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Archive for July, 2011

Lake Geneva Mortgage - Foreclosure changes 2010-2011

For the 9th straight month last month, foreclosure activity slowed.

According to foreclosure-tracking firm RealtyTrac, the number of foreclosure filings dropped 29 percent nationwide on an annual basis in June.  The phrase “foreclosure filing” is a catch-all term, comprising default notices, scheduled auctions, and bank repossessions.

June marked the ninth consecutive month of sub-300,000 filings after 20 months above it – a promising signal for the housing market in Lake Geneva, Wisconsin and nationwide.

It’s also noteworthy that each of the 10 most foreclosure-heavy states showed fewer foreclosures in June 2011 as compared to June 2010, led by Florida’s 54% decline.  Florida is one of 4 states on the leading edge of foreclosure activity since 2007.

The other 3 states performed similarly well in June:

  • California: -22% on an annual basis
  • Arizona: -7% on an annual basis
  • Michigan: -25% on an annual basis

The decrease in foreclosure filings comes at a time when buyer demand is highest. According to the National Association of REALTORS®, “distressed properties” account for more than 30 percent of all home resales and no wonder — homes in various stages of foreclosure or sold by short sale are selling with discounts of 20 percent versus comparable non-distressed homes.

For buyers in search of foreclosures , talk with a licensed real estate.  Buying homes in foreclosure follows a different process path as compared to buying a “traditional” home.  Make sure you seek the help of a professional.

Lake Geneva Real Estate Mortgage FOMC Minutes June 2011The Federal Reserve released its June 2011 Federal Open Market Committee meeting minutes Tuesday.  It contained no surprises and, as such, mortgage rates in Lake Geneva, Wisconsin have idled in the hours since.

The Fed Minutes is published 8 times annually, 3 weeks after each scheduled Federal Open Market Committee meeting.  It’s the official record of the meeting’s discussions and opinions.

The Fed Minutes is the more in depth companion piece to the FOMC’s more well-known, post-meeting press release.  As compared to the brief-and-focused press release, by contrast, the Fed Minutes are long and detailed.

June’s press release was 458 words long.  Its minutes totaled 6,889 words.

The June minutes reveal some intriguing perspectives from within the Federal Reserve, too.

  • On growth: Economic recovery had been slower than the committee expected
  • On housing: The market remains depressed. Foreclosures are “holding back” construction.
  • On rates: The Fed Funds Rate should remain low for an “extended” period

In addition, the Federal Reserve discussed whether a new round of economic stimulus was necessary.  Committee members agreed that a poor outlook for employment in the medium-term would make this move more likely.

There was little that surprised Wall Street in the June Fed Minutes.  This is why market reaction has been muted since its release.

The FOMC meets next August 9.  If jobs data continues to weaken between now and then, expect the stimulus chatter to continue.  It’s unclear, however, how this would impact Lake Geneva mortgage rates.

For now, mortgage rates remain near their all-time lows, and they have much more room to rise than to fall.  If you’re shopping for a loan, therefore, the timing is right for a lock.

Lake Geneva Mortgage - Truth-In-Lending snapshot

More commonly called APR, Annual Percentage Rate is a government-mandated mortgage comparison tool.  It measures the total cost of borrowing over the life of a loan into dollars-and-cents.

A loan’s APR is printed in the top-left corner of the Federal Truth-In-Lending Disclosure, as shown above.  When quoting an interest rate, loan officers are required by law to disclose a loan’s APR, too.

APR is meant to simplify the process of choosing between two or more loans.  The theory is that the loan with the lowest APR is the “best deal” for the applicant because the loan’s long-term costs are lowest.  However, the loan with the lowest APR isn’t always best.

APR makes assumptions in its formula that can render it moot.

First, APR assumes you’ll pay your mortgage off at term, at never sooner.  So, if your loan is a 15-year fixed rate, its APR is based on a full 15 year term.  If you sell or refinance prior to Year 15, the math used to make your loan’s APR becomes instantly flawed and “wrong”.

Example: Let’s compare two identical loans in Lake Geneva, Wisconsin — one with discount points and a lower interest rate; and one without discount points and a higher mortgage rate.  The loan with discount points will have a lower APR in most cases.  However, if the homeowner sells or refinances within the first few years, the loan with the higher APR would have been the better option, in hindsight.

Second, APR can be “doctored” early in the loan process.

Because the APR formula accounts for third-party costs in a mortgage transaction, and third-party costs aren’t always known at the start of a loan, a bank can inadvertently understate them.  This would make the APR appear lower than what it really is, and may mislead a consumer.

And, lastly, APR is particurly unhelpful for adjustable-rate loans.  Because the APR calculation makes assumptions about how a loan will adjust during its 30-year term, if two lenders use a different set of assumptions, their APRs will differ — even if the loans are identical in every other way.  The lender whose adjustments are most aggressively-low will present the lowest APR.

