Those who refinanced their mortgages a year or so ago, when interest rates averaged just below 5 percent for a 30-year fixed-rate loan, may be wondering whether it’s time to refinance yet again now that rates are at least a full percentage point lower.
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- As of Thursday, according to Freddie Mac’s weekly survey, the average rate on a 30-year loan was 3.83 percent, down from 4.63 percent a year ago, setting a record low.
- According to financial planners, homeowners considering refinancing first should delve into their financial goals, specifically the length of time they plan to live in the home.
- Some homeowners decide it makes more sense to stay with their current mortgage, especially if the savings are small or they plan to move within a year or two. According to one financial planner, when homeowners refinance, they’re not building equity; they’re starting at the beginning of the amortization tables.
- Amortization schedules work like this: In the first few years, almost all of the payment goes toward interest, so the longer the homeowner has the loan, the more is put toward the principal.
- Those who refinanced in the last year or two don’t have to consider amortization tables, but they do need to know their equity position – and when refinancing would begin to pay off.
- To calculate that, start with a rundown of all the closing costs, then divide the closing costs by the amount expected to be saved on each monthly payment.
- Depending on the lender, most homeowners likely need to have at least 20 percent equity, and maybe a little more, if they want to wrap closing costs into the new mortgage.
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A FICO survey of bank risk professionals found that 46 percent expect the volume of strategic defaults in 2012 to surpass 2011 levels, as more than 25 percent of U.S. homeowners owe more on their mortgages than their homes are worth.
Concerns about strategic defaults were also reflected in response to a question about the consumer payment hierarchy. When asked if the current generation of homeowners considers their mortgage to be their most important credit obligation, 49 percent of bankers said no and 29 percent said yes.
Although concerns remain regarding strategic defaults, other signs point to growing stability in the housing market. More respondents (26 percent) expected delinquencies on mortgages to decline in the coming months than at any previous time in the two years FICO has been conducting this survey. Furthermore, 53 percent of respondents said the housing market would improve by the end of 2012, compared with 24 percent who said the market would deteriorate.
More than half of survey respondents (56 percent) expected the supply of credit for residential mortgages to fall short of demand over the next six months. A similar majority (53 percent) expected the supply of credit for mortgage refinancing to fall short of demand, indicating that lenders remain cautious about the risks in the real estate market.
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Short sales accounted for 23.9 percent of home purchases in January, the most recent month available, compared with 19.7 percent for sales of foreclosed homes, according to Lender Processing Services Inc.
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The median price for an existing, single-family home in California rose 1.6 percent in March compared with the year before, marking the first year-over-year increase in 16 months, the CALIFORNIA ASSOCIATION OF REALTORS® reported Monday.
Making sense of the story
- The statewide median price of an existing, single-family detached home jumped 9.2 percent to $291,080 in March from February’s $266,660 median price and was up 1.6 percent from a revised $286,550 recorded in March 2011. The month-to-month increase was the largest since March 2004.
- Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 505,360 units in March, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. Sales in March were down 4..5 percent month-over-month and 2.3 percent year-to-year.
- The statewide sales figure represents what would be the total number of homes sold during 2012 if sales maintained the March pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
- “Housing inventory remains extremely tight throughout the state and at levels severely under normal market conditions,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “In areas, such as Los Angeles and Riverside counties, where the Federal Housing Finance Agency (FHFA) wants to implement the REO bulk sale pilot program, inventory is running at levels well below the long-run average. These low inventory levels demonstrate that the pilot program is not necessary in California.”
- The pilot program calls for the sale of more than 600 Fannie Mae-owned foreclosed homes in Los Angeles and Riverside counties to institutional investors.
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In case you haven’t already heard, the 2012 RISMedia Power Broker survey was just released, ranking the top 300 real estate firms in the country. I’m pleased to say that through all your hard work in 2011, Realty World Northern California & Nevada is now ranked 62nd in terms of transactions units (5,986), and 49th in terms of transaction volume ($1,593,868,946). Check out the report here.
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Fannie Mae’s latest quarterly National Housing Survey focuses on the state of homeownership aspirations among Americans across all demographic groups. The survey finds that despite the recent housing crisis, most Americans continue to believe that owning their home is preferable to renting it. The data also indicate that while financial constraints and employment concerns may be keeping potential home buyers on the sidelines in the near term, future improvements in employment and personal finances, a pickup in interest rates in response to stronger economic growth, and stabilizing home prices may move Americans to act on their aspirations in coming years.
- Across all education levels, Americans say owning makes more sense than renting. This belief is held consistently across all demographic groups.
- Nearly two-thirds of current renters say that they will buy a house at some point in the future.
- Non-financial factors such as safety and quality of local schools continue to be the top reasons for buying a home across all income groups.
- African-Americans and Hispanics are more likely to cite various benefits, such as buying a home as a way to build wealth, homeownership as a symbol of success, and civic benefits.
Attitudes about homeownership as an investment, financial constraints, and mortgage accessibility may mean that more Americans choose not to act on their aspiration for homeownership, thus potentially leading to lower homeownership rates.
- The margin of Americans believing homeownership has the highest investment potential has declined over the past several years.
- At the same time, the perceived safety of owning a home as an investment has trended downward, reaching a low of 63 percent in the fourth quarter of 2011.
- In turn, groups with higher levels of education and higher incomes are more likely to think buying a home is a safe investment.
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