Mortgage Rate News

I like Seth Green. He’s smart, satirical and savvy. And tonight he’s going to be educational. He’s going to teach the country (or at least the portion of it that watches ABC) about mortgages. Tonight, at 9 p.m. Eastern, ABC is airing a one-hour special: UN-BROKE: What You Need to Know About Money. The purpose of the special is to provide some basic financial education to a country that has received a rather harsh wake-up call in the form of the worst recession since the Great Depression (although we’re nowhere near Depression levels). Here is what ABC says about what will be included in the special:

The special’s take on basic money sense includes:

• Will Smith, who gets down to basics with a boardroom full of corporate finance executives.
• Samuel L. Jackson, who appears as a bestselling author of self-help books and who is “Broke as Hell and Not Going to Take it Anymore!”
• The Jonas Brothers, who teach screaming teenage girls the mysteries of the stock market.
• Seth Green, who explains the fundamentals of a smart mortgage from his “crib.”
• Cedric the Entertainer, who talks back to credit cards.
• Christian Slater and Rosario Dawson, who visit an office workplace to explain the importance of investing in a 401(k) retirement plan.
• The E*Trade Babies, who meet Mellody for an online chat from their high chairs.

It looks to be an interesting evening. Here is a taste of what Seth Green will offer in his portion of the show:

Personally, while I think the 1/3 rule is nice, I don’t think it’s stringent enough. Instead of going for gross monthly income, I’d base it on my net. And I’d try to keep it closer to 28% instead of 1/3, since the best mortgage rates are going to involve the 28/36 ratio — limiting your housing costs to 28%. At any rate, the advice, though not something I completely agree with, is certainly more sound than what Americans have been doing. So it would be a BIG step up.

It’s been a fairly eventful couple of days in terms of mortgage market news. Not only have existing home sales increased, but there is new data for foreclosures, new home sales and mortgage rates now.

Foreclosures

The latest foreclosure data shows that foreclosure starts rose dramatically in the first quarter of 2009. This is not much of a surprise, since the moratoriums that many local mortgage companies — as well as Fannie and Freddie — put on foreclosure during the holiday season have been lifted. Quarter 1 marked the end of moratoriums, and the ax that had been poised to fall finally did. There is some hope that the loan modification and other programs introduced by the government might help stem the rising tide of foreclosure. Also, there are hopes that an improving economy later in the year might make it possible for more people to stay in their homes.

New home sales

Despite the concerns over foreclosure, and the temptation offered by existing home sales and distressed properties, new home sales are on the rise. April saw a slight increase to new homes sales, which should be good news for builders. Builders have been hard hit recently to compete with the bargains offered by REO properties. However, many builders are now offering incentives and special financing terms, providing some impetus for new home buying.

Mortgage rates

Mortgage rates are on the rise right now, due to concerns about the likelihood of quantitative easing by the Fed leading to inflation. The Wall Street Journal reports on the concerns about the Fed and inflation:

But the winds turned against the Fed in recent days, as investors worry the government’s approach could lead to inflation. The government will sell nearly $2 trillion in U.S. Treasury bonds this year to fund its stimulus programs, and investors worry there won’t be enough demand for it. Slack demand would send bond prices down and push up the government’s cost of raising money.

“The market is looking at the over $1 trillion deficit and how we’ll finance it and concluding it is too big to finance without Fed assistance. But Fed assistance is causing inflation worries,” says James Bianco, president of Bianco Research. “We’re caught in a vicious cycle.”

These worries are causing conditions that are driving mortgage rates higher. However, they are still low enough that most people can get a good deal on their mortgages when they decide to buy a home.

April saw an increase in existing home sales. When the National Association of Realtors broke the numbers down further, there were two very interesting trends that came out of it:

1. 40% of home buyers are first time home buyers.
2. 45% of home sales were distressed properties.

This information offers an interesting snapshot of what is going on right now. A number of people are realizing that they have an unparalleled opportunity to buy a home. First time home buyers understand that now is a great time to get involved in a home purchase. Government tax credits, low mortgage rates and home prices that continue to fall all provide impetus for movement.

Also interesting is the fact that almost half of home sales in April were of distressed properties. This is real estate that is in foreclosure, or near  foreclosure. Obviously, these types of homes make real bargains; many are looking for ways to get homes below market value. Short sales are rising in popularity, as well as seller motivated price reductions on homes.

Economy picking up

The rise in home sales is an indication that the economy is ready to begin picking up. Even with home prices down, there are signs that the housing market is stabilizing overall, and that is expected to be good for the economy. Additionally, a survey of economists reveals that a vast majority of them expect the recession to be over by the end of the year, meaning that home prices — and sales — are likely to rise toward the end of 2009 and 2010. However, things are low enough right now that it will take some time for recovery.

Indeed, it is important to make the distinction between the end of the recession and economic recovery. The end of the recession merely indicates when the economy stops contracting; economic recovery is expected to be a longer process of restorting economic growth.