“Monday” Market Update – 1/18/2022

Mortgage Rates Increase Significantly

January 13, 2022

Mortgage rates rose across all mortgage loan types, with the 30-year fixed-rate mortgage increasing by almost a quarter of a percent from last week. This was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains. The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future.

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s Economic & Housing Research group, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the Economic & Housing Research group attempts to provide reliable, useful information, it does not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. © 2022 by Freddie Mac.

Week of January 10, 2022 in Review

Inflation continues to set record highs and Fed Chair Jerome Powell made some notable remarks regarding the Fed’s stance on inflation. Plus, Jobless Claims hover at pre-pandemic levels as the labor market remains tight.

The Consumer Price Index (CPI) showed that consumer inflation rose by 0.5% in December while the year over year reading ticked higher from 6.8% to 7%! Core CPI, which strips out volatile food and energy prices, also rose on a monthly and annual basis.

Wholesale inflation increased in December as well, with the Producer Price Index (PPI) rising 0.2% from November. On a year over year basis, the index increased from 9.6% to 9.7%, which is a record high since the methodology for collecting this data was changed in 2010. Core PPI, which again strips out volatile food and energy prices, rose 0.5% in December, while the year over year figure rose from 7.7% to 8.3%, which is also a record.

The National Federation of Independent Business released important data that speaks to how inflation is impacting small businesses, while inflation may have also played a part in December’s weak Retail Sales figures, both of which are highlighted below.

Jerome Powell testified in front of Congress last week at his hearing for nomination to a second term as Fed Chair. Of particular note regarding inflation, he said, “We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

Rising inflation is critical to monitor because it can have a big impact on Mortgage Bonds and home loan rates, which are tied to them. Read more about this below.

In other news, Jobless Claims continue to hover near pre-pandemic levels. There are now just under 1.95 million people in total receiving benefits, which is a healthy number and in stark contrast to the 19 million plus seen in the comparable week last year. Finding labor remains one of the biggest challenges for employers, so they continue to hold onto their workers and reduce the pace of firings, which reflects the current tight labor market.

Lastly, Wednesday’s 10-year Note Auction was met with average demand and did not impact the markets much. Thursday’s 30-Year Bond auction was also met with average demand. The bid to cover of 2.35 was higher than the one-year average of 2.30. Direct and indirect bidders took 82.1% of the auction compared to 81.4% in the previous 12.

Consumer Inflation Remains Red Hot

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.5% in December. This was in line with expectations and nudged the year over year reading higher from 6.8% to 7%.

Core CPI, which strips out volatile food and energy prices, rose by 0.6%, which was a bit hotter than expectations. As a result, year over year Core CPI jumped from 4.9% to 5.5%.

Within the report, rents rose 0.4% in December and increased from 3% to 3.3% on a year over year basis. While this data has started to increase, the CPI report is still not capturing the double digit increases year over year that many other rent reports are showing.

Owners’ equivalent rent increased 0.4% and the year over year figure rose from 3.5% to 3.8%. However, note that this data is based on a survey that asks homeowners, “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?” Understandably, this is very subjective and many people would be guessing how much their home would rent for.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise. This is why keeping an eye on inflation remains critical. 

Wholesale Inflation Reaches Another Record High

The Producer Price Index (PPI), which measures inflation on the wholesale level, rose 0.2% in December, though this was half of expectations. On a year over year basis, the index increased from 9.6% to 9.7%, which is a record high since the methodology for collecting data was changed in 2010.

Core PPI, which again strips out volatile food and energy prices, rose 0.5% in December, coming in line with what was forecasted. However, the year over year figure was hotter than expectations and rose from 7.7% to 8.3%, which is another record.

Producer inflation continues to rise, which often leads to hotter consumer inflation levels, as producers pass those higher costs along to consumers.

Also of note, the Fed’s Beige Book showed that every district reported wage pressured inflation, many as much as 10%. This is another factor that contributes to higher producer prices, as they have to pay employees more to retain them.

