What Mortgage Rates Will Do Next Year

What Mortgage Rates Will Do Next Year,
(from people who usually get it wrong)

Bajak and Associates

Looking back at the events that have derailed mortgage rates’ return to ‘normalcy’ over the past few years is unsettling

Rates for home loans have spent the past decade or so doing anything but what’s expected of them. Every year, it seems, the general consensus is that in the coming months, financial conditions will finally get back to “normal,” taking mortgage rates with them. And every year something has brought that “normalization” to a screeching halt.

In 2015, for example, shock-and-awe bond-buying by the European Central Bank helped push bond yields into negative territory in Europe and behind. In early 2016, markets were rocked so badly by concerns about earnings that there were fears of another recession – and then rocked again by the upset Brexit vote.

2017, which started off with concerns about surging bond yields under a pro-growth, anti-tax president, instead saw many months of a “Trump slump” when tax reform took a while to materialize.

Mortgage rates in 2018 may be the closest thing to “normal” we’ve seen in a long time. With two more weeks in the year as of this publication, we’re likely to see a full-year average of 4.54% for the 30-year fixed-rate mortgage. That will be the highest since 2010.

And for 2019? Given all the variables in both financial markets and housing, forecasting mortgage rates is for the “intrepid,” in the words of Mark Zandi, chief economist for Moody’s Analytics, and a long-time housing watcher. And those are just the known unknowns. Who can guess the curve balls lying in wait in financial markets, earnings, economic data, housing markets, and beyond?

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By Andrea Riquier, MarketWatch

Mortgage Rates Lowest in a Month!

Mortgage Rates Lowest in a Month!

Bajak and Associates

Lowest Mortgage Rates in a Month! Nov. 16, 2018

Mortgage rates hit their lowest levels of THE month yesterday, and the lowest levels in A month today.  It's a bit of a technicality, really.  As of yesterday, there were a few days in mid-to-late October that saw lower rates.  Today's drop means we'd need to go back to early October to see anything lower. 

What's the significance of being at the lowest levels in a month?  None, really.  It's just really fun to be able to say such things in an environment where such things haven't been easily said for quite some time!  Perhaps more relevant and more tangible is the fact that we can say rates are nearly an eighth of a percentage point lower on the week, and that's a decent move regardless of the environment.

Next week brings the Thanksgiving holiday, which tends to make mortgage lenders set rates more conservatively (secondary mortgage market is much less active than normal, starting on Wednesday afternoon).  As such, gains of this size are certainly worth considering from a lock/float standpoint.  In terms of tactical improvements amidst the broader trend toward higher rates, this is about as good as we've seen.


Loan Originator Perspective

Bonds enjoyed a green week, posting gains (minimal or not) all 5 days.  Treasury yields are nearing early October lows, but the improvements aren't fully reflected on my rate sheets yet.  I'll float new applications till Monday, for clients with a modicum of risk tolerance.  -Ted Rood, Senior Originator


Ongoing Lock/Float Considerations 

Rates continue coping with several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).

While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years. 

Upward pressure can continue as long as economic growth and inflation continue running near long-term highs.  Stay defensive (i.e. generally more lock-biased).  It will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  Such things tend to not happen as quickly as we'd like.

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Source: Matthew Graham, Mortgage News Daily

Mortgage Rates Rise Sharply

Mortgage Rates Rise Sharply to 7-Year Highs

Bajak and Associates

Freddie Mac Projected 30 Year Fixed Rate Back in Feb. 2018

Mortgage rates had a bad week and an especially bad day following a much stronger-than-expected jobs report.  The Employment Situation (the most important piece of labor market data and arguably the most important economic report as far as interest rates are concerned) showed the highest pace of wage growth since before the recession and a surprisingly robust addition of new jobs in October. Strong jobs data is the nemesis of low interest rates and today was no exception.

Mortgage rates were already operating fairly close to long-term highs, but today's move easily took them to new highs.  The average lender is now quoting conventional 30-year fixed rates of 5% for relatively ideal scenarios.  Those without a big down payment or without perfect credit/income can expect to see even higher rates.  Most lenders ended up recalling the morning's initial rate sheets and reissuing higher rates at least once today. 

