These Charts Will Tell You Where the Housing Market Is Headed This Year

The Federal Reserve is preparing to raise its benchmark interest rate for the first time since 2006. Yet the gradually healing housing industry — one of the biggest beneficiaries of rock-bottom borrowing costs in this economic recovery — isn't panicking. 

Because policy makers have signaled they will raise their key rate slowly and incrementally, potential buyers are less likely to rush into the market ahead of the first rate hike, said Columbus, Ohio-based Nationwide Insurance Chief Economist David Berson. Besides, mortgage rates, while no longer at a record low, are still half their historical average in Freddie Mac data back to April 1971.

So if not the Fed's looming interest rate move, then what? Here are a few things analysts say we should be watching instead to determine how the housing market will perform this year.  

1. Inventory

To entice customers, offer variety. Even the most eager buyer would be restrained by a lack of inventory, said Svenja Gudell, senior director of economic research at Seattle-based real-estate website Zillow Group Inc. These days the options are limited.

Inventories in March notched their first year-over-year drop since December 2013, according to data compiled by Seattle-based property-data provider Redfin Corp.:

And here is where an increase in interest rates could make matters worse, said Gudell. Further down the road — say, in a year or more — owners with mortgages at currently low rates will think twice about putting their homes on the market, for fear of racking up higher borrowing costs in new mortgages. This is known as "lock-in effect."

While that may prompt more spending on home renovations as homeowners sit tight, less churn also could mean a hobbled housing market, she said. 

2. Prices

What's worse, inventory probably won't balloon until prices surge to prompt owners who are still underwater to put their houses up for sale. Housing costs already are rapidly nearing their level in December 2007, when the last downturn began: 

3. Affordability for first-time buyers

Americans hunting for more affordable homes have had an especially hard time, with credit constraints and scant supply holding back sales at the lower end. First-time buyers, too, have accounted for an unusually weak share of overall purchases during the expansion. They need to return to increase the churn:

4. Credit availability

Lenders have been slow to ease mortgage requirements after the popping of the housing bubble helped trigger the last recession. Mortgage Bankers Association data that take into account factors such as credit scores and loan-to-value ratios illustrate the lingering challenge for those with less-than-pristine borrowing histories:

Lawrence Yun, chief economist at the National Association of Realtors in Washington, said he's hopeful for a turnaround. Government lenders are reducing down payment requirements and private banks see a "profit motive" in boosting mortgage availability, he said.

"Any negative impact of rising rates I think will be easily compensated by an opening up in the credit box," said Yun.

5. Wages

Bigger paychecks will be a key ingredient for stronger home sales even as mortgage rates rise, said Anika Khan, a Wells Fargo Securities economist in Charlotte, North Carolina.

"What could move the needle is stronger wage growth — a lagging indicator," said Khan. "Let's say it lags a year — then we could trickle into 2016 and actually see a little bit more activity happen."

courtesy of: Michelle Jamrisko, bloomberg.com

6 Painless Ways to Pay Off Your Mortgage Years Earlier

Chances are your home mortgage is the largest debt you'll ever have. How would you like to pay it off and run your mortgage contract through the shredder a lot faster than the 30 years most homeowners sign up for? Let's consider some ways to painlessly pay off your home loan sooner. You can choose to do it a little faster or a lot. In some cases, you'll scarcely notice the added expense.

1. Make Biweekly Mortgage Payments

Since there are 12 months in a year, homeowners make 12 monthly mortgage payments. But if you make half-sized payments every two weeks (biweekly), you'll make 26 half payments, the equivalent of 13 full payments, essentially making 13 monthly payments every year rather than the usual 12.

To go this route, call your lender and ask the best way to do it. Some lenders will set you up with biweekly payments. Or you might simply prefer to send in the extra payments by mail or electronically. Whenever you make any extra payment, however, be sure to designate it "apply to principal." Otherwise, the lender may treat the extra as a prepayment of your next regular monthly payment.

Use a calculator like this one from the Mortgage Professor to see your savings. Example: According to this calculator, if you have a 30-year fixed rate mortgage at 3.8 percent, making biweekly payments would save $20,573 in interest over the life of the loan and pay off your mortgage four years earlier. That's a big bang for not many extra bucks.

One thing to avoid: "mortgage acceleration" products and plans. Paying down your mortgage is an easy thing to do, and you shouldn't have to pay anything to do it. No expertise or pipeline to a higher authority is required. When you see ads and pitches for mortgage "acceleration" plans, programs and products, run the other direction. (Learn more about these gimmicks here.)

