US Mortgage Rates Continue to Fall to Record Lows

U.S. mortgage rates fell in the past week to the latest in a series of record lows amid concerns about the state of the U.S. economy, according to a survey released Thursday by Freddie Mac, the second-largest U.S. mortgage finance company.

Rock-bottom rates should continue to spur demand for home loan refinancing, putting extra cash into consumers' hands that they can save, use to pay off existing debt or
funnel into the economy through extra spending. (Also read: More Homeowners Expect Home Values to Fall More)

Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.42 percent for the week ended Aug. 19, down from the previous week's 4.44 percent and its year-ago level of 5.12 percent, according to the survey.

Thirty-year mortgage rates have fallen to fresh lows for nine straight weeks. Freddie Mac started the survey in April 1971.

Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.

Senate Backs Extending Deadline for Housing Tax Credit

The Senate voted Wednesday to give homebuyers another three months to settle on their contracts and take advantage of a popular tax credit that sparked a rush of activity in the housing market.

The Senate, with a vote of 60-37, accepted an amendment by Democratic Leader Harry Reid that extends the closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract.

The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers.

Existing homeowners buying a new primary residence are eligible for a $6,500 credit.

Reid offered the measure as an amendment to a bill that would extend some popular business tax breaks and extend unemployment insurance benefits for jobless workers.

The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30.

The popularity of the tax credit has caused some anxiety because settlement offices are inundated with buyers trying to close on transactions by the end of this month to get the tax break.

HOUSING RECESSION NOT OVER

In a presentation to the National Association of Real Estate Editors in Austin, Texas, last week, Stan Humphries, Zillow.com's chief economist, pointed to four myths he said consumers are latching on to as they try to make sense of recent housing statistics.

The four myths:

1.The housing recession is over. It's not, Humphries said. He estimates the bottom in home prices won't come until the third quarter, at least from a national perspective. Doug Duncan, chief economist at Fannie Mae and also a speaker at the conference, agreed with that estimation.

2.After markets hit bottom, prices will rebound to boom levels. Not going to happen, at least for a while, Humphries said. "Once we hit bottom, the bottom is going to be a long and flat affair across the markets," he said. "What we're going to see once we hit bottom is the second phase of the housing recession... that second phase is one of being flat."

3.The worst of the foreclosure mess is behind us. More wishful thinking, according to Humphries. He estimates foreclosures will peak later this year, then remain elevated for a while. Rick Sharga, senior vice president of RealtyTrac, an online marketplace for foreclosure properties, said he doesn't envision foreclosure activity stabilizing until late 2011.

4.The tax credits saved the housing market. With or without a tax credit, those who bought would have done so anyway, Humphries said. "The biggest impact [in home sales] we believe were low prices... low interest rates and the unsung factor here is the ramped up lending by the Federal Housing Administration."

Mortgage rates drop

Bond yields fell and mortgage rates followed after a relatively weak employment report, allowing the 30-year fixed-rate mortgage to hover near its record low set late last year, Freddie Mac's chief economist said on Thursday.

The 30-year fixed-rate mortgage averaged 4.72% for the week ending June 10, down from 4.79% last week and 5.59% a year ago, according to Freddie Mac's weekly survey of conforming mortgage rates.

The 15-year fixed-rate mortgage set a record low for the fourth week in a row, averaging 4.17% this week, down from 4.20% last week and 5.06% a year ago. Freddie Mac started tracking the mortgage in August 1991.

Bad economic news and natural disasters can be good news for mortgage rates.

When the Federal Reserve stopped buying mortgage backed securities, the assumption was that rates would start to rise.

But without a crystal ball, no-one could predict the erruption of a volcano in Iceland or the drastic measures taken by the European Union to bail out the Greek economy.

These events caused uncertainty in investors, who moved away from the stock market to more stable mortgage backed securities.

As a result, rates have stayed steady, but this is probably a temporary state.

If you are still considering refinancing, or are actively searching for a home, don't wait too long.

Call me today! We have rates with APRs beginning in the 3's, 4's and 5's - even JUMBOs!

APRIL 14TH MORTGAGE UPDATE

Mortgage markets improved last week to the delight of chicago rate shoppers.

Against a sparse economic calendar, Wall Street turned its attention to geopolitics in Greece and the Eurozone. It didn’t like what it saw. Safe haven buying buoyed mortgage bond markets last week as pricing recaptured two-thirds of its monumental losses from the week prior.

Despite last week’s surge, however, conforming and FHA mortgage rates remain near their worst levels of the year and appear poised to increase throughout the summer months.

The U.S. economy is improving. From last week:

Pending Home Sales posted a strong monthly improvement
Wholesale Trade data pointed to higher consumer spending ahead
Inflationary threats on the economy are receding, according to the Fed
Furthermore, continuing jobless claims were down again.

Good news for the economy is generally bad news for mortgage rates. Last week, that wasn’t the case because of Wall Street’s want for “safe” assets right now. This includes mortgage bonds and is helping to keep consumer rates low. When the safe haven buying eases, rates should climb.

Meanwhile, this week, the calendar is back-heavy.

There’s no real data until Wednesday’s Consumer Price Index, and then there’s a flurry of new releases through Friday’s market close including Retail Sales, Consumer Confidence and Housing Starts.

Strength in these issues should push mortgage rates back up.

If you’re floating or shopping a loan right now, be wary of market volatility. Rates have been jumpy since April 1 and mortgage rates are changing quickly. This week, locking in before Wednesday may be your safest, near-term rate locking strategy.

MORTGAGE RATES HOLD STRONG

Mortgage rates spent all last week attempting to recover from a few weeks of bad news in the bond market. We went home on Friday afternoon in good spirits as rates were seen at their best levels since the week before the Fed exited the mortgage backed securities market.

The week ahead is very busy with many economic reports, Federal Reserve speakers, and the kick-off of earnings season. Typically during corporate earnings season, strong reports lead to a stock market rallies which unfortunately come at the expense of bonds. The opposite generally occurs when earnings are worse than expected. Earnings season kicks off today after the closing bell with Alcoa reporting. Beyond that mortgage rates will battle a full economic data calendar which is anticipated to show continued improvement in the manufacturing sector, a more content consumer, tame inflation, and more weak housing starts and building permits numbers.

Here are a few highlights for the week:

Monday

Open of earnings season. Alcoa reports after the bell

Tuesday


International Trade (low to medium impact) The Trade Balance report measures the monthly difference between what our nation imports and what our nation exports.
Import and Export Prices (low to medium impact)
Wednesday


Weekly Mortgage Applications Index (low impact)
JP Morgan Earnings
Consumer Price Index, measures inflation on the consumer level (medium to high impact)
Retail Sales (medium to high impact) If sales figures are strong, that is a sign of economic expansion which will pressure mortgage rates higher. As a general rule, positive economic news is bad for mortgage rates while bad economic news is good for mortgage rates.
Beige Book, This data outlines economic conditions around the United States and is used as a point of reference during FOMC meetings where our nation’s monetary policy is set. (medium impact)
Ben Bernanke speaks on the Economic Outlook (medium to high impact)
Thursday


Weekly Jobless claims (medium impact)
Empire State Manufacturing Survey (medium impact)
Industrial Production, which is a measure of the strength of the manufacturing sector by measuring the output at U.S. factories, utilities and mines. Higher industrial production would be a positive economic indicator which would benefit the stock market at the expense of the fixed income sector. (high impact)
Philadelphia Fed Survey (low impact)
Friday


Housing Starts which estimates how much new residential real estate construction occurred in the previous month. (medium to high impact)
Bank of America Earnings
Consumer Sentiment (medium impact)
READ MORE for a more detailed look at the Week Ahead

When the day began, lender rate sheets were very similar where they were set on Friday, however both benchmark Treasury yields and mortgage-backed security prices have rallied throughout the session. This has allowed several lenders to reprice for the better. The par 30 year conventional rate mortgage is still holding in the 5.0% to 5.25% range for well qualified consumers though. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs. For consumers with lower FICO scores and higher loan to values, you should consider a government FHA loan. FHA loans have similar rates to conventional loans but do come with higher costs.

Mortgage Backed Securities Buying to End 3/31

As expected, at its meeting on Tuesday, March 16 the Federal Reserve Board held the fed funds rate steady, and the accompanying statement contained few changes.

The Fed continued to signal that the $1.25 trillion mortgage-backed securities (MBS) purchase program will conclude at the end of March. With less than two weeks of Fed MBS purchases remaining, investors will be watching closely to see if the Fed's exit has an impact on mortgage rates.

If you are planning to refinance, don't wait. Many experts expect rates to rise once the MBS buyout ends.

5 Reasons Why A Real Estate Agent is a Home Buying Asset

A real estate agent is one of the best assets you can have when it comes to buying a home. With the Home Buyer Tax Credit wrapping up on April 30, 2010 (where first-time buyers can receive up to $8,000; current homeowners up to $6,500), the housing market seems to be more spirited than ever. There is no doubt that now is an advantageous time to buy, but before you consider doing things on your own, take into consideration these five reasons on why you should get yourself a real estate agent.

