Mortgage / Real Estate Update August, 2004 By Jim Woodard New Mortgage Programs Introduced New programs are being planned and implemented to help low- to medium-income families, and minorities, attain their goal of homeownership. One such program has been launched by Fannie Mae, the nation’s biggest buyer of existing home mortgages and largest source of funds for new mortgages. Their goal is to help create six million new first-time homeowners over the next decade, and to boost the minority homeownership rate from today’s 49 percent to at least 55 percent. Fannie Mae is now organizing several dozen new and enhanced mortgage initiatives to achieve their goals. Over the next few weeks, the company will be announcing specific plans, it was announced. “After the greatest year in housing and mortgage finance history, we are renewing and increasing our programs to help new homebuyers,” said Franklin Raines, CEO of Fannie Mae. “We have bold ideas and big plans to work on the toughest housing problems facing this nation. The first phase will emphasize getting people – especially minority families – into homes of their own. “Now that we have the capital, tools, and a wide range of housing partners, Fannie Mae is pushing to do more with ideas to really move the minority homeownership rate.” These programs will also be particularly helpful to school teachers, police officers, fire fighters and medical workers – typically the least likely to qualify for a home purchase mortgage – to finance a home purchase transaction. On average, people in these occupations have less than a one-in-three chance in cities of finding a home they can afford, and just a three-in-ten chance in the surrounding suburbs, according to a study by the National Association of Home Builders. The median income earned by people in these occupations is below the minimum needed to qualify for the median priced home in the United States. In particularly high-priced areas, such as west and east coast markets, their income is far below the level needed to qualify for a median priced home or even a much lesser priced residence. * * * Mortgage Interest Rates Drop Even though key analysts continue to predict slow but steady increases in mortgage interest rates over the next couple of years, those rates have dropped over recent weeks. The average rate for a 30-year, fixed-rate mortgage is now just a bit over 6 percent (reflecting a slight increase at the end of July). The continuing low interest rate has opened a “window of opportunity” for many people who want to lock-in a low rate on a new mortgage before they start climbing again. In spite of the recent volatility in bond rates, interest rates are still expected to rise, according to a report from the Mortgage Bankers Association. Mortgage rates will increase with the average 30-year, fixed-rate mortgage rate increasing to 6.5 percent in the fourth quarter of this year, MBA predicts. Looking beyond 2004, MBA sees a slowing of the market as interest rates continue to rise modestly due to our economic expansion. Gross domestic product (GDP) growth of just under 4 percent annually over the three-year horizon will cause the Fed to continue its measured pace of increasing short-term interest rates, it was stated in a recent MBA report. The volatile fluctuations in rates has not deterred consumers from applying for a needed mortgage, either for financing a home purchase or refinancing an existing mortgage. “Current factors at play in today’s market, including historically low interest rates, are motivating many people to make their home purchase and apply for a mortgage now before interest rates and home prices rise,” said Michael Levy, president-CEO of Home Savings Mortgage, a major multi-0ffice mortgage banking firm in California. “Many homeowners are taking this opportunity to refinance their mortgage at a low rate, sometimes taking cash out of the transaction to pay off outstanding debts. The continuing strong activity in mortgage applications and home purchases is a positive sign for the housing and mortgage market,” Levy noted. In another very recent report, economists for 18 of Wall Street’s 22 largest bond trading companies are now predicting that the Federal Research will boost its target lending rate between banks to at least 2 percent by the end of this year. That would be the highest level since year 2001. That would inevitably push up mortgage interest rates. * * * Another Record for Home Sales Sales of existing single-family homes set another record in June. The strengthening market was driven by the continuing availability of low-interest mortgages, job growth, and an improving economy. Existing-home sales rose 2.1 percent in June to a seasonally adjusted annual rate of 6.95 million units. Sales activity in June was 17.4 percent above the pace in June of last year. “The 30-year fixed-rate mortgage has come back down and has been hovering around 6.0 percent over the last couple of weeks,” said Walt McDonald, president of the National Association of Realtors. “Considering most forecasts projecting mortgage interest rate increases, this could keep the housing market from taking as much of a breather as we have anticipated. Year 2004 is well on its way to setting an annual record.” Regarding the current market for newly constructed homes, here’s a statement from David Seiders, chief economist for the National Association of Home Builders: “The fundamentals behind housing demand are very positive, and it’s also likely that the record pace of home buying in May and June was spurred by expectations of rising interest rates later this year. Ironically, mortgage interest rates are now below the May-June levels, slipping to about 6 percent in recent weeks. While home buying may fade later this year, it now appears that home sales for 2004 will easily surpass the record set last year.” * * * Homeownership at All-time High A report issued in late July by the Census Bureau reveals that there are now 73.4 million homeowners in this nation – more than any other time in history. That boosts the current homeownership rate to 69.2 percent, breaking the previous record of 68.6 percent. * * * Ominous Words from Greenspan Some ominous words were recently