There are two primary measures of housing prices that we track at FREEandCLEAR: the Federal Housing Finance Agency (FHFA) House Price Index, which uses certain nationwide mortgage activity to track home prices and the S&P / Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan markets.  Both indices are reported on a monthly basis and include information for the month that is two months prior to the reporting date.  For example, the report released in September contains information on housing prices in the month of July.

In welcome news for prospective home buyers, the FHFA House Price Index for September 2014 showed that July housing prices increased only 0.1% as compared to June and 4.4% on a year-over-year basis (so as compared to July 2013).  FHFA House Price Index figures for July came in below analyst expectations and declined relative to the June figures on both a month-over-month and year-over-year basis.  The S&P / Case-Shiller Home Price Index for September 2014 showed that housing prices declined 0.5% in July as compared to June but increased 6.7% on a year-over-year basis, although this increase was less than the 8.1% year-over-year increase reported for June 2014.  Similar to the FHFA House Price Index figures, the S&P / Case-Shiller Home Price Index came in below expectations and declined relative to the June figures. The most recent FHFA and S&P / Case-Shiller home price indices show that nationwide housing prices continue to flatten.  It is important to highlight that these indices reflect the trend in nationwide housing prices and housing prices for a specific region or city can vary significantly.  In general, however, all signals point to a cooling off of housing prices after years of significant price increases. (Source: Bloomberg)

What it Means for Mortgage Borrowers

Home buyers who had been deterred by a lack of affordable housing inventory could potentially enter the real estate market as prices stabilize.  First-time home buyers have been particularly reluctant to enter the market so flattening prices combined with relatively low interest rates could bring a new wave of buyers into the marketplace.  It is important to emphasize that each city has a unique housing price dynamic and prices in certain markets continue to rise, but the but on a national basis, housing prices are gradually becoming more affordable for more people.  Check out the COMPARE LENDERS function on FREEandCLEAR to review interest rates for lenders in your city and use our First-Time Home Buyer Mortgage Cheat Sheet as your starting point for the mortgage process.

The FREEandCLEAR Mortgage Expert

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The National Association of Realtors pending home sales index tracks the number of existing homes that went into contract to be sold.  When a home seller and buyer agree to the price and terms of a home sale, they sign a contract that outlines the transaction details and the property is said to be “under contract.”  The home sale process is typically completed four-to-six weeks after the property goes under contract so the pending homes sales index is a leading indicator, or predictor, for the real estate market.  An increase in the index reflects an increase in existing home sales while a decrease in the index reflects a decrease in existing home sales.  It is important to point out that the index tracks existing home sales as opposed to new home sales, or homes that are recently constructed that have not been lived in previously.  When people purchase a home they typically get a mortgage so the index also forecasts future activity in the mortgage market. The pending home sales index is released on a monthly basis and provides figures for the prior month.  For example, the pending home sales index report released in September contains figures for August.

The pending home sales index report for September 2014 showed that pending home sales in August declined 1.0% on a month-over-month basis (as compared to July 2014) and declined 2.2% on a year-over-year basis (as compared to August 2013).  The lack of affordable housing supply, reluctance of first-time home buyers to enter the housing market and a focus on new homes as opposed to existing homes continues to hold back the existing home sales market as reflected by the index figures for August.  The pending home sales index figures for August are consistent with the existing home sales report for August, which we also covered on the FREEandCLEAR Mortgage Expert Blog, which showed that existing home sales in August decreased 1.8% on a month-over-month basis and decreased 5.3% on a year-over-year basis. (Source: Bloomberg)

What it Means for Mortgage Borrowers

The pending homes sales index report suggests that existing home sales will continue to be flat for the next several months which should result in flat mortgage activity as well.  This is actually positive news for borrowers as lenders should be more aggressive in pursuing new mortgage business and more willing to negotiate a lower interest rate or closing costs.  Additionally, with relatively low interest rates and the existing housing market showing signs of slowing down (in certain geographies), home sellers may be more open to negotiate on price which could lead to more affordable housing options for buyers. Use our Mortgage Qualification Calculator to determine what size mortgage you qualify for and our COMPARE LENDERS feature to monitor interest rates so that you can take advantage of increasingly favorable market conditions for home buyers.

