Home affordability took a slight hit this week after the Federal Reserve’s release of its August 10 meeting minutes.

The “Fed Minutes” is a lengthy, detailed recap of a Federal Open Market Committee meeting, not unlike the minutes published after a corporate conference, or condo association gathering. The Federal Reserve publishes its meeting minutes 3 weeks after a FOMC get-together.

The minutes are lengthy, too.

At 6,181 words, August’s Fed Minutes is thick with data about the economy, its current threats, and its deeper strengths. The minutes also recount the conversations that, ultimately, shape our nation’s monetary policy.

It’s for this reason that mortgage rates are rising. Wall Street didn’t see much from the Fed that warranted otherwise.

Among the Fed’s observations from its minutes:

• On the economy : The recession was deeper than previously believed
• On jobs : Private employment is expanding slowly
• On housing : The market was “quite soft” in June

Now, none of this was considered “news”, per se. If anything, investors were expecting for harsher words from the Fed; a bleaker outlook for the economy. And, because they didn’t get it, monies moved to stocks and mortgage bonds lost.

That caused mortgage rates to rise.

The Fed meets 8 times annually. Its next meeting is scheduled for September 21, 2010.  Until then, mortgage rates should remain low and home affordability should remain high. There will be ups-and-downs from day-to-day, but overall, the market is favorable.

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According to the Standard & Poors Case-Shiller Index, home values rose 5 percent in June versus the month prior, and 4 percent from a year earlier.  It’s the 16th consecutive month in which Case-Shiller reported an increase in home values and the third straight month of outstanding results.

That said, homeowners and home buyers in Gig Harbor would do well to temper Case-Shiller enthusiasm. The June figures are issued on 60-day delay and, over the last 60 days, housing data has been lackluster at best.

• Existing Home Sales are down 27 percent
• New Home Sales are down 12 percent
• Homebuilder confidence is down

Stories like these highlight a key weakness of the Case-Shiller Index — it’s out of date as soon as it’s published. Because of this, the Case-Shiller Index relevance to everyday Americans is muted. People don’t buy homes in the “60 days ago” real estate market, after all.

June is ancient real estate history to buyers and sellers in Queen Anne.

However, the Case-Shiller Index does have its place. As the most widely-followed, private-sector housing tracker, the index is used to help make policy decisions and to shape Wall Street’s expectations of the economy. This means that a strong Case-Shiller reading can cause mortgage rates to rise, and a weak Case-Shiller reading can cause rates to fall.

Tuesday, mortgage rates fell.

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Mortgage rates are low right now but pinning them down this week could be a challenge. As Labor Day Weekend nears and Wall Streeters take their head-start on the holiday, trading volume will fall, which will cause mortgage rates in Washington to get jumpy.

As mortgage rates change, so does the long-term cost of owning a home. Every 1/8 percent adjustment changes a household budget.

Meanwhile, the relationship between “vacation days” and mortgage rate volatility is an interesting one; based more in scarcity than market fundamentals.

Rates tend to get volatile near holidays because of two inter-related facts:

1. Conforming mortgage rates are based on the price of mortgage-backed bonds
2. Mortgage-backed bonds can’t trade without a buyer and a seller at a specific price

So, as the week progresses and more traders leave for their respective “extended” 3-day weekends, there’s fewer buyers and sellers left on Wall Street to connect for a trade.  As a result, mortgage bond prices move across larger gaps than on a “normal” day which, in turn, translates into faster, larger changes in rates.

This phenomenon can be exaggerated during periods of economic uncertainty — like what we’re in now — and, furthermore, there’s a bevy of important data set for release this week including the FOMC Minutes, inflation data, and August jobs figures.

In other words, rates would have been volatile without the vacation week. The presence of Labor Day just piles on.

Mortgage rates may rise this week, or they may fall.  Either way, if you have a chance to lock something favorable and within your budget, consider doing it.  Rates are at all-time lows and likely won’t last.

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Mortgage markets improved last week despite a major mortgage bond sell-off Friday afternoon. Prior to the jump, conforming mortgage rates had cut new, all-time lows by Thursday, only to lose up to 0.250 percent on the last day of the week.

