From Reuters:
US home loan demand falls as interest rates climb
By Julie Haviv
“U.S. mortgage applications fell last week, reflecting a decline in home refinancing loans as interest rates climbed, an industry trade group said on Wednesday.”
“The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended May 26 decreased 1.9 percent to 541.9 from the previous week’s 552.6.”
“Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.66 percent, up 0.05 percentage point from the previous week, and matching a four-year high touched two weeks ago.”
“The MBA’s seasonally adjusted purchase mortgage index fell 0.2 percent to 395.5.”
“The purchase index — considered a timely gauge of U.S. home sales — was also below its year-ago level of 462.7.”
“The group’s seasonally adjusted index of refinancing applications decreased 4.8 percent to 1,409.0. A year earlier the index stood at 2,142.1.”
“Fixed 15-year mortgage rates averaged 6.22 percent, down from 6.23 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 6.09 percent from 6.02 percent.”
“The ARM share of activity edged up to 30.7 percent of total applications last week from 30.5 percent the previous week. It was the highest ARM share since late January.”
U.S. MBA’s Mortgage Applications Index Fell 1.9% Last Week
Mortgage applications in the U.S. declined last week to the lowest level in four years as higher borrowing costs hurt home purchases and refinancing.
The Mortgage Bankers Association’s index of applications to buy a home or refinance an existing loan dropped 1.9 percent during the week to 541.9, the lowest since May 2002, from 552.6. The gauge is down 24 percent from the same time last year.
…
Cendant Corp., which owns Century 21 and Coldwell Banker, yesterday lowered revenue and earnings forecasts for its real estate services division due to weaker home sales.
More evidence that there will NOT be in a ‘soft landing’. Supply exlploding in many bubble markets and demand declining.
HMmm.
Cendant real estate unit cuts forecast
Cendant Corp. cut the earnings outlook for the real estate division on Tuesday, yet another sign that the nation’s residential real estate market has cooled off.
Citing “current trends and leading indicators” that point to a decline in sales of existing homes, Parsippany-based Cendant lowered revenue forecasts for its real estate division to $7.1 billion.
At the same time, the company trimmed its estimate for earnings before interest, taxes, depreciation and amortization — or EBITDA — to $1 billion.
In earlier forecasts, Cendant projected 2006 revenue for the real estate division at $7.3 billion to $7.5 billion and EBITDA in a range of $1.09 billion to $1.14 billion.
…
Home sellers also are feeling the pinch, with houses in Bergen County getting about 94.4 percent of their asking price last month, compared with 97.2 percent in April 2005.
Why are people still taking out ARMs? The 30 yr fx is still way below its normal 7.5 to 9% range, but the spread between a 1 yr ARM and the 30 yr is only 64 basis points. That’s only about a $43 a month difference per 100k of loan. 50 basis points in increases by the fed over the next year and poof, the new 1 yr arm owner will be paying more then the 30 yr fx when the ARM resets.
If you can’t afford a home at these low long term rates then you can’t afford the home. Rent or look for a cheaper home. Or move to a lower cost area.
If you insist on buying, take the 30 year fix, buy a good coffee/tea maker. The daily savings from no longer going to Starbucks would just about cover the $86 per month payment differnce on the spread for a 200k mtg. If you are still a little short, use the library instead of Amazon, or join netflicks and quit going to the movies.
Yes, I am cheap, uh I mean frugal.
Bairen,
I believe the ARM numbers include Payment-Option loans. The numbers might make more sense when you factor in the “minimum payment option”.
grim
Grim,
I forgot about those option arms. I’m so stuck in the 90’s when those things were virtually unheard of for the common folks.
Those option arms are even more toxic. I’d rather live with my in-laws then have one of those option arms.
Buy a house here in Toms River, NJ 08753 ?
OFF TOPIC but I need advice…
Grim or anyboby who knows…
I dont believe the general rule of thumb on about how much house one can afford. With a 2 person annual income of approx.$145,000 per year / 2 kids / no other debt / $100,000 available for a down payment + more $$$ for repairs, furniture…etc. What would be a reasonable priced house? I am preapproved for at least $500,000 but I think thats way to high…am I being to conservative. It very fustrating when I see people with less income and nowhere near the down payment in a nice house and I am still stuck in my 2 bedroom apartment. Any thoughts?
