As we get closer to Labor Day, volume on Wall Street is dwindling as market players get a head start on their long weekend.

Today could be a difficult day to shop for mortgage rates and that can impact home affordabilility.

Expect volatility.

This is because mortgage rates are based on the price of mortgage bonds and, on Wall Street, bonds trade a lot like stocks.

There has to be a buyer and a seller at a specific price to make a deal.

With so many traders on vacation today, though, there are fewer opportunities to match buyers and sellers. This can cause mortgage prices rise or fall faster than on a “normal” day, directly leading to mortgage rate volatility.

Each 0.125% mortgage rate increase is an extra $96 cost per $100,000 borrowed on a principal + interest home loan.

For a light-volume trading day, there is a lot of information for markets to digest:

• The weather reports on Tropical Storm/Hurricane Gustav
• Reports that inflation is rising
• Reports that Consumer Spending is slowing
• Ongoing political tension between the U.S. and Russia

By themselves, each of these points can move markets. Together, however — and aided by Labor Day — they can move markets a lot.

Mortgage bond pricing is fluid, changing every minute of every day. Today, those changes will be exaggerated and, as an example, in the first 30 minutes of trading, mortgage rate pricing swung from rate improvement to rate deterioration in a flash.

Three years to the week after Hurricane Katrina caused $81.2 million in damages, Tropical Storm Gustav is charting a similar Gulf of Mexico path.

Memories of Katrina are making oil traders nervous. The 2005 storm shut down 30 platforms and 9 refineries. And, this week, oil prices are up nearly 4 percent on fears that the market, once again, may be disrupted by storm.

Mortgage rates are edging higher on the news.

The link between oil prices and mortgage rates is not a direct one, but it’s worth paying attention to.

Rising oil prices strain business and consumer budgets, creating inflationary pressures on the economy. And at no time was this relationship more evident than in May and June of this year. As oil prices reached new, all-time highs almost daily, Americans felt the impact each time they opened their wallets — the Cost of Living inflation gauge reached a 17-year high in July 2008.

Inflation is the enemy of mortgage rates so as inflation rises, mortgage rates tend to rise, too.

And this is one reason why mortgage rates are ticking higher this morning — there is an overriding fear that Gustav will strengthen into a full-fledged Hurricane before making landfall, causing damage to oil refineries and shipping ports around the Gulf of Mexico.

Damage reduces oil supplies and that causes oil prices to rise. It’s basic supply and demand.

Gustav is expected to make landfall Monday or Tuesday. If the storm continues on its path, we may see mortgage rates continue to trend higher. If the storm dissipates, rates should reverse.

According to the June 2008 Case-Shiller Home Price Index, home prices in 15 of the 20 largest U.S. real estate markets either improved, or showed growth from the month prior.

This is the fourth straight month in which that happened which means that a national housing recovery may already be underway.

Now, it’s worth stating that all real estate is local and that there’s no such thing as a “national real estate market”, but for home buyers looking to to maximize their negotiation power to get the best possible “deal”, spotting trends like this before the media does is a good thing.

So far, only Bloomberg and a few others have chosen to highlight the positives from the otherwise-negative Case-Shiller report. By contrast, most publishers are focusing on annual home price figures which show a hefty drop of 15.9 percent.

We shouldn’t dismiss annual trends because they’re helpful in the theoretical sense, but for real, live home buyers trying to identify trends and market bottoms, it’s the month-to-month data that matters most.

After looking at 4 consecutive months of Case-Shiller data, the month-to-month data appears to show that home prices have stabilized in most major markets. And, in some, they’ve already started to recover from their lows.

Source
U.S. House-Price Slide Eases, S&P/Case-Shiller Shows
Courtney Schlisserman
Bloomberg.com, August 26, 2008

When a homeowner buys a new home, he has 3 options of what to do with his current residence:

1. Sell the home, paying off the mortgage in full
2. Keep the home as a second/vacation home
3. Convert the home to an investment property

The most common action plan is the first one — sell the home and pay off the mortgage. However, with home prices poised to rebound, some savvy homeowners are trying to avoid “selling low”.

Unfortunately — as of August 1, 2008 — waiting out the market won’t be so easy.

Burned by foreclosures and wary of risk, Fannie Mae issued new conforming mortgage guidelines that specifically apply to home buyers planning to convert an existing primary residence into a second home or investment property.