There's really no silver lining apart from the fact that the higher rates go, and the quicker they get there, the closer we get to the point that the economy slows down as a result.  When that happens, rates will begin to fall before just about anything else.  Unfortunately, the expected time frame for such things is incredibly wide (not the sort of thing you hope for if you need to buy/refi).  And yes... it's also unfortunate that our one source of solace at the moment involves an economic downturn, but if you want low interest rates, that tends to come with the territory.

Loan Originator Perspective

October's NFP jobs report beat market expectations today, and bonds sold off as a result. Treasury yields are near early October's multi-year high, and MBS are following their lead. There's little/no motivation for rates to drop, and plenty for them to rise.  Lock early, ideally as soon as you have the opportunity. -Ted Rood, Senior Originator

Vast majority of clients continue to favor locking in once within 30 days of funding.  I do not believe floaters have enough to gain to justify the risk as higher rates continue to be the trend. -Victor Burek, Churchill Mortgage

Lock/Float Considerations 

Rates continue coping with several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).

While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years. 


Upward pressure can continue as long as economic growth and inflation continue running near long-term highs.  Stay defensive (i.e. generally more lock-biased).  It will take a big change in economic fundamentals or geopolitical risk for the big picture to change. Such things tend to not happen as quickly as we'd like.

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Source: Matthew Graham, Mortgage News Daily

FICO Scores Hit Record High

FICO Scores Hit Record High

Bajak and Associates

Lesson learned?  Whether they saw their credit decimated by the housing crisis and the Great Recession or merely watched loan standards tightened beyond their ability to qualify, Americans seem to have taken to heart the importance of their credit scores.  The result, FICO says, is that consumer credit scores have reached a new high, an average of 704 points.

How Credit History Impacts Your Credit

Kenneth Harney, in an article for the Washington Post's Writers' Group, quotes FICO Vice President of Scores and Analytics Ethan Dornhelm that Americans are "making more judicious use of credit." This means higher scores on the FICO model that weights them not only in terms of on-time payments but on the length of the credit history, the amount and type of credit a consumer has available, and how much of that available credit is being used.

The 704 point average score, on scale that runs from 300 to 850, is a substantial improvement from the average of 686 in 2009.  Harney points out that a lot of the improvement, 5 points, has been added in the last two years, one of the fastest two-year runups in FICO history.

A score of 704 is considered good, meaning a consumer is a fairly safe bet for performing on a loan as agreed, and usually gets that borrower a fairly good interest rates and other terms.  The best deals are usually reserved for those with scores of 750 or better. However, while FICO scores for most categories of borrowers are rising, Harney points out that the averages for people taking out mortgages are sliding, down from 745 in the years after the crash to about 733.  This, of course, is not a reflection on borrowers but rather an indication that mortgage lenders are relaxing their standards, accepting slightly lower scores in their underwriting.

There are variations in average scores by age. Persons 18 to 29, a range that includes some Millennials and most adults of Generation Z, have an average score of 659.  They will typically have not only credit histories but thinner credit files, many any negative report will weigh more heavily on the score. The average score for people ages 40 to 49 is 690, and for those 60 and older, it's 747.

There are a lot of factors that help account for the overall higher scores.  First, fewer people have truly awful ones.   Those with scores under 500 now constitute 4.2 percent of the total, down from 7.3 percent in 2009 and the share with scores from 500 to 549 has dropped from 8.7 percent to 6.8 percent.

On the other end of the spectrum, 22 percent of those with a FICO number are considered "super-scorers," with a score over 800.  Forty-two percent have scores between 750 and 850.

Some help may have come from a change in reporting by the three major credit bureaus that we noted a few weeks ago. So-called collection reports, defaulted accounts that are sold to a third-party, have been handled differently since the first of this year.  They must be associated with a contract or agreement to pay and marked as paid when they are.  Medical accounts have to be at least 180 days past due before being reported and all collection accounts must have sufficient information to link them to that consumer.  The number of credit files with collection accounts were reported by the Federal Reserve as dropping from 12 percent last year to 9 percent at present.

Dornhelm says that lessons from the housing crisis are clearly affecting scores and consumer behavior.  He thinks more Americans have access to and better understand their credit scores and how to manage them, including managing the amount of their debt.


