Rising Mortgage Rates Cause 'Rush to ARMs'

interesting article from cnbc.com on rising rates...

After hovering around record lows for the past few years, mortgage rates are rising dramatically. That has consumers not only shopping more but also considering adjustable rate mortgages, which offer lower rates and lower monthly payments.
These ARMs, many requiring interest payments only, were popular during the latest housing boom but quickly fell out of favor when safer, fixed-rate loan rates fell to record lows. ARMs accounted for 36 percent of mortgages in 2006 but just 4.5 percent today, according to Lender Processing Services.
The shift to ARMs is not visible on a grand scale yet, but it is beginning.
The average contract rate on the 30-year fixed rate rose to 4.46 percent from 4.17 percent, the Mortgage Bankers Association said Wednesday. At the beginning of May, rates were as low as 3.5 percent. Concern that the Federal Reserve will begin to pull back on its purchases of mortgage-backed bonds, which pushed rates so low in the first place, caused the most recent spike.

"Mortgage rates increased by the most in a single week since 2011, and refinance application volume dropped to its lowest level in almost two years. However, applications for conventional purchase loans picked up by more than 3 percent over the week," the MBA's Michael Fratantoni said.
Mortgage applications to purchase a home are rising for two reasons: Buyer demand is increasing, and those buyers are afraid rates will go up dramatically, so they want to lock in fast.

Alicia and Ryan Diederichs say they are in a race against time. A job transfer recently sent them and their three young children to Oceanside, Calif. Now crammed into a small rental apartment, they are hoping to buy a house quickly.

"I'm afraid we're going to miss the boat," said Alicia Diederichs. "I feel like we might get priced out of the market in a few months, and just depending on the mortgage payment whether we could afford it if the interest rates go up more."

The Diederichs need a large house to fit their family, but home prices are rising fast on the California coast, and they have not yet locked in a mortgage rate.

"Ideally we would do a 30-year fixed, but it's all going to be dependent on the end mortgage payment, what we can afford, so we would have to look at an ARM potentially if rates continue to rise," she said.

The combination of sharply higher home prices and rising rates is squeezing buyers who are already facing tighter underwriting standards. In order to qualify for loans, they must fit into strict debt-to-income calculations, and those calculations change with every increase in mortgage rates.

"I think you're seeing much more intense shopping where people are comparing rates between lenders, but also looking at different less conventional products," said Glenn Kelman, CEO of Redfin. "They're getting teaser rates, they're buying it down, they're trying different things to try to get back to the rate they saw last week."

Some buyers are also being forced into adjustable rate loans in order to save deals that may have blown up in the past few weeks due to the rise in rates.

"Funny, people are rushing into higher-risk loans to save deals as rates spike. What happens in five years when their rate starts adjusting upward 2 percent per year? They blow up!" said Mark Hanson, a California-based mortgage and housing analyst.

Hanson cautions that this may not be a "return to ARMs," in general, but more of a "rush to ARMs" in the past four weeks. ARMs are harder to qualify for, and the rate on the 30-year fixed, while higher, is still historically low.

Rising rates will push some into riskier, adjustable-rate products, "whereas others will view rising rates as a sign that they need to lock in to a 30-year fixed now before rates move higher," said Craig Strent, CEO of Maryland-based Apex Home Loans.
 

BREAKING: Home Prices See Record-Breaking Increase in April; New-Home Sales Highest Since 2008; Consumer Confidence Surges to 5-Year High

all re-affirming reports from RIS Media...

A wave of positive housing news flooded financial newswires this morning.

Data through April 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, a leading measure of U.S. home prices, showed average home prices increased 11.6 percent and 12.1 percent for the 10- and 20-City Composites in the 12 months ending in April 2013.

From March to April, the 10- and 20-City Composites rose 2.6 percent and 2.5 percent. All 20 cities and both Composites showed positive year-over-year returns for at least the fourth consecutive month. Atlanta, Dallas, Detroit and Minneapolis posted their highest annual gains since the start of their respective indices.

“The 10- and 20-City Composites posted their highest monthly gains in the history of S&P/Case-Shiller Home Price Indices,” says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Thirteen cities posted monthly increases of over two percentage points, with San Francisco leading at 4.9 percent.” The recovery is definitely broad based. The two Composites showed the largest year-over-year gains in seven years.

In more positive housing news, the Commerce Department said today that new-home sales increased 2.1 percent to a seasonally adjusted annual rate of 476,000 units – the highest level since July 2008. It was the third straight month of gains in new-home sales, reflecting a continued resurgence in the U.S. housing market.

In more record-breaking news today, The Conference Board said consumer confidence in June rose to a more than five-year high. The index rose to 81.4 from 74.3 in May, marking the best level since January 2008. The Conference Board Consumer Confidence Index® now stands at 81.4 (1985=100), up from 74.3 in May. The Present Situation Index increased to 69.2 from 64.8. The Expectations Index improved to 89.5 from 80.6 last month.