spoken by Alan Greenspan, the nation’s top economist. He told the Senate Banking Committee that the central bank could be forced to quickly boost interest rates if signs emerge indicating inflation is getting out of hand. He didn’t comment on whether another rate hike would take place policymakers next meet. But if his fears should materialize, interest rates on home mortgages could go up dramatically in the not too distant future. “If economic developments are such that monetary policy neutrality can be restored at a measured pace, a relatively smooth adjustment to a more typical level of interest rates seems likely,” he said. He wouldn’t pinpoint a “neutral” interest rate, but economists are speculating that the federal funds rate would have to jump from its current level of 1.25 percent to from 4 to 5 percent to achieve neutrality. * * * Election Year Snags Tax Bill Volatile election year politics could scuttle a tax bill that is expected to lower monthly mortgage costs for millions of homeowners. The bipartisan measure would allow homeowners who pay FHA mortgage insurance, private mortgage insurance or Veterans and Department of Agriculture rural housing guaranty premiums to deduct these expenses on their federal tax returns. The Senate passed a version of the new law in May, attached to an omnibus tax bill. Nearly half of the House’s members have come out in support of its version. The proposed measure is backed by housing, labor, public safety, and minority groups. But unrelated issues have kept a House-Senate conference committee from further action on the bill. * * * Popularity of Second Homes Rising More people are becoming actively interested in acquiring and financing a second, or vacation, home. That trend was revealed in a recent independent study. Owning a second home is no longer limited to a very narrow affluent slice of homeowners. Its appeal is growing and widening in scope, perhaps being driven by increasing pressures at work and home, coupled with low-interest mortgages available to finance the purchase. The study, conducted by Centex Destination Properties, concluded that at least a quarter of affluent households today express a desire or are definitely planning to purchase a second home within the next two to three years. * * * More Single Women Becoming Homeowners Single women are becoming more active in buying and financing homes on their own. This often occurs after a divorce or death of a spouse. Others, after experiencing such an event, suddenly become solely responsible for their home. About 90 percent of women will be totally responsible for their finances at some point in their lives. A new study by Matthew Greenwald and Associates reveals that almost as many as that will be solely responsible for their homes at some time during their lives. That means they are responsible for upkeep, maintenance and paying all those bills Fannie Mae estimates that by year 2010 there will be 31 million women-headed households in this country. That’s nearly 28 percent of all households. Owning a home has long been a keystone of a long-term financial strategy, particularly for women, it was noted by Kermit Baker, senior economist with Harvard University’s Joint Center for Housing Studies. In recent years, as the stock market has been rocky, real estate has continued to appreciate. Real estate has been a lot less volatile, and women seem to be particularly responsive to that fact. Generally, women are more concerned and worry about finances than men. Many women today have very successful careers. But there’s often a strong underlying fear about being homeless, Baker noted. This is also true of low-income seniors, but the vast majority of those seniors are women. “Putting money into a mortgage every month is like a guaranteed savings account coupled with a guaranteed place to live,” he said. * * * The Key to Financial Security Most homeowners today believe owning their own home leads to personal financial security, improved school performance for their children and greater community involvement. That’s revealed in a recent study conducted by Ipsos Public Affairs and commissioned by the Homeownership Alliance. About 85 percent of respondents believe a home is a more secure investment than the current stock market. And 66 percent believe that children who grow up in homes owned by their family are more likely to do better in school. It was also noted that 76 percent of respondents who own their homes are more likely to take time to vote in national elections. And 69 percent agree that the federal government should provide incentives to make housing more affordable. * * * Future Pace of Home Value Increases Home prices will continue to rise over the next few years, but at a much slower rate than we’ve seen in the past two years. That’s the consensus of most analysts today. Here in California, home prices increased by about 25 percent just over the past year, according to a report from the California Association of Realtors. One economist is predicting the average annual home price increase will only be about 2.3 percent over the next three years (nationally). That would mean prices would actually decline in inflation-adjusted terms. Some particularly pessimistic economists are saying the low home price appreciation rate could turn the housing market into an economic liability for the U.S. economy, instead of being a dynamic force in building a healthy economy as it’s been in recent years. * * * Home Equity Loans and Credit Lines With all the talk about home equity loans and credit lines, you might think most homeowners have availed themselves of this money source. Not so, according to a recently completed survey. In the survey, 58 percent home homeowners said they have never had a home equity loan or line of credit, and have never thought about applying for one. Among those homeowners who have either credit lines or loans, or considered applying for them, home improvement projects were identified as the leading use of the funds (57 percent). The next most common uses were to consolidate outstanding debt and paying credit card bills. The survey was conducted by International Communications Research, an independent market research firm. | 
