Standard & Poors released its Case-Shiller Index Wednesday. The report shows that, on a seasonally-adjusted basis, between December and January, home prices rose in more than half of the index’s tracked markets.

The strength of this month’s Case-Shiller report, however, should be put in context.

For one, the report is on a 2-month delay; it’s showing data from January, before the start of the Spring Buying Season and before the rush to beat the tax credit. Anecdotally, buyer interest has been strong since, leading to the types of multiple offer situations that drive home prices northward.

In other words, home values may be even higher than what’s reflected in the January Case-Shiller data above.

Furthermore, the Case-Shiller Index measures home values in just 20 cities nationwide and they’re not even the 20 biggest cities. Houston, Philadelphia, San Antonio and San Jose are specifically excluded from the report and each ranks among the country’s 10 most populous areas.

Despite its flaws, though, the Case-Shiller Index remains important. Much like the government’s Home Price Index, the private-sector report helps to finger broad housing trends and housing is still considered a keystone in the U.S. economic recovery.

Even if it’s two months slow.

Starting Monday, April 5, 2010, getting an FHA mortgage will be more expensive for borrowers.

In new guidelines set forth earlier this year, the FHA announced plans to raise additional revenue and reduce the overall risk of its mortgage portfolio.

The changes include the following:

1. Increase Upfront Mortgage Insurance Premiums from 1.75% to 2.25% for everyone
2. A plan to reduce seller concessions from 6 percent to 3 percent

For your own loan, to avoid being subject to higher loan costs, make sure to have your FHA Case Number assigned prior to Monday, April 5, 2010.  That means you’ll want to give a full mortgage application before the weekend so your lender can register your loan in time for the deadline.

But don’t leave your application to the last minute.

Friday is Good Friday so most banks will be closed. Your true FHA deadline, therefore, is Thursday April 1.

Also worth noting is that the FHA isn’t done with its changes.

In its policy statement, the group also announced its plans to petition Congress to raise monthly mortgage insurance premiums.  The FHA’s formal request, in summary:

1. Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
2. Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing

For now, the request is neither approved nor acknowledged by Congress. It’s merely a request. And in the event that Congress does approves it, the FHA reserves the right to change its projections.  Either way, it means higher costs for consumers.

The best plan, therefore, is to get your FHA mortgage into underwriting ahead of the switches because borrowing money will be harder, and more costly.

Last Week in Review

Forecast for the Week

March will certainly roar out with a big week of news, beginning with Monday’s Personal Income and Personal Spending Reports. We’ll also get a look at the Core Personal Consumption Expenditure (PCE), which is the Fed’s favorite gauge of inflation. Rest assured the Fed will be watching this report closely!

The Labor Market will also be in the spotlight, first with Thursday’s Initial Jobless Claims Report. Last week’s Initial Jobless Claims were reported lower than expectations and at the lowest reading in 6 weeks. The numbers show modest improvements and are somewhat encouraging.

Hopefully, Friday’s official Jobs Report from the Labor Department for March will also be encouraging. Last month’s report showed that 36,000 jobs were lost in February, which was better than the 68,000+ job losses that were expected. However, while the Unemployment Rate remained stable at 9.7%, a deeper look beyond the headlines of the report showed what many consider to be the Real Unemployment Rate to be near 17%…which includes discouraged workers who are no longer seeking employment, as well as “underemployed” folks who have taken part time or low paying jobs, just to be bringing some money in the door. The bottom line is that real improvement is needed in the labor market for our economy to continue to recover.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. And with the Fed MBS buying program ending…there will likely be more volatility for home loan rates in store.

As you can see in the chart below, Bonds worsened last week, causing home loan rates to rise - and rates always go up much faster than they move lower. I’ll be watching closely to see what happens this week as March comes to a close - and please get in touch if I can be of any assistance in answering your questions on rates and current opportunities.

Chart: Fannie Mae 4.5% Mortgage Bond (Friday Mar 26, 2010)

Have a great week and let us know what we can do to help!