Says Lynn Franco, director of Economic Indicators at The Conference Board: “Consumer Confidence increased for the third consecutive month and is now at its highest level since January 2008 (Index 87.3). Consumers are considerably more positive about current business and labor market conditions than they were at the beginning of the year. Expectations have also improved considerably over the past several months, suggesting that the pace of growth is unlikely to slow in the short-term, and may even moderately pick up.”

When Determining Home Values Online

a snippet from industry newsletter that I fully agree with to be aware of....

 

Large nationwide websites offering home value estimators can be a great starting point for a conversation about values in a particular area.  However, the resulting figures are frequently skewed in highly unique real estate markets where values can vary by millions within just one block.  Also of note, properties listed for sale  on these sites can be outdated and occasionally display homes that actually sold months prior. The most reliable real estate information always comes from those who have their finger directly on the pulse of a particular market.

Report: Jennifer Lopez Buying $10 Million Mansion in Hamptons

Just a small house near the ocean...

from zillowblog.com

Jennifer Lopez might just be “Jenny from the Block,” but her newest block is a stretch of three acres in exclusive Water Mill, NY.
According to the New York Post, Lopez has toured the estate several times with her twins and current boyfriend, 25-year-old Casper Smart. Lopez reportedly paid $10 million for the home, which previously demanded $425,000 as a summer rental. Lopez has been looking for a Hamptons-area estate for years; there were previous rumors that she picked one up back in 2011, shortly after her divorce to Marc Anthony.
The singer and actress’ new place is not only luxe — a must-have for someone who brought in $52 million last year and is ranked above Oprah on Forbes’ Most Powerful List — but also incredibly private. Situated on its own cul-de-sac, the updated but classic estate is made up of two lots, with room for plenty of celebrity musts, like guest houses and tennis courts.
Built in 2004, the 8-bed, 4.5-bath measures 8,500 square feet. The landscaped grounds include a large pool, patio area and plenty of hedges to keep paparrazi at bay.
Lopez hasn’t purchased a home in quite some time. The entertainer still owns an enormous spread in Hidden Hills that she purchased with Anthony in 2010, as well as two homes in Glen Head, N.Y. The star previously owned a waterfront estate in Miami Beach and another home in Beverly Hills.
Coincidentally, Anthony also bought a home this week — but on the other coast. His new home is in Encino, CA and he spent about $2.5 million on it.

Colorado housing market: Buyers caught in price squeeze

Good time to sell your home...Denver Post Article...

And it's happening. The timing of cheap mortgages, coupled with a slim inventory that can't meet demand, has created even more of a seller's market, since many homes have three or more bids to choose from.
Homes priced from $200,000 to $350,000 are the hottest on the market, according to several real estate experts, often drawing multiple offers within 24 hours of listing — most over the asking price.
If a seller can't close on the first offer, the next one is likely at or near the offer price of the first, putting even more pressure on the buyer with the highest bid.
Some buyers who have worked hard to find and land a house are surprised to find that their offer is higher than the amount at which the property appraises — sometimes by thousands of dollars.
When that happens, formulas used by a bank or mortgage broker to determine down payments are skewed, leaving would-be homeowners on the hook for more money at the table than some can afford.
Real estate agents, bankers, mortgage brokers and appraisers each have a tale or two of a client who had to either walk away from a deal or come up with the extra cash.
One of them was Jeremy Brown, a construction-management consultant who bumped into a bidding war when he looked to buy in Denver this year.
The house he eventually purchased with his fiancée in the city's Baker neighborhood appraised at $10,000 lower than the couple's offer. It wasn't the first time he had bumped into an appraisal coming in lower than his offer. It happened a year ago in Virginia, where he moved from.
"Either you bring more cash to the table, which is what the seller tried to get us to do, or you renegotiate the sale price," said Brown, 32. "Having to bring more cash to the deal can be a big shock. Had it not happened once before, I'd have been reluctant to draw a hard line."
In the end, Brown still had to come up with half the difference.
The reason is that a bank loan is reliant on the appraisal. (Cash buyers don't run into the same problem since an appraisal isn't needed unless they ask for one.)
Conventional loans rely on a down payment of 20 percent and a loan value based on the appraisal. So a $200,000 offer would require a $40,000 down payment. But if the appraisal is under the offered amount — say, $180,000 in this example — then down payments and numbers are derived from that point.
The buyer would have to come up with the $20,000 difference between the offer and the appraisal, on top of the 20 percent.
Thus, the $180,000 appraisal lowers the 20 percent to $36,000, and the loan covers the remaining $144,000. But the difference between appraisal and offer ($20,000) is the buyer's obligation and is added to the 20 percent ($36,000), resulting in an initial cash outlay of $56,000.
"Buyers have a couple of options," said Craig Wildrick at Zions Bancorp, which owns Vectra Bank. "They can increase their down payment, reducing the amount of the loan, negotiate a lower price ... or decide to look for a different property."
That becomes even harder for a buyer relying on a Federal Housing Administration loan, where a 3.5 percent down payment could reflect the limits of a savings account.
There was little concern 10 years ago and a strong belief that real estate values would always increase. Then the bubble burst and market values collapsed.
Though the market rebounds, the scars remain.
"Lenders are very nervous right now. It's very difficult," said appraiser Jo Stinett of Peak View Real Estate Appraisals. "And even if the appraiser is able to show the market is strengthening and that values are increasing, some underwriters simply won't take it."
She added: "The market is almost working against itself, and we have to be really, really careful that we don't create another bubble."
Colorado and its Front Range are part of a multistate area where the Federal Reserve Bank on June 5 said the phenomenon is happening.
Banks reported that "low inventories have slowed sales and put upward pressure on prices in some areas," giving concern "that appraisals were not keeping pace with price increases," the Federal Reserve said in its commentary on current economic conditions, commonly called the Beige Book.
Bidding wars have sometimes forced buyers to be more competitive than they should be, some Realtors say.
"One seller had a buyer who literally wrote an escalation clause into their offer, beating any other offer up to $30,000 over the list price," said Jolon Ruch, president-elect of the Colorado Association of Realtors and a Realtor with Keller Williams Preferred Realty in Westminster.
"Sometimes it's just about the win, about the competition, and that's not very responsible," she said.
And there are buyers who have simply had enough and are "desperate to obtain a house," said Lisa Desmarais, an appraiser at Peak to Peak Appraising in Broomfield.
"One buyer had been through losing three other homes due to being outbid and opted to bid above market just to avoid any more emotional turmoil," Desmarais said.
For the challenged appraiser, it's simply a matter of doing the job well.
"Our job is not to justify the 'winning bid' of a specific buyer, who may not be acting in their own best interest," Desmarais said, "but to determine what the typical buyer would pay based on current market conditions."
For homebuyer Brown, the solution is simple: "Don't be too emotionally attached. People's excitement and a low inventory can make things crazy."

