Looking Forward with Fixed Rates
Instead of throwing up their arms in financial frustration, borrowers in droves are trading in their ARMs (adjustable rate mortgages) for less risky fixed rate mortgages (FRMs).
In many cases, the new FRMs come with lower rates than their old mortgages, which has adjusted beyond homeowners' financial comfort level.
Freddie Mac said 89 percent of borrowers who originally had a 1-year ARM chose a new FRM when they refinanced and 84 percent of those who had a hybrid-ARM did likewise during the first quarter this year.
A 1-year arm adjusts after the first year, a hybrid remains fixed for several years or more and then adjusts.
In the current market, most adjustments push rates up, forcing homeowners to pay ever larger monthly mortgage payments.
Interest rates are lower than they were last year, but they've recently risen to their highest levels this year.
The average FRM rate for 30-year conventional mortgages was 6.37 percent the week ending May 24 this year, compared to 6.62 percent at this time last year. In July last year the average FRM rate peaked at 6.80 percent, according to Freddie Mac.
"In one year, the fully indexed rate that these ARM loans will adjust to exceeds the 30-year fixed mortgage rate by a wide margin, so borrowers are choosing more and more to take the security of a fixed-rate loan when they refinance," said Amy Crews Cutts, deputy chief economist for Freddie Mac.
Unfortunately, while prime borrowers may have the option to refinance, tighter credit standards for subprime loans and nontraditional mortgages means the option is much less available for lower income borrowers as well as second home buyers.
Little Seasonal Salvation For Housing
The not-so owner-occupied housing market is as strained as the mortgage sector.
First quarter 2007 existing home sales, including single-family and condo homes, came in down 6.6 percent from the first quarter of 2006, according to the National Association of Realtors' (NAR) quarterly metro prices and sales report.
The national median existing single-family home price was $212,300 in the first quarter, down 1.8 percent from a year ago when the median price was $216,100.
The condo/cooperative sector in 59 metro areas came in a tad better, with prices up 1.0 to $224,500 in the first quarter, compared to the first quarter of 2006.
Even with overall sales and price declines, 82 of the 145 metros tracked had price increases, 62 suffered price declines and one market saw no price movement. Most areas favored buyers, but 11 areas revealed double-digit annual gains, according to NAR.
By region, first quarter existing-home sales in the Northeast rose 1.2 percent, but prices slipped by 2.5 percent compared to the first quarter of 2006. In the Midwest, existing home sales fell 6.1 percent and prices dropped 2.8 percent. Down South, sales drooped 7.3 percent and prices flattened falling 0.6 percent. Sales and prices also fell out West, by 11.9 percent and 1.8 percent respectively.
On the new home side, building permits, which provide a glimpse at the future, were down by 28.1 percent in April compared to April 2006 and the seasonally adjusted annual pace of 1.429 million permits was the slowest pace since June 1997, according to the U.S. Commerce Department.
Housing starts picked up 2.5 percent from a month ago, but were down, drooping 16.1 percent from a year earlier.
Incentives were no match for tighter mortgage money that robbed many buyers of the opportunity to cash in on lower prices pushed down by rising inventories.
New home prices in April came in with a median $229,100 price, a record 11.1 percent below the March level and 10.9 percent below the median from a year ago, the greatest year-over-year decline since 1970.
Sales of new, single-family houses in April 2007 were at a seasonally adjusted annual rate of 981,000, a healthy 16.2 percent jump above the March's level, but languid compared to April last year when sales were 10.6 percent greater.
More history was recorded by the U.S. Census' "Housing Vacancies And Homeownership" which revealed that 2.8 percent of all residential (new and existing) properties were vacant, up from 2.7 percent a quarter earlier and from 2.1 percent from a year ago.
It was the eighth straight quarter of increasing home vacancies and the highest percentage of vacant properties since the bureau began compiling the numbers in 1956.
"Builders are adjusting to the adverse impacts of tighter lending standards on home sales and cancellations by cutting back on the number of new permits and working down their backlog of unused permits," said National Association of Home Builders (NAHB) president Brian Catalde, an El Segundo, CA-based home builder.
NAHB chief economist David Seiders added, "The pattern of building permits clearly shows that the dramatic downward correction in housing production still is underway."
A Hidden Housing Market?
At least two reports say the housing market is in worse shape than most reports indicate.
The "May 2007 National Association for Business Economics Outlook", a consensus of macroeconomics forecasts from a panel of 48 professionals in late May put it bluntly, saying not only is housing suffering, it's dragging down the economy.
"Results for the first portion of the year indicate that the expansion has descended from its cruising altitude," said Carl Tannenbaum, NABE president and chief economist at LaSalle Bank/ABN AMRO in Chicago.
Residential investment remains a dominant force dampening growth in 2007. Nearly half of our forecasters think that the bottom in housing will not be reached until the fourth quarter of 2007 or later," the report said.
Days later and perhaps even more brutally blunt, John Burns Real Estate Consulting has labeled home sales information "misleading" and voiced concerns "policy makers are relying on national data to conclude that the housing market correction has not been severe."
Burns says several primary sources of housing market data are understating decreases in new home sales and mortgage applications.
"The preponderance of evidence shows that the housing market in vibrant areas where home building is prevalent has corrected much more than some people believe it has.
In summary, we believe that the Fed should know that the housing market correction has been quite steep and is also not showing signs of bottoming out … ," the firm reported.
Whew.
Some housing market, huh?
A holiday weekend couldn't come at a better time. Get away from it all in a vacation rental where rates are cheaper and incentives include, you guessed it, a $50 gas card.
Google it.
Vacation Time Is TV Time
Here's another reason to stock that second home with the latest TV hardware.
Some 113 million viewers watch television away from home, up from 86 million people four years ago, according to Total TV Audience Monitor.
T-TAM signed up 4,000 adults to keep track of their viewing in a diary log last October, and it found that 45 percent of outside of home (OOH) TV viewing is at colleges, 27 percent is watched at work (Wonder why we outsource?), 10 percent takes place in bars and restaurants, hotels account for 7 percent of this viewing and vacation homes account for another 5 percent.
If you market your vacation home to echo boomers you really need to stock a TV. T-TAM found that 26 million people in the 18-49 demographic are watching TV outside the home each week, and of that figure 4 million never watch TV at home.
The findings are similar to those discovered by Arbitron’s multimedia measurement tool the Portable People Meter, which found that as much as 15 percent of TV viewing takes place outside the home.