The FREEandCLEAR Mortgage Expert

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In our effort to cover important trends that affect the mortgage market, the FREEandCLEAR keeps a close eye on new home sales, which is the number of newly constructed housing units that are sold in a month.  The new home sales figure is reported separately from the existing home sales figure, which is the number of previously constructed homes that are sold in a month.  The new home sales market is smaller than the existing home sales market but it is still an important indicator for the real estate and mortgage markets.  In addition to reporting the number of housing units sold, the new home sales report also includes information on the supply of units for sale as wells as the median and average new home sales price.

The new home sales report, issued on a monthly basis, includes statistics for the prior month.  The report for September 2014 showed that new home sales in August increased 18% on a month-over-month basis to an annualized 504,000 units (so if you take the home sales figure for August and multiplied it by twelve).  The number of new homes available for sale, known as supply, increased slightly from 201,000 units in July to 203,000 units in August.  Despite the increase in demand, the median new home sales price decreased 1.6% on a month-over-month basis to $275,600.  The August new home sales figure came in well above market expectations as buyers attracted by flattening house prices and relatively low interest rates appear to be increasingly focused on the new home market. (Source: Bloomberg)

What it Means for Mortgage Borrowers

The robust new home sales figure for August mirrors the continued strength in the housing market index which we reviewed in a recent blog post.  The housing market index also focuses on the new home sales market and gauges existing and projected new home sales as well as buyer interest level.  Both statistics for August indicate that buyers appear to be shifting their attention to the new home market, potentially as a result of being able to buy more house for their money.  With home prices stabilizing on a nationwide basis, first-time home buyers may finally be feeling more confident about entering the market.  Our Rent Payment Mortgage Affordability Calculator is great for first-time home buyers who want to understand what size mortgage they can afford based on their monthly rent payment.

The FREEandCLEAR Mortgage Expert

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At FREEandCLEAR, we follow the Mortgage Bankers’ Association (MBA) mortgage applications index which measures both purchase and refinance applications for mortgage lenders across the country.  An increase in the MBA applications index reflects an increase in mortgage applications while a decrease in the index reflects a decline in mortgage applications.  After an increase in the index for the week ended September 12th, 2014, mortgage application activity for the week ended September 19th, 2014 continued the overall downward trend observed over the past several months.

For the week ended September 19th, the purchase application index declined .3% as compared to the prior week.  The refinance application index declined 7.0% as compared to the prior week. The composite index, which includes both purchase and refinance mortgage applications, declined 4.1% as compared to the prior week.  In total, mortgage application activity decreased significantly as compared to the prior week, consistent the recent general trend that showed a decline in mortgage applications.  The decline in the index is attributed to a cooling housing market and slightly higher interest rates.  (Source: Bloomberg)

What it Means for Borrowers

A continued weakness in the mortgage application market could benefit borrowers as lenders may offer better terms as they compete to generate new business.  Although interest rates remain relatively low, borrowers should continue to monitor rates as additional increases could deter home buyers or home owners looking to refinance.  Check out the COMPARE LENDERS feature on FREEandCLEAR to review interest rates from multiple lenders in your area.

The FREEandCLEAR Mortgage Expert

www.freeandclear.com

FREEandCLEAR launches the Rent Payment Mortgage Affordability Calculator

With the average monthly rent in many large cities such as New York and San Francisco exceeding record levels it can be interesting (and a tad bit sad) to understand what size mortgage you can afford based on your monthly rent payment.  The FREEandCLEAR Rent Payment Mortgage Affordability Calculator allows you to do just that.  Simply input your monthly rent and the calculator determines the 30 year fixed rate and 15 year fixed rate mortgages you can afford using current interest rates.  Although there are many factors that determine your ability to qualify for a mortgage and buy a house, such as your monthly income, debt, credit score and down payment, this calculator is a useful tool for mortgage consumers to understand how their rent payment potentially translates into mortgage size.