Additionally, Cass Freight expenditures, which measures the total amount spent on freight by companies, rose to a new record, up 44% year over year. This also contributes to higher prices and producer inflation.

Small Businesses and Retailers Feeling Inflation Pressure

While the December National Federation of Independent Business Small Business Optimism Index rose slightly, the internals on inflation and compensation were most important.

Those expecting higher prices did fall 2 points to 57, but this reading is off the highest level in 43 years. In addition, 22% of companies say that inflation is the single most important problem in operating their business – the highest level in 41 years!

Positions not able to fill remained near record highs and as a result, the current compensation component rose to a fresh record at 48, compared to the average since 1984 at 22. Future compensation plans held at its record high. Employers are not able to find workers and are forced to pay their existing base and new talent more. This speaks to wage-pressured inflation.

Meanwhile, December’s Retail Sales were disappointing, especially given that December is usually a strong month for retail. Overall, sales were down 2% but Core sales, which strip out autos and gas, fell a sharp 3.1%. While some of this decline could be attributed to Omicron or people shopping early for the holidays due to supply chain issues, inflation may also be the main cause.

Since last March, the cost of goods has risen by 10.7%. If we don’t see a recovery in the upcoming reports as Omicron subsides, we will know that December’s decline in sales was due to inflation.

Fed Factors to Watch For

Jerome Powell testified at his re-nomination hearing that the Fed will “use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

The main tool the Fed uses to curb inflation is hiking its benchmark Fed Funds Rate, which is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. So counterintuitively, when the Fed hikes its benchmark Fed Funds Rate, this can be good for interest rates because it curbs inflation.

The Fed has previously said that they would not shock the markets by hiking their benchmark Fed Funds Rate and tapering their ongoing purchases of Treasuries and Mortgage-Backed Securities (MBS) at the same time. These are purchases that began back in 2020 during the heart of the pandemic to stabilize the markets and aid in our recovery. As inflation heated up last year, the Fed came under pressure to start tapering, or reducing, these purchases, which they are currently on pace to complete in March. This means they may begin hiking the Fed Funds Rate at or before the next FOMC meeting, which is in May.

Another important factor to note is that the Fed holds about $9 trillion in Mortgage Bonds and Treasuries, which means that they receive principal payments from those holdings which would normally reduce the amount of their balance sheet over time. Some of those securities would naturally mature as well.

But the Fed has been taking these proceeds and reinvesting them back into Mortgage Bonds, which has prevented their balance sheet from getting smaller. These reinvestments amount to a massive additional $70 billion per month.

The bottom line is that timing of when the Fed starts to hike the Fed Funds Rate and how they handle the reduction of their balance sheet will be critical to monitor in the months ahead, as these actions will certainly impact inflation, Mortgage Bonds and interest rates.

 Jobless Claims Remain Near Pre-Pandemic Levels

 Jobless Claims 1

Initial Jobless Claims moved higher in the latest week, as the number of people filing for unemployment benefits for the first time rose 23,000 to 230,000. Remember that since this reading shows the pace of firings and people filing for benefits, the lower the number the better. And despite the increase, this is still a low level of initial claims.

But the real story is Continuing Claims, which measure individuals who continue to receive benefits. They fell 194,000 to 1.56 million, meaning this data is now back at pre-pandemic levels.

There are now 1.95 million people in total receiving benefits, which is a healthy number and in stark contrast to the 19 million seen in the comparable week last year. While these numbers may still be influenced by the holidays, they do reflect that the labor market remains tight. Finding labor remains one of the biggest challenges for employers, so they continue to hold onto their workers and reduce the pace of firings.

What to Look for This Week

After the market closures Monday in honor of the Martin Luther King, Jr. holiday, housing reports will dominate headlines.

On Tuesday, we’ll get a read on how confident builders are feeling this month when the National Association of Home Builders releases its Housing Market Index. December Housing Starts and Building Permits will be reported on Wednesday, while Existing Home Sales data follows on Thursday.

We’ll also get an update on manufacturing for the New York region when the Empire State Index for January is released on Tuesday. The Philadelphia Fed Index follows on Thursday.