Get Help in a Competitive Market
The home buyer tax credit has stimulated a very proactive buying market. With interest rates at historic lows and homes competitively priced, a real estate agent can provide you with insight on how to take advantage of the current market.

Let Someone Do the Search for You
Available property is not always being actively advertised in the market; therefore, your real estate agent may be able to find you more homes for sale than you could have originally found on your own.

Get Acquainted with Neighborhood Information
Agents have access to plenty of informational resources. Not only can they provide insight on the neighborhood, but they can give information on schools, employment, mass transit, etc.

Have Some Assistance with Negotiations
When buying a home, there are numerous negotiating factors including financing, purchase contract terms and repairs. Your agent can help you determine which type of home inspections are recommended for your purchase. Once you've found what assessments are needed, your agent should be able to help find you qualified professionals to give you written reports on their findings.

Allow Someone to Facilitate the Sale of Your Current Home
If you're not a first-time home buyer, your realtor can help you advertise and sell your property. They can help you objectively evaluate a buyer's proposal while helping you close on the sale of the home.

Purchase or Refinance...now is the time!

The gov't has announced that they will stop buying mortgage backed securities in the coming months and mortgage interest rates will begin to rise. The first time homebuyer tax credit also expires April 30th. The combination of these two make purchasing or refinancing very attractive right now, but time is running out!!!

Speeding up short sales

Short sales are a valuable tool for struggling homeowners, but they've been notoriously difficult to complete, with buyers and sellers often playing a long waiting game before hearing back from lenders.

Now, however, a new government program plus some lender initiatives may make for shorter wait times and a smoother process.

"Any structure is better than what we've had," said Kathryn Bovard, a broker/manager for Prudential Americana Group in the Las Vegas area.

Short sales are useful for borrowers who are underwater on their mortgage, owing more on the home than it's currently worth. In a short sale, the homeowner's lender accepts less than what the borrower owes on the mortgage in order to complete the sale. Both parties thus avoid the foreclosure process.

Foreclosure alternatives
The government's Home Affordable Foreclosure Alternatives (HAFA) program goes into effect April 5. Read more about HAFA.

"It's an extension of [the Home Affordable Modification Program] to provide a default solution before it gets to the worst," said Arvin Wijay, chief executive of Retreat Capital, a provider of products and services that facilitate short-sale management and loan modifications. If the borrower doesn't qualify for a modification, loan servicers will then assess the possibility of a short sale through the HAFA program.

Here are some ways HAFA is expected improve the traditional short-sale process:

•Borrowers will receive pre-approved short-sale terms before listing the property, including either a list price approved by the servicer or the acceptable sale proceeds, according to the U.S. Treasury Department. That way, sellers know what lenders will accept before listing the property.

•There's a set timeline, with deadlines for lenders and sellers to keep the short-sale process moving.

•At the completion of a sale, borrowers may get up to $1,500 for relocation expenses and servicers may receive compensation of up to $1,000. Up to $3,000 of proceeds are available to distribute to subordinate lien holders, making it possible to compensate the lenders of second mortgages.

Still, some in the industry are skeptical that the new program will be a great help to people.

"The homeowner should be encouraged that the government is doing something," but people should not expect it "to change the world overnight," said Fred Weaver, co-owner of Group 46:10, a team of agents who focus on short sales as part of Keller Williams Arizona Realty, in Tempe, Ariz.

Successful implementation also depends on servicers' staff. "Some servicers are good at finding the right people, and have the right technology," Wijay said. Some, he said, are not.

Looking at the lenders
In the past, it was common for one mortgage-servicer employee to be responsible for managing hundreds of short-sale applications, Weaver said. But the method with which short sales are approved is starting to improve with some firms, and some banks have made staffing adjustments to better handle the volume.

"Banks are trying to put programs in place to facilitate more short sales in a shorter period of time," Weaver said.

Some of the most recent efforts include allowing borrowers and real-estate agents to use an Internet portal to help improve communication, so they can submit paperwork electronically instead of faxing it, a practice that's under way at GMAC Mortgage and Bank of America, according to Weaver. And lenders including Wells Fargo have committed to increasing their staff to deal with short sales, Bovard said.

Lenders "have finally gotten on board with the fact that short sales will be a large part of the market over the next 24 to 36 months," said Bovard.

While the popularity of short sales differs by market, in the Las Vegas brokerage that Bovard runs, 70% of pending sales are now short sales, she said.

According to the latest Campbell/Inside Mortgage Finance survey of real-estate market conditions, short sales were the most popular category of sales for distressed properties. In January, short sales accounted for 15.9% of home-purchase transactions, compared with 13.4% of sales that were damaged bank-owned properties and 13.8% of sales that were move-in-ready bank-owned properties.

Short sales typically sell for 91% of their listing price, according to the survey results. Move-in-ready bank-owned properties typically sell for 99% of their listing price.

Words of advice
For homeowners considering a short sale, Bovard said it's important they speak to their trusted advisers, including their attorney and tax accountant, as well as a real-estate agent who has a short-sale designation.

When looking for a real-estate agent, homeowners should ask about the agent's track record with short sales, said Kevin Kauffman, co-owner of Group 46:10. "How many have you closed? The follow-up question: How many did you fail on -- how many went into foreclosure?"

Also, ask questions about the agent's strategy in getting the job done, he said.

For buyers, a lot of patience is required to finish one of these deals, said Bovard. "It's a long, involved process. But the payoff is getting a tremendous value

The Day Ahead: Housing Starts, Building Permits, FOMC Statement

The dollar is weaker and equities look to open higher as investors await the afternoon policy statement from the Federal Reserve Board.

Two hours before the opening bell, Dow futures are up 16 points to 10,592 and S&P 500 futures are 2.00 points higher at 1,147.75.

Commodities are also on the rise, with WTI crude oil up 18 cents to $79.98 per barrel and Spot Gold up $6.35 to $1,114.80.

8:30 ― Snow storms and poor weather are expected to push Housing Starts down in February, following a 2.8% gain in January. Demand remains weak overall, though new construction on residential homes is up 21% from last year. Expectations among economists are diverse, ranging from 530k to 591k, and the consensus is 565k.

“Although it is highly unlikely we will revisit the record lows seen last spring (479,000), the housing sector clearly continues to struggle, with the latest piece of evidence coming in the form of the unexpected deterioration in homebuilder sentiment,” said economists from BMO Capital Markets.
“Severe winter weather is likely to deliver another blow to the already-wobbly construction sector,” added economists from Nomura. “We forecast housing starts fell by about 5% to an annualized rate of just 560,000 in February, the lowest since October 2009.”

Building permits ― contracts that have been signed but not finalized ― are also expected to fall by around 3%, pushing the annualized pace to 605,000 units.

2:15 ― The FOMC is expected to maintain the target interest rate in the band of zero to 0.25% for many more months, so attention will be on the statement itself rather than the meeting’s decision.

“The factors justifying the extremely low level of rates ― ‘low rates of resource utilization, subdued inflation trends, and stable inflation expectations’ ― have not meaningfully changed,” said economists at Nomura. “We therefore expect the post-meeting statement to retain the ‘exceptionally low... for an extended period’ pledge.”

More generally, economists from IHS Global Insight said the statement should mention “further strengthening in the economic recovery, but continuing constraints on household spending due to tight credit, modest income growth and lower housing wealth.”

Mortgage Rates Rise Ahead of Treasury Auction. Fail to Recover Afterward

Much like Monday, yesterday was a data-less day in the marketplace, leaving me at a loss for words and new guidance. Mortgage-backed securities prices did managed to move higher following a very strong 3 year Treasury debt auction, unfortunately MBS price appreciations were not strong enough to warrant reprices for the better and lenders left mortgage rates unchanged on the day.

The economic calendar picked up today, but not much.

This morning the Mortgage Bankers Association released their Weekly Loan Applications Index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

Following several disappointing reports, the most recent report (prior to today's release) indicated an increase in demand for both purchase and refinance mortgage loans. Purchase applications rose 9% while refinance applications jumped over 17%.

Today's report offered mixed results. Purchase applications rose 5.7% while refinance activity fell 1.5%, in the week ending March 5th. With last week’s huge 17.2% increase in refinance activity, it isn’t surprising to see a modest pull back.

Yesterday I informed you that the most significant threat to mortgage rates was today's 10 year Treasury note auction and the 30 year bond auction scheduled to happen tomorrow. Well, benchmark yields started rising before the auction even occurred! This forced MBS prices lower and resulted in lenders raising mortgage rates early in the day. Higher rates did not reverse course after the auction either, regardless of strong demand. READ MORE ABOUT WHY RATES ROSE TODAY

Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers, but those quotes will cost about .125% more (as a percentage of your loan amount) at closing. To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.

I still favor locking loans over floating with the same exception as yesterday. If you can float overnight and lock on a shorter lock term tomorrow, I would float. Otherwise, locking now is the wise call. Lenders continue to offer the best rates of 2010, but do not show much willingness by to drive mortgage rates lower. If you plan to float, AQ shared some insight on acceptable time frames in THIS POST.