Home values fell again in January, according to the Federal Home Finance Agency’s Home Price Index. Values were reported down 0.6 percent, on average.

We say “on average” because the Home Price Index is a national report. It doesn’t capture the essence of a local market , or even a city market.

The most granular that the monthly Home Price Index gets is regional and January’s report shows that:

• Values in the Mountain states rose 2.0%
• Values in the Pacific states were flat
• Values in the East North Central states fell 1.8%

It’s hardly helpful for home buyers entering the market, or home sellers trying to properly price a home.  Furthermore, because the Home Price Index reports on a 2-month delay, its data fails to reflect the current market conditions.

Versus January — the period from which HPI data is collected — mortgage rates are lower, buyer activity is up, and the federal home buyer tax credit is closer to expiring.  These each can have an impact on housing.

Ultimately, national real estate data like the Home Price Index is best suited for lenders and policy-makers.  National data helps to identify trends that shape formal policy, but it doesn’t help you, specifically.

Since peaking in April 2007, the Home Price Index is off 13.2 percent.

As expected, Existing Home Sales fell in February, slipping 30,000 units versus January’s numbers. It’s the 4th straight month in which Existing Home Sales were lower, month-over-month.

An “existing” home is one that is previously owned and lived-in (i.e. not new construction).

Existing Home Sales peaked in November 2009, just as the First-Time Home Buyer Tax Credit was set to expire. Immediately thereafter, according to the National Association of Realtors®, monthly sales plunged 17 percent in December, then another 7 percent in January.

Comparatively, February’s dip is a modest 0.6 percent and is more in line with the pre-tax-credit Existing Home Sales trend.  The real estate market is rediscovering its normal.

But “normal” may not last for long.

When the federal home buyer’s tax program was extended last year, the new rules stated that home buyers must be under contract for their new, respective homes on, or before, April 30, 2010 in order to claim up to $8,000 in federal money.  That deadline is approaching and many markets are experiencing a surge in buyer traffic as April 30 nears.

The Existing Home Sales data doesn’t reflect this new demand, nor the number of new contracts written. It only accounts for home closings and, in February, closings were down.

For today’s buyers, the market looks favorable. The federal tax credit is in place, mortgage rates stubbornly stick near all-time lows, and home prices are staying in check.

Existing Home Sales should gain through March and April, pressuring home prices higher. And, by the time the press reports the gains, the best deals in the city may already be gone.  Consider acting sooner rather than later.

CNNMoney.com recently published its 2010 forecast and projections for home prices in the country’s largest metro markets.

Listed as “Top 25″ and also comprehensively by state, CNNMoney.com’s home price forecasts puts Santa Rosa, California at the top of 2010’s home appreciation list and Hanford, California at its bottom.

The 10 cities projected for highest home appreciation in 2010 are:

1. Santa Rosa, CA : +6.0%
2. Cheyenne, WY : +4.7%
3. Kennewick, WA : +4.6%
4. Merced, CA : +4.4%
5. Bremerton, WA : +4.2%
6. Fairbanks, AK : +4.2%
7. Corvallis, OR : +4.1%
8. Tacoma, WA : +3.9%
9. Anchorage, AK : +3.8%
10. Bend, OR : +3.3%

The Pacific Northwest is the region most heavily-represented among price gainers. The Southeast and Middle Atlantic are most represented on the under-perform list.

However, just because a city’s homes are expected to appreciate (or depreciate) in 2010, that doesn’t mean that every home within its limits will follow suit.  Real estate cannot be grouped on a city level like CNNMoney.com tries to. There will always be areas in demand within city limits in which prices rise, just as there will be out-of-demand areas in which prices fall.

Real estate data can’t be grouped by city or even by ZIP code, really.

Real estate is more local than that.

When we say “real estate is local”,  it means that every street in every town has a distinct set of traits that drives its home values. Homes that are one block closer to the train; or, homes that are facing north; or, homes that are made of brick. Each of these characteristics can affect a home’s desirability which, in turn, can affects its sales price.