The latest Jobless Claims data will also be reported as usual on Thursday.

Technical Picture

After breaking beneath support at 102.344 on Friday, Mortgage Bonds continued to slide lower and tested the next floor at 102.198. The 10-year bounced higher off 1.71%, broke above the next ceiling at 1.76%, and has more room to go until the next ceiling at 1.82%. We must remain on guard as there is still more room for yields to move higher, which could pressure Mortgage Bonds lower.

Mortgage Rates Drop, Hitting a Record Low for the Eighth Time this Year

August 11, 2020

The resilience of the housing market continues as mortgage rates hit another all-time low, giving potential buyers more purchasing power and strengthening demand. We expect rates to stay low and continue to propel the purchase market forward. However, the main barrier to rising demand remains the lack of inventory, especially for entry-level homes.

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Week of August 3rd, 2020 in Review

Last week was all about the labor sector, as two key employment reports for July were released. In the private sector, job creations slowed significantly in July per the ADP Employment Report, with only 167,000 new jobs added last month. However, there was a bright spot with June’s figures revised sharply higher.

Meanwhile, the highly-anticipated Jobs Report from the Bureau of Labor Statistics (BLS) showed that there were 1.8 million job gains in July, which was better than expected. The report also showed that the unemployment rate improved. However, the headline numbers don’t tell the whole story, as detailed below.

The latest Initial Jobless Claims showed that another 1.2 million people filed for unemployment for the first time during the week ending August 1, which was the first decline we’ve seen in several weeks. Continuing claims also improved in the latest week, but the figures still remain astonishingly high.

CoreLogic’s latest Home Price Index Appreciation report showed that home prices rose 1.0% from May to June and 4.9% when compared to June of last year. The annual gain was also up from the 4.1% year-over-year appreciation reported in May’s report. Perhaps most significant is the improvement in the forecast for home prices in the year ahead, which is noted below.

And there was some positive news from the manufacturing sector, as the ISM Index, which measures the health of US manufacturing, came in at 54.2 for the month of July, which was above expectations of 53.5. While production remains below pre-pandemic levels, readings above 50 do indicate growth.

Digging Deeper into July Jobs Reports

Both the ADP and BLS Jobs Reports for July had some important details to note behind the headline figures. First in on Wednesday was the ADP Employment report, which showed a gain of only 167,000 jobs in the private sector. This was much lower than the 2 million new jobs that were expected. However, June’s report had a huge revision from 2.4 million to 4.3 million jobs created in that month. 

The more-closely anticipated BLS report showed that there were 1.8 million job gains in July, which was stronger than the 1.5 million that was expected. There are two reports within the Jobs Report, and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it’s based predominately on modeling.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, meaning it may be more reflective of actual job numbers, and the Household Survey showed that there were 1.35 million job gains in July (as compared to the 1.8 million job gains reported in the Business Survey).

The Unemployment Rate decreased from 11.1% to 10.2%, which was stronger than expectations of 10.5%. While the Household Survey showed 1.35 million job gains, the labor force remained stable at around 160 million people, which is why we saw the unemployment rate improve.

The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, decreased from 18% to 16.5%.

But these numbers don’t tell the whole story.

There has been a misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the unemployment rate would have been 1% higher or 11.2%.

Also of note, the number of persons not in the labor force who currently want a job declined by 463,000 to 7.7 million in July. These individuals were not counted as in the labor force or unemployed because they were not actively looking for work during the last 4 weeks or were unavailable to take a job. Why would they not be looking? Maybe they are in a field where they cannot yet return to work, are afraid to work because of the pandemic, or they are not incented because of the additional stimulus.

When we factor in this group of people, the real unemployment rate is likely 14.3% (15.3% with the misclassification error). All in all, while July did bring an improvement in job creations, it’s also important to understand that the unemployment rate really is higher than what’s being reported.

Lastly, average hourly earnings increased slightly from 4.5% to 4.8% year over year, while average weekly earnings remained at 5.4% year over year.