The boy who cried housing recovery!

Lowe's reported a better-than-expected profit for the fourth quarter on Monday, and the nation's second-largest home-improvement retailer indicated that 2010 would be a better year for the housing market.

It's tempting to dismiss more good news about the housing market as simply another head fake -- "The boy who cried housing recovery!"

An ETF tracking homebuilders and other housing stocks solidly outperformed the broader market's rally last year -- and the trend has continued in 2010.
But it might be finally time to say the market is slowly but surely getting better.

Just don't get too excited about the news. Lowe's said it now expects sales to be up 4% to 6% this year. Wall Street had been expecting a 3% jump. In a statement, Lowe's (LOW, Fortune 500) CEO Robert Niblock added that "the worst of the economic cycle is likely behind us."

Lowe's top rival Home Depot (HD, Fortune 500) reports its fourth-quarter results on Tuesday morning. So analysts will be eager to hear if Home Depot CEO Frank Blake shares Niblock's optimism.

Still, even before we find out about Home Depot's outlook, it's worth noting that other companies with ties to the housing market are also starting to show signs of a turnaround.

Several top homebuilders, including Lennar (LEN), D.R. Horton (DHI, Fortune 500) and KB Home (KBH), reported surprise fourth-quarter profits after years of red ink.

To be sure, much of the profits were a result of a change in tax law that benefited the builders. But several of the builders also said that new-home orders were improving. That's a good sign.

With that in mind, The SPDR S&P Homebuilders (XHB) exchange-traded fund, which tracks 26 companies in the housing sector, is up more than 6% this year. By way of comparison, the S&P 500 is flat.

Despite its name, the ETF does much more than track homebuilders. Home Depot and Lowe's are both in the fund, as are retailers Bed Bath & Beyond (BBBY, Fortune 500) and Wiliams-Sonoma (WSM), and fiberglass maker Owens Corning (OC, Fortune 500).

So is the worst for this group finally past? Probably. But that doesn't mean a robust recovery for housing is in the cards just yet. That may also mean that housing stocks could be ahead of themselves.

Stephen Carl, head equity trader with The Williams Capital Group, an investment bank in New York, points out that the better results for many housing companies is simply a reflection of them "pulling out of a morass."

"Housing numbers are going to get incrementally better but the recovery is going to be a slow mountain to climb. It will take some time and extend over quarters or years," Carl said.

Ted Parrish, co-manager of the Henssler Equity fund, also said it may be too soon to bet on a big, rapid rebound in housing.



The government will report new-home sales figures for January on Wednesday. Economists are expecting a 4% increase in the month to 355,000 new sales. But that would follow a nearly 8% drop in December.

"New-home sales are pretty anemic still. I'm not expecting robust growth for a couple of years," Parrish said.

He worries that new home sales will remain soft, especially after the first-time homebuyer tax credit expires in April. What's more, mortgage rates may begin to steadily rise later this year as the Federal Reserve begins to unwind its portfolio of mortgage-backed securities and consider interest rate hikes.

Parrish owns Lowe's in his fund but said that the reason he likes it is because it is less dependent on builders than Home Depot. He also said Lowe's could do better in a sluggish housing market because people are more apt to make repairs to the home they're in than look to buy a new one.

Along those lines, Lowe's Niblock also pointed out Monday that "consumers are gaining the confidence to take on more discretionary projects." That's not the same thing as consumers gaining confidence to buy a house.

Experts think it's also important to note that even when sales are improving, it may not necessarily be a sign of strength in the housing market. Alan Rosenbaum, CEO of GuardHill Financial, a mortgage bank based in New York, said rising sales may be simply a reflection of the glut of existing homes on the market.

"Reports about housing sales are conflicting right now, but the numbers are skewed because of foreclosures on the market. There are transactions taking place at fire sale prices," Rosenbaum said.

And housing prices will remain the biggest factor that determines whether the recovery is legitimate or not. According to the National Association for Business Economics, there is good news and bad news on that front.

The economists surveyed by NABE for its most recent outlook, released Monday, indicated that "the housing market rebound is considered ongoing and sustainable," and estimated that home prices would rise 1.6% this year and another 2.6% in 2011.

NABE called the price rebound "an important watershed for the economy" but pointed out that "such increases would barely keep up with inflation."

Of course, any improvement in the housing market should be cheered. Just don't mistake recovery for a renaissance.

Mortgage Rates Hold Near Best Levels of 2010 as Benchmark Yields Rise

I described last week as a roller coaster ride for mortgage rates. A busy schedule of economic data provided much of the motivation for movement in the rates marketplace with the release of the Employment Situation Report on Friday capping off the volatile action. The jobs report indicated fewer jobs were lost than economists had forecast. This better than expected read on the health of the labor market pushed benchmark Treasury yields higher and mortgage-backed security prices lower. While most lenders repriced for the worse after the data was released, several ended up repricing for the better before the week came to a close as of MBS prices rebounded late in the day. This brought mortgage rates right back to the lows of 2010, basically unchanged on the week. To remind readers, as the price of MBS move higher, lenders can offer lower mortgage rates.

If you missed my recap of the Employment Situation Report and the accompanying chart of reprices for the worse and reprices for the better: HERE IT IS

There are no major economic data releases scheduled for release today. As for the week ahead, there isn’t much to discuss either. The highest impacting events and releases will be Treasury supply coming to auction block and Retail Sales on Friday.

Tuesday

$40 billion 3 year Treasury notes will be auctioned (medium impact)
Wednesday


Mortgage Bankers Association's Weekly Applications Index (low impact)
$21 billion 10 year Treasury notes will be auctioned. Since the average life of a mortgage loan is much closer to 10 years than 3 years, this auction will be of higher importance for mortgage rate watchers.
January Wholesale Business Inventories (medium impact with poential to be high impact because of slow economic calendar)
Thursday


January International Trade (medium impact) The Trade Balance report measures the monthly difference between what our nation imports and what our nation exports.
Weekly Jobless Claims (more than medium impact less than high impact)
$13 billion 30 year Treasury bonds will be auctioned. Treasuries with terms of less than 2 years are known as bills, terms of 2 years to 10 years are known as notes, and terms of more than 10 years are referred to as bonds. The last auction of the week usually carries the greatest potential to disturb the interest rate market.

Reports from fellow mortgage professionals indicate lender rate sheets to be marginally worse when compared to Friday afternoon pricing. However the best par 30 year fixed conventional mortgage rate does remain in the 4.75% to 5.00% range for well qualified consumers. Mortgage rates are more or less holding steady near the lowest levels of 2010 even as benchmark Treasury yields have risen. READ MORE. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. Rates for 15 year fixed rate mortgages’ remain in the 4.25% to 4.50% range with similar costs.

If you have been sitting on the sidelines waiting to refinance, now is the time. The Fed is about to end its MBS purchase program at the end of the month, while we do not expect mortgage rates to skyrocket, we do anticipate they will move steadily higher. I have been saying all year that the only way mortgage rates will move back to the best levels of 2009 is a fundamental shift in economic outlooks or a surprise announcement from the Fed regarding the extension of the MBS purchase program. At the moment, both events seem highly unlikely. Still locking.

Frank Agrees US Should Back Fannie, Freddie Debt

House Financial Services Chairman Barney Frank on Friday said he agrees with the Obama administration's decision to fully back Fannie Mae and Freddie Mac bondholders to provide stability to the housing market and broader financial system.

At the same time, the powerful committee chairman said it would be a mistake to give Fannie and Freddie bondholders the same legal status as holders of US government debt by putting their obligations on the federal books.

"It's still not the same as a binding legal obligation of the federal government, and I don't think we should confuse that," Frank told CNBC in a live interview.

The comments come just hours after Frank said bondholders of major mortgage finance sources Fannie Mae and Freddie Mac should not assume the federal government will guarantee the debt of these government-sponsored enterprises at 100 cents on the dollar and they could theoretically suffer losses.

"It is also the case in going forward, as we restructure housing finance, we will make sure that there are no implicit guarantees, hints, suggestions, or winks and nods," Frank said in a prepared statement.

"I would hope that fairly promptly we can come up with a new set of rules," he told CNBC.



Frank's statement followed a statement from the Treasury Department that it was standing behind Fannie and Freddie.

Margaret Kerins of RBS Securities said any suggestion that so-called agency debt is not fully backed by the government is incorrect.

"Regardless of the ultimate outcome for the GSEs, we expect all agency debt outstanding and issued under GSE status to remain related to the government.

Reducing support is contrary to all of the actions takes by the administration and Treasury," Kerins said in a research note.

Asked about Frank's comments, Treasury Department spokeswoman Meg Reilly repeated the administration's position of backing the companies.



"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the Treasury statement said.

The comments come as Republicans on Frank's committee are pushing the Obama administration to put the trillions of dollars in debt obligations on to the federal budget.