Among the highlights of Fannie Mae’s changes:

Selling the primary residence
If the new home being purchased closes prior to the existing home’s sale, both payments must be used to qualify the buyer for the new mortgage.

Converting to a second home
If the home has less than 30 percent equity in it, the home buyer must show 6 months of PITI reserves for both properties to qualify for the new mortgage.

Converting to an investment property
If the home has less than 30 percent equity, its rental income may not be used to help the buyer qualify for the new mortgage.

If it seems like mortgage rules are getting strict, that’s because they are. And they’re expected to get tougher, too. With each foreclosure and high-profile bank collapse, mortgage lenders tighten up their guidelines just a bit, freezing out the “fringe” borrower from access to mortgage money.

Mortgage rates may rise through 2009, or they may fall. We don’t know. But what we do know is that borrowing money to buy a home will be tougher.

If you plan to buy a home in the next 12 months, consider moving up your timeframe or — at least — planning ahead. Understanding the mortgage rules and how they can change may be the difference between getting approved for a home loan, or getting turned down.

As compact fluorescent bulbs gain favor across the country, it’s important to remember that they contain mercury and mercury is harmful to humans.

Because even though CFLs contain small amounts of mercury — less than 4 milligrams per bulb — it’s still enough mercury to cause brain damage.

If you’re interested, this 4-minute video from the University of Calgary shows how mercury damages neurons in the brain.

But don’t let the presence of mercury stop you from using CFLs — they are much more positive than negative if you exercise good care.

The Environment Protection Agency provides some basic handling tips:

1. CFLs are made from glass. Therefore, screw and unscrew the bulb using the base and not the bulb.
2. Never force a CFL into a light socket.
3. When the bulb burns out, take it to a specially-designated recycling center in your area. Do not throw out a CFL with the “normal” trash.

In addition, the EPA drafted guidelines for dealing with broken bulbs within a household. Among the recommendations: Don’t wash your mercury-covered clothing, and don’t vacuum up the poison. This is somewhat counter-intuitive for most people.

The EPA’s review of CFL safety is 3 pages long and can be viewed on its Web site.

CFLs are more expensive than traditional bulbs but offer long-term savings in both energy and environment costs. And, with common sense care, CFLs pose no household health risks.

Stories on TV about the national real estate market are misleading to Americans.

This is because there is no such thing as a “national real estate market”.

Consider the latest American Housing Survey. It found that there are 124,377,000 homes in America spread across:

• 50 states, with
• More than 30,000 incorporated cities, and with
• An innumerable number of neighborhoods

And yet, the media repeatedly groups all 124 million homes into one giant lump and then gives an analysis. No matter how you slice and dice the data, a home in Oregon can’t be compared to a home in Mississippi.

This is why national real estate statistics are somewhat useless.

To get real estate analysis that matters, look local instead. And I don’t mean stats from your state — I mean stats from your neighborhood. It’s the only way to know what’s driving home prices on your street.

Unfortunately, finding local data like this isn’t easy; it’s far too narrow to be covered by the press. So, the best place to get local real estate data is from a local real estate agent or from somebody else with access to raw real estate data in and around your neighborhood.

By talking to “in the market” professionals that know your backyard, you’ll get a much clearer picture of your local market — good or bad — than the national media could ever provide.

Real estate is a local market so your real estate data should be local, too.

Private Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his home loan.

With the growing number of mortgage defaults nationwide, mortgage insurers are finding their balance sheets under attack and their revenues in the red.

So far this year, mortgage insurers have paid out $6 billion in claims.

In response to the losses, the mortgage insurance industry is using two tactics to return to profitability — and both mean bad news for homeowners.

1. Raise the minimum standards to get insurance
2. Raise the annual mortgage insurance cost

This is very similar to what Fannie Mae and Freddie Mac are doing to shore up their respective balance sheets; lending to only the most credit worthy, and making sure to charge them for their commensurate risk.

Because of the higher PMI rates, it’s getting more expensive for small-downpayment home buyers to finance their homes. And that’s if they can even still get mortgage insurance.

Some mortgage insurers now require a 10 percent minimum downpayment in certain states.

So with the number of mortgage defaults expected to rise through 2009, qualifying for PMI should get more expensive and more difficult. If you plan to make a small downpayment on your next home — or plan to remortgage your current low equity home — consider moving up your timeframe.

It may not be as cheap or as easy to get financing as it is today.

The Producer Price Index is a business inflation meter and it’s now up 9.8 percent annually.