Initial Jobless Claims Fall in Latest Week

Another 1.2 million people filed for unemployment for the first time during the week ending August 1. While this remains a staggering number, it was about 250,000 less than the previous week and the first improvement we’ve seen among first-time filers in several weeks. California (+228K), Florida (+74K) and New York (+74K) reported the largest gains.

Continuing claims, which measure people who continue to receive benefits, also improved in the latest week by 844,000 to 16.1 million.

Pandemic Unemployment Assistance Claims (PUA), which are not captured in the headline figure, totaled 656,000 in the latest week. These claims are filed by people like gig workers and contractors who would not usually be approved for unemployment benefits. Continuing PUA Claims improved 70,000 to 13 million.

All in all, the total number of people receiving some type of benefit is likely over 30 million, which is still very high and would point to a much higher unemployment rate than what we are seeing reported, as noted above.

Promising Change to Forecast for Home Price Appreciation

Home prices rose 1.0% from May to June and 4.9% when compared to June of last year, per CoreLogic’s Home Price Index Appreciation report. The annual reading was up from May’s 4.1% annual increase. The states with the highest annual increases were Idaho (10.5%), Montana (9.8%), Missouri (8.5%) and Arizona (8.5%).

However, the big story was the forecast, as CoreLogic projects that home prices will increase 0.1% from June to July and they expect prices to fall 1.0% in the year going forward. Their annual forecast increased significantly from a negative 6.6% in the next 12 months.

CoreLogic noted that last month’s HPI Forecast of a 6.6% home price decline through May 2021 has been revised as projected unemployment rates through 2020 showed improvement. The recent rebound of home sales suggests the pandemic did not derail home buyers, who continue to be motivated by historically low mortgage rates. This, coupled with the declining supply of homes for sale, could shield home price growth from the impacts of the current economic uncertainty.

What to Look for This Week

We’ll get an update on July inflation this week, first on Tuesday with the Producer Price Index, which measures wholesale inflation. The Consumer Price Index follows on Wednesday.

Tuesday also brings the latest news from the National Federation of Independent Business with their small business optimism index for July, while Friday will show us how retailers fared in July with the Retail Sales report.

Finally, the latest jobless claims figures remain important to monitor when they are released as usual on Thursday.

Technical Picture

The Fed continues to stabilize the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds challenged overhead resistance at 103.688 but were pushed lower. Bonds are in a wide range with support almost 40bp beneath present levels.

Monday Market Update – 07/22/2019

Whoa! Again! Just when you think things are settling down, you get strong opinions from multiple Fed presidents, with one even having his office walk back his comments last week. The mortgage bond and stock market have been anticipating a rate cut of 25 basis points (that’s 0.25% or a quarter percent for the rest of us non wall street people) this month. Then NY Fed President, John Williams, made comments indicating that a higher rate cut may be in order. His office quickly walked back the assertion, stating that his comments were part of, ” …an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting,” Will we see a 50 basis point cut? The mortgage market gurus don’t think so, believing that the Fed will hold that additional 25 basis points for a move later in the year. The gurus believe the Fed will opt for a measured approach to rate cutting.

The Fed is quiet this week in preparation for what moves will or won’t be made next week to the overnight rate ( the interest rate that banks charge other banks for lending them money from their reserve balances on an overnight basis.)

Here’s the takeaway for mortgage seekers: now is a great time to begin looking at refinancing or buying a home.

What does that mean for someone refinancing? It means get your paperwork in order. Talk a trained professional about your options. Once you understand them, consider getting pre-approved and then be ready to move on your financing. The rate you really want may only be available for a day or two and if you fumbling around trying to get your paperwork submitted, you might miss your window.

What’s does the above mean for a person buying? Same thing really. Get yourself fully underwritten for a purchase. Know your options. Understand your financing by working with a trained professional who can educate you. Do not wait until you’ve found your dream home to get approved and underwritten. The property could be in contract by the time you get your paperwork in order. Strong offers start with a conditionally approved loan, where the only conditions are a purchase contract, appraisal and clean title report.

