Housing Still Affordable
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.89 percent in May from 5.10 percent in April; the rate was 4.86 percent in May 2009.
The national median existing-home price for all housing types was $179,600 in May, up 2.7 percent from May 2009. Distressed homes slipped to 31 percent of sales last month, compared with 33 percent in April; it was also 33 percent in May 2009.
NAR President Vicki Cox Golder said home prices have been stabilizing all year. “With distressed sales at roughly the same level as a year ago, the gain in home prices is a hopeful sign that the market is in a good position to stand on its own without further government stimulus,” she said. “Very affordable mortgage interest rates and stabilizing home prices are encouraging home buyers who were on the sidelines during most of the boom and bust cycle.”
Pending home sales are expected to decline notably in May and June from the spring surge, but Yun added that job growth and a manageable level of foreclosures are keys to sales and price performance during the second half of the year.
NAR
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30- and 15-Year Rates Move Down
Home-mortgage rates fell this week along with bond yields, according to Freddie Mac. The 30-year fixed-rate mortgage averaged 4.72 percent, down from 4.79 percent a week ago; while rates on 15-year fixed-rate mortgages fell to another record low of 4.17 percent from 4.2 percent.
Also, the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.92 percent, down from 3.94 percent last week. Finally, one-year Treasury-indexed ARMs fell to a new six-year-low of 3.91 percent, compared with 3.95 percent a week ago.
Source: Wall Street Journal, Nathan Becker (06/11/10)
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Are Fixed-Rate Mortgages the Best Loan?
The think-tank Center for American Progress is questioning the premise that a 30-year, fixed-rate mortgage is the best option for homebuyers.
The reason mortgage-backed securities looked so attractive to banks is that they solved the problem of a mismatch between low rates on mortgages and higher rates for deposits. Banks worried about getting stuck earning low rates on a mortgage for 30 years while having to pay higher rates on bank accounts to attract depositors. Their answer: unload their mortgages to investors and let them worry about the profitability of the loans. Those investors hedged their bets by purchasing interest-rate swaps and other derivatives. Now, even Fannie Mae and Freddie Mac are having a hard time getting a handle on what those hedges are worth.
In other parts of the world, variable rates are the norm. While borrowers face the risk of rates going up, lenders at least can ensure the rates they pay to depositors don’t outstrip what they receive in mortgage products. Homeownership rates in Canada and the European Union, where variable rate mortgages are the norm, are about what they are in the U.S.
And in any case, there are ways for borrowers to mitigate their interest-rate risk. They can take out loans with fixed initial period, for example. For homeowners who typically hold their homes for seven years, a five-year fixed rate provides considerable security.
If the country persists in choosing fixed-rate mortgages, some observers say, lenders might consider the Danish model where mortgages are financed through the bond market rather than a separate securities market. That’s a system that has worked well for two centuries.
Source: The Wall Street Journal, James R. Hagerty (12/14/2009)
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