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Source: Jann Swanson, Mortgage News Daily

Fannie and Freddie End Funding of Single-Family Rentals

Fannie and Freddie End Funding of Single-Family Rentals

Bajak and Associates

The Federal Housing Finance Agency (FHFA) has pulled the plug on pilot programs run by both Fannie Mae and Freddie Mac (the GSEs) to finance institutional investment in single-family home rentals.  The programs began in February 2017 with a $1 billion loan from Fannie Mae to the Blackstone Group. The loan was originated by Wells Fargo with a Fannie Mae guarantee and secured by some of the 48,000 single-family homes Blackstone's Invitation Homes subsidiary had purchased during the recession, often from portfolios of lender-owned real estate, and turned into rentals.

At the time, the Urban Institute wrote that the transaction "marks the first time a government-sponsored enterprise has facilitated financing for a large institutional operator of single-family rental properties," and Fannie Mae pronounced the transaction the first in a pilot program.

In ending the program FHFA said, "In the last two years, both Enterprises have participated in the single-family rental market on a larger scale than previously through pilots designed to 'test and learn' more about the market and best practices.  In June 2017 FHFA convened a Single-Family Rental Workshop to solicit feedback, identify market challenges and opportunities, and gain perspective on the overall market.  It also conducted an impact analysis and reached out to a wide array of industry stakeholders.    

When the pilot began it provoked immediate blowback, especially from the National Association of Realtors® (NAR).  NAR's president at the time, William E. Brown, wrote a letter to FHFA director Mel Watt which said in part, "Rather than focusing on allowing well-qualified Americans to build wealth through affordable mortgage options, Fannie Mae is actively financing large institutions to compete with them. These investors do not expand the affordable housing stock. Rather, in this limited market they drive up the price of rents and remove affordable inventory from the hands of American homeowners."

The National Community Stabilization Trust (NCST) also denounced the program saying it would lower borrowing costs to the institutions, allowing them to buy up more housing stock. NCST president Robert Grossinger said, "I am perplexed to see Fannie Mae place a taxpayer guarantee behind the same private interests whose risky practices led to the millions of foreclosed homes they are now buying up. These investors so far have had no trouble financing the purchase of tens of thousands of homes without government support."

With this week's announcement FHFA appears to agree with Grossinger.  Watt said, "What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises."

This will mark the end, FHFA said of the GSE's participation in the single-family rental market except through their previously existing investor programs. The GSEs are not precluded however from proposing changes to their existing programs to meet the needs of the single-family rental market. They are also free to develop proposals calculated to utilize single-family rentals as a pathway to homeownership.

Not surprisingly NAR applauded FHFA's decision. NAR president, Elizabeth Mendenhall, issued a statement that said in part, "With inventory shortages facing housing markets across the country, the National Association of Realtors® has long advocated for the Federal Housing Finance Agency to end its expansion into the single-family rental market and return its focus to promoting a liquid and efficient housing market, as Congress intended. By financing the purchase of thousands of single-family homes for institutional investors to use as rentals, Fannie Mae and Freddie Mac compounded on inventory shortages and affordability concerns, which are holding back prospective homebuyers across the country.

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Article Source: Jann Swanson, Mortgage News Daily

Garage Conversion Restrictions Eased In California

Garage Conversion Restrictions Eased In California!

Bajak and Associates

Real Estate Garage Conversion

Amid a profound housing shortage that’s driving up rents and property values statewide, California officials and real estate experts are looking to an often overlooked form of housing as a potential solution: the in-law unit.

Thousands of Angelenos already live in back houses and granny flats (officially called “accessory dwelling units”). This year has seen a substantial increase in these garage conversion units, due to California’s new Senate Bill 1069.  The bill, enacted in 2017, was designed to increase housing supply by easing restrictions on garage conversion units.  The bill also presents an opportunity for homeowners to increase their home value by adding liveable space to their home without dealing with the previously stringent permitting process.

Prior to the enactment of SB 1069, a garage conversion, particularly in Los Angeles, was time consuming and expensive.  Among other things, in order to convert a garage to living space, many cities required the addition of replacement parking spaces, large pathways from the garage conversion to the street, a sprinkler system for the new unit, and fees and charges to connect local water and sewer systems even for existing structures.  In fact, the permitting system in Los Angeles prior to SB 1069 was so complex that in 2016, the Los Angeles Superior Court had put a hold on garage conversion permits due to a conflict between state law and local rules.

