Posts Tagged ut

Mortgage rates wild ride

Stocks down. Rates down. What’s going on here?

After a bad day on Wall Street yesterday rates fell dramatically this morning only to have three upward adjustments as the day went on?  Why, a few reasons today:

1. Stocks

2. Bonds

3. Fed Funds Rate

Mortgage rates are based on bonds. When stocks are not attractive, investors move their money to bonds which pay less, but are more secure. This drives mortgage bond yields up and thus rates down. So when Wall Street had it’s worst stocks day since September of 2001 yesterday, bonds got a big boost and rates dropped almost a full point this morning to around 5.5% for a 30-year fixed or an FHA 30-year fixed.  The day began with stocks falling 1.5% and as the day went on and the Fed decided not to cut the Funds Rate again it gave investors confidence in the course of the Fed and the markets and stocks rallied to a 2.5% increase. Hence, stocks got better, bonds got worse and so did mortgage rates.

How much worse? Well still better than they were last week.  A 30-year fixed loan is still pricing around 6.00%, which is better than 6.375% to 6.50% it was last week.  If I had to guess I’d say that rates are going to continue to bounce between 5.75% and 6.375% for the foreseeable future.  The last two days could have just been a momentary blip, an anomaly like we had last February when rates fell dramatically for about half a day.

Why didn’t the Fed cut the Funds Rate?  Because they have injected $120 billion into the banking system in the past two days.  It would seem the Fed wants to make borrowing more accessible rather than simply cheaper.  This is probably a good long term move to stave-off inflation increases because more money will be available to more people which will help fuel the economy rather than simply make a limited amount cheaper to less people.

The upshot though is that it’s still a good time to buy because rates are still low. Sure, maybe not the 4.50% low of a few years back, but those days are not sure to return for quite awhile, if ever.  Rates are still at historical lows, though, and home prices are stabilizing in Salt Lake City and throughout Utah, which will make homes available to more potential buyers.  I have a payment calculator available on my website as well as an affordability calculator.  Fool around on them to figure-out how much home can be afforded as well as what the payments would be.

Also, with rates where they are at now, it might be a good time to look into refinancing an 80/15 or 80/20 loan into a single loan.  A better rate might be in place on a first, but the second is higher and the blended rate of the two is the one you want to beat to save money.  There is also a blended rate calculator on my website to figure-out what the true rate is on a combo 80/10, 80/15 or 80/20 loan.

Call me if you have any questions.  Also, I appreciate and referrals you may provide since my business is almost fully referral-based.

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The future of Utah real estate

Interest rates up. Home prices down. What’s it all mean?

Where is Salt Lake City headed in the real estate market now? What are interest rates for Utah borrowers going to do? Is my house in Sandy losing value?

All good questions and ones I get asked often when someone finds-out I am a mortgage broker. So here’s my predictions for why Salt Lake City in particular, and Utah in general are going to be better-off than the rest of the country when it comes to real estate and mortgages.

  1. Utah is a growing state. Whether that growth is coming from outside the state or from within, we are growing. Utah culture is good for real estate. The underlying idea in Utah is get married, buy a house and start a family. And that family usually consists of four or more children. Utah leads the nation in the number of children per household. All those kids are going to need homes to raise more kids. So unless something drastic happens and Utahns stop having kids at the rate they are, there will always be demand for homes.
  2. People are moving into Utah. Utah is attractive to those fleeing bigger cities. Salt Lake City is not too big, but also not too small. For someone from a large city it’s just right. Also, Utah is a non-union state, so it is very attractive to companies who wish to set-up shop here for cheaper labor than in other parts of the nation. Utah also has a very tech-savvy population, so high tech companies have a huge employment pool here. These companies also bring-in their own employees, thus creating a need for homes, and hiring Utahns allows them to afford homes.
  3. Utah has one of the lowest unemployment rates in the nation. The number one reason for foreclosures is not sub-prime lending. It is not option arms. It is loss of some or all of a family’s income. Check the statistics. The highest foreclosure rates in the U.S. coincide with the highest unemployment rates in the U.S. (California and Nevada being the exception since much of that is “investors” that screwed-up the markets there). Utah has a low unemployment rate and one of the lowest foreclosure rates in the U.S.
  4. While other areas in the U.S. are seeing sometimes double-digit drops in home values, property values in Utah has actually increased 2.5% over the first six months of 2008

All that said though, what is going to effect us is this:

The days of Stated Income loans is not gone, but what is left is highly unattractive to buyers and very demanding of them.

