Rates Move Down
After steadily moving higher for the past few weeks, mortgage rates moved back down a bit as June was coming to a close.
According to Freddie Mac, the average rate for a 30-year fixed loan for the week ending June 21 was 6.69 percent, down 5 basis points from an average of 6.74 percent the week before. A basis point is 1/100th of 1 percent.
"Mortgage rates eased this week due to market concerns that the housing market will be a longer drag on the economy," explained Frank Nothaft, Freddie Mac's chief economist, who noted that May's housing starts fell for the first time in four months and home-builder optimism in June fell to a 16-year low.
"Thus far this year, the housing sector directly shaved 0.8 percentage points off real economic growth in the first quarter, compared to the 1.2 percentage points it lopped off growth in the second half of 2006," Nothaft reported.
The slight slide in the benchmark rate puts interest costs just about at the same place they were a year ago, when the average 30-year fixed mortgage rate was 6.71 percent.
As always, though, consumers need to consider points charged by lenders as well as other fees to determine the real cost of loans. A point is 1 percent of the loan amount. And last week, lenders were charging 0.5 points.
Other key rates as June swooned:
- The 15-year fixed loan averaged 6.37 percent, down from 6.43 percent the previous week. A year ago, the rate of 15-year mortgages averaged 6.36 percent.
- Five-year Treasury-indexed hybrid ARMs averaged 6.31 percent, down from an average of 6.37 percent the week before. A year ago, the 5-year ARM averaged 6.32 percent.
- One-year adjustable rate mortgages indexed to Treasury securities averaged 5.66 percent, down from last week when the average was 5.75 percent. At this time last year, the 1-year ARM averaged 5.75
Affordability Remains a Problem
Despite the slowdown in sales and smaller gains in appreciation -- or, in some places, no gains at all -- the nation's biggest housing challenge is affordability, according to the latest report from Harvard's Joint Center for Housing Studies.
While the housing market will recover in due course, prospects aren't great for those trying to get a toehold on the housing ladder, the report says.
"In just one year, the number of households spending more than half their income on housing increased a startling 1.2 million to 17 million in 2005," notes Rachel Drew, a research analyst at the Joint Center. "Even if prices or rents soften for a period of time, the nature of (our) labor markets, the regulatory restrictions imposed on residential development, and the fiscal limits of government assistance to cost-burdened households will make affordability a long-term challenge."
Some Americans try to escape these cost burdens by taking longer commutes and incurring higher travel costs, while others double up or live in substandard housing or undesirable neighborhoods. But Drew reports that the prospects for a substantial easing of these problems are dim.
On a positive note, Eric Belsky, the Center's executive director, likes what he sees for the market as a whole. "While it will take time to work out current loan problems and work off the oversupply of homes, the long-term outlook for residential investment remains strong," he reports.
Largely, as a result of a record number of new immigrants arriving in the United States in the 1990s and larger numbers entering this decade, net household growth is poised to accelerate by about 2 million to 14.6 million households by 2015. In addition, incomes and wealth stand higher for most households in real terms than 10 years ago. This should translate into solid growth in both new construction and remodeling spending over the next 10 years compared with the last 10.
FHA Quirk
Even persons who have declared Chapter 13 bankruptcy can obtain an FHA-insured mortgage under a little known provision of the rules.
While you have to have made your last 12 trustee payments on time, you do not have to pay off the entire bankruptcy to qualify for funding backed by the full faith and credit of Uncle Sam. All that's necessary is permission from the court to proceed with the transaction. Ask your lender to check the FHA's underwriting guidelines for further details about this untapped niche.
Dueling Disclosures
As part of a study of current mortgage disclosures, the Federal Trade Commission has produced a new, three-page prototype form that contains all the information the consumer watchdog agency believes borrowers need to make an informed decision regarding various loan products and their costs.
Whether the prototype will be tinkered with and/or accepted by the federal agencies which regulate the mortgage business -- chiefly the Department of Housing and Urban Development and the Federal Reserve Board -- remains to be seen. But the three often work together.
But wait. There's another disclosure form, this one just a single page, that seems to be gaining credence up Pennsylvania Avenue on Capital Hill. This one was designed by Alex Pollock, a former president of the Federal Home Loan Bank Board of Chicago who is now a resident fellow at the American Enterprise Institute.
Pollock's form, which presents the essentials of the mortgage, including monthly costs and principal loan terms, has the backing of Rep. Patrick McHenry, R-N.C., and Christopher Cruise, a mortgage industry educator and an officer of the National Association of Responsible Loan Officers.
Rep. McHenry is drafting legislation that would require lenders to provide a simple disclosure form like Pollock's, and Cruise says Pollock's form has practically all the information a borrower needs. "Literally everybody that I have talked to in the industry strongly supports this form," Cruise told the session.
But that isn't all. The Mortgage Bankers Association is working on a simplified short-form disclosure form of its own. Earlier in his year at the MBA's helm, Chairman John Robbins called for a one-pager similar to the one provided by pharmacists when they fill doctors' prescriptions. But the MBA has found that creating such a sheet was more difficult than Robbins envisioned.
So far, the best the group has come up with is a relaunch of its consumer education website, HomeLoanLearningCenter.com , with new interactive calculators and advice to help borrowers find the best mortgage fit. But MBA spokesperson Cheryl Crispen promises that the association will roll out its version sometime this summer.
Frightening Prediction
Here's a scary thought: By the year 2057, the average home in the Washington, D.C., region is likely to cost more than $14 million. No, that's not a typo -- $14 million!
According to study by the Metropolitan Washington Council of Governments, an association of 21 jurisdictions, the average price of a house 50 years from now would be almost 12 times the projected average household income. Currently, homes in the area cost roughly 3.5 times the average regional household income.