SB 1069 encourages garage conversion units by eliminating many of these requirements and simplifying the permitting process.  Now, so long as a property is within 1.5 miles of a public transit system, a permit can more easily be obtained for a garage conversion of up to 1,200 square feet that starts within 5 feet of the property line.  This streamlined procedure has significantly increased the popularity of garage conversions, and has provided a new avenue for homeowners to add an easy source of rental income and low-cost housing opportunity for renters. These small residences could help solve California’s housing shortage, and is certainly a step in the right direction.

If you would like to explore how we can help you and your family finance your garage conversion project in the Los Angeles real estate market, give us a call today at 1-800-217-1152 for a FREE consultation or send us an email at BajakTeam@Gmail.com

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5 Mortifying Reasons Mortgage Applications End Up in the 'Reject' Pile

5 Mortifying Reasons Mortgage Applications 

End Up in the 'Reject' Pile

Bajak and Associates

Picture this nightmare: You apply for a mortgage, but your application gets rejected. Suddenly, you’re hit with an overwhelming wave of embarrassment, shock, and horror. It’s like having your credit card denied at the Shoprite. So. Much. Shame.

Sadly, this is a reality for some home buyers. According to a recent Federal Reserve study, one out of every eight home loan applications (12%) ends in a rejection.

There are a number of reasons mortgage applications get denied‚ and the saddest part is that many could have been avoided quite easily, had only the applicants known certain things were no-nos. So, before you're the next home buyer who gets burned by sheer ignorance, scan this list, and make sure you aren't making any of these five grave mistakes, which could land your mortgage application in the "no" pile.

1. You didn't use credit cards enough

Some people think credit card debt is the kiss of death ... but guess what? It's also a way to establish a credit history that shows you've got a solid track record paying off past debts.

While a poor credit history riddled with late payments can certainly call your application into question, it's just as bad, and perhaps worse, to have little or no credit history at all. Most lenders are reluctant to fork over money to individuals without substantial credit history. It's as if you're a ghost: Who's to say you won't disappear?

According to a recent report by the Consumer Financial Protection Bureau, roughly 45 million Americans are characterized as "credit invisible”—which means they don't have a credit report on file with the three major credit bureaus (Equifax, Experian, and TransUnion).

There’s a silver lining, though, for those who don’t have credit established. Some lenders will use alternative data, such as rent payments, cellphone bills, and school tuition, to assess your credit worthiness, says Staci Titsworth, a regional manager at PNC Mortgage in Pittsburgh.

2. You opened new credit cards recently

That Macy’s credit card you signed up for last month? Bad idea. New credit card applications can ding your credit score by up to five points, says Beverly Harzog, a consumer credit expert and author of “The Debt Escape Plan.”

That hit might seem minuscule, but if you’re on the cusp of qualifying for a mortgage, your new credit card could cause your loan application to be denied by a lender. So, the lesson is simple: Don’t open new credit cards right before you apply for a mortgage—and, even if your lender says things look good, don't open any new cards or spend oodles of money (on, say, furniture) until after you've moved in. After all, lenders can yank your loan up until the last minute if they suspect anything fishy, and hey, better safe than sorry.

3. You missed a medical bill

Credit cards aren't the only debt that count with a mortgage application—unpaid medical bills matter, too. When you default on medical bills, your doctor’s office or hospital is likely to outsource it to a debt collection agency, says independent credit expert John Ulzheimer. The debt collector may then decide to notify the credit bureaus that you’re overdue on your medical payments, which would place a black mark on your credit report. That’s a red flag to mortgage lenders.

If you can pay off your medical debt in full, do it. Can’t foot the bill? Many doctors and hospitals will work with you to create a payment plan, says Gerri Detweiler, head of market education at Nav.com, which helps small-business owners manage their credit. Showing a mortgage lender that you’re working to repay the debt could strengthen your application.

4. You changed jobs

So you changed jobs recently—so what? Problem is, mortgage lenders like to see at least two years of consistent income history when approving a loan. As a result, changing jobs shortly before you apply for a mortgage can hurt your application.

Of course, you don’t always have control over your employment. For instance, if you were recently laid off by your employer, finding a new job would certainly be more important than buying a house. But if you’re gainfully employed and just considering changing jobs, you’ll want to wait until after you close on a house so that your mortgage gets approved.

