The Future of Mortgage-Financing NOW!
Leandro
Leandro Hernandez is Vice President of Mortgage Lending at Guaranteed Rate, Inc., an Illinois Top-Ten mortgage company. Guaranteed Rate, Inc. is a mortgage banking and brokerage firm that is licensed to lend in 43 states. NMLS ID 2611, licensing info: www.guaranteedrate.com/licensing.php Leandro is responsible for providing strategic mortgage planning and analysis to his clients. He also works closely with attorneys, financial planners, accountants, and other advisors in order to take a comprehensive approach when serving his clients. This allows him to integrate the mortgage aspect of the equation into the client’s entire financial picture. For example, the client’s estate planning, tax strategy, and investment and retirement planning are all taken into account in order to achieve a unified goal. Born in Chicago, Leandro earned his degree from The University of Chicago with a concentration in economics and psychology. Leandro traveled extensively during his time in college; visiting and studying in various European and Latin American countries. Prior to joining Biltmore, He also worked in the finance and accounting division at United Airlines and was assigned to projects in various countries, including China and Japan. Leandro serves on several committees and boards, including The Illinois Association of Mortgage Professionals–Government Relations Committee, The Chicagoland Chamber of Commerce–Taxation Committee, The Chicago White Sox Hispanic Market Advisory Board, The University of Chicago Alumni Association–Board Member, and The Oakton Community College Real Estate Institute–Co-Chair. Leandro enjoys spending time with his wife and their three dogs. He is also a dedicated runner and martial artist.
Posts by Leandro
15-Year Fixed Rate Mortgages Look Cheap Compared To Comparable 30-Year Fixeds
Mar 25th
It’s a great time for Chicago buyers and homeowners to look at the 15-year fixed rate mortgage.
According to Freddie Mac’s weekly Primary Mortgage Market Survey, the relative “discount” of a 15-year fixed rate loan as compared to a comparable 30-year product is the largest in recorded history. The interest rate spread between the two benchmark products is now 0.77%, nearly double the recent, 5-year average of 0.44%.
Despite its lower rates, however, homeowners that opt for a 15-year fixed mortgage should be prepared for higher monthly payments. This is because the principal balance of a 15-year fixed is repaid in half as many years as with a 30-year amortizing product.
The payment increase is 41% higher at today’s rates. If you can manage that, though, you’ll reap dramatic interest payments savings over time. For each $100,000 borrowed at today’s market interest rates, your mortgage interest costs on a conforming 15-year term mortgage will be lower by $56,000 versus an identically-structured 30-year term. The more you borrow, the more you save.
That said, not everyone should use the 15-year product.
One reason you may want to avoid 15-year products is because the higher payments may lead to financial stress. Unless your monthly income far exceeds your monthly debts, choosing a 30-year product may feel safer for you.
Another reason is that, with less mortgage interest paid, 15-year mortgages don’t allow for as many mortgage interest tax deductions. This can have tax implications to you each year. Or, maybe you prefer to have your home leveraged, investing “spare dollars” in stocks and bonds.
These are all legitimate cases to stick with a 30-year term, but if you’ve ever explored the idea of using a 15-year fixed rate mortgage for your home, today, the math is in your favor. Talk to your loan officer before the rates start rising.
New Home Sales Fall To All-Time, Recorded Low. Maybe.
Mar 24th
Sales of newly-built homes plunged 17 percent to an seasonally-adjusted, annualized 250,000 units in February, and the supply of new homes rose to 8.9 months in February — a 1.5 month jump from January.
It’s the lowest New Home Sales reading in recorded history, according to the Census Bureau, and the third straight report to signal that home values may be slow to rise in Chicago and nationwide this season.
Earlier this week, the National Association of REALTORS® reported Existing Home Sales down 10 percent from February, and the Federal Home Finance Agency said home values slipped 0.3 percent between December and January.
The media has picked up on the trend, too.
- No Spring In Housing’s Step (WSJ)
- Is Housing Really In Recovery (CNBC)
- Experts See Weak Recovery (UPI)
There’s two interesting angles here. First, the one that’s largely neglected in the stories online.
Although New Home Sales read -17% last month, the data’s Margin of Error read ±19%. This means that, once additional homes are added to February’s New Home Sales tally, it’s possible that the reading actually rose 2%.
Because the Margin of Error exceeds the measured reading, February’s New Home Sales figures are of “zero confidence”. The Census Bureau even says as much in its report.
