Rock-Bottom Mortgage Rates Tempt Hesitant Home Shoppers
Greg McBride, senior financial analyst at Bankrate.com, said in an interview that two main catalysts are driving mortgage rates lower. First, the Federal Reserve has indicated it plans to keep short-term interest rates low for an extended period to help the economy along. The second factor is continued strong demand for government-issued debt despite fears that unprecedented spending to combat the financial crisis will eventually spark a bout of inflation. “The demand is not just from other central banks buying Treasury bonds,” the analyst said. “Institutional investors and hedge funds are looking to protect their year-to-date profits” by moving cash into Treasury bonds, pushing prices up and yields down. Mortgage rates are linked to the yield on the 10-year Treasury note. The Fed’s program to buy up to $1.25 trillion of mortgage-backed securities, which has been extended through the first quarter, has also contributed to easing rates. McBride estimated the Fed is buying about 80% of newly issued agency mortgage-backed securities. Meanwhile, more than 90% of all home loans this year have been purchased by government entities such as Fannie Mae, Freddie Mac and the FHA. This support has been keeping mortgage rates artificially low, but rates could jump when it is finally removed, some economists worry. However, McBride thinks the Fed will extend its program to buy mortgage-backed securities to nurture the nascent housing recovery. “The Fed can’t go full speed to a dead stop in four months without a spike in interest rates,” he said. “The economy is too fragile for the Fed to risk a rate spike.” Other signs that rates may head higher are if institutional investors start unloading government debt for riskier assets, or a general cooling to Treasury bonds. (www.marketwatch.com)
MarketWatch (12/3/09); John Spence
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Mortgage Rates Hit Lows, But Will It Last?
It’s hard to tell, but prospective home buyers shouldn’t count on mortgage rates staying at their current lows because the lending landscape is likely to change next year. In September, the Fed said it would gradually wind down its mortgage-backed securities purchase program, ending it by March 30. This has some mortgage lenders worried. In its weekly mortgage survey Thursday, more than 60% of Bankrate.com’s panel of experts predicted that rates will move higher over the next 30 to 45 days. How much higher is anyone’s guess. (www.chicagotribune.com)
Chicago Tribune (12/4/09); Mary Ellen Podmolik
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In Real Estate, Nesting Is the New Flipping
A proportionately bigger share of the home construction dollar — 20% more during the first three quarters of 2009 compared with the same period last year — now goes to home improvements, according to the U.S. Census Bureau. In October, remodeling spending increased 8.7% compared with September to an annualized rate of $114 billion. Jeff Hunt, vice president of Houston-based Strong remodelers, said that after a long slow period starting early last fall, his business took off. “About Aug. 1, all the stuff in our pipeline broke loose all at once, and since then we’ve been so busy we can’t see straight.” Most of his projects are for nesters planning to stay in their home. “Many people consider buying to get more space but when they look at all the costs they figure it makes sense to stay put,” said Hunt. “They say, ‘I like my house, my neighbors, the schools.’ Of course they do. That’s why they bought the house in the first place.” “Some remodelers are receiving more calls for bids, but it’s still extremely difficult to close a sale,” said Greg Miedema, a Tucson, Ariz.-based remodeler. The industry may be slack because most buyers remodel when they purchase their new home, and homes sales are down about 30% from their peak. And there are fewer people who can afford to upgrade their existing homes. But those who can, “They say, ‘if I’m going to stay here another five or 10 years, I’m going to have it the way I want,’” said Miedema. Susan Marvin, president of Marvin Windows and Doors, said that the proportion of replacement windows her company sells versus windows for new home construction has flip-flopped. “Our replacement window line has outperformed our line meant for the new construction market,” she said. “Replacement window sales are up by double digits, and the new construction windows are down by double digits the past few years.” (www.cnnmoney.com)
CNNMoney.com (12/4/09); Les Christie
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Green Homes Growing Red Hot
The home building industry is struggling, but the green home sector is booming. The number of homes winning the government’s Energy Star designation since the program began in 1995 has crossed the one million mark. Despite an overall housing slump, 75,000 have been added so far this year. Last year, Energy Star homes accounted for nearly 17% of all single-family homes built, up from 12% in 2007. The Energy Star label means a house is at least 20% more energy-efficient than other new homes. “The interest in green building is driven by consumers. More people are doing it to save money on their heating bills,” says Kevin Morrow of NAHB, whose green certifications jumped from 99 homes last year to at least 564 this year. Existing homes are going green, too: 68% of people surveyed by USA TODAY took steps this year to make their homes more energy-efficient. Of those who did, 71% said it was “mostly to save money” and 26% “mostly to save the environment.” (www.usatoday.com)
USA TODAY (12/4/09); Wendy Koch
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In Housing Bust, Small Jobs Keep Contractors Afloat
To survive their worst real estate crisis in more than a decade, builders in middle Tennessee who once built $2 million custom-designed homes are finding themselves installing floor tile and insulation. Most say their income has been significantly reduced, but they are making do with smaller projects, while keeping themselves and their subcontractors busy. Permits for home construction in the Nashville area are down about 30% so far this year compared with last year and have shown little sign of improvement in recent months. Things have gotten so bad, some home builders are even willing to do skylights, said John Sheley, executive vice president of the Home Builders Association of Middle Tennessee. “It’s not a lot of money, and it has a lot of liability because you’re drilling a hole in the roof,” he said. “That just tells you (builders) are taking smaller jobs.” Home owners, meanwhile, are still spending money on their renovations, taking advantage of lower material costs during a recession, said Kay Russell, who owns Murray Russell & Associates in Hendersonville, Tenn., with her husband, Bobby. The cost of framing lumber, for example, has fallen 30% from four years ago, according to NAHB. Granite countertops are only about 15% more expensive than Formica, Russell said. Remodeling, she said, “has meant survival.” The family business, which previously built $750,000 to $1 million homes, now is working on a $7,500 bathroom remodel that will add marble countertops and replace cast-iron piping and a rotten floor joist. Some of her clients have been willing to pay significantly for a home remodel, including one home owner who paid $100,000 for an environmentally friendly retrofit that included a new geothermal heating system. (www.tennessean.com)
The Tennessean (12/7/09); Naomi Snyder
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Michigan’s Population Declines Pummel Economy, Housing Market
Michigan’s economic collapse is leading thousands of residents to leave in search of more fertile economic ground. The state’s unemployment rate in October was 15.1%. Michigan and Rhode Island were the only states whose populations declined from 2006 to 2008, according to a report from Michigan State University. The U.S. Census Bureau estimates that Michigan’s population in 2008 was about 10 million, up 0.7% from 2000. However, the U.S. population has increased 8% since 2000. The impact of the population exodus on the housing industry is significant. The 63 counties that lost population between 2005 and 2008 collectively lost about $2.49 billion in equity, according to the report. The state’s 83 counties collectively lost $2.42 billion in home equity during that period. “These property-value losses associated with population loss alone are quite substantial,” the report said. “These losses add another layer of constraint on the financial health of property owners and on future prospects for economic growth.” (www.annarbor.com)
AnnArbor.com (12/1/09); Nathan Bomey
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