For example, the median monthly rent in San Francisco is approximately $3,200.  Based on current interest rates, a borrower paying $3,200 per month in rent could afford a 30 year fixed rate mortgage of approximately $670,000 and a 15 year fixed rate mortgage of approximately $482,000.

It’s important to highlight that the estimated mortgage amount you can afford is based solely on your monthly rent payment and does not take into account housing related expenses such as property tax and homeowners insurance or other potentially applicable expenses such as homeowners association (HOA) fees, private mortgage insurance (PMI) or FHA mortgage insurance premium (MIP).  You should always consider total monthly housing expense, and not just your monthly mortgage payment, when determining what size mortgage you can afford.

The Rent Payment Mortgage Affordability Calculator is the the latest addition to the wide range of FREEandCLEAR mortgage calculators including our Mortgage Qualification Calculator, Buy Versus Rent Comparison Calculator and Fixed Rate Mortgage Calculator that help mortgage consumers understand what size mortgage they can afford.  So check out the Rent Payment Mortgage Affordability Calculator and let us know what you think.

The FREEandCLEAR Mortgage Expert

In our effort to cover important trends that affect the mortgage market, the FREEandCLEAR keeps a close eye on existing home sales, which is the number of previously constructed housing units that are sold in a month.  The existing home sales figure is reported separately from the new home sales figure, which is the number of newly constructed homes that are sold in a month.  An increase in existing home sales reflects improvement in the housing market while a decrease in existing home sales reflects a weakening of the housing market.  In addition to reporting the number of housing units sold, the existing home sales report also includes information on the supply of units for sale as wells as the median and average existing home sales price.

The existing home sales report, issued on a monthly basis, includes statistics for the prior month.  The report for September 2014 showed that existing home sales in August decreased 1.8% on a month-over-month basis and decreased 5.3% on a year-over-year basis to an annualized 5.05 million units (so if you take the home sales figure for August and multiplied it by twelve).  The number of existing homes available for sale, known as supply, decreased by 40,000 units, or 1.7%, to 2.31 million units.  The median existing home sales price decreased 0.8% to $219,800.  The August existing home sales figure came in below market expectations due to limited participation by first-time home buyers, the reduced supply of homes for sale and the decline in distressed inventory such as foreclosed homes for sale. (Source: Bloomberg)

What it Means for Mortgage Borrowers

Existing home sales continue to be correlated to the supply of affordable housing inventory and the decline in the supply of homes for sale and distressed inventory suggests that home buyers, and especially first-time home buyers, are taking a small step back from the existing home market and either sitting on the sidelines or focusing more on the new home market, as the Housing Market Index report for September indicates.  Because the existing home sales market is larger than the new home sales market it has a larger impact on the mortgage market.  Reduced mortgage activity that typically accompanies a decline in existing home sales means that lenders should be competing even more for your mortgage business.  Use increased lender competition to your advantage by shopping your mortgage business and COMPARING LENDERS to find the mortgage with the best terms.

The FREEandCLEAR Mortgage Expert

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To keep track of the real estate and mortgage markets FREEandCLEAR monitors a lot of statistics including Mortgage Applications, the Housing Market Index, Existing and New Home Sales and Housing Prices.  Another key report that reflects the strength of the housing market is the monthly Housing Starts report released jointly by the U.S. Census Bureau, U.S. Department of Commerce and U.S. Department of Housing & Urban Development.  The Housing Starts report includes two pieces of data: starts and permits.  A housing start is counted when construction begins on a new single or multifamily property.  A permit is counted when a permit is issued by a local government to a property owner or builder to begin construction on a new single or multifamily property. Because construction typically begins soon after a new permit is issued, housing starts and permits are typically highly correlated.