2. Pour Every Bit of Extra Cash Into Your Mortgage

Dedicate every bonus, raise and windfall, birthday, holiday and graduation gift you receive toward paying down debt. Obviously, the highest interest debt takes priority, but if you have an adequate emergency savings fund and your mortgage is your only debt, when extra money falls into your hands, don't even ask yourself what you'll do with it: Add it to your mortgage payment, designating it as additional principal.

It's possible you'll find better uses for extra cash than paying down your mortgage. For example, if your mortgage rate is 3.8 percent, but you can earn 5 percent on your money elsewhere, you're obviously going to be better off earning the 5 percent. Read Stacy's discussion about the pros and cons of using extra cash to pay down your mortgage.

3. Round Up Your Payments

The monthly payment on a $200,000 mortgage at 3.8-percent fixed over 30 years is about $932 a month. Get into the habit of rounding up that amount to $1,000. Or even $1,030, or $1,050. Do it on a regular basis, and you'll shave years off your mortgage while feeling little pain.

4. Make One Extra Payment a Year

Give yourself a holiday gift by making an extra payment at the end of the year -- or any time. Or, if you'd rather, add an amount equal to one-twelfth of your mortgage payment to each month's payment. For instance, with the $932 monthly payments in the example above, one-twelfth is $78. Add that to your normal payment, for a total payment of $1,010, and you'll shave 30 payments off a 30-year mortgage, paying it off in 26 years instead of 30.

5. Refinance Into a Shorter Loan

Nearly 90 percent of Americans who financed their homes in 2013 chose a 30-year fixed rate mortgage, according to Freddie Mac. One reason to do so: Monthly payments are lower on longer-term loans.

Only 8 percent chose 15-year loans in 2013. But those borrowers stood to save a lot of money over the long haul. You can, too, with a shorter duration mortgage. Follow these three steps to find out what you would save:

• Find current mortgage rates. A good general source is the Freddie Mac weekly mortgage market survey, updated every Thursday, but you can also look at real-life rates available in your area by visiting the Money Talks News mortgage search page.
• Decide if you want a fixed or adjustable rate mortgage. ARMs are typically cheaper but riskier. Here's how to decide if an ARM is right for you.
• See what you could save. Use HSH's amortizing mortgage calculator(choose "show the full table") to compare the costs and benefits of various options.

Here's an example: If you pay 3.8 percent on a 30-year fixed rate home loan of $200,000, your payment (principal and interest) will be $932 a month. After 30 years, you'll have repaid the $200,000 plus $135,489 in interest, money that could have gone to a college education for your kids or helped you retire earlier.

Reducing the term, or duration, of the loan usually saves money in two ways: You pay less total interest, and you often get a lower rate. When I researched this story, the average 30-year fixed mortgage rate was 3.8 percent. The average 15-year, fixed rate mortgage had an average interest rate of just 3.07 percent. The monthly payments on a $200,000 loan would be $1,388, which is $457 higher than the 30-year version. But you'd be done in half the time, paying only $49,823 in interest, instead of $135,489. That means you'd keep nearly $86,000 in your pocket rather than putting it in a lender's.

If you want to shorten your mortgage's term but 10 or 15 years feels too tight, the payments on a 20-year loan might be more comfortable.

6. Refinance and Just Pretend It's a Shorter Loan

If locking into a shorter mortgage with higher monthly payments feels scary (what if you hit a rough patch and need the money?), you can get much the same effect by refinancing - if rates are low enough to justify it -- into a cheaper 30-year mortgage but paying it off on a 15-year (or 10-year or 20-year) schedule.

You won't enjoy any lower rates offered for shorter-term loans, but you'll save heaps of money on interest. To stick with our sample mortgage, the new payment on your $200,000 (3.8 percent, 30-year fixed-rate) mortgage is $932. Go ahead and pretend you're on a shorter schedule. Your monthly payment would be:

• $1,190 to pay it off in 20 years.
• $1,459 to pay it off in 15 years.
• $2,006 to pay it off in 10 years.

Do the math yourself using the HSH, or any number of other free calculators. This option requires willpower, because you must choose a higher payment than you are required to make each month. But it gives you the flexibility of falling back to your smaller required payment if you need extra cash.

Is Refinancing Cost-Effective?

