SubscribeActivity off the Charts, Tighter Guides, Tax Credit Extension– Weekly Comments for October 9, 2009
October 12, 2009
With the number of mortgage applications on purchases surging another 13% last week, combined with conforming-level rates remaining at sub-5% levels and pending home sales rising for the seventh straight month, who in the real-estate world doesn’t need an extra shot of espresso in the am! But not all is rosy with tighter guidelines and the Fed ready to raise rates as necessary to control inflation.
Applications and Rates
With total mortgage applications up 16% last week (13% for purchase applications), how is it that rates are lower if demand for loans is up? The answer is that rates are affected when loans are locked. So if applications are submitted, but processing times are extended and applicants are holding off locking their loan, rates will be lower until real demand (locking the loan) kicks in. The current trend seems to indicate that rates are moving higher, but not significantly. As such, if you are looking for that conforming 30-year fixed under 5%.., it’s still available. Non-conforming rates are also cooperating as they are tied more closely with savings rates than market fluctuations, and we all know how low those CD rates are right now.
What is important to note is that the Fed is concerned about the level of “slack” left as it relates to loose monetary policy, which suggests that tightening monetary policy (raising rates is one way to tighten the screws, but not the only way) has become the focus for the Fed.
Pending Home Sales Up 22.3% Over Last Year
August is typically a slower month for real estate sales, but August 2009 sure bucked the trend with the West reporting a 16% increase over last month and a 22.3% increase over last year—the index now stands at 130.5 in the West. For those still uncertain about whether low rates and tax credits are not doing their part to stabilize the housing market, this latest data is sure enlightening.
Even new construction purchases were up in August with new-construction inventory shrinking for the 28th consecutive month.
Fannie and Freddie Cutting DTI Allowances to 45%?!
Last quarter, Fannie and Freddie cut debt-to-income (“DTI”) allowances for their loans by 16% to 55%. Now, Fannie and Freddie have indicated that DTI allowances will be cut again to 45% DTI—an additional 18.2% cut! What this means is that borrowers who could afford a $500k home today will have to settle for a $400k home in the future. As if there aren’t enough motivating factors for first-time homebuyers already—low rates, low prices, tax credits– here’s another reason…
And speaking of the tax credit, let’s all keep our fingers’ crossed that it at least gets extended and hopefully improved!
Condodealz Update
If you know of anyone interested in purchasing a new condo in Palo Alto at sizeable discount, register yourself at condodealz.com as soon as practical, as a deal is currently in the works.
We’re working this weekend as we do every weekend, so please feel free to contact us at 650.543.8001 or 800.517.LOAN (5626).
Cheers,
Eric
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