Home loan payoffs in Colorado surge in the first quarter of 2013

the market is busy....Denver Post Article.

The number of home loans paid off in Colorado was up 31.4 percent from the first quarter of 2012 to the first quarter of 2013, according to a report released Tuesday by the Colorado Division of Housing.
According to the report, public trustees in Colorado released a total of 98,321 deeds of trust during the first quarter of 2013, which was the highest quarterly total recorded in any quarter since the division began collecting quarterly totals in 2008.
By comparison, 74,809 deeds of trust were released during the first quarter of 2012.
Typically, a release of a deed of trust occurs when a real estate loan is paid off whether through refinance, sale of property, or because the owner has made final payment on a loan.
Increases in release activity occur as refinance and home-sale activity increases, and rising release totals typically indicate increases in the demand for home loans and real estate.
Release activity also increased from the fourth quarter of 2012 to the first quarter of 2013, rising 13.3 percent. There were 86,816 deeds released during the fourth quarter of 2012.
"From early 2011 to late 2012, the average 30-year fixed mortgage rate fell for seven quarters in a row," said Ryan McMaken, an economist for the Colorado Division of Housing. "We're not surprised to see refi and purchase activity increase sharply as a result."
However, trends in release activity were not uniform across the state. although all the 21 counties surveyed reported increases in release activity from the first quarter of 2012 to the first quarter of this year.
The largest increases were reported in Adams and Arapahoe counties where release activity increased 62.1 percent and 55 percent respectively.
The smallest increases were found in Eagle and Jefferson counties where activity increased 3.7 percent and 12.5 percent, respectively.
"We still see some hot spots in some higher-income counties," said McMaken. "But with most counties reporting sizable increases in release activity, we can say that home loan activity has been increasing generally across Colorado."

6 tips to win a bidding war for your next home

interesting msn real estate article...these are standard techniques, yet I have quite a few others that are lesser known, yet highly effective...

Do you have what it takes to beat competitors for the house you want?

The bidding wars are back. While not every local real-estate market is experiencing bidding wars, some homebuyers find themselves competing for houses because not many are for sale in their markets. For example, in Phoenix, it would take just 2.3 months to sell all the homes currently on the market, says Susan Paul, owner of Better Homes and Gardens Real Estate Move Time Realty in Scottsdale, Ariz. The result? Many homes have 10 to 15 offers the day they go on the market, she says.
To compete in a bidding war, buyers need to prepare financially for the home purchase. They have to be familiar with property values in their target neighborhoods. And they must know what they want.
While offering the most money might seem like the best way to win a bidding war, sellers don't always choose the highest offer. Instead, sellers often prefer offers that are most likely to go through and that meet their conditions. Here are six tips to increase your chances of making the winning offer in a bidding war for the house of your dreams.