Some Agreement on Financial Reform

In his interview with CNBC, Frank discussed financial reform legislation. One of the biggest issues holding up progress on reform is the question of where the consumer protection agency should be housed, and what its powers should hold.

"Can it be overridden by a bank regulator? I think that would be a terrible mistake because the bank regulators have a different set of priorities," he said. "Does it have the full scope over not just banks?"

The House bill also imposes a fiduciary responsibility over broker-dealers, and Frank has heard the Senate is thinking of taking this away. Still, after looking at Sen. Chris Dodd's original proposal, Frank said the two are "very close in a lot of ways" — he just doesn't know what type of compromises Dodd will have to make.

Nab a real estate deal - while you still can

If you've been holding off on a real estate purchase, glimmers of a turnaround in the housing market may have you wondering if it's finally time to make your move.

While home prices remain low, they're no longer free-falling in most markets. Mortgages are historically cheap. And the sweet tax credit that was offered to new buyers last year has been extended to April 30 and expanded to include current homeowners too.

Can you really nab that tax credit?

Current homeowners who sign a contract to buy a home on or before April 30 get a dollar-for-dollar reduction on their taxes of 10% of the purchase price of the home, up to a maximum of $6,500 (first-time buyers can get up to $8,000).

But according to the National Association of Realtors, buyers spend about 12 weeks home shopping before making an offer, so if you haven't already started looking, you may be pressed to meet the deadline.

Plus, to qualify for the full credit, your household income must be under $225,000 if you're married and less than $125,000 if you're single; repeat buyers must have lived in the home they are selling for five of the past eight years. The good news: Once you've signed the contract, you have until June 30 to close the deal.

How much could you lose by waiting?

Besides the loss of the tax credit, the biggest game-changer facing buyers is a potential jump in mortgage rates. If the Fed moves ahead with its plan to stop buying mortgage-backed securities at the end of March, the rate on a 30-year fixed mortgage is expected to increase nearly a percentage point from today's 5.18% to 6.1% by the end of 2010, according to the Mortgage Bankers Association. On a $300,000 fixed-rate mortgage, that's an extra $174 per month.

But if home values are falling in your area, you don't have much to lose by waiting. If the house you want costs $375,000 today and you put down 20%, you'd pay $1,644 a month for a fixed-rate mortgage at 5.18%. Buy that same home for 5% less later on with rates at 6% and you'd only pay an extra $65 a month. If prices plunge 10% or more this year (as they are expected to in 12% of markets, according to Fiserv), you'll come out even or ahead.

To get a handle on the direction of your market, check trulia.com to see whether inventory levels are increasing, and visit realtytrac.com to find out whether foreclosure filings are still rising. A glut of properties and bank-owned homes means a recovery may not be in sight.

How quickly can you sell the home you now own?

Even in markets that are recovering, sellers must price aggressively to make a fast deal.

"Everybody thinks their house is worth more than it is," says Dallas realtor Bruce Lynn. Before you sign a contract for a new place, ask a few agents to give you a realistic figure that will generate a quick sale. Can't bear to part with your home at that price? Waiting may be your only option.

Also keep in mind that, with the credit crunch not far in the past, lenders may not approve your purchase until you've sold your home. A delay in sale could also stick you with two mortgages, far outstripping any savings from the tax credit.

See if the sellers will let you put a contingency in the contract that negates the sale if you don't find a buyer -- it's a long shot but worth a try. If they won't, propose adding a kick-out clause that allows the sellers to keep their home on the market, but lets you either pull out or quickly move ahead with the deal if they get another offer.

While extra contract negotiations may be a hassle, the past few years have proved that a purchase decision shouldn't be taken lightly. "This may be the best time in history to buy a home," says Denver realtor Jeff Fogler, "but only if you can really afford it."

A Sign of Spring in Housing?

I know one week does not a trend make, but the surge in mortgage purchase applications (up 9 percent last week according to the Mortgage Bankers Association), is the first bright sign I've seen in a while.

Couple that with the fact that temperatures in the Northeast may approach 50 degrees this weekend, and I'm thinking, dare I say it, Spring!

I've been talking to a lot of Realtors this week, who tell me that there are definitely folks out there kicking the tires, but it's all about price point. The latest report from the National Association of Realtors showed the share of home sales in the $0 to $100,000 range went from 23.6 percent in December to 26.7 percent in January. The low end is selling, and inventories on the low end are way down, especially in California.

"You have low interest rates, you have low prices, I mean we are several years behind now on our pricing, and that's good news for buyers. You've got a market where the buyers can negotiate, and you've got the government giving you a tax credits; those are four really good reasons to be a buyer now and into the Spring market because next year, who knows?" says Maryland Realtor Jane Fairweather.

What does not bode well, however, is that those same Realtors report that the number of first time home buyers in the market is shrinking.

40 percent of January's buyers were first timers, down from 43 percent in December and 51 percent in November.

First time buyers have taken advantage of about $12.5 billion worth of government cash in the form of the tax credit, according to the Treasury Department, and I just wonder how many more first timers there are left to sign a contract on a home in the next eight weeks (credit expires on contracts dated April 30).

One area to watch this Spring, I think, is the investor share of the housing market.

The Realtors reported that 26 percent of buyers in January were all-cash. Compare that to the historical norm of less than 10 percent. Not all cash buyers are investors, but the bulk of them are. In the hardest hit markets, like Las Vegas and Phoenix, banks are only taking cash, and that's pushing your organic buyers to the sidelines, tax credit and all.

There's no question the next few months will be rocky and uncertain in home sales and prices. There are far too many uncertainties right now, especially when it comes to government support of the market, to make predictions, but there are rumblings of something out there, something, perhaps, coming up for air.

FHA Announces Policy Changes to Address Risk

FHA Upcoming Policy Changes

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge. The initial up-front increase is included in Mortgagee Letter 10-02 and will go into effect with FHA Case Assignments dated on and after April 5, 2010.
The second step will be to shift some of the premium increase from the up-front MIP to the annual MIP; date yet to be determined. This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing.
New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%

The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
This change will be posted in the Federal Register in February, and after a notice and comment period, will go into effect in the early summer.

What’s Ahead For Mortgage Rates This Week : March 2, 2010

Mortgage markets improved last week as economic reports painted a less-than-stellar portrait of the U.S. economy and concerns of a looming monetary policy change eased. Mortgage pricing improved dramatically, despite a late-Friday retreat.

Mortgage rates are now at their lowest levels since early-February.

Last week was heavy on negative data:

•Consumer Confidence posted 16% short of expectations
•New Home Sales posted 13% short of expectations
•Initial Jobless Claims were higher than expected
In addition, both the Case-Shiller and Home Price Indices showed a slight pullback in the housing sector.

The impact of these statistics was muted, however. This is because Fed Chairman Ben Bernanke gave his semi-annual outlook to Congress and markets focused more on the chairman verbiage than hard data, looking for clues about the future of Fed policy.

Bernanke stayed on message — the Fed Funds Rate will stay low for an extended period of time.

Mortgage rates were also helped by a strengthening U.S. dollar and demand for U.S.-denominated bonds. When demand for mortgage-backed bonds is strong, mortgage rates fall.

This week, mortgage rates will jockey around Friday’s Non-Farm Payrolls report.

Jobs are playing a large role in mortgage bond trading and markets expect that 30,000 jobs were lost in February. If the actual figure is better than 30,000 jobs lost, mortgage rates will rise. If it’s worse, rates will rise.

Other important data this week include Personal Consumption Expenditures — the Fed’s preferred inflation gauge — plus the Fed’s Beige Book release. Mortgage rates remain in flux so float with caution.

Mortgage rates look good today, but by Friday, they could be much, much worse.

New home sales fall to a record low

Sales of new homes plunged to a record low in January, government figures showed Wednesday, as the weak economy and a glut of foreclosed homes continue to weigh on the market.

The seasonally adjusted annual rate of new home sales plummeted 11.2% to 309,000 last month, compared with a revised rate of 348,000 in December, the Census Bureau said. That's a decline 6.1% from January 2009.

It was the lowest rate since the government began keeping records in 1963 and comes after declines in November and December.

The drop surprised many industry analysts. A consensus of economists surveyed by Briefing.com had expected January sales to rise to an annual rate of 354,000.

"Some people were expecting a surge in demand because of the tax credit," said Patrick Newport, an economist at IHS Global Insight. "But that surge isn't materializing."

Congress extended a popular tax credit last year that allows first-time buyers to deduct up to $8,000 from their income taxes and some repeat buyers to get a $6,500 break. Buyers now have until April to apply for the credit, which helped boost new home sales from depressed levels last year.

New home sales fell in all U.S. regions except the Mid-west, where sales edged up 2.1%. The Northeast was the hardest-hit last month, with sales plunging more than 35%.

What's driving the market: The market for new homes remains pressured by a glut of foreclosed properties and high unemployment.

"Distressed inventory continues to hit the market at cut-rate prices, drawing potential buyers away from new product," said Mike Larson, real estate analyst at Weiss Research. "And let's face it, the job market is nothing to write home about, either."