A little off topic but I found it funny that this house in my area about 3,000 SF had all the windows open over the last couple of days. The house was purchsed for over 500K by what I would consider a low class type of couple. I’m guessing they are so maxed out on their mortgage that they can’t afford to pay to cool the house. Looks like for them it’s goiong to be a hot summer.
anon11:02,
I think we are on the same boat. My wife always ask me why she married to a poor guy like me. No BIG house, no luxury car. The reasons are: 1. I live below my mean. 2. I save $2K or more every month. I don’t want to work when I am 55. I don’t want to live paycheck by paycheck.
I would suggest to you that this equation: income = sume of all the mortgage, property tax, child expense, and saving of some amount.
If you have AC, enjoy it today, because tomorrow brings pain..
http://www.nj.com/business/ledger/index.ssf?/base/business-3/114870391081540.xml&coll=1
Beginning June 1, PSE&G electricity customers will be paying 14 percent more each month because of rising power prices. The power supplies were purchased in August in an auction overseen by the BPU.
grim:
Your name is so appropriate.
chicago
bairen said
I forgot about those option arms. I’m so stuck in the 90’s when those things were virtually unheard of for the common folks.
B-Boy:
Stuck in the ’90’s? No. How about stuck in 2003?
“If you insist on buying, take the 30 year fix, buy a good coffee/tea maker. The daily savings from no longer going to Starbucks would just about cover the $86 per month payment differnce on the spread for a 200k mtg.”
SHHHHHHHHHHHHHH.
Don’t tell my wife that I should be getting by with no Starbucks!!!
I drink about 1/2 gallon a day!
3 venti’s [“venti” means 20 (ounces) in Italian]
Cendant Corp. cut the earnings outlook for the real estate division on Tuesday, yet another sign that the nation’s residential real estate market has cooled off.
How many friggin signs do people need? This statement appears in the first paragraph of every article that comes out..
This post has been removed by the author.
Anonymous said…
OFF TOPIC but I need advice…
Grim or anyboby who knows…
I dont believe the general rule of thumb on about how much house one can afford. What would be a reasonable priced house? I am preapproved for at least $500,000 but I think thats way to high…am I being to conservative. Any thoughts?
11:02 AM
I am qualified to answer this question, but I generally deal with in-depth information, so I will be appropriately vague.
“Rules of thumb” [in any regard, not just RE] are intended to provide general guidelines, basically the “rationality test”. However, people have no patience, so most are content to use them as a substitute for research and analysis.
Only you know the details of your situation, and can make these determinations. However, you say you have no debt – what does that mean? Are you considering car leases? Do you have zero balances on all credit cards [even 0% teasers]?
If you were going to be shelling out roughly $4000 a month in mortgage payments and real estate taxes, could you also set aside 15% of your incomes to fund retirement planning and college for your children?
If you want to be “conservative”, you should have an emergency fund of at least 3 months expenses or so [sounds as if that is roughly $20K for you in a new home] and be able to set aside $2000 a month for retirement and college.
Do you and your partner expect to continue making at least $145K? Would you expect that your salaries will continue to increase more than inflation [for argument, say 3% year]?
If you can swing that and buy a house with 20% down using nothing more aggressive than a 7/1 ARM, go for it.
Does everyone plan to fund colege for their children? Why would kids not take out their own student loans, use grants, scholarships, etc?
I’m not planning a ‘college fund’ as I didn’t have one, and paid off all my student loans in less than 3 years. Why should children burden their parents as adults?
Thoughts?
LOL — “colege” = “college”
Wouldn’t be able to sleep with a 3 month emergency fund.
A 12 month buffer is my hope, but a 6 month buffer might be livable.
When looking out of state, you can measure a buffer in years instead of months.
How many percent of Carpenters, masonries, builders are UNLINCENSE AND ILLEGAL DAY LABORERS/IMMIGRANTS hired by well-known Homebuilders in New Jersey ??????
fortune.com
Immigration reform could kill the housing boom
Up to 40% of home building is done by undocumented aliens. But no one’s talking about what a crackdown could do to real estate prices.
By Jon Birger and Jenny Mero, FORTUNE
May 31, 2006: 12:20 PM EDT
All those option loans makes me believe that we are NOT seeing the beginning of the end.
In my opinion the end has not yet started! The option loan increases just made the bubble a little bigger.
VB
Chicago,
Good advice. Do you know any good sites for financial planning?
Those option arms are even more toxic. I’d rather live with my in-laws then have one of those option arms.
Man, I had one of those option ARMs once. It was a freakin’ joke and I knew it. I just made sure when the Fed started raising rates to get my axx out of there in a hurry. Although, I can’t quite agree on the in-laws comment…
Anonymous said…
Chicago,
Good advice. Do you know any good sites for financial planning?