Or, if the initial reading is accurate, a second story emerges. Namely, how an increase in home supply may help this season’s buyers to negotiate better prices for a home, and upgrades from a builder.
There’s often more to a real estate story than its headline and February’s New Home Sales proves it.
10 U.S. Cities With The Steepest Rent Increases (2010)
Mar 23rd
Home sales data is easing so far in this calendar year. Home resales and new construction have dropped to multi-month lows and, in many cities, home supplies are rising. One housing sector that’s not slowing, however, is rentals.
The rental market is booming.
As reported by the Wall Street Journal, the average apartment vacancy rate is 6.6% nationwide, down from 8.0% last year. In addition, the number of occupied apartments rose by more during Q4 2010 than during any comparable period of the last 10 years.
It’s a major reason why rents are up 2.3%.
Some areas, however, fared worse than others. This study of rent increases as published on MSNBC, for example, lists the 10 U.S. cities in which rents increased the most last year. And they may not be the cities you’d expect.
In order:
- Greenville, SC (+11.2%; $669 average monthly rent)
- Chattanooga, TN (+10.4%; $726 average monthly rent)
- Savannah, GA (+8.4%; $866 average monthly rent)
- Portland, OR (+8.1%; $875 average monthly rent)
- San Jose, CA (+8.0%; $1,716 average monthly rent)
- Nashville, TN (+8.0%; $786 average monthly rent)
- Tacoma, WA (+8.0%; $900 average monthly rent)
- Denver, CO (+7.5%; $873 average monthly rent)
- Washington, DC (+7.4%; $1,473 average monthly rent)
- Raleigh, NC (+7.4%; $785 average monthly rent)
Big cities New York (#18), San Francisco (#19), and Chicago (#24) showed modest gains, by comparison.
Not everyone across Illinois wants to be a homeowner, but renters are facing a squeeze. With mortgage rates historically low and home values slow to recover, in many cities, the cost-benefit analysis is shifting toward buying.
Existing Home Sales Unexpectedly Drop In February
Mar 22nd
Existing Home Sales fell 10 percent last month, according to a report from the National Association of REALTORS®.
On an annual basis, 4.88 million homes were sold in February — the first time annualized home resales dropped below 5,000,000 since November 2010.
An “existing home” is one that’s not considered new construction.
And it’s not just sales volume that’s down. Home inventory is higher, too. At the current pace of sales, the number of months needed to sell the complete home resale inventory rose by 1.1 months, to 8.6 months nationally.
It’s the biggest one-month jump in supply since July 2010 — the month after last year’s federal home buyer tax credit program expired.
The data is somewhat unexpected, too. NAR’s Pending Home Sales report is a reliable predictor for the housing market and, based on recent findings, home sales were projected to climb in February. It’s unclear why they didn’t.
Regardless, the February sales data reveals an interesting breakdown by buyer-type. Notably, the percentage of first-time home buyers in the market grew by more than any other segment.
- First-time home buyers : 34% of all sales, +5% from January
- Repeat buyers : 47% of all sales, -1% from January
- Real estate investors : 19% of all sales, -4% from January
Cash buyers represented 33 percent of all sales, up 1 tick from the month prior.
For Chicago home buyers, February’s Existing Home Sales data suggests more home supply and lower home prices this spring. However, rising mortgage rates could eliminate the monthly savings attributed to falling home values.
To get the most from your mortgage-buying dollar, lock while rates are low.
What’s Ahead For Mortgage Rates This Week : March 21, 2011
Mar 21st
Mortgage markets improved again last week despite an inflation-acknowledging statement from the FOMC and stronger-than-expected jobless data.
Usually, events like this would lead mortgage rates higher, but violence in the Middle East and worsening fear for public safety in Japan took center stage instead, spurring a massive, global flight-to-quality instead.
Rate shoppers in Chicago benefited.
As safe haven buying increased last week, conforming mortgage rates dropped, falling to their lowest levels since January. It marked the 5th straight week through which mortgage rates improved and is the longest such streak since August 2010.
This week, rates may run lower again. You may not want to gamble on it, though. Here’s why.
In general, when there’s inflation in the U.S. economy, mortgage rates rise. This is because inflation devalues mortgage bonds, the underlying security on which mortgage rates are based.