National surveys can’t capture “essence” like this. They only report on the aggregate.

For local real estate data, look to established, publicly available websites and to active, local real estate agents.  Both will have data and insight that can help you.  National surveys often make for good headlines, but do little to help homebuyers find good value.

Last Week in Review

Forecast for the Week

The action during Sunday’s healthcare vote will almost certainly impact the markets in the coming week, and there is also a full slate of economic reports to watch for. First up, there will be a double-dose of housing news with Tuesday’s Existing Home Sales Report and Wednesday’s New Home Sales Report.

Also, on Wednesday we’ll get a read on the health of the economy with the Durable Goods Report, which gives us an update on consumer and business buying behavior on big ticket items that last for an extended period of time. Friday will bring another read on the economy with the Gross Domestic Product Report, which is the broadest measure of economic activity.

Not to be missed will be Thursday’s weekly Initial Jobless Claims Report. While last week’s initial claims were essentially inline with expectations, the ugly component of the report was the 5,888,048 people collecting EUC (Emergency Unemployment Compensation) benefits. This is a whopping 360,000 person increase from the prior week.  Unfortunately, the labor market continues to be very weak.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, despite midweek volatility, Bonds and home loan rates ended the week very near where they began. With all the action in store, I’ll be watching closely to see in what direction the markets and rates move this week. As always, please feel free to call or email to get more information on what the current rate climate means to you.

Homes are more affordable across the nation as the housing market emerges from a slow winter season with mortgage rates still near 5 percent.

Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant.  It’s something worth watching.

Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.

If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation”. Mortgage rates are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring tax credit, the timing to buy a home may be as good as it gets.

Single-family Housing Starts idled last month, dropping just 3,000 units from the month prior, or 0.2%.

According to the Commerce Department’s report, February marked the 8th straight month in which Housing Starts straddled the half-million marker, dating back to June 2009.

This is a different slant on the Housing Starts story as told by the press.

Most publications are reporting that Housing Starts fell 5.9 percent in February. Technically, this is true.  Housing Starts did fall 5.9 percent last month.  However, the Housing Starts data is comprised of three parts:

1. Single-Family Housing Starts
2. 2-4 Unit Housing Starts
3. “Apartment Building” Housing Starts (i.e. 5 or more units)

The press tends to lump all 3 together but that’s not relevant for everyday homeowners and buyers.

2-4 unit homes, and apartments and condos are a different housing class as compared to single-family homes and are notoriously volatile, too.  Single-family starts are more steady and better reflect the country’s housing stock.

Single-family housing starts are up 32 percent over the last 12 months.

Meanwhile, the pace of new buyers has not kept up with the pace of new housing stock. Therefore, because home prices are based on supply-and-demand, the price for a newly-built home was down, on average, 7 percent nationwide in January.

With the federal home buyer tax credit expiring soon, home buyers will likely create new demand for homes. And with Housing Starts holding steady near 500,000, that should push prices higher through the spring months

Yesterday, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged, in its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy “has continued to strengthen” and that the jobs markets “is stabilizing”.  It also said that business spending has “has risen significantly”.

This is a slight departure from the Fed’s January statement in which housing was not mentioned and business spending was said to be “picking up”.

It’s also the sixth straight statement from the FOMC in which the Fed described the economy with optimism.  This is a signal to markets that 2008-2009 recession is over and that economic growth is returning.

The economy is not without threats, however, and the Fed identified several:

1. High unemployment threatens consumer spending
2. Housing starts are at a “depressed level”
3. Consumer credit remains tight

The message’s overall tone, however, remained positive and inflation is within tolerance limits

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to end its $1.25 trillion commitment to the mortgage market by March 31, 2010. Fed insiders estimate that the bond-buying program lowered mortgage rates by 1 percent since its start.

Mortgage market reaction to the Fed press release is, in general, ambivalent. Mortgage rates are unchanged this afternoon.

The FOMC’s next scheduled meeting is a 2-day affair, April 27-28, 2010.