Want to learn more about what this looks like for you or one of your clients? Reach out today and let me better understand your or their home finance goals so we can put a plan together that makes sense for you or them.

A word on the information contained below. The updates I send to you on Mondays come from Barry Habib of MBS Highway, a noted and well-recognized expert on the mortgage bond market. In short, he’s a Mortgage Market Guru. Barry recently stated on Fox Business News that we could see rates three-quarters of a point lower than they are today. Watch the interview here

Your Weekly Review Begins Here

The major stock market indexes began the week by setting new all-time closing highs on Monday, but then slid lower during the remainder of the week as second quarter earnings season got under way. Meanwhile, bond and U.S. Treasury prices pushed higher, sending yields slightly lower.

The week’s economic data were mostly encouraging. Retail Sales recorded a second month of solid gains in June rising 0.4% versus a consensus forecast of 0.2%. Regional manufacturing indexes were positive with the New York Empire State Manufacturing Index bouncing back to a reading of 4.3 from last month’s -8.6. The Philadelphia Fed Manufacturing Index was reported far higher than expected at 21.8 compared to expectations of just 5.0.

Rumors circulated during the week about the possibility of a 50 basis point rate cut by the Federal Reserve at its July 30–31 monetary policy meeting. Last week, Fed officials sent “mixed signals” over how aggressive they would be in cutting short-term interest rates. Fed Chairman Jerome Powell stated policymakers would “act as appropriate amid increased uncertainties,” while Dallas Fed President Robert Kaplan reported he only favored a “modest tactical adjustment” to rates which investors interpreted as meaning only one quarter-point cut this year. New York Fed President John Williams chimed in during a speech to say “it pays to act quickly to lower rates at the first sign of economic distress.” Fed Vice Chairman Richard Clarida then announced on Fox Business Network that “you don’t have to wait until things get so bad to have a dramatic series of rate cuts.” According to a report from The Wall Street Journal last Friday, the Fed is indicating it will go ahead with a quarter-point cut. By Friday’s close, the Fed Funds Futures markets were pricing in a 100% chance of a 25-basis point cut and a 22.5% chance of a 50-basis-point cut at the end of July.

In housing last Tuesday, the National Association of Home Builders (NAHB) released their latest Housing Market Index showing the Index increased to 65 this July from 64 in June. The July reading exceeded consensus market expectations of 64.

The sub-index for current single-family homes edged up to 72 from 71 in June while the measure for home sales over the next six months increased to 71 from 70. The sub-index for prospective buyers increased to 48 from 47.

The NAHB Housing Market Index in the United States averaged 50.40 from 1985 until 2019, reaching an all- time high of 78 in December of 1998 and a record low of 8 in January of 2009.

Wednesday, the Commerce Department reported Housing Starts fell 0.9% month-over-month in June to a seasonally adjusted annual rate of 1.253 million units. This was below the consensus forecast of 1.270 million. Furthermore, Building Permits dropped 6.1% month-over-month to a seasonally adjusted annual rate of 1.220 million, and this was below the consensus forecast of 1.300 million.

In both Starts and Permits, the weakness was attributed to declines in multi-unit dwellings. Single-family starts improved by 3.5% month-over-month to 847,000 while single-family permits increased 0.4% month-over-month.

However, permits for multi-unit dwellings dropped 16.8% month-over-month in June, led by a 20.7% decline in dwellings with five or more units.

Starts for multi-unit dwellings declined 9.4% month-over-month in June. Regionally, single-family housing starts in June were 6.1% higher in the Northeast; 8.0% higher in the Midwest; 1.1% higher in the South, and 9.8% higher in the West.

Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased 1.1% from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 1.1% for the week ended July 12, 2019. The seasonally adjusted Purchase Index declined 4% from a week prior while the Refinance Index increased 2%. Overall, the refinance portion of mortgage activity increased to 50.0% from 48.7% of total applications from the prior week. The adjustable-rate mortgage share of activity decreased to 4.9% of total applications from 5.3%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.12% from 4.04% with points increasing to 0.38 from 0.37 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 3.5% coupon bond gained 23.5 basis points to close at $102.313 while the 10-year Treasury yield decreased 5.60 basis points to end at 2.05%. The Dow Jones Industrial Average fell 177.83 points to close at 27,154.20. The NASDAQ Composite Index dropped 97.65 points to close at 8,146.49.  The S&P 500 Index lost 37.16 points to close at 2,976.61. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 16.40%, the NASDAQ Composite Index has gained 22.78%, and the S&P 500 Index has advanced 18.74%.

This past week, the national average 30-year mortgage rate fell to 3.88% from 3.95%; the 15-year mortgage rate decreased to 3.59% from 3.63%; the 5/1 ARM mortgage rate fell to 3.65% from 3.70%; and the FHA 30-year rate dropped to 3.55% from 3.63%.  Jumbo 30-year rates decreased to 3.90% from 3.97%.

Economic Calendar – for the Week of July 22, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Date Time ET Event /Report /Statistic For Market Expects Prior
Jul 23 09:00 FHFA Housing Price Index May NA +0.4%
Jul 23 10:00 Existing Home Sales Jun 5.30M 5.34M
Jul 24 07:00 MBA Mortgage Applications Index 07/20 NA -1.1%
Jul 24 10:00 New Home Sales Jun 660,000 626,000
Jul 24 10:30 EIA Crude Oil Inventories 07/20 NA -3.1M
Jul 25 08:30 Advance International Trade in Goods Jun NA -$74.5B
Jul 25 08:30 Advance Retail Inventories Jun NA 0.5%
Jul 25 08:30 Advance Wholesale Inventories Jun NA 0.4%
Jul 25 08:30 Durable Goods Orders Jun 1.0% -1.3%
Jul 25 08:30 Durable Goods Orders excluding transportation Jun 0.3% 0.3%
Jul 25 08:30 Initial Jobless Claims 07/20 215,000 216,000
Jul 25 08:30 Continuing Jobless Claims 07/13 NA 1,686K
Jul 26 08:30 Advance GDP Qtr. 2 1.8% 3.1%
Jul 26 08:30 Advance GDP Deflator Qtr. 2 1.8% 0.6%

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 3.5% coupon bond ($102.313; +23.5 bp) traded within a 43.8 basis point range between a weekly intraday low of $101.984 on Tuesday and a weekly intraday high of 102.422 on Thursday before closing the week at $102.313 on Friday.

Mortgage bonds made a move higher during the latter half of the week to break above the 25-day moving average and resistance provided by the 23.6% Fibonacci retracement level. As the bond is still trading on a buy signal generated last Tuesday and not yet “overbought,” we can anticipate further price appreciation toward $102.50 and perhaps secondary resistance located at $102.73. Should this scenario play out, mortgage rates would improve moving slightly lower.

Things Home Buyers Should Consider

neighborhood-with-autumn-trees

Home buying and securing your mortgage can be a mysterious, if not scary, process that requires exhaustive research. If you’re a first-time home buyer, well, it can be even more daunting.

The good news is that there are several resources that are available to you. Knowing the requirements will keep your home buying dreams alive.

Here are the big three you should consider when buying your first home or even buying something after your credit was damaged due to a bankruptcy or foreclosure.

Good Credit. Scores above 740 tend to lead to better loan options. FHA loans only require a score of 680 or higher. You can find out what your credit score is for free here and here. No credit? Go for a secured credit card.

You can also build credit from scratch. Something important for younger home buyers, fresh out on their own and looking to buy to avoid paying rent (who wants to subsidize someone else’s home-ownership goals?)

What if you had credit and missed payments or renegotiated your payments through a counseling agency or worse yet, filed for bankruptcy or had your home foreclosed on? You’ll need to go about rehabbing your ailing score.

Stable and steady income. How much income you need to get a mortgage boils down to your debt-to-income ratio. To qualify for a home loan, your job’s income must be high enough to offset your current debts. Calculate your DTI (Debt-to-income) here

If your current DTI is too high to qualify (talk to your mortgage broker about your current DTI), consider developing a game plan to get your financial house in order.

