Existing Home Sales Dip Due to Low Inventory
Existing home sales dipped in March once again due to low inventory, according to the National Association of Realtors most recent report. Total existing home sales, which represents completed transactions, decreased 0.6% to a seasonally adjusted annual rate of 4.92 million. This amount is still 10.3% higher than March 2012. With less existing homes on the market, home prices have continued to rise for the past 13 months making it tougher to find the low priced homes that were flooding the market several years ago.
In a separate report by the Census Bureau, Housing Starts for March surged 7% to an annual rate of 1,035,000 unit which was well above expectations and a gain of approximately 47% above March 2012. This gain was primarily in multi-family starts which rose 7% and was at the fastest pace in 5 years.
According to the most recent survey of wholesale and direct lenders performed by FreeRateUpdate.com, current 30 year fixed mortgage rates are as low as 3.125%, 15 year fixed mortgage interest rates are as low as 2.375% and 5/1 adjustable mortgage rates are as low as 2.250%. When looking for low rates, lenders require that borrowers have good credit in order to be considered. According to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending April 12th, total mortgage applications rose 4.8% on a seasonally adjusted basis. The seasonally adjusted Purchase Index rose 4% and is at the highest level since May 2010.
The Conventional Purchase Index rose 3% and is at the highest level since October 2009. Conventional mortgage applications for home purchases are seeing a surge of activity most likely due to the increase in the annual mortgage insurance premium for FHA loans. Mortgage application activity for refinances increased 5% and is at the highest level since the middle of January 2013. Refinances have been fairly consistent and remained at 75% of total applications. The HARP refinance program, which is for conventional mortgages that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009, will continue to be available until the end of 2015. It is expected that refinance activity will remain strong through the year, especially as underwater borrowers continues to seek HARP loans which will help them grow equity back into the homes at a faster pace.
Current FHA 30 year fixed mortgage interest rates are as low as 3.000%, FHA 15 year fixed rates are as low as 2.625% and FHA 5/1 adjustable mortgage rates are as low as 2.250%. FHA mortgages require that borrowers have a credit score of 620 and maximum debt to income of 43% in order to receive loan approval through automated underwriting. Although the minimum credit score acceptable for an FHA loan is 500, borrowers in that range will have to prove their creditworthiness through strong compensating factors which must meet underwriter approval.
Most lenders require credit scores at 620 and above. While the annual mortgage insurance premium for an FHA loan has increased, the upfront mortgage insurance remains the same. FHA closing costs (APR) are high because of the upfront mortgage insurance premium and other FHA fees, but borrowers often use seller concessions up to 6% to cover some of these expenses. The no cash out FHA streamline refinance with reduced upfront and annual mortgage insurance fees is still available until the end of 2013. This special program is for loans that were endorsed prior to June 1, 2009. Borrowers will find that the FHA streamline loan does not require an appraisal or other documentation provided that mortgage payments have been made on time.
Current jumbo 30 year fixed interest rates are as low as 3.250%, jumbo 15 year fixed mortgage rates are now as low as 2.250% and jumbo 5/1 adjustable mortgage rates are as low as 2.400%. Excellent credit is necessary in order to receive low jumbo rates offered by lenders. Since these loans are often held by the lender, guidelines can be strict. Full documentation is necessary and will be verified. Substantial assets must be documented in order to show the ability to cover the larger down payment requirements and additional months of reserves needed for approval. Jumbo loan rates will vary from lender to lender, as do guidelines. Shopping around is required in order to find the jumbo mortgage terms that will be a benefit for the borrower.
MBS (mortgage backed securities) move according to the market and also have an affect on mortgage rates. Mortgage rates move in the opposite direction of MBS prices. CPI for March dropped 0.2%, but was still 1.5% higher than a year ago. The Fed's Beige Book showed moderate growth for the U.S. economy through early April. Jobless claims for the week ending April 13th increased to 352,000 and was close to expectations. Investors also reacted to growth concerns about China over the past week.
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