1. Have a lender on speed dial
"Too many buyers talk to a lender and start looking at homes at the same time," says Eldad Moraru, a real-estate agent with Long & Foster Real Estate Inc. in Bethesda, Md. "You need to have everything (financial) done before you begin to look." Then you are more likely to win a bidding war.

He suggests selecting a lender and a loan, completing everything the lender requires and having a preapproval letter in hand — all before submitting an offer.
"You need to make sure your lender is ready to issue an approval letter specific to the property at the drop of a dime," Moraru says.
Paul recommends keeping a file folder constantly updated with your most recent pay stubs, all pages —even blank pages — of recent bank statements and any other documentation the lender may need to make a quick loan approval. Then you are ready to make an offer.
A strong preapproval is essential, especially if you are competing against buyers with cash to offer, says Alan T. Aoyama, vice president of Century 21 M&M Associates in Cupertino, Calif. Any hint that you might have trouble qualifying for financing could eliminate you from the seller's choice of buyers.
2. Cash in your pocket plus the paperwork to prove it
"An all-cash buyer can even waive the appraisal," Aoyama says. "If you're a noncash buyer, you need to have a copy of your proof of funds with your offer, along with a strong preapproval. At a minimum, you should offer a down payment of 20% if you know you'll be competing against other buyers. You need to show you have the funds to close and the ability to make up the difference if the appraisal comes in too low.

Moraru says that in Washington, D.C., and Maryland, it's common to supplement your offer with a financial information sheet detailing your job history, salary and bonuses, 401(k) balance, how much you have for a down payment and where the money is saved.
A higher-than-customary earnest money deposit can sometimes impress sellers when there is a bidding war, Moraru says. Just make sure you fully meet all deadlines and terms of the contract so you don't lose your deposit.

3. Make a fast, personalized offer
To compete against other buyers in a potential bidding war, make sure you see a home the day it goes on the market, so you can move quickly, Paul says.
"Your buyers agent should talk to the listing agent to find out what is motivating the sellers and what they need — such as a quick settlement or a post-settlement rent-back," Paul says. "Be flexible, and work that into your offer. Make it as easy on the sellers as possible so your offer is chosen above 15 others."

Paul says buyers should offer to help the sellers in any way they can, such as helping them find a home for their pet if they can't take it with them.
Moraru says while price is important, sellers want to know the buyer can finance the property and meet any other conditions. If you don't know the date when the sellers want to settle, you can write "will settle on seller's schedule" into the offer.
Aoyama suggests offering 30 days of free rent if the sellers want to stay in their home after settlement.

4. Keep your home inspector on alert
Most real-estate agents don't recommend buying a home without an inspection, but making your offer contingent on an inspection can weaken your position if other buyers are waiving an inspection contingency. Aoyama says buyers should carefully read all disclosures and reports that are available, because some sellers provide a home inspector's report for buyers. You can also have an home inspection done after your offer has been accepted that can provide information on the home's condition.

"If you're serious about a particular house, you can have a home inspection before you make an offer, and then make a noncontingent offer if you're satisfied with the report," Moraru says. "You'll need to move fast, though, and have a home inspector ready almost the day the home goes on the market."
Paul says you can bring a home inspector along when you first look at the home and say the inspector is a friend, just to get a feel for the condition of the home without an in-depth checkup.
"If the inspector says the house looks OK, you can feel better about waiving the home inspection contingency," Paul says.

5. Eliminate or reduce contingencies
One of the best ways to make your offer stronger is to eliminate contingencies regarding home inspection, financing or appraisal, Aoyama says. That puts you in a more solid position to win a bidding war. If you have cash reserves to cover the gap between a low appraisal and your offer, you can waive the appraisal contingency, he says, but leave your financing contingency in place to protect yourself.

"If you can't waive these, you can at least shorten the time frame, such as (by) reducing the loan contingency to 10 days if you know your lender can provide you with proof of financing quickly enough," Aoyama says.

Offering to buy the home as is can be tempting, but make sure you have an accurate idea of the home's condition with an informational inspection for safety.
Paul says buyers need to make their offer as strong as possible, so if you don't need a home warranty or help with closing costs, don't ask for them.

6. Try an escalation clause — maybe
An escalation clause is an addendum to a purchase offer that authorizes your agent to offer a specified amount above the best offer the seller receives. It's a powerful way to wage a bidding war.
"Buyers are offering escalation clauses a lot less often than when the housing market was booming, unless the home is priced way below market value," Moraru says. "I recommend that buyers who want to offer an escalation clause be very careful when choosing to go as high as they can with the understanding that they can live with the price if it goes to the maximum amount. They also need to feel that if someone else gets the house at a higher price, that buyer overpaid."