5. You lied on your loan application

This one seems painfully obvious, but let's face it—while it may be tempting to think that lenders don't know everything about you financially, they really do their homework well! So no matter what, be honest with your lender—or there could be serious repercussions. Exaggerating or lying about your income on a mortgage application, or including any other other untruths, can be a federal offense. It’s called mortgage fraud, and it’s not something you want on your record.

Bottom line? With mortgages, honesty really is the best policy.


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Image Source: Peter Dazeley/Getty Images

Article Source: Daniel Bortz, Realtor.com

Fannie Sees Growth Slowing, Turns Bearish on Housing

Fannie Sees Growth Slowing, Turns Bearish on Housing

Bajak and Associates

Fannie Mae's economists have upgraded their second quarter economic forecast but say that may be about it for the year. In their July forecast, the company's Economic & Strategic Research (ESR) Group, headed by Doug Duncan, noted that the expansion just celebrated its ninth anniversary "with a bang."  Economic growth in the second quarter may have approached the high in that expansion that occurred almost three years ago.

The outlook for housing has turned bearish. Single-family construction starts were up in May for the fourth time in five months but still lagged the post-crash high of last November.  (Fannie Mae's economists prepared this report before the June data was released wherein housing starts plummeted by more than 12 percent.)  Multifamily starts rebounded in May, reversing about half of the prior month's drop but permits dropped for both single and multifamily construction.

Home sales were mixed.  New home sales rose in May, but the increase was driven by sales in the South which were at a decade long high.  Homebuyers are increasingly buying homes still in the planning stage, which suggests that building activity has not kept pace with demand.  Builders continued to face challenges from shortages of labor and rising building material costs.

Existing home sales fell for the second month and were lower year-over-year for the fourth time in five months.  The inventory of available homes has been down year-over-year for three years, impeding sales and driving price increases.  Typical marketing time is now 26 days, the shortest since the National Association of Realtors started tracking the number in 2011.  Pending home sales, a forward-looking indicator of existing home sales, also dropped for the second month in a row.

Even though interest rates stopped rising and even dipped a bit in May, purchase mortgage application activity was flat and refinance applications continued their decline, falling for the fifth straight month and the eighth time in nine months.  May volume was the lowest since December 2000.

The overall bearish activity in housing prompted Fannie Mae to lower its forecast for existing home sales from a slight increase over 2017 to a slight drop and downgrade purchase mortgage originations by $20 billion. They left their forecast for refinancing unchanged at a 26 percent decrease from last year, with an 8 point drop in the refinancing share to 28 percent.  Mortgage originations in 2018 are forecast to total $1.69 trillion, an 8 percent decline.

As to the overall economy, the ESR group estimate that GDP growth shot up to 4.2 percent during the second quarter from 2.0 percent in the first.  This was due to spending by consumers and the government, inventory investment and more favorable trade. Residential investment, which was a drag on growth in the first quarter appears to have made a modest contribution in the second.

Enjoy it while it lasts.  The economists say this growth will not be sustainable and that the GDP will finish out 2018 with 2.8 percent growth, one tenth-point higher than they predicted last month.  It will then slow to 2.2 percent in 2019 as fiscal impacts fade.

Trade will be a factor in the slowdown.  Canada has already implemented tariffs on $12.5 billion in U.S. goods and there is a back and forth with China involving tariffs on $34 billion in goods on each side.  The U.S. has proposed a 10 percent tariff on a list of another $200 billion in Chinese imports. The impact of these actions so far, Fannie Mae's economists say, have been small but potential retaliation from China "could be devastating for some local economies."

Even though wages remained flat - up another 0.2 percent - in the June employment report, inflation did increase.  The Fed's preferred indicator, the personal consumption expenditures (PCE) deflator, moved up, also by 0.2 percent, in May for the second straight month.  That brings annual growth to 2.3 percent, above the Fed's target measure of 2.0 percent.  The Fed has indicated it would tolerate inflation overshooting its target and there are also concerns about the flattening yield curve, the spread between  2-year and 10-year yields was at about 30 basis points at the time the forecast was written.  Despite these contra-indications, the ESR group says it expects the Fed to stay on its monetary normalization track and they changed their rate hike call to two increases in the second half of this year, in September and December, compared with the one hike they anticipated in their June forecast.