An industry report released earlier this month showed that foreclosures dropped nearly 10% between December and January, while filings rose 15% compared to a year ago.

Meanwhile, the U.S. unemployment rate fell unexpectedly in January to 9.7%. But the nation has lost 8.4 million jobs since late 2007, suggesting an economic recovery will be slow and uneven.

"I still think we're on the long, slow road to an anemic, lackluster recovery in housing," Larson added. "But numbers like these can sure shake your faith."

Inventory and prices: There were an estimated 234,000 new homes for sale at the end of December, according to the report.

At the current sales rate, it would take 9.1 months to sell through that inventory. That's up from December, when there were 8.1 months of inventory on the market. Prior to December, inventory levels had been steadily declining since May 2009.

Adam York, an economist at Wells Fargo, said the inventory of new homes for sale appears to be leveling off near 235,000 units.

"This is well below the level that persisted for most of the 1990s," he said, "suggesting builders have moved most of their excess inventory and will be in a better position when sales do eventually recover."

The median price of new homes sold in January was $203,500, down from $221,300 in the previous month. The average sale price was $254,500.

Outlook: Some economists expect new home sales to improve as the number of foreclosed properties on the market decreases and buyers take advantage of the tax credit.

"The supply of foreclosed homes has tightened," said Celia Chen, a senior director at Moody's Economy.com. "I think by early spring, home sales will pick up because buyers will want to take advantage of the tax credit."

IHS Global Insight's Newport said he also expects sales to pop this spring. However, he may reduce his full year forecast for new home sales in light of Wednesday's report.

"Builders are putting up homes," he said. "But what these numbers are telling us is that those homes aren't selling."

IS NOW THE TIME TO REFINANCE YOUR ARM??

Low mortgage rates over the past year have inspired many Americans to refinance their home loans, but some eligible borrowers haven't made the leap.

Often that reluctance to refinance stems from the fact that interest rates on their adjustable-rate mortgages have fallen below 3% -- a better rate than they'd get by switching to a fixed-rate loan.

For now, anyway.

As the economy strengthens, super-low ARM rates will adjust upward. Meanwhile, rates on fixed-rate mortgages are expected by many in the industry to start rising this year, after the Federal Reserve halts its purchase of mortgage-backed securities.

Many ARM holders are faced with two options: Give up their low rate now and refinance into a fixed-rate mortgage with a higher rate -- but one that's still near all-time lows, or hold on to that cheaper ARM rate as long as possible.

If your rate is indexed to the Libor, it could be at about 3% right now, said Keith Gumbinger, vice president for HSH Associates, publisher of consumer loan information.
The 30-year fixed-rate mortgage averaged 4.93% for the week ending Feb. 18, assuming payment of an average 0.7 point to obtain it, according to the latest Freddie Mac survey of conforming mortgage rates. See Mortgages.

"Some borrowers may opt to roll the dice again," Gumbinger said, and decide to stay in their current ARM to enjoy the lower rates as long as they can.

Trying to time the market, though, can be risky.

"The market can change very fast," said Jack Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania, and operator of "The Mortgage Professor" Web site, at mtgprofessor.com.

Depending on market conditions, it's not impossible for an ARM's rate to jump at least a couple of percentage points when it resets, he said.

"If you're an ARM borrower, you can't just look at your ARM rate and wait for that to change," he added. If you do, you could be headed for some payment shock -- and possibly miss out on securing a low fixed-rate mortgage that will remain low throughout the entire life of the loan.

Pick your moment

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ARMs typically reset after an introductory fixed-rate period, then reset regularly, often on an annual basis. For example, a typical 5/1 ARM will adjust for the first time five years into the loan, then will reset every year afterwards. There are often caps on how high the rate can adjust.

If the difference between someone's current ARM rate and the fixed-rate they'd be able to obtain isn't too large -- say, 1% or less -- there likely isn't a significant difference in monthly payment and it might be wise to refinance now, even if it means forfeiting your current low rate, Guttentag said. That way, you can secure a low fixed rate now and not gamble on when rates will move higher.

But for those with an ARM rate of 3% or less, it's a tougher decision.

Those who don't err on the side of caution and choose not to refinance now should vow to be astutely aware of the market so they can refinance before rates go up substantially, Guttentag said. They need to pay special attention to the index to which their ARM is tied -- the 1-year Treasury or the Libor, for example.

"If someone decided to do watchful waiting, they should establish a rule for themselves. Something like 'if that index increases by more than 1 or 1.5%, I'm going to move, I'm going to refinance,'" he said. "If you're not prepared to exercise this surveillance, you should refinance right now and trade short-term loss for long-term stability."

He also recommends developing a refinance strategy, getting your information ready for when it's time to make a move.

When will that be? It's difficult to tell. The consensus is that mortgage rates will go up, but no one knows exactly when or by how much.

"Rates are not going to go down this year. The question is: How much are they going to go up," said Mark Goldstein, chief executive of Refinance.com, a site that helps people decide whether to refinance and puts them in touch with lenders.

The Mortgage Bankers Association is predicting that average rates on 30-year fixed-rate mortgages will rise to about 6.1% by the end of the year, said Michael Fratantoni, vice president of research for the MBA. HSH Associates predicts the increase won't be quite as severe.

A shrinking pool

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Not all homeowners who haven't refinanced are ARM holders. Some simply can't refinance into a lower rate.

"For a lot of borrowers, they had the incentives before and didn't act -- largely because they don't have equity or don't qualify for income or credit reasons,"
Fratantoni said. For this reason, the MBA predicts a 65% drop in refinance origination this year, compared with 2009.

Probably the biggest reason people aren't able to refinance right now is because their mortgage is underwater -- that is, the homeowner owes more on the home than the home is currently worth, Goldstein said. Personal situations, such as divorce, also can alter people's creditworthiness and keep them from refinancing into a lower-cost loan, he said.

Some struggling borrowers might find relief in the government's Home Affordable Refinance Program, set to expire in June. And if conditions do improve -- meaning home prices stabilize and lending requirements ease somewhat -- the pool of people who can refinance could expand, Gumbinger said. Visit this site to find out more about the government's Home Affordable Refinance Program.

Housing Starts Bounce Back; Building Permits Fall

U.S. housing starts rebounded more strongly than expected to their highest level in six months in January, while permits fell slightly less than forecast, a government report showed on Wednesday.


The Commerce Department said housing starts increased 2.8 percent to a seasonally adjusted annual rate of 591,000 units, reversing the prior month's weather-induced drop.

Analysts polled by Reuters had expected housing starts to rise to 580,000 units. December's housing starts were revised upwards to 575,000 units from the previously reported 557,000 units. Compared to January last year, starts surged 21.1 percent, the largest increase since April 2004.



Groundbreaking for single-family homes rose 1.5 percent last month to an annual rate of 484,000 units after declining 3 percent in December. Starts for the volatile multifamily segment increased 9.2 percent to a 107,000 unit annual pace after rising 12.6 percent in December.

Housing, which is at the core of the most painful economic downturn since the Great Depression, is crawling out of a three-year slump, supported by government programs. New home construction contributed to economic growth in the third quarter of 2009 for the first time since 2005.




But activity slowed sharply in the fourth quarter and while homebuilder sentiment edged up this month, it remains at levels consistent with poor conditions.

New building permits, which give a sense of future home construction, fell 4.9 percent to 621,000 units last month after rising to a 14-month high of 653,000 units in December, the Commerce Department said. That compared to analysts' forecasts for 620,000 units.

The inventory of total houses under construction fell 2.3 percent to a record low 503,000 units last month, while the total number of units authorized but not yet started eased 0.9 percent to 94,300 units.

Where's housing headed? Follow rents

It may not be the most widespread measure of housing prices, but if you want to follow a powerful driver, look at rents.

Specifically, it's the rents Americans pay on condos, apartments or houses that are about the same size, and share the same neighborhood as your ranch or colonial, that in the end determine what your house is worth.

But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.

So how did that happen? During the bubble, rents -- the real engine that drives values -- were inching along at more or less their usual pace. From 1999 to 2007, apartment rents increased only 32%. But home prices jumped more than three times as fast, around 105%.

DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning.

But the picture varies widely from city to city. In 15 of those 53 metro areas, including St Louis, Indianapolis, and remarkably, Phoenix and San Diego, it's now higher than in 1999, meaning that homeowners' costs actually dropped versus what renters pay, courtesy of the steep decline in prices. In California's San Bernadino and Riverside Counties, it now costs 10% less to own than to rent; in 2006, owners paid more than twice as much as renters.

In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.

"If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure," says Yale economist Robert Shiller.

In recent reports, Deutsche Bank demonstrates how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That's a golden mean that America hasn't seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.

Housing outlook for 2010
Before we get to the numbers, let's examine why rents exercise a kind of gravitational pull over home prices.

In normal times, people won't pay much less to lease a house than to own it. After all, if you're paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room, chef's kitchen, and casita for visiting grandparents. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That's precisely what happened during the last bubble.