Summarized, APR is not the metric for comparing mortgages — it’s a metric. For relevant comparison points, talk to your loan officer.

Lake Geneva Mortgage - Net New Jobs 2009-2011Mortgage markets improved in roller coaster-like trading last week. And, not surprisingly, the week’s two big stories were the same two stories roiling mortgage markets since March — Greece and Jobs.

In both instances, rate shoppers won. Conforming mortgage rates in Wisconsin improved for the first time in 3 weeks last week.

Early in the week, mortgage rates fell as doubts resurfaced on the just-completed Greece aid package. Although an agreement had been reached by the Greek Parliament, investors are wondering if it’s a bona fide solution, or delaying an inevitable default.

Talk like this triggers a flight-to-quality, and last week, it led mortgage rates lower.

Then, mid-week, a strong preview of the Friday jobs report led to a reversal. Mortgage markets sold off sharply with the prospect of a blow-out Non-Farm Payrolls number. Analysts upped their estimates 50% — from 80,000 net new jobs created in June to 120,000 — and mortgage rates spiked in anticipation.

The rate rise was short-lived, however, because when the actual jobs report was released, it showed just 14,000 jobs added in June. Mortgage markets reversed and mortgage rates sunk to their best levels in 2 weeks.

This week, Greece should remain in the headlines, but there’s other rate-changing news, too:

  • Tuesday : FOMC Minutes
  • Wednesday : 10-Year Treasury Auction
  • Thursday : PPI; 30-Year Treasury Auction; Jobless Claims
  • Friday : CPI; Consumer Sentiment

If you’re still floating a mortgage rate, today marks a good week to lock. Mortgage rates could fall this week and next, but there’s more room for rates to rise than to fall. 

Lock up today’s low rates while they’re still available.

Lake Geneva Mortgage - Predictions are risky businessThe year is half-over.  It’s an opportune time to take stock of analyst predictions made at the start of the year, and to recognize that the “experts” can be wrong as often as they are right.

For as much experience and authority an expert brings to the conversation, though, nobody can accurately predict the future.

As such, there’s often disagreement.

Looking back to December, some housing analysts called for a market rebound this year; while others called for a fall.  With respect to mortgages, some said rates had nowhere to go but up; while others expected more dips.

As a layperson, how do you know who will be right?

In short, you can’t.

Predictions are a tricky business because they’re guesses about the future based on the world as it exists today.  When the predictions listed earlier were made, the world was a different place.   

A lot has changed since January:

  • Slowing job growth has suggested to slower U.S. economic growth
  • Food and energy costs have spiked, adding inflationary pressures to the economy
  • Eurozone debt issues have grown, punctuated by a near-Greek default
  • Tsunamis have caused widespread damage in Japan
  • Earthquakes, floods and volcanoes have harmed economic output

None of these events had occurred as of December, when the original predictions were made.  Yet, each of these developments has made a deep impact on housing, and on the economy.  

So, what’s a Lake Geneva mortgage homeowner to do?  Think of the present instead.

First, mortgage rates are low today — extremely low by historical standards.  Second, home values have been slow to rebound through most U.S. markets.  Combined, these factors have made homes more affordable than it any time in recorded history.  It’s not only cheap to buy a home right now, it’s cheap to refinance one, too.

Analysts are saying the home prices will rise this year, and Lake Geneva mortgage rates will, too.  Those predictions may ultimately be proven true. Until the future arrives, though, those predictions are just guesses.

Lake Geneva Mortgage - U.S. job growth since 2000

Friday morning, at 8:30 AM ET, the Bureau of Labor Statistics releases its June Non-Farm Payrolls report.  If you’re currently shopping for a Lake Geneva mortgage, or floating a mortgage rate, be prepared.  Mortgage rates can change following the monthly report’s release.

Often, by a lot.

More commonly called “the jobs report“, Non-Farm Payrolls reports on the U.S. workforce by sector, summarizing its findings in terms of total workforce size, and as a national Unemployment Rate.  Jobs are considered a keystone in the continuing U.S. economic recovery. 

More working Americans means:

  1. More consumer spending, a boost to businesses
  2. More tax collection, a boost to governments
  3. More personal savings, a boost to households

For June, analysts expect the government to report 80,000 net new jobs created, and no change in the 9.1% Unemployment Rate.

Although these figures are slightly below than what can be considered “strong growth,” that’s not what should concern Lake Geneva mortgage rate shoppers.   Mortgage markets react to a deviation from estimates more than to the actual results themselves.

This is because Wall Street placed bets in advance of the jobs report’s release.  If jobs growth tallies more than 80,000, therefore, it signals better news for the economy than what was expected.  This will push banks and investors towards equities, and away from bonds — including the mortgage-backed kind.