So, last Tuesday, the Federal Open Market Committee met and in its post-meeting press release, the group said inflation pressures were building, a signal that rates should rise. It then went one step further.
To keep the economy from slipping back into recession or into disinflation, the FOMC also said it plans to keep its existing monetary policies in place for the foreseeable future. This, too, is considered inflationary — another signal that rates should rise. And they did.
Immediately following the FOMC announcement, mortgage rates spiked. But it didn’t last.
Starting Wednesday, the battles in Libya grew more intense, and Japan battled with its own domestic crisis (i.e. a potential nuclear meltdown). The economic implications of the events spurred the purchase of “safe” assets, and mortgage bonds improved.
And this is why mortgage rates won’t stay low for long.
Eventually, Wall Street will come to terms with Libya and Japan and the flight-to-quality will reverse. Inflation, however, is not likely to lessen. At least, not anytime soon. Therefore, this week may represent the low-point in mortgage rates for a while. It’s important to lock your low rate while you still can.
There isn’t much economic data due this week so mortgage rates will take their cues from the broader market. If you haven’t locked a rate yet, or were waiting for rates to fall, this might be your best chance. Call your loan officer as soon as possible and get a fresh rate quote today.
Good News For Sellers — Housing Starts Plummet In February
Mar 18th
Single-family housing starts plunged unexpectedly last month. Nationwide, starts fell 12 percent from the month prior; and 29 percent from February of last year.
February’s figures represents the worst 1-month drop in housing starts since May 2010 — the month that followed the expiration of last year’s federal home buyer tax credit — and puts single-family housing starts at a 24-month low.
In addition, single-family Building Permits plunged last month, too, shedding 9 percent from January. A building permit is a local government’s certification and approval to begin home construction.
Housing permits are an excellent forward-indicator for the housing market. This is because 93 percent of homes start construction within 60 days of permit-issuance. Fewer permits, therefore, directly reduces the number of new homes coming to market in the coming months.
For home buyers in Chicago looking at new construction or existing homes, this news should create a sense of urgency.
Home prices are based on supply and demand and overall home supply looks headed for a fall. Plus, with mortgage rates retreating and homebuilders projecting higher sales this summer, buyers may face rising home prices before long.
Sellers look poised to regain negotiation leverage.
For now, though, home affordability remains high with properties inexpensive and mortgage rates still low, historically. If you plan to buy a home in 2011, the February 2011 Housing Starts data may be reason to move up your time frame.
With home supplies dropping, prices are likely to rise.
Homebuilders Expect More Sales Volume This Year
Mar 17th
Homebuilders are optimistic about the housing market this spring, relative to recent months.
According to the monthly Housing Market Index as published by the National Association of Homebuilders, after 4 straight months of reading 16, March homebuilder confidence ticked 1 point higher to 17.
It’s the highest confidence reading in 10 months.
A value of 50 or better indicates “favorable conditions” for home builders; with more builders viewing sales conditions as “good” than “poor”.
HMI hasn’t read higher than 50 since April 2006.
Regionally, the Housing Market Index showed mixed results. Confidence fell 1 point in the Northeast, held firm in the Midwest, and rose in the Southeast and West regions by 2 points and 4 points, respectively.
As an index, the monthly survey is actually a composite of three separate homebuilder surveys — a report on single-family sales; a report on current buyer foot traffic; and a projection for single family sales in the next 6 months.
March’s HMI breakdown shows that builders expect sales to be brisk over the next few months. Projected Single-Family Sales is running at its highest level since May 2010 — right as the $8,000 federal homebuyer tax credit was ending.
- Single-Family Sales : 17 (Unchanged from February)
- Buyer Foot Traffic : 12 (Unchanged from January)
- Projected Single-Family Sales : 27 (+2 from February)
For home buyers in Chicago and across the country , the March Housing Market Index may signal the end of “builder discounts” and free upgrades. As home sales increase, builders are often less likely to make concessions.
In conjuction with rising mortgage rates and new, mandatory loan costs, buying a newly-built home may never be as inexpensive as it is right now.
If you expect to buy a newly-built home this year, consider moving up your time frame. The longer you wait, the more it may cost you.
A Simple Explanation Of The Federal Reserve Statement (March 15, 2011 Edition)
Mar 15th
Today, for the second straight meeting, the Federal Open Market Committee voted unanimously to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.
The vote was 10-0.