And the surest sign that prices have fully adjusted arrives when the ratio of what people pay in rent versus what owners spend on the same property returns to its historic average.

That brings us to the Deutsche Bank studies. Its REIT research team first established a benchmark for a "normal" ratio of rents to ownership costs -- what it calls ATMP, or after-tax mortgage payment -- for 53 U.S. cities.

On average, DB found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one
What does that mean for future prices?

Given that analysis, it's likely that prices will fall another 5% or so nationwide. The drop could even be slightly greater. One reason: Rents, the force that govern housing prices, are still falling.

In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.

But fortunately, for most of the U.S., the sudden, terrifying fall in prices worked its own black magic. The numbers are back in alignment, or close to it. It had to happen. That's what rents, housing's great master, were telling us all along

Home prices fell 12% in 2009

The real estate roller-coaster ride continued last year as the median price of U.S. single-family home plunged 11.9% to $173,200.

The housing situation had been looking up earlier in the year, with prices gaining ground in the first nine months. But the increases weren't enough to push the median home price above 2008's bar of $196,600, according to the National Association of Realtors.

Still, the quarter-over-quarter drop was encouraging to NAR, which tracks home prices and sales.

"This is the smallest price decline in over two years, with the most recent monthly data showing a broad stabilization in home prices," said Lawrence Yun, NAR's chief economist. "Because buyers are taking on long-term fixed rate mortgages, avoiding adjustable-rate products, and trying to stay well within their budgets, the price recovery process appears durable."

Another sign of improvement is the increase in the number of homes sold. More than 6 million homes changed hands between October and December -- a 27.2% increase from the same time period in 2008.

"The surge in home sales was driven by buyers responding strongly to the tax credit combined with record low mortgage interest rates," said Yun. "With inventory levels trending down over the past 18 months, we expect broadly balanced housing market conditions in much of the country by late spring with more areas showing higher prices."

Check home prices in your town
Michelle Meyer, Barclay Capital's economist for new home construction, is predicting continued price declines through early 2010. By the second quarter, however, she expects an upturn.

She thinks that as the homebuyer tax credit expires at the end of April, it will add volatility to the market during the second quarter. People will rush to get in under the wire, boosting volume and shoring up prices.

After that, markets will moderate, with few showing any substantial increases.

On the other hand, David Crowe, chief economist with the National Association of Home Builders, said he expects home prices "will moderate and stay where they are" for a long stretch.

Volume up nearly all across the board
Sales volume increased in all but two states; 32 states recorded double-digit homes sales gains. Foreclosure sales continued to drive these increases; distressed properties, which includes foreclosures and short sales, accounted for 32% of sales during the quarter.

Mike Larson, a real estate analyst for Weiss Research, attributed the pop in volume to low prices. "People are simply finding that houses are cheap again," he said.

Crowe said the increase in sales volume was no surprise even though job losses continued to mount during the quarter.

"It's not unusual for housing to pick up before unemployment does," he said. "That's the normal pattern coming out of a recession. Mortgage rates are low; home prices are low and have stopped dropping. There's three years of pent-up demand and people who are working are buying homes."

More than a third of the 151 metropolitan areas covered in the report recorded year-over-year home price increases for the quarter, led by Saginaw, Mich., where prices grew 53.5% to $67,400.

The Midwest, which boasts the lowest average home prices of any of the four U.S. regions, was the only area that recorded a price rise over the previous quarter -- a mere 1.1%. The Northeast (-5.6%), South (-2.4%) and West (-8.9%) all suffered losses.

The biggest price drop was in Ocala, Fla, where home value plunged 23.4% to $93,200. In Las Vegas, where foreclosure has hit harder than anywhere else, prices dropped 23.3%

When 'Dream House' Becomes Horror Home

It's like a fairy tale: your dream house with a white picket fence surrounded by blooming flowers, shade trees and an almost meditative silence, save for rustling leaves, chirping birds and the distant hum of a lawn mower. What could possibly be wrong with this idyllic picture?

Nothing ... it seems ... until your research uncovers barely adequate public schools, an authoritarian neighborhood association and a "zoning pending" placard on that vacant corner lot -- a sign you discovered when you leapt onto the curb to escape a fast-moving caravan of vehicles speeding home during subdivision rush hour. You start wondering: Where are the sidewalks? And why did my agent seem so dismissive when I asked about crime? Could this "dream house" be a "house of horror"?

"There was a time in the not-too-distant past when people worried first and foremost about finding their dream house -- and only worried about the location after the fact," says Andrew Schiller, creator of NeighborhoodScout.com, a neighborhood-data system, and founder of its parent firm, Location Inc. The site helps buyers find compatible neighborhoods by enabling them to narrow down hundreds of potential neighborhoods to a select few by finding similar cultures, comp-school ratings, crime stats and more, using over 2,700 data elements.

Today's buyers are becoming increasingly wary of a widening number of neighborhood concerns like walkability, compatible age, background and education levels, as well as sex offenders, Schiller says. But the No. 1 relocation consideration remains schools, he says.
"Being in a good school district is the best insurance policy for an easy exit strategy and to ensure property values," says Realtor Kristal Kraft, a broker associate with Denver-based The Berkshire Group.

Neighborhood culture isn't far behind. "I tell people considering a purchase in a specific neighborhood to come back at random times of day," Kraft says. "This often leads to discovery of conditions that might be objectionable -- or welcome. Poke around, take a walk, talk to neighbors." An overabundance of vehicles in driveways or on streets sometimes indicates a declining neighborhood "or just too many teenagers in residence," Kraft says.

To avoid potential short-term value depression, potential buyers should check local foreclosure rolls for an excess of pending defaulters in a neighborhood, says Jim Klinge, owner of Klinge Realty in San Diego. But foreclosures aren't always a stigma. Whether foreclosure buyers are investors or owner-occupiers, "they're coming in solvent enough to qualify for full mortgages," he says. "They're also fixing up houses in disrepair and are usually smart landlords." One big "must" for every buyer, says Klinge, is to check local sex-offender lists. "It's a bummer when you find out later that the guy across the street is a peeper."


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In years past, you could rely on your real estate agent for information about crime and whether the house you were considering was in a "safe" neighborhood. But that's no longer the case, necessarily. In a recent issue of Realtor magazine, The National Association of Realtors warned agents not to "disclose crime statistics or say a neighborhood is a safe place to live ... or say anything yourself about the quality of the schools." Why? To avoid violating the Fair Housing Act "steering" guidelines. The article, "6 Ways to Avoid Illegal Steering," suggests agents advise clients to contact police for crime and sex-offender data and to set up personal visits to schools for performance data.

Here are a few other neighborhood-research "musts":

Construction: Check with city planning or zoning to determine allowable or forthcoming uses on vacant land. "Planned roads can be a positive or negative depending on the proximity to the home in consideration," Kraft says.
Social activity: Is there too much? Too little? Are there too many or too few kids and teens? Chat with neighbors if you can.
Night visits: Are there frequent parties, barking dogs, informal drag races, band "rehearsals" or too many (or few) sources of illumination around your street?
Noises, smells: Are train whistles audible at bedtime? Is highway or factory noise incessant? Is the city landfill downwind?
More online research: The Web is rife with resources. One of the best is: "50 Tools to Research Your New Home, Neighborhood, and Community."
Klinge cites studies determining that about half of all homebuyers, "make the buying decision before they get into the house based on the neighborhood and curb appeal of the house." Look deeper, he says. Potential buyers should also be prepared to manage expectations, says Kraft. "Some bases can be covered, but seldom do you get to purchase the perfect home. It doesn't matter what price range you are in, you cannot control what your neighbor is going to do. Remember, the Beverly Hillbillies moved in next door to someone."

More Borrowers Pay Credit Cards Before Mortgages

It's exactly the opposite of the norm. Usually cash-strapped Americans during tough economic times will miss credit card payments before they'll miss mortgage payments.

Welcome to the new world order.

The percentage of borrowers who are delinquent on their mortgages but paying their credit card bills on time is growing, to 6.6 percent in the third quarter of 2009 from 4.9 percent in the same quarter of 2008, according to a new study by Chicago-based TransUnion. In an interview with Reuters, the author of the study, Sean Reardon, confirmed, "This goes against conventional wisdom and that has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages."

Today's consumer is all about cash-flow, and that means keeping the credit cards current. A home is no longer the product it was even five years ago, no longer an emotional investment. For a growing number of borrowers, a home is now a financial investment plain and simple, and more and more often, a lost investment. I read an article a few years ago about how Americans' attitudes toward their homes was changing, how twenty years ago losing your home was as big a social stigma as it was a hit to your credit rating, even more so. Not anymore.

Let's face it: An awful lot of borrowers out there put nothing into their homes and therefore have neither a financial, nor, more profoundly an emotional nor social stake in the structure. Of course they're going to pay off their credit cards first, because that has an immediate impact on what they can and cannot buy and do.