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Source: Jann Swanson, Mortgage News Daily, July 20, 2018

Mortgage Rates Flat Again, Despite Modest Market Weakness

Mortgage Rates Flat Again, Despite Modest Market Weakness

Bajak and Associates

Mortgage rates were flat again today, further prolonging a trend that's been in place for weeks.  During that time, we've seen modest ups and downs, but no significant changes.  To put the narrowness of the range in context, the "ups and downs" are only seen in the upfront costs associated with any given mortgage rate.  Rates themselves haven't changed for the average loan scenario.

Today's absence of change belies market movement to some extent.  The bonds that underlie mortgage rates weakened enough through the course of the day that mortgage lenders were nearly justified in a mid-day rate sheet adjustment (for the worse).  When this happens (i.e. when bonds weaken, but not quite by enough to prompt mid-day changes), the implication is that tomorrow starts out at a slight disadvantage.  In other words, if bond markets simply hold steady overnight, borrowing costs could edge higher.

Ongoing Lock/Float Considerations

Rates moved higher in a serious way due to several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation.

Despite those headwinds, the upward momentum in rates has cooled off heading into the summer months.  This could merely be the eye of the storm, or it could end up being the moment where markets began to doubt that prevailing trends would continue.

It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly.  Temporary corrections can be explained away, but it will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  While that doesn't necessarily mean rates have to skyrocket, there's a good chance it means rates will struggle to move much lower than early 2018 lows until more convincing motivation shows up.

If you plan to or are actively searching for a new home, this would be a perfect time to get pre-qualified.

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Source: Matthew Graham, Mortgage News Daily, July 18, 2018

Are Lenders Prepared for the Borrower of the Future?

Are Lenders Prepared for the Borrower of the Future?

Bajak and Associates

Uber. Zipcar. Airbnb. New concepts that are now mainstream and indicative of the demographic, financial, technological and cultural forces transforming America and reshaping how people think of themselves, their families and their future. The market is changing and along with it, our home buyers.

To prepare to meet the evolving needs of the next generation of home buyers, we need to understand them. That’s why Freddie Mac is studying the behaviors and attitudes of different demographics and their views of home ownership. They’re also partnering with thought leaders on future trends – such as New York University Professor Arun Sundararajan – to shed light on how emerging trends and socioeconomic shifts, such as digital technologies, affect home ownership.

Their goal is to help lenders better understand the hopes and fears, characteristics and challenges of the Borrower of the Future as they relate to home-ownership and find ways our industry can innovate to address the emerging market realities.

Here are some key trends to consider:

• America is becoming a more diverse nation, and our ideas about family, tradition and independence are becoming more diverse too.
• Optimism about home-ownership is on the rise in minority communities, and as America becomes a “majority-minority” nation, that may change our idea of what “home” means – and who lives there.
• The nature of employment is changing, with more self-employed and contract workers and the digital age allowing work to be done from virtually anywhere.
• In an on-demand world, no one wants to wait. Younger borrowers expect a frictionless, digital-first experience.
• With many coming of age in the Great Recession, the Borrowers of the Future tend to have lower levels of accumulated savings.
• Baby boomers are “aging in place” and millennials are likely to live with their parents.

These are just a few of the trends. For more, including the latest article by Professor Sundararajan's, "How the Sharing Economy Could Transform the US Housing Market," visit www.borrowersofthefuture.com. The article is the first in a series that will examine how the sharing economy and new ways of working are altering the home buying process.

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Source: FreddieMac, July 3, 2018.

A Foolish Take: 2 Ways to Save With 15-Year Mortgages

A Foolish Take: 2 Ways to Save With 15-Year Mortgages

Bajak and Associates

It's not just about getting a lower rate.

Jul 9, 2018

For those looking to buy homes, the most popular way to finance a home purchase is to take out a 30-year mortgage. With mortgage rates having been exceptionally low for years, it's been possible to get extremely attractive monthly payments even on relatively large mortgage loans, and the 30-year term gives homeowners a long time to get their mortgages paid off.

Yet what's somewhat surprising is that relatively few people look at an alternative to the 30-year mortgage. A 15-year mortgage requires larger monthly payments, but their interest rates are almost always significantly lower. For instance, right now, a typical 30-year mortgage has an interest rate that's more than half a percentage point higher than what 15-year mortgages charge.