This is a huge number for PPI and represents the highest year-over-year rate of inflation since 1981.

Normally, blowout inflation like this would be terrible for mortgage rates but mortgage markets are actually improved since Tuesday’s data release.

Usually, a rocketing PPI would create an inflation expectation on Wall Street which would, in turn, cause mortgage rates to rise, impacting home affordability.

Yesterday, however, that’s not what happened.

Upon the PPI release, Wall Street looked at the 9.8 percent number and simply shrugged it off. “Of course PPI is high,” traders thought. “Did you see how high energy costs were last month?”

Traders know that in July, oil prices reached an all-time high of $147.27 per barrel and, since then, crude is down more than 20 percent. Because of this, Wall Street has now turned its attention to the August PPI data, thinking it will much more calm than July’s.

In other words, instead of fearing inflation, traders believe the worst of it is over, providing an unexpected boost to home buyers in need of mortgages. As inflation expectations fall, mortgage rates are following suit.

Housing Starts measure the number of new housing “units” on which construction has started and in July, Housing Starts fell to its lowest levels since March 1991.

For homeowners, this is a welcome bit of good news because as fewer homes are built, there is less inventory from which home buyers can choose.

With fewer homes for sale, the supply-and-demand curve shifts in favor of home sellers and this adds a support floor for home prices.

For home buyers, though — and for the opposite reason — the low number of Housing Starts may not be as welcome.

With fewer new homes on the market, owners of “used” homes may feel less pressure to lower their asking prices or to make other concessions to interested buyers. This means that home buyers may pay more for a home, or get fewer “throw-ins” on the contract.

For all of the hocus-pocus that surrounds real estate data, in the end, home prices are based on the supply of homes versus the demand for homes. When supply outpaces demand, home prices fall.

Homebuilders learned this lesson and July’s Housing Starts data supports that.

Home staging is the art/science of preparing a residence for sale. It includes combines elements of lighting and color, use of space, and emotional triggers to help make a home appear “more desirable” to a potential buyer.

In this 5-minute video from the NBC Today Show, real estate expert Barbara Corcoran shows how to stage within a budget, and how to do it quickly.

In less than 48 hours, Corcoran and her crew convert a “stale” listing that’s been listed for 6-plus months, turning it into a home with curb appeal and good looks. And they do it for less than $700.

Home staging can be do-it-yourself endeavor, but hiring a professional usually helps squeeze extra dollars from a sale price. If you’d like a referral to a trusted home staging professional, reach out to me by phone or by email.

Each month, the National Association of Realtors^® releases a study called the Existing Home Sales report. It’s a detailed look at “used” home sales data from all four regions of the country.

One of the key findings in each Existing Home Sales report is something called the “median sales price”, the statistical price point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales price in the United States fell to $215,100, off 6.1 percent from a year ago.

But, just because the median sales price is falling doesn’t mean that housing is necessarily in the doldrums. Real estate is tied to local markets and the national statistics rarely make sense when applied to any given city.

For example, the $215,100 median sales price for the nation is as outrageously inappropriate as a sales price to New York City as it is to Minot, North Dakota. In fact, it’s the very definition of “median” that discounts its ability to reflect the health of the national housing market.

If large numbers of homes are sold and the price tags are high, the median sales price will trend higher. Conversely, if large numbers of homes are sold and the price tags are low, the median sales price will trend lower.

The median is just the middle point.

The falling median home sales price in June may indicative of first-time home buyers outnumbering luxury ones, or banks successfully unloading homes in foreclosure. And this idea may be supported by the data which shows that the West and Northeast led the decline.

So if you’re trying to gauge the health of your local real estate market, consider asking a local real estate agent for help. A skilled agent’s analysis will be infinitely more practical and useful than the national data pumped out by the industry trade group.

The connection between the world’s political events and home affordability here at home is not always clear, but Russia’s invasion of Georgia provides a strong working lesson.

Georgia is a former Soviet republic on the eastern shores of the Black Sea. Oil pipelines within its territory supply about 1 percent of the world’s daily oil needs, mostly to ports in Western Europe.

Last week, Russia bombed Georgia’s oil and natural gas transport systems. None of the bombs struck the pipelines, but several exploded close to it. Pipeline part-owner BP shut down two of its oil lines as a precaution, but Russia is reported to have struck one of BP’s other pipelines this morning.