On top of that, most troubled borrowers have already figured out that there are so many forces in motion trying to save homes from foreclosure that they can easily miss one, two, five or six mortgage payments before even getting a call from the bank; then, they've got many more months of negotiations over modifications, short sale options, even the foreclosure process itself, insuring they will have a roof over their heads for a good long time.

I heard an interesting factoid at the American Securitization Forum conference in DC yesterday.

Home building Analyst Ivy Zelman said that in some Florida counties the courts are so backed up with foreclosures that it can take up to three years to get one home through the system.

That's three years of living rent-free, which frees up plenty of cash to pay the Visa bill.

More US Borrowers Than Ever Refi to Shrink Mortgage

A record share of U.S. homeowners cut their loan principal when refinancing in the fourth quarter rather than tap their home's equity for cash, home funding company Freddie Mac said ThursdayRecord low mortgage rates in the fourth quarter and a relative dearth of equity build-up after home prices fell about 30 percent on average from 2006 peaks drove consumers to pare debt.

One-third of those who refinanced shaved their loan balance, saving billions of dollars, Freddie Mac said. At the same time, the share of so-called "cash-out" loans, which increase the mortgage by at least 5 percent, fell to a record low.

Freddie Mac, which started tracking refinance tactics in 1985, said rates on 30-year mortgages sank as low as 4.71 percent in December.

That was the lowest in the 38 years that the company has reported weekly on long-term fixed rates. Thirty-year home loan rates have since risen, averaging just under 5 percent in the latest week.

Half of borrowers who refinanced conventional mortgages -- those that can be purchased by Freddie Mac or Fannie Mae -- last quarter cut their loan rate by at least 0.9 percentage point, Freddie Mac Chief Economist Frank Nothaft said.

"In aggregate, the lower interest rate translates into about $2 billion in payment savings for these homeowners over the first 12 months of the new loan," he said in a statement.

The previous high share of such "cash-in" mortgage refinancing was 16 years ago, when 23 percent of borrowers cut their loans, compared with last quarter's 33 percent.

Those borrowers that did tap their home equity on prime conventional loans in the fourth quarter drew about $11 billion, the smallest amount in any quarter in nine years, said Amy Crews Cutts, Freddie Mac deputy chief economist.

Just under $70 billion of equity was cashed out for all of 2009, the lowest since $26 billion in 2000.
"The main causes of the decline in cash-out refinance are declining home prices in many areas of the country that have eliminated equity that could have been extracted and tighter underwriting standards for loan-to-value ratios," Crews Cutts said in the statement.

A record low 27 percent of borrowers who refinanced last quarter increased their loan balance by at least 5 percent. The prior all-time low was 33 percent in the second quarter of 2003.

Freddie Mac is a government-controlled company that buys home loans to keep as investments or repackage as securities for sale to investors.

Its quarterly refinance reports are based on a sample of properties for which it has funded at least two successive loans. Freddie Mac said it does not track the use of funds gained from these refinances.

Existing home sales sink 16.7%

Existing home sales fell in December, the month after a federal tax credit was slated to expire, according to a real estate industry report issued Monday.

The National Association of Realtors reported that existing home sales plunged 16.7% last month to a seasonally adjusted annual rate of 5.45 million units, down from the revised rate of 6.54 million in November. Still, sales year-over-year were up 15%.

It was expected that sales would decline from November to December, because November was slated to be the last month in which sales to first-time homebuyers could qualify for a federal tax credit of up to $8,000. Lawmakers have since extended that deadline through April 30, adding a new credit of up to $6,500 for some existing home owners who move.

"This is a huge blow, much bigger than we expected," said PNC senior economist Craig Thomas. "Unfortunately, we'll continue to see this kind of volatility as economic supports like the tax credit are taken away."

Homebuyers rushing to get the credit made for a tough month-to-month comparison for December, Thomas said, and the month also suffers from seasonal issues like bad weather and holidays.

For all of 2009 there were 5,156,000 existing-home sales, which was 4.9% higher than 2008's total. That was the first annual sales gain since 2005.

In November, the planned tax credit expiration helped existing home sales gain 7.4% -- and that followed a 10% surge the previous month.

Despite December's disappointment, PNC's Thomas thinks the tax credit will help recharge the housing market the way Cash for Clunkers boosted auto sales in the longer term. That market saw an artificial jump, then dipped when the policy was dropped and then eventually got stronger.

"Since Cash for Clunkers has been over, autos have seen stronger and more sustainable sales -- and that's a function of a better economy," Thomas said. "That means home sales are likely to follow."

Buy a foreclosure: 7 tips
Price and inventory: The median price of homes sold in December was $178,300, a 1.5% gain over December 2008. That was the first year-over-year gain in the median price since August 2007. Distressed properties made up 32% of the houses sold during the month.

Total housing inventory fell 6.6% to 3.29 million existing homes for sale. That's a 7.2-month supply at the current selling pace, up from a 6.5-month supply in November.

Sales by property type: Housing markets suffered across the board. Single-family home sales fell 16.8% to a seasonally adjusted annual rate of 4.79 million in December from a pace of 5.76 million in November, but were 12.7% above the pace 12 months ago.

Make money in 2010: Your home
Condominium and co-op sales fell 15.4% to a seasonally adjusted annual rate of 660,000 units in December, from 780,000 in November, but were 34.7% above December 2008's rate.

Sales by region: Total existing home sales fell the most in the Midwest, dropping 25.8% in December to a pace of 1.15 million. Still, that's 8.5% above a year ago.

The West fared the best of all regions, but sales there still fell 4.8% to an annual level of 1.38 million; sales in the South sank 16.3% to 2.01 million; and the Northeast fell 19.5% to 910,000.

Outlook: PNC's Thomas said existing home sales will start to tick up in the coming months, though they will see another drop when the tax credit expires on April 30. The market will also be susceptible to changes in Federal Reserve policy, which affect mortgage rates, he said.

"There are a few headwinds, and volatility obscures the true condition of the market," Thomas said. "We all want transparency amid a confusing time, but there [will be] improvement in the months ahead

3 people the homebuyer tax credit helped

The road to homeownership was hard for Valatisha Jacinto.

The Waco, Texas, schoolteacher had wrecked her credit struggling to pay for college, and later trying to support herself and her daughter on a teacher's salary. She knew she wanted to buy a home, and that meant she needed to clean up her credit
So she started attending credit-counseling classes run by NeighborWorks, a network of community-development and affordable-housing organizations. For several years she steadily worked on her debt.

That meant she was ready to act last February when President Obama signed the stimulus bill, which, among other things, authorized a refundable $8,000 tax credit for first-time homebuyers.

"My first question was, 'Do I have to pay this money back?'" she said. "When I found out I didn't, I said, 'Let me work even harder on my credit.'"

In March she bought a three-bedroom, two-bath home for $105,000. She took out a 4.9% FHA-insured 30-year loan, putting her monthly expenses, including property taxes and insurance, at just $830.
"I never thought anything that good would happen to me," she said.

She's not alone.

More than 1.4 million Americans have filed for the tax credit, according to the IRS. In fact, the program became so popular that Congress voted in November to extend and expand it. Now, the credit expires on June 30, for contracts signed by April 30, and there is a $6,500 refund available to some current homeowners looking to buy.

Congress created the incentive as part of the stimulus bill as a way to restart home sales. Because the real estate bust helped usher in the recession in the first place, legislators argued that healing the industry's ills would lead to recovery.

"I wouldn't have been able to afford my house without it," said Rob Logan, who bought his Ypsilanti, Mich., house for $71,000 in October. "It was one of the main reasons I started looking."

Logan has already spent most of his refund rehabbing his home, a foreclosure that was in far from perfect shape. There wasn't a single appliance left and the kitchen cabinets had vanished; the wiring was old and the floors cruddy.

The 28 year old, who works for a digital entertainment licensing company, corralled friends and family into helping, but he still had to pay out for parts and for a new kitchen. ("I never want to go back to Loews again," he said.) He figures he's spent about $7,000.

"The credit helped me pay for all my appliances and some plumbing and other maintenance," Logan said. "I was able to spend more of my saved money on a 20% down payment and that has made my mortgage more affordable."

Like Logan, many homebuyers shop til they drop during their first months of ownership. They make repairs, upgrade baths and kitchens, redecorate, and buy furniture, appliances and electronics. And that helps to stimulate the economy by keeping the Wal-Marts, Home Depots, Best Buys and Ikeas humming and contractors working.

The credit has also boosted home sales, according to the National Association of Realtors. Sales soared in October and November as first-time buyers rushed to take advantage of the tax credit before the original expiration date. More than half of all transactions were from these buyers during those two months, according to NAR, compared to the usual market share of about 40%.

For Chris Saliture, a Minnesotan, the credit was vital. "That's what got me started," he said. "I knew the incentive program was going on. I may still have looked, but this had an impact on what I could afford."

The 23 year old, who curates wine Web sites, is devoting the refund to a single purpose: a spiral staircase to connect the upper and lower floors. "It's a very interesting house," said Saliture, who bought the foreclosure for just over $100,000. "It's on three levels, but there's no interior staircase."