In its press release, the FOMC noted that since its January 2011 meeting, the economic recovery “is on firming footing”, and that the labor markets are “improving gradually”. In addition, household spending “continues to expand”. Nonetheless, the Fed said, the economy remains constrained by rising commodity prices and the “depressed” housing sector.
The FOMC statement also re-affirms the group’s plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package — more commonly called “QE2″ — intact.
And, lastly, for the third straight time, the Federal Open Market Committee’s post-meeting release statement included a paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, and fostering maximum employment. Although it acknowledged inflationary pressures on the economy, the Fed said inflation remains too low for the economy currently, and that unemployment remains “elevated”.
In time, the Fed expects both measurements to improve.
Mortgage market reaction to the FOMC has been negative since the statement’s release. Mortgage rates in Chicago are unchanged, but poised to worsen.
The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.
Your Mortgage Rate Strategy For Today’s FOMC Meeting
Mar 15th
The Federal Open Market Committee meets today in Washington D.C. The FOMC is a special group within the Federal Reserve, led by Fed Chairman Ben Bernanke, and consisting of 12 members.
The FOMC’s official schedule calls for 8 meetings annually at which it reviews the nation’s economic and financial conditions, and chooses whether to change existing monetary policy.
The group’s last rendez-vous was a 2-day affair, January 25-26, 2011.
Today’s FOMC meeting represents a bona fide risk to home buyers and rate shoppers in Chicago and across the country. This is because when the Fed meets, Wall Street gets nervous which, in turn, causes mortgage rates to get volatile. And, as mortgage rates go, so goes home affordability.
Rate shoppers learned this the hard way after the FOMC’s last meeting.
In January, Wall Street deemed the Fed’s status quo message too soft on the looming threat of inflation. As a result, conforming mortgage rates rose through 7 of the next 10 days, driving pricing to its worst levels of the year.
This may happen again beginning today.
At 2:15 PM ET, the FOMC will adjourn and make a press release to the markets. The Fed is expected to keep the Fed Funds Rate near its target range of 0.000 percent, and to keep its $600 billion bond buy program in place. That doesn’t mean mortgage rates will idle, however.
Depending on the verbiage of the Fed’s statement, Wall Street will make its new bets. A tough approach on inflation should push mortgage rates down; a soft approach should pressure rates up. Either way, you may want to lock your mortgage rate prior to 2:15 PM ET — just to be safe.
Once the Fed adjourns, you’re at the market’s mercy.
What’s Ahead For Mortgage Rates This Week : March 14, 2011
Mar 14th
Mortgage markets improved last week in a week of few economic releases. The one major data point — Retail Sales — showed stronger-than-expected, but markets reacted mildly. The report’s strength was whispered in advance of the actual release; its reading validated Wall Street’s growing faith in the U.S. economy.
Most action last week revolved around the Middle East:
- Libya’s internal turmoil continued
- Bahrain clashes intensified
- Saudi Arabia’s citizens planned a Day of Rage
In response to these events, Wall Street continued its flight-to-quality. Mortgage-backed bonds are now at their best levels since early-February. Mortgage rates have improved 4 straight weeks.
Unfortunately for rate shoppers in Illinois , the gains have been meager. Conforming mortgage rates have only dropped slightly.
This week, however, the market could move in either direction.
The biggest news on tap is the Federal Open Market Committee’s 1-day meeting, scheduled for Tuesday. The Fed is expected to leave the Fed Funds Rate near 0.000 percent, but that doesn’t mean that mortgage rates won’t change. The FOMC’s post-meeting press release will be closely scrutinized on Wall Street. Any changes in theme, tone, or message will cause mortgage rates to dart.
This week also marks the return of housing data with Housing Starts, Building Permits, and Homebuilder Confidence due for release. Housing is believed to be key to the economic recovery so strength in these reports should lead mortgage rates higher.
In addition, several inflation-related data sets will be released including Consumer Price Index and Producer Price Index. Inflation is generally bad for mortgage rates and with gas prices rising to a multi-year high, pressure will be on for mortgage rates to rise.
Lastly, there’s Japan.
The nation’s earthquake, tsunami, and (now) looming nuclear threat will have implications on the global bond market. Mortgage rates may benefit while the crisis remains unresolved.
If you’ve floated a mortgage rate over the past few weeks, it may be time to lock that rate down. Economic factors should be pushing rates higher, but geopolitics and natural disasters are keeping them low.
It’s a perfect time to commit to a loan.