Half a percentage point doesn't look like a lot. But when you compare the amount of interest you'll pay on a 15-year mortgage at 4% compared to the corresponding amount on a 30-year mortgage at 4.5%, the difference is astounding.

You save twice with a 15-year mortgage. You have a lower rate, but the main reason why you pay so much more interest on a 30-year mortgage is simple: You take twice as long to pay down a 30-year mortgage. For example, on a $200,000 loan, monthly payments on a 30-year mortgage at 4.5% will be around $1,010. A 15-year mortgage at 4% will have monthly payments of about $1,480. The $470-per-month difference pays down the principal balance on the loan that much faster, and over time, that adds up to massive interest savings.


In many real estate markets, prices are too high for many homebuyers to afford a 15-year loan. If you can, however, consider the 15-year option closely. Lower rates and faster payouts will cut the amount of interest that goes to the bank and boost what you keep in your own pocket.

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Source: Dan Caplinger, 7/9/2018, The Motley Fool

US Existing Home Sales Fall for Second Straight Month

US existing home sales fall 

for second straight month

Bajak and Associates

·         Existing home sales fell in May.

·         The number of transactions was expected to increase.

·         This is the second straight month of declines.

U.S. home sales unexpectedly fell in May as an acute shortage of properties on the market pushed house prices to a record high.

The National Association of Realtors said on Wednesday that existing home sales slipped 0.4 percent to a seasonally adjusted annual rate of 5.43 million units last month. It was the second straight monthly decline in sales.

April's sales pace was revised down to 5.45 million units from the previously reported 5.46 million units.

Economists polled by Reuters had forecast existing home sales rising 1.5 percent to a rate of 5.52 million units in May. Sales rose in the Northeast, which accounts for a small fraction of the market. They fell in the West, South and Midwest.

Existing home sales, which make up about 90 percent of U.S. home sales, dropped 3.0 percent on a year-on-year basis in May. They have declined on that basis for three straight months.

Home sales have largely treaded water this year as strong demand depletes the supply of properties on the market, causing house prices to rise faster than wages.

Supply has been especially tight at the lower end of the market, which accounts for a large portion of the housing market. With mortgage rates rising back to seven-year highs, purchasing a home could become even more expensive for first-time buyers. Housing demand is being driven by the lowest unemployment rate in 18 years.

The 30-year fixed mortgage rate rose eight basis points to an average of 4.62 percent last week, according to mortgage finance agency Freddie Mac. Mortgage rates are likely to rise further after the Federal Reserve increased interest rates last week for a second time this year and forecast two more rate hikes before the end of 2018.

There were 1.85 million previously-owned homes on the market in May. While that was up 2.8 percent from April, housing inventory was down 6.1 percent from a year ago. Supply has declined for 36 straight months on a year-on-year basis.

At May's sales pace, it would take 4.1 months to exhaust the current inventory, up from 4.0 months in April. A six-to-seven-month supply is viewed as a healthy balance between supply and demand. The median house price increased 4.9 percent from a year ago to an all-time high of $264,800 in May. That was the 75th consecutive month of year-on-year price gains.

U.S. financial markets were little moved by the data. U.S. Treasury yields rose after Fed Chairman Jerome Powell said the U.S. central bank should continue with a gradual pace of rate increases.

Stocks on Wall Street were trading mostly higher while the dollar was almost flat against a basket of currencies.

US Existing Home Sales

Supply likely to improve

Builders have struggled to plug the inventory gap, citing higher prices for lumber as well shortages of land and labor. The NAR is, however, optimistic the inventory situation will improve later this year.

The Commerce Department reported on Tuesday that housing starts increased 5.0 percent to a rate of 1.350 million units in May. Housing completions increased 1.9 percent to a rate of 1.291 million units last month.

Still, both starts and completions remain below the range of 1.5 million to 1.6 million units that realtors and economists said is needed to ease the supply squeeze.

According to the NAR, sales of homes priced below $100,000 plunged about 18 percent in May from a year ago. Houses for sale typically stayed on the market for 26 days in May, matching April's seven-year low and slightly down from 27 days a year ago. Fifty-eight percent of homes sold in May were on the market for less than a month.

First-time buyers accounted for 31 percent of transactions in May, down from 33 percent in both April and May 2017. Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.

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Source: CNBC Wed. 20 June 2018