The house started life as a circa-1885 train depot, and it was later moved from its location alongside the railroad tracks onto a nearby lot in the St. Anthony section of St. Paul. As a result, the only way to get to the top floor is a metal exterior staircase that is 12-feet wide.

There is some hope that this good thing could live on after June 30. If the housing market and the economy is not in full recovery mode by late spring, there is already discussion about Congress extending the tax credit again, according to Jaret Seiberg of Concept Capital, a Washington-based research group.

"We believe this option is likely because housing is a key issue for many Democrats and Republicans facing re-election," he wrote in a research note. "And the $10 billion cost is relatively modest given the importance of the housing sector to the economy."

Housing starts fall, but permits soar

Home construction fell in December, government data showed Wednesday, while the number of building permits issued in the month rose.

Construction of new homes fell to an annual rate of 557,000 during the month, down 4%from the revised November rate of 580,000, the Commerce Department said.

"While starts registered another weak month, they remain within a range that has held for more than a year," said Adam York, an economist at Wells Fargo.

Analysts said the drop in construction activity was due in part to the weather.

Temperatures were unusually high in November and "some homes that would have been started in December were instead started in November," Patrick Newport, an economist at IHS Global Insight, wrote in a research report.

Housing starts surged nearly 9% in November.

Picking the sweet spot in real estate
At the same time, many builders put new projects on hold late last year amid uncertainty surrounding the government's first time homebuyer tax credit.

As a result, applications for building permits plunged in September and October, which in turn depressed housing starts in December.

"Now that the credit will benefit almost all homebuyers, not just first-timers, and will run until June 3, [builders] are preparing for increased demand," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Indeed, the number of building permits issued during December jumped 10.9% to a seasonally adjusted annual rate of 653,000.

It was the biggest increase since June 2008 and surprised economists who had forecast a 0.7% decline in building permits.

Given the surge in building permits during December, "starts should now be expected to rebound strongly over the next few months," Shepherdson said.

Still, many builders remain worried about the strength and sustainability of a recovery in housing with unemployment at 10% and a large number of foreclosed homes still on the market, York said.

On Tuesday, the National Association of Home Builders said its index of builder confidence declined one point to 15 in January

WHEN A HOME ENERGY AUDIT PAYS OFF

The government is expected to unveil a new program in the next couple of months that if approved may reimburse homeowners for up to half the cost of making their homes more efficient, but don't start shopping for new kitchens just yet.

Homeowners will get the most return for the money in simple upgrades like caulking the windows, putting insulation in the attic, and changing the light bulbs - not new windows, refrigerators or dishwashers.

The average American home wastes a lot of energy.

A complete energy retrofit - which could include caulking and insulation as well as new windows, appliances and boiler, could slice a home's energy consumption in half, according to Lane Burt, manager of building energy policy at Natural Resources Defense Council.

But getting all that work done might run into the tens of thousands of dollars. And any new federal program - which is still being drafted and is not guaranteed to become law - would cap the government reimbursements at $12,000, said Burt.

Homeowners need not despair. There are some simple improvements that are relatively cheap and can pay for themselves quickly.
Just adding the insulation, caulking and lights might run an average homeowner $5,000 to $7,000, he said. That could shave about 30% off a home's energy bill each month. And if the government picks up half the cost, the payback time for homeowners would be just a few years.

"It's a win-win-win," said Burt. "It creates jobs, it saves energy, and it saves consumers money."

Consumer watchdog groups back up Burt's claim.

"I don't know of anyone who's looked at them and said they are not a good idea," said Mark Cooper, director of research for the Consumer Federation of America. "The average consumer can save a big chunk of change by getting the work done."

What to look for
Experts say there are a few things to look for when getting an energy audit and retrofit work done.

First, find a contractor licensed by the Building Performance Institute or the Residential Energy Services Network. These contractors have been trained to first test a home and see how much energy it is losing, then make renovations on all the systems in the building.

As of now there are no incentives in the proposed program for do-it-yourselfers. That's partly because the program is designed to create jobs by putting out-of-work contractors back on the job. But it's also done to ensure the work is done right - a house that's sealed up too tight could rot from mold or trap too much carbon monoxide.

Second, hire an energy contractor using the same diligence you would with any other contractor. Call around for price quotes and check references. If you have any problems report them to your state's attorney general.

The big picture
The proposed program is part of a broader jobs initiative designed first and foremost to put people back to work.

The original proposal, which called for $23 billion to be spent on energy retrofits, was estimated to create over half a million jobs, according to CleanEdison, an association of green building professionals.

Those familiar with the proposal say the final bill may set aside $10 billion for energy retrofits. Still, it's a lot more than is currently being done - while some states have reimbursement programs, there is no federal plan. The original stimulus bill contained $5 billion for low income homeowners and money to retrofit federal buildings, but nothing for middle income Americans. The new proposal has no income restriction.

But in addition to creating jobs and saving consumers money, it also lays the framework for an energy efficient economy and achieving the 80% reduction in greenhouse gases most scientists say is necessary to avoid the worst impacts of global warming.

That's a target that can't be hit with building wind farms and solar plants alone.

Some 40% of all energy used in this country goes to buildings, mostly in the form of heating, cooling and lighting.

"You don't get an 80% reduction by 2050 without retrofitting nearly every building in the country," said Burt.

LAST CHANCE TO REFI BELOW 5%

If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast.

Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.
During the week of Jan. 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet.

"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.

While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.

Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association.

A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.

But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.

As Treasurys go . . .
Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.

The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.

Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.

Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys.

The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.

That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.

Economy bouncing back
For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.

A recovering economy also boosts corporate profits, making stocks a better bet for investors.

"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."

Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.

After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again

Homebuyers sign 16% fewer contracts in November

Homebuyers abandoned the market in droves during November: They signed 16% fewer sales contracts than the month before.

This marks the first decline in the National Association of Realtors (NAR) Pending Home Sales index, released Tuesday, after nine straight months of gains. The drop also exceeded analysts' expectations: A panel of experts from Briefing.com had forecast a 2% decrease.

"People took a breather," said David Crowe, chief economist for the National Association of Home Builders.

NAR chief economist Lawrence Yun blamed the fall on the scheduled end of the first-time homebuyers tax credit, which refunded up to $8,000 in income taxes for qualified homebuyers. The credit initially was to lapse on Dec. 1, but Congress extended it through the end of June.

Before that extension was announced, many house hunters were scrambling to sign contracts under the deadline. Once the credit deadline was pushed back, buyers felt less urgency to sign deals, which left November depleted.

"It will be at least early spring before we see notable gains in sales activity as homebuyers respond to the recently extended and expanded tax credit," Yun said.

New and improved mortgage forms

"The main purpose is to give consumers the tools to be able to compare apples to apples," said Robert Grosser of Luxury Mortgage, a New Jersey-based direct lender. "All lenders must use a specific form and disclose fees in the same spots on the same forms." (See the new form.)

Until now, borrowers might have focused on interest rates or monthly payments to compare mortgages options. But fees play a big part in total cost, said Vicki Bott, HUD's Deputy Assistant Secretary for Single Family Programs

There are generally two blocs of fees.

One covers origination charges, what the lender receives for providing you with the loan.

The second bloc consists of settlement fees, for say, title insurance or an appraisal.

If borrowers accept the offers as outlined, lenders must issue the loans under the costs listed -- with little room for surprise.

If the mortgage originator provides services in the second bloc, it must stick to the original fees within 10%. If, for example, the lender tells you the title insurance it arranges will cost $2,000, the final fee for that cannot exceed $2,200. (If you decide you're going elsewhere for title insurance, you're on your own.)

"It truly drives accountability," said Bott. "It makes the lender say, 'What I quoted is what you get.'"

The estimate is not iron clad, and can be altered if there's a material change in circumstances. If the appraisal comes in lower than expected, for example, that could affect the mortgage rate, though the lender must quickly tell the borrower, according to Bott.

The new 3-page form has lines covering all the settlement fees, such as the origination fee and points charged up-front to reduce the interest rate. It also clearly lists the initial loan amount, the term length in years, the monthly payment, the initial interest rate, and whether that interest rate can rise plus any prepayment penalties or balloon payments.

There's also a "shopping chart" on the third page in which up to four different deals can be placed side-by-side and their costs easily compared.

Say two lenders both offer a 5% loan on a $200,000 mortgage that has a monthly payment of $1,074 a month. One lender may charge $5,000 for it and another just $3,000. The new form should make it simpler for consumers to recognize the better deal.

Housing outlook 2010
"It's definitely a step in the right direction toward simpler and straightforward key information on mortgages," said Alex Pollock, an American Enterprise Institute fellow who has developed and advocated for the use of a one-page mortgage form to better help consumers understand their obligations.

He does not, however, think the new form goes far enough.

"It focuses on the question of whether this is the best deal," Pollock said. "In my opinion, it's more important to ask if I can afford this mortgage. This might be the best deal I can get but I still may not be able to afford it."