The Housing Starts report is issued on a monthly basis and provides figures for the prior month.  For example, the report for September includes housing starts and permit statistics for August.  The report for September showed that housing starts declined 14.4% in August to approximately 956,000 units while permits declined 5.6% to 998,000.  Both starts and permits came in below analyst expectations for August.  The decline in starts was driven by a significant drop-off in the multifamily segment while single family starts showed a more modest decline of 2.4%.  The single family segment is larger than the multifamily segment.  It is important to note that the Housing Starts report tends to fluctuate significantly from month to month so it is better to look at the trends over the course of five-to-six months.  For example, July housing starts were up 15.7% on a monthly basis and permits were up 8.1% so the decline in the August figures was not surprising although the magnitude of the decline was. (Source: Bloomberg)

What it Means for Mortgage Borrowers

As mentioned above, it is hard to draw too many conclusions by looking at the Housing Starts report for any single month but the August report suggests that new housing construction could come in slightly below expectations over the next several months.  Fewer new homes means less housing supply for prospective home buyers which in turn can have an impact on home prices.  Additionally, multifamily starts and permits continue to show more strength than the single family segment which means home buyers may have more multifamily options such as condominiums or duplexes.  We will track future Housing Starts reports, as well as the other housing and mortgage statistics we follow, so stay tuned to the FREEandCLEAR Blog to see if the August figures are outliers or part of a broader trend.  And use our Mortgage Qualification Calculator, which allows you to include homeowners association (HOA) fees, which are common with multifamily properties, to determine what size mortgage you can afford.

The FREEandCLEAR Mortgage Expert

www.freeandclear.com

The Federal Reserve determines monetary policy in the United States, and monetary policy, in turn, is one of the most important factors in determining mortgage interest rates.  So when the Federal Reserve speaks, FREEandCLEAR listens closely and passes along our insights to the the FREEandCLEAR community.  One of the key tools that the Federal Reserve uses to control monetary policy is the Federal Funds Rate.  In short, the Federal Funds Rate is the interest rate that banks pay when they borrow money from each other overnight to make sure they have enough money in reserve.  The Federal Reserve sets a target for the Federal Funds Rate which influences other interest rates, including mortgage interest rates.  Although there are other factors involved, the lower the Federal Funds Rate, the lower mortgage interest rates and the higher the Federal Funds Rate, the higher mortgage interest rates.  The Federal Open Market Committee (FOMC) is the policy-making unit of the Federal Reserve that is responsible for determining the Federal Funds Rate and meets eight times a year to discuss what the target rate should be.  After every meeting, the FOMC releases a policy statement that discusses the target Federal Funds Rate as well as other monetary policy and economic issues.  The FOMC announcement can have a significant impact on interest rates depending on if the FOMC changes the target Federal Funds Rate and the language the statement uses to discuss monetary policy and the economy.  Analysts and industry experts dissect the FOMC statements for clues about what direction the Federal Reserve will take with monetary policy and interest rates in the future.  The addition or subtraction of a single word in an FOMC announcement can have a significant impact on the financial markets and mortgage interest rates.

In its most recent FOMC announcement released on September 17th, the Federal Reserve left the target Federal Funds Rate unchanged at 0 to .25%.  The FOMC statement also indicated that the Federal Reserve will likely maintain the current low target Federal Funds Rate for “a considerable time” which means that the target rate is likely to remain at its current level for several months, barring any significant economic developments.  The FOMC’s decision to maintain the current Federal Funds Rate did not come as a surprise to industry analysts although the specific language contained in the FOMC statement eased some concerns that the Federal Reserve was becoming more inclined to raise interest rates sooner than previously anticipated.

What it Means for Borrowers

The FOMC’s decision to hold the target Federal Funds Rate constant and its use of relatively cautious language about not raising interest rates for “a considerable time” had a steadying effect on mortgage interest rates, which had begun to increase slightly over the past couple of weeks.  Mortgage rates remain at historical lows and the FOMC announcement suggests that interest rates will remain relatively flat for several months meaning that it continues to be a good time to buy a home or refinance your mortgage.  Check out the COMPARE LENDERS feature on FREEandCLEAR to review interest rates from lenders in your area and keep checking our blog for the latest mortgage news.

The FREEandCLEAR Mortgage Expert

www.freeandclear.com