The cost of oil is generally based on the normal economics of supply and demand so when oil supplies are threatened, damaged, or shutdown — because of war, weather or otherwise — oil prices respond by moving higher.

Higher oil prices, of course, are considered inflationary and that causes mortgage rates to rise here in the United States. High oil prices, for example, are one reason why mortgage rates spiked throughout June and July of this year. And as oil prices have settled, rates have calmed a bit, too.

It’s easy to ignore politics and news when it’s not happening in your own country, let alone your own hometown. But that doesn’t make it any less important.

When you’re buying a home, or thinking of refinancing one, you’ll likely need a mortgage and the rate you pay on that mortgage will be influenced by every geopolitical event in the world.

Especially when the event involves oil.

Source
Russia-Georgia conflict raises worries over oil and gas pipelines
Elizabeth Douglass
Los Angeles Times, August 13, 2008

It’s not your imagination — getting approved for a home loan is becoming increasingly more difficult.

Taken from the Federal Reserve’s quarterly survey of 84 banks, it illustrates the changing dynamic of mortgage guidelines.

Most notable is the steep curve for “prime” mortgages, a type of home loan given to applicants exhibiting:

• A well-documented credit history
• High credit scores
• Low debt-to-incomes

Americans have come to expect sub-prime loans to be tougher, but it’s the sharp tightening of prime guidelines shows us that nobody is exempt from the newfound underwriting prudence that banks are exhibiting right now.

If you plan to buy or remortgage a home over the next year, consider a popular expression in financial circles — the trend is your friend.

Know that mortgage guidelines will get tougher before they get easier and applicants on the cusp of being approved today will almost certainly be denied a mortgage three months down the road.

Owning real estate and making sound financial decisions requires a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what’s coming ahead.

According to the Federal Reserve’s survey, what’s coming ahead more mortgage application scrutiny.

When home sellers accepts a contract on MLS-listed property, the property’s official status changes from “Active” to “Pending”.

By measuring the number of “Pending” homes nationwide, the National Association of Realtors^® publishes its once-monthly Pending Homes Sales Index.

The real estate industry group positions the report as a predictor of future home sales activity, stating that 80 percent of homes under contract will “close” within 60 days, and most others will close within 120 days.

But, although using the Pending Home Sales report as a crystal ball may be its intended use, it may not its best use.

This is because of the index’s methodology:

1. It doesn’t measure new construction homes
2. It doesn’t track For Sale By Owner properties
3. Its sample set covers just 20 percent of MLS transactions

In addition, in a tough mortgage climate such as the one we’re in now, a greater percentage of pending sales will fail to close at all because of lack of financing.

The Pending Home Sales Index still has its place, however — it’s a terrific look at the buy-side demand for homes.

When the Pending Home Sales Index is rising, we can infer that more buyers in the market for homes and this is a signal of market strength. After all, pending sales can’t happen unless there are buyers out there. And with more buyers competing for homes, home prices tend to rise.

This is why the June’s Pending Home Sales report is so intriguing.

In June — for the second time in three months — the Pending Home Sales Index posted a large gain even as economists were calling for a loss. The inference here is that buyers are not only finding good value in all four regions of the country, but are willing to make bids on homes listed for sale.

Now, again, the uptick doesn’t mean that the pending sales will necessarily close, but it does tell us that more home buyers are finding “now” to be a good time to buy real estate.

That sort of insight is what make the Pending Home Sales Index worth tracking. When buyer demand is rising, the real estate market isn’t usually far behind.

Any plumber will tell you — toilets are among the least efficient appliances in a person’s home. 20 percent of them leak up to 200 gallons of water per day — the equivalent of an 80-minute shower.

At an average cost of $2 per 1,000 gallons, the EPA estimates that homeowners literally flush $146 of water down the drains each year.

But toilets also waste money by overfilling with water; even low-flush varieties waste 32 ounces per flush. Because of overfills, an average household of 4 people with 2 toilets squanders an additional 6,575 gallons of water in a calendar year, or $13.15.

Enter the $15 HydroClean toilet valve.

Built by a plumber, the HydroClean product prevents toilet overfills, detects leaks, and cleans the toilet tank for you. It installs in 5 minutes and the Web site says no special skills are needed.

Within the next 5 years, 36 states expect to suffer water shortage. Using HydroClean, you can help conserve water and conserve dollars.

HydroClean is available at retail stores and online.

Source
Drinking Water Costs and Federal Funding
EPA.gov, June 2004