Meanwhile, the same type of news that drove rates lower Monday through Thursday also contributed to rates rising Friday — revised projections for the U.S. economy.

Early in the week, “bad” news piled on which, in turn, lowered expectations for the economy and pushed mortgage rates down:

• Existing Home Sales dropped 27% from June
• Single-Family New Home Sales dropped 12% from June
• Purchases of “big ticket” items plunged

Then, on Friday, two events revised the market’s expectations back higher:

• Q2 GDP was revised lower, but not as low as had been expected
• Fed Chairman Ben Bernanke said the economy will keep expanding through the end of the year and into 2011

When Chairman Bernanke talks, markets listen. His comments about the U.S. economy helped fuel that late-Friday surge in mortgage rates last week.

This week, the momentum could continue — depending on the data.

There’s a lot for markets to digest this week including key inflation figures from the government; home value data from Case-Shiller; Fed Minutes from the Federal Reserve; and, the always-important jobs report due Friday.

Since April, mortgage rates have been on a downward trajectory and that may continue this week.  Or, it may not. If you own a home and haven’t talked to your loan officer about a refinance, now is as good a time as any — rates are at historic lows and could rebound at any time.

Last June, mortgage rates rose 1.125% in 10 days. Under the right circumstances, it could happen again.

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With home prices holding firm and mortgage rates still dropping, home affordability is reaching new heights.

According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between April-June 2010 were affordable to families earning the national median income.

It’s a slightly higher reading as compared to last quarter, and the second highest reading in the survey’s history.

As with all aspects of real estate, however, home affordability varies by locale. 

For example, 97.2% of homes sold in Syracuse were affordable for families making the area’s median income, earning the New York city its first “Most Affordable Major City” designation.  Indianapolis was the first quarter winner.

On the opposite end of the spectrum, the “Least Affordable Major City” title went to the New York-White Plains, NY-Wayne, NJ area for the 9th consecutive quarter.  Just 19.9% of homes are affordable to families earning the local median income, down 1 percent from last quarter.

The rankings for all 225 metro areas are viewable on the NAHB website but regardless of where you live, buying a home is as affordable as it’s ever been in history. Furthermore, because home values are in recovery and mortgage rates may rise, the market is ripe for home buyers in Queen Anne.

All things equal, buying a home may never be this inexpensive again. If you were planning to purchase later this year, you may want to move up your time frame.

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One day after the National Association of Realtors released the softest Existing Home Sales report since 1995, the U.S. Census Bureau released a similarly-weak New Home Sales report.

Americans bought just 276,000 newly-built homes in July. That marks the fewest units sold since the government started keeping records in 1963.

In addition, although new home inventory actually dropped 2,000 units in July, the slowing sales pace still managed to push the national supply higher by 1.1 months.  At July’s rate of sales, the nation’s new home inventory would be exhausted in just about 9 months.

None of this news should surprise you, though. It’s all been foreshadowed for weeks.

First, Single-Family Housing Starts have dropped in every month since April.  A “housing start” is a when a home starts construction and, because fewer homes are under construction, we should expect fewer homes to be sold.

Second, Building Permits are down.  The number of new permits peaked in March and have fallen 23 percent since.

And, lastly, home builder confidence ranks at its lowest levels since early-2009. A contributing factor in that pessimism is dwindling buyer foot traffic.

Regardless, there’s two sides to the story. Although the New Home Sales data looks bad for builders, it can be terrific  for you. This is because new homes are more likely to be discounted when the sales cycle favors buyers.

Coupled with ultra-low mortgage rates, the cost of buying a newly-built home in Gig Harbor may have just become cheaper.

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The number of home resales plunged by 1.4 million units in July, according to the National Association of Realtors®’ Existing Home Sales report.

It’s a drop of 27 percent from June; single-family home resales are at the report’s lowest levels since May 1999.

Furthermore, because of the sharp drop in sales volume, home inventories are spiking.

Homes for sale nationwide fell just short of 4 million units in July and, at the current sales paces, it would take 12.5 months for the existing inventory to be absorbed.

Home supply was just 8.9 months in June.