Down payment. Most traditional banks require 20% down. Anything less often requires the dreaded PMI (Private Mortgage Insurance) but there may be ways around paying this expensive requirement when you have less than 20% down in cash. Contact me today so I can help you with lending strategies designed to address your unique situation.

State and local home buying programs are an excellent source of information for first time buyers looking for financial assistance.

You can reach out to these California agencies in your local community or on a statewide basis:

Don’t see your county or city listed?  Try these links:

HUD California City Programs
HUD California County Programs

Also, FHA loans let you buy with as little as 3.5% down. California even offers a deferred-payment junior loan of 3% of the purchase price or appraised value. I can also introduce you to some grant programs where you only need 1% down (restrictions apply and not everyone or every property will qualify).

Lastly, the Veteran’s Administration also has some amazing programs for buyers that have served this great country. California offers its resident veterans CalVet. Nationally, the U.S. Department of Veteran Affairs also offers purchase and cash-out refinance home loan programs.

Additional Material: http://www.realtor.com/advice/finance/what-you-need-to-get-a-mortgage/

Smart Homes are Hot!

Smart homes are in and buyers are responding to this trend with these top five items at the top of their wish list:

SmartHomesUp until recently, getting these features into your home was more art than science. It sometimes required solutions from multiple vendors to create the desired end state.

So, whether you want to automate lighting, thermostats, remote locking, video monitoring or a master control for your entire home, nowadays, there are plenty of off-the-shelf (OTS) solutions out there. Many will plug right into your existing home security systems too!

How Will Blockchain Change Real Estate?

What is blockchain?

The most disruptive tech in decades. The distributed ledger technology, better known as blockchain, has the potential to eliminate huge amounts of record-keeping, save money and disrupt numerous industries in ways not seen since the internet arrived.

Is blockchain safe?

First and foremost, Blockchain is a public electronic ledger – like a relational database – that can be openly shared among disparate users. This creates an unchangeable record of their transactions, each one time-stamped and linked to the previous one—in a chain.

How do you protect yourself?

Each digital record or transaction in the thread is called a block (hence the name), and it allows either an open or controlled set of users to participate in the electronic ledger. Each block is linked to a specific participant.

Can you manipulate it?

Blockchain can only be updated by consensus between participants in the system, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of individual transactions made since its inception.

Full Underwrites Save Lives

Look, no one is really saving lives selling real estate or writing mortgage loans, but we can change lives and we can help people find their dream homes, right?

I think we all agree that being part of this process for new buyers can be exceptionally rewarding. Moreover, if we do it right, we can save ourselves and our clients loads of time and stress! The result is client loyalty and that pays dividends over the long run.

You’ll still spend long hours hunting for the right home for your buyer. However, good realtors ensure that their buyers are well-qualified before getting in the car and driving all over God’s green earth, right?

Pre-approvals are nothing new. A buyer submits their documentation and then the bank runs the loan application through an automated system to generate a pre-approval. Simple, easy and it delivers an answer.

Often, this is as far as it goes until it comes time to go into contract. Then the file goes to underwriting where a live person goes through the details to render an official approval with conditions.

Imagine the following scenario: you’ve spent weeks (maybe months in this market) directing your buyers to ideal properties. You’ve shown them dozens of properties, spending valuable time (and money) searching for their dream home. You write the perfect offer, submit it to the listing agent, who accepts it, only to find out the underwriter won’t accept the buyer’s source of funds.

You’ve lost trust with your buyers, time and money marketing dozens of properties and preparing your offer and now the bank is bailing out on you because your borrower is using a recent crypto currency windfall for the down payment. (see the additional post within on how to use crypto currency to purchase real estate)

What if you could skip ahead of all this nonsense? What if you could get an underwriter to review your buyer’s documentation without having a property address? Crazy, right? Not really.

Contact us today about a fully approved and underwritten loan for your buyer before you get into contract. It could save you and your buyer considerable stress at the most important step of the purchase process.