over the next few weeks, expect mortgage rates to be highly sensitive to oil prices.  As oil prices rise, mortgage rates should, too.  As oil prices fall, mortgage rates should follow.

(Image courtesy: New York Times)

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Mortgage rates edged lower last week but it was another wild ride.  Market players continue to deal with competing economic forecasts.

When the economy shows signs of brightness — like it did Monday and Tuesday — mortgage rates tend to rise. 

This is because markets are currently equating growth with inflation and inflation pressures mortgage rates higher.

But when the economy shows signs of darkness – like it did Wednesday, Thursday and Friday — mortgage rates tend to fall.  The sudden absence of inflation reverses the upward pressure and mortgage rates adjust downward.

The major reversal last week started with Federal Reserve Chairman Ben Bernanke’s testimony to Congress. 

The chairman made three important points, and repeated them throughout his two-day affair.

1. Inflation is not dead
2. More economic stimulus will create more inflationary pressures long-term
3. Short-term economic weakness is more concerning that long-term inflation

Chairman Bernanke implied that the Federal Open Market Committee will stimulate the economy as needed at its next meeting, March 18. 

Markets are anticipating another half-point drop in the Fed Funds Rate.

This week, there are 14 separate speeches being made by various members of the Federal Reserve. 

Markets will react any deviations in these remarks as they relate to Bernanke’s testimony.  Mortgage rates will move accordingly.  Fewer worries of recession will prop mortgage rates up; Fewer worries of inflation will pull rates down.

Also hitting the wires this week is February’s jobs report. 

This is a major market mover because employment is closely tied to spending which is closely tied to economic growth.

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