The last two options involve refinancing your home. Before considering them, decide if refinancing is a good move for you. Whether refinancing is worth it depends on the associated costs and how long you'll stay in the home. To be a good deal, you'll need to stay long enough to more than recoup your costs. Refinancing is loaded with costs, including, but not limited to:

• A lender's origination fee.
• A title search fee and title insurance.
• Taxes.
• A settlement professional's fees.
• The cost of pulling your credit report.
• An appraisal fee.
• State or county tax and/or transfer fees.

You can pay for these costs out of pocket at the time you refinance. Many lenders encourage borrowers to have the fees added ("rolled in") to their loan balance. But if you do, your monthly payment will grow and you'll pay additional interest.

Estimate Your Costs to Refinance

On average, homebuyers paid an average of $2,539 in closing costs for a $200,000 mortgage in 2014, according to Bankrate's annual survey. The cost of refinancing is similar. Here's rule of thumb: Expect to pay 2 percent to 5 percent of the loan amount to refinance, says Zillow.

Estimate your own costs using MyFICO's refinance calculator. Also, you can shop around by telling several mortgage lenders how much you want to borrow and asking for their estimates of fees. Again, the Money Talks News mortgage search tool is a good place to start. Don't give lenders consent to pull your credit until you're ready to actually apply for a loan.

courtesy of: dailyfinance.com

written by: Marilyn Lewis

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All the Frequently Used Mortgage Terms You Need to Know

Welcome to the realtor.com® mortgage terms glossary, featuring 47 frequently used words and phrases you need to know as a home buyer or a homeowner.

(Some definitions contain additional information, examples and answers to common questions. When available, click on mortgage terms to learn more on realtor.com®.)

Adjustable-Rate Mortgage (ARM): A mortgage loan with an interest rate subject to change over the term of the loan. The interest rate is tied to the performance of a specified market rate.

Amortization: The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan.

Average Hourly Earnings: A monthly reading by the Bureau of Labor Statistics of the earnings of hourly plant and non-supervisory workers in the private sector.

Basis Point: One one-hundredth of a percentage point. For example, if mortgage rates fall from 7.50% to 7.47%, then they’ve declined three basis points. A full percentage point is 100 basis points.

Cash-Out Refi: A refinancing of a mortgage in which the new principal (the borrowed amount) exceeds the outstanding principal of the original loan by at least 5%. In other words, the homeowner is taking equity out of the home.

Conforming Mortgage Loan: Any mortgage loan at or below the amount Fannie Mae and Freddie Mac can purchase and/or securitize in the secondary mortgage market.

Construction Loan: A temporary loan used to pay for the building of a house.

Consumer Confidence Index: A measure of confidence households have in the economy. Released monthly by the Conference Board.

Consumer Price Index (CPI): A measurement of the average change in prices paid by consumers for a fixed-market basket of a wide variety of goods and services to determine the underlying rate of inflation. The broadest, and most quoted, CPI figure reflects the average change in the prices paid by urban consumers (about 80% of the U.S. population). The so-called “core CPI” excludes the volatile food and energy sectors.

Conventional Mortgage Loan: Any mortgage loan not guaranteed or insured by the government (typically through FHA or VA programs).

Credit Report: A report of borrowing and repayment history for an individual.

Credit Score: A three-digit number based on an individual’s credit report used to indicate credit risk.

Employment (Payroll): The number of non-farm employees on the payrolls of more than 500 private and public industries, issued monthly by the Bureau of Labor Statistics.

Employment Cost Index: A quarterly index used to gauge the change in the cost of civilian labor that includes salaried workers.

Existing Home Sales: Based on the number of closings during a particular month. Because of the one-to-two month period between a signed purchase contract and a closing, existing home sales are more influenced by mortgage rates a month or two earlier than the prevailing mortgage rate during the month of closing.

Fannie Mae and Freddie Mac: The nation’s two federally chartered and stockholder-owned mortgage finance companies. Forbidden by their charters from originating loans (that is, from providing mortgage loans on a retail basis), these two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others. Due to their directive to serve low-, moderate-, and middle-income families, the GSEs have loan limits on the purchase or securitization of mortgages.

Federal Funds Rate: The rate banks charge each other on overnight loans made between them. These loans are generally made so banks can cover their daily cash flow and reserve requirements. The federal government doesn’t actually set the fed funds rate, which is determined by supply and demand of the funds. Instead, it sets a target rate and affects the supply of funds through its own purchases or sales of securities.