With less demand for mortgage bonds, mortgage rates will rise.

Conversely, if jobs growth is less than 80,000, mortgage rates should fall.

Mortgage rates remain near their lows for the year, but if the June Non-Farm Payrolls report beats estimates of 80,000 jobs made in June, look for mortgage rates to spike.  The safe move is to lock today.

As home buyers in the Lake Geneva real estate area, we tend to research homes a lot.  We look at square footage; at upgrades; at landscaping; at community statistics; and, at every other “number” on which we can get our hands.

But those are just statistics. What about the home’s “feel?” 

In this 5-minute piece from NBC’s The Today Show, you’ll learn a dozen complementary home-shopping techniques to help you review and evaluate a home for purchase.  Each is focused on findings you won’t see listed on a website.

For example, instead of scheduling your second showing for the same time of day as your first one, revisit a home during an “opposite” time.  If you originally saw the home in daylight, go see it at nighttime.  If you first saw a home on the weekend, go see it during the work week.

By seeing a home in two distinct settings, you can get a better feel for what the home and neighborhood are really like.

Some of the other tips from the video include:

  1. Visit during Rush Hour and on a Saturday night.  This will help you gauge sound levels of the street.
  2. Go to Google Maps and study the aerial shot of the home.  What’s nearby?
  3. Talk to neighbors.  They’ll share everything about the neighborhood with you — good and bad.

When you buy a Lake Geneva home, you committing to more than just the property. Y ou’re committing to the neighborhood, too.  Armed with the methods described in this video, you’ll be better prepared to make a good decision.

Lake Geneva Mortgage - Jobs will be in focus this weekLake Geneva mortgage markets worsened last week as Wall Street’s renewed optimism pushed equities to their best one-week gain in 2 years.  The change in  sentiment was bad news for rate shoppers, however, as investors pored into stocks at the expense of bonds.

Last week, for the first time since February, mortgage rates rose 5 days in a row.  By the time bond markets closed for the 3-day weekend, conforming fixed mortgage rates in Lake Geneva, Wisconsin had climbed to their worst levels since mid-May.

Mortgage rates are now at 7-week highs.

The biggest reason for last week’s mortgage rate turnaround is that lawmakers in Greece approved a national austerity plan.  Reaching an accord on spending cuts and tax increases was a necessary step for the nation-state to avoid defaulting on its debt and falling into bankruptcy.

Until last week, it wasn’t clear whether the Greek Parliament would reach this agreement, and this fear is why mortgage rates were down through May and June.  Fallout from a default would have created global economic uncertainty and uncertainty tends to be good for Lake Geneva mortgage rates.

With agreement reached, though, that uncertainty is minimized.  Mortgage rates are reversing. 

This week, the big news will be June’s Non-Farm Payroll report, set for release Friday morning.  If jobs growth is stronger-than-expected, stock markets should continue to post gains and mortgage rates should continue to rise.

The jobs report is a market-mover.  If you’re floating a mortgage rate and wondering whether to lock, it may be prudent to lock ahead of Friday’s release.

Lake Geneva Mortgage - 30-year fixed vs 5-year ARM

The interest rate differential between fixed-rate and adjustable-rate mortgages continues to widen and has now reached historic levels.

There’s never been a better time to lock an ARM.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, homeowners of Lake Geneva real estate who lock their mortgage rate today will save 129 basis points on rate, on average, by choosing a 5-year ARM as their mortgage product as compared to a 30-year fixed rate loan.

The average 30-year fixed rate is 4.51%.  The average 5-year ARM rate is 3.22%.

It’s the biggest interest rate spread between fixed-rate and adjustable-rate mortgage rates in Freddie Mac’s recorded history; a gap which is the result, in part, of the 5-year ARM dropping to all-time lows this week.

Rates for the 5-year ARM are even lower than during last year’s historic Refi Boom.

Putting today’s “spread” in action against a hypothetical $250,000 loan size, a homeowner that chooses an ARM over a fixed-rate loan would save $184.30 monthly, and would have $500 fewer closing costs.

That’s a 5-year savings of $11,558 — nearly triple what you would have saved just 2 years ago.

The main reason why today’s adjustable-rate mortgages are priced so aggressively relative to comparable fixed-rate loans is that Wall Street expects the economy to drag for the next several quarters, after which it expects an acceleration. 

ARMs tend to reflect short-term expectations for the U.S. economy which is why short-term mortgage rates are dropping.   Fixed products, by contrast, take a longer view and expectations for an economic rebound are pulling fixed-rate mortgage rates up.

For now, Lake Geneva mortgage applicants can exploit the difference — especially those who plan to move within the next 5 years — but adjustable-rate mortgages aren’t right for everyone.  ARMs carry particular risks about which you should be aware before locking.

Before you choose an ARM, therefore, talk it through with your loan officer.