Why does this make a difference? Because a house is worth whatever someone will pay for it. Stated Income loans, in my opinion, were a huge contributor to unrealistically driving-up home values. It artificially created a sellers-market. A seller could list their home for whatever they pleased, and if an interested buyer couldn’t qualify for the home via the full income documentation (Full Doc) route because they just didn’t make enough, they could go Stated Income and not have to show the loan officer or the lender any of their proof of income. Therefore they could now qualify to buy a home they otherwise would not have been approved for. And once that home home sold for an inflated amount, it created a comparative (comp) for someone else in the neighborhood to base the value of their home on, and so on, and so on, and so on.

It’s for this reason most of all that I feel we are going to see a drop in home values in Utah. Not for lack of demand, but for lack of qualified buyers for homes in their current price range. This is why this is:

According to the Utah Association of Realtors, the average price of a single family residence in Salt Lake County in the first quarter of 2008 was $286,321.

According to the Bureau of Labor Statistics the median household income in Salt Lake County in 2007 was $60,589 (remember back to math class, median is the exact middle of a set of numbers). So half of Salt Lake City and County residents have a household income of less than $60,000 a year and half have more. $60,000 a year qualifies a home buyer for a $195,000 loan.

So half of Salt Lake County households won’t qualify for the average home in Salt Lake City or County since they have to prove they have the capacity to pay for that home. Income hasn’t gone down in Utah over the past 10 years, but homes have skyrocketed in price because buyers could stretch the truth a bit about their capacity to repay and get that bigger home they so badly wanted.

Well, those days are over. Under the current loan underwriting guidelines the industry has gone back to the “Three C’s” of lending: Proof of Credit, Capacity to repay and collateral.

Credit. Credit standards have gotten much stricter. Even FHA now has a minimum FICO score requirement, where six months ago they didn’t. Someone with a 560 FICO used to be able to buy a house. Now, the minimum most lenders are underwriting is 620 (although some will still go down to 580 on an FHA, but they are few and far between).

Capacity to repay. Full income documentation rules right now. A borrower has to be able to prove they have the income available to afford the home they are buying. Many self-employed borrowers can’t prove they make as much as they do, and the lending industry defines a self-employed person anyone who derives more than 25% of their income from commissions or bonuses. Stated Income loans were designed to address this borrower’s needs, but the programs were abused terribley by those that could prove their income but wouldn’t because they wouldn’t qualify for the house they wanted.

Collateral. Appraisal fraud was a huge issue in Salt Lake City, Draper, Sandy and Utah overall. Nowdays, appraisals are undergoing “desk reviews” at the lenders and are being heavily scrutinized. Many a deal has been killed because an appraisal would not hold-up to close examination. This is why a good and honest appraiser is worth their weight in gold. An honest value means an honest sale price means a loan that will close and a buyer will be able to move into their new home.

So I feel that the big contributor to home prices declining in Salt Lake City and County, and Utah in general will be for the simple reason that in order to find qualified buyers home sellers will have to discount their home into the realistic price range that the majority of Utahns can qualify for. For this to not happen, lenders are going to have to get creative on ways to qualify the top 50% of Utah earners who are the small businesspeople that write-off most of their income to minimize their income tax burden. There are lots of people in Utah that can honestly afford a $400,000 plus home, they just can’t prove on paper that they can… for now.

So there you have it. The thoughts rolling around my head this week. Take care, and happy house hunting.


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