Federal Open Market Committee (FOMC): The arm of the Federal Reserve that sets monetary policy, the FOMC is scheduled to meet eight times a year. The 12 members of the FOMC include the seven governors of the Federal Reserve System, the president of the New York Federal Reserve Bank, and, on a rotating basis, four of the presidents from 11 other regional Federal Reserve Banks.

Fixed-Rate Mortgage (FRM): A mortgage loan with an interest rate that does not change over the term of the loan.

Gross Domestic Product (GDP): The value of all the final goods and services produced in the U.S. over a particular period. Available quarterly from the Bureau of Economic Analysis.

Home Equity: The difference between the current value of the house and the amount of money owed on the mortgage.

Home Equity Line of Credit: An open credit line secured by the equity in your home.

Home Equity Loan: A loan that is secured by a home and limited to one lump-sum amount.

Home Improvement Loan: Money lent to a property owner for home repairs and remodeling.

Home Loan: Money provided by a bank or lending institution to pay for a home.

Homeownership Rate: The number of households residing in their own home divided by the total number of households in the U.S. The U.S. Census Bureau releases an estimate of homeownership rate based on a quarterly survey.

House Price Index: A quarterly measure of the change in single-family house prices released by the Office of Federal Housing Enterprise Oversight. The HPI is a repeat sales index, meaning it measures average price changes in repeat sales or refinancings on the same properties, and it is based on mortgages purchased or securitized by Fannie Mae and Freddie Mac. Homes with mortgages above the Fannie/Freddie conforming loan limit and homes insured or guaranteed by the FHA, VA or other federal government entity are not included in the sampling.

Housing Starts: The Census Bureau’s monthly count of the number of private residential structures on which construction has started or permits have been issued.

Interest Rate: A measure of the cost of borrowing.

Jumbo Mortgage Loan: A mortgage loan for an amount exceeding the Fannie Mae and Freddie Mac loan limit. Because the two agencies can’t purchase the loan from the lender, jumbo loans carry higher interest rate.

Loan-To-Value Ratio (LTV): In a mortgage loan, the amount borrowed relative to the value of the property. An LTV of 80% means the mortgage loan is for 80% of the value of the property, with the borrower making a 20% down payment.

Mean Home Price (of New or Existing Homes Sold): The mathematical average of the prices of all homes sold in the period, typically monthly. The mean price of homes sold generally runs higher than the median price due to the number of very high-priced homes.

Median Home Price (of New or Existing Homes Sold): The median price of all the homes sold within a 30-day period. Median home prices are generally a better indicator of home price trends than average home prices.

Mortgage: A loan lent for the purpose of buying real estate and secured by the real estate.

Mortgage Application Index (Purchase): An index published weekly by the Mortgage Bankers Association of America which gauges the number of applications submitted for the purchase of a home. The survey covers about 40% of all retail residential mortgage transactions.

Mortgage Application Index (Refinance): An index published weekly by the Mortgage Bankers Association of America which gauges the number of applications submitted for the refinancing of a home. The survey covers about 40% of all retail residential mortgage transactions.

Mortgage Broker: A person or company that acts as a mediator between borrowers and lenders.

Mortgage Calculator: An online form that calculates how much a borrower will pay each month for a home loan.

Mortgage Quote: An interest rate offered on a home loan.

Mortgage Rate: The amount of interest charged on money lent for the purchase of a home.

Mortgage Refinancing: The process of taking out a new mortgage with different terms or interest rates. The proceeds are used to pay off the original loan on the same property.

New Home Sales: A survey of builders nationwide by the Census Bureau to determine the number of contracts signed for new home.

Producer Price Index (PPI): A measurement of the average change in the selling prices of goods and services sold by domestic producers and an indicator of inflation. Released monthly by the Bureau of Labor Statistics.

Second Mortgage: A mortgage on real estate which has already been pledged as collateral against another mortgage. Typically used to draw cash from a home for other purposes.

Securitization: The pooling of mortgage loans into a mortgage-backed security. The principal and interest payments from the individual mortgages are paid out to the holders of the MBS security.

Underwriting: The determination of the risk a lender would assume if a particular mortgage loan application is approved.

Unemployment Rate: The percentage of the labor force out of work. To be considered a member of the labor force, an individual must either be employed or actively looking for employment, released by the Bureau of Labor Statistics.

Written by: Angela