For home sellers in Gig Harbor , the Existing Home Sales report is a bit of bad news.  Fewer sales and larger inventories put negotiation leverage in the hands of the buyers which, in turn, creates downward pressure on home prices.  It may also increase time-on-market.

For home buyers, however, the data is decidedly welcome. After a stimulus-driven spring buying season that favored sellers, the summer and early-fall market seem to favor buyers. More choices and more leverage is a positive.

It helps that home affordability is up, too. 

Although there’s reports that home values are rising, their modest gains are more than countered by the ongoing rally in mortgage rates. Freddie Mac says that 30-year fixed rate mortgage rates are at their lowest levels in history and, at today’s rates, every one-eighth drop in mortgage rates roughly offsets a 1.5% increase to home price.

Mortgage rates are down 0.75 percent since mid-April.

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The tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.

According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges. 

During that period, eight in 10 lenders added hurdles.

For mortgage applicants in Seattle , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of restriction.

Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters.  There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.

That said, lots of homeowners are still getting loans.

Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.

According to Freddie Mac, mortgage rates are as low as they’ve been in history.

So, if you’re among the many wondering if now is the right time to buy a home — or refinance one — remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.

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Mortgage markets stalled last week in back-and-forth trading as Wall Street grappled with weak housing data, falling builder confidence, and worsening jobs numbers nationwide.

Because markets were volatile, rate shopping was challenging.

Conforming mortgage rates did managed to make a new all-time low last Thursday but quickly gave up those gains. Most of Friday afternoon was spent in the red and, as a result, for the second straight week, mortgage rates failed to fall overall.

But, although last week’s action puts a damper on this summer’s mortgage rate rally, the Refi Boom is still going strong.

According to Freddie Mac, as compared to April 8 when mortgage rates touched their recent high-point, pricing is hugely improved across 3 popular loan products.

• 30-year fixed : Then, 5.21%; Now, 4.42%
• 15-year fixed : Then, 4.52%; Now, 3.90%
• 5-year ARM : Then, 4.25%; Now, 3.56%

As an example of potential savings, a homeowner in Washington with a $250,000 30-year fixed rate mortgage would save $96 per month at today’s rates as compared to April’s.

Over the life of a loan, that’s a savings of $34,560.

This week, it’s unlikely that the Refi Boom will meet its end, but that doesn’t mean you should wait for rates to fall further. Mortgage rates tend to change quickly and without notice, and should rates rise, you may find that you’ve missed the market bottom.

If today’s rates appeal to your finances and budget, consider locking something in and moving forward.

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Another week, another new low for conforming mortgage rates.  In fact, this week marks the 9th time in a row it’s happened.

Mortgage rates are (again) at their lowest levels in history.

The data comes from the Freddie Mac, a government group and major loan securitizer for the U.S. mortgage market. Freddie Mac’s weekly survey is among the most widely-cited reports on mortgage rates and is the data used in home affordability models, among other statistics.

The 30-year fixed rate is averaging 4.42% nationally with an accompanying cost of 0.7 points. 1 point is equal to 1 percent of the loan size.  This week’s reported rate is lower by 0.02 percent from last week, and lower by 0.70 percent from one year ago.

On a region-by-region basis, though, “average” 30-year fixed mortgage rates are different.

• Northeast : 4.44 with 0.6 points
• Southeast : 4.44 with 0.8 points
• N. Central : 4.42 with 0.4 points
• Southeast : 4.46 with 0.5 points
• West : 4.35 with 0.8 points

But this isn’t to say that mortgage pricing is better in, say, California as compared to Florida. Note that the West Region — with the lowest average rate — has the highest required points.  This is because mortgage rates and mortgage fees move in opposite directions.  The type of low-rate/high fee structure common in the West may be right for some home buyers and would-be refinancers, but may not be right for others.

What’s important to remember is that, as a rate-shopper in Washington , it’s always your choice on how your loan is structured. Banks offer multiple set-ups — with or without points — to meet every applicant’s budget.

As mortgage rates continue to slide and touch new lows, it’s an excellent opportunity to see what your lender can do for you. Low rates won’t last forever.

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