2:14 PM
http://www.fpanet.org/
Hey Chicago, is there a type of financial advisor who gets paid by the hour, and doesn’t sell anything?
If so, how much do they charge per hour?
I’m looking for a long-term advisor.
Unrealtor,
Article in the Personal Journal section of the WSJ today on financial planners. It mentioned a couple of sites in which you may be interested. Here they are:
http://www.cfp.com – search for certified financial planners on this site
pdpi.nasdr.com/pdpi – look for disciplinary problems at this site
http://www.feeonly.org or http://www.garrettplanningnetwork.com – to find a fee-only financial advisor
Hope you find these sites useful
Thanks debtvulture, those should help!
http://www.feeonly.org who would have guessed?
UnRealtor said…
Hey Chicago, is there a type of financial advisor who gets paid by the hour, and doesn’t sell anything?
If so, how much do they charge per hour?
3:55 PM
$150/hour is standard
One piece of advice. Don’t focus so much on HOW people get paid. Instead look at HOW MUCH they get paid.
Also, don’t be penny wise/pound foolish. You know your own situation and abilities, so behave accordingly.
Thanks Chicago. While $150/hour isn’t cheap, it’s a necessary evil, like eating broccoli.
A little off topic but I found it funny that this house in my area about 3,000 SF had all the windows open over the last couple of days. The house was purchsed for over 500K by what I would consider a low class type of couple. I’m guessing they are so maxed out on their mortgage that they can’t afford to pay to cool the house. Looks like for them it’s goiong to be a hot summer.
Thats a pretty silly conclusion(and how did you decide they were low class anyway)? There could be any number of reasons why people might not want to use an A/C even if they can afford to.
Maybe the house has a lot of shade trees and opening the windows is nearly as good as using an A/C. PLuis, if its just 2 people living in a large house, and the house doesn’t have multizone A/C, it is s real waste to have the whole house cooled. Or they could be enviros who don’t like wasting energy.
My belief (sorry to financial planners out there) is that many people (perhaps even the majority) can manage their own money and finances with some research. You do need to know and be comfortable with basic (and not so basic) math, be realistic about your income and spending goals and be willing to (and enjoy) spending some time with your finances. If you are math-phobic or hate it, then you should get a planner.
I’ve never used a planner, and except for complex issues like tax or estate planning, do not anticipate using one.
Even on an interest only ARM, a single person making less than $100,000 a year in the NYC metro region (including the 5 boros, NNJ, Long Island, Rockland, Westchester, or CT) basically cannot afford anything anywhere unless they somehow can put 30% down.
Someone single making less than $100,000 a year is basically living in poverty and cannot qualify for 75% of the housing in this area either rental or purchase under any type of program.
Do the math, after you add in property taxes, HOA fees if condo, + insurance, you better budget between $3,000 – $5,000 a month in total PITI payments alone.
The thing is that you see all these 20 & 30 somethings rolling in money in the NYC metro area. They are all buying in these new buildings going up downtown near Wall Street, chelsea, & along the Jersey City waterfront. And these apartments start at well over $700,000 for a studio plus HOA fees.
I seriously doubt they are taking out option ARMS & other types of exotic financing. The condo association simply won’t allow it.
And they do not look like they are living hand to mouth or that they have to think about how they are going to make their payments.
Grim Ghost said…
My belief (sorry to financial planners out there) is that many people (perhaps even the majority) can manage their own money and finances with some research.
8:11 PM
Good for you!
Most clients’ reaction is one of relief to be helped.
A fair number of people have no understanding of these issues.
Of the ones with the skills, most lack discipline [as we discuss here all the time], or else the time or inclination to be bothered.
RE: need for financial planner
To save a few hundred bucks, and make a lifelong mistake, seems a bit reckless.
Some people may earn a good living doing what they love, but that doesn’t mean they have the time, inclination, or ability, to create a successful life-long investment strategy.
The chef who owns a busy restaurant, doesn’t care about the latest Cisco news. The owner of a nail salon doesn’t care or understand the latest tax law changes. People should focus on what they’re good at (making money using their skills), and not be ashamed to turn to the advice of someone who parses financial trends and laws for hours on end.
The issue of trust is my only concern, and that’s why a fee-based advisor would hopefully be more honest than one who makes a commission off what they sell you.
In the book “The Millionaire Next Door” they stress several times to have a trusted financial advisor who you keep and confer with throughout your life — best pre-retirement strategy, best way to pass down assets to your children, best post-retirement strategy, best estate strategy, etc.
Too much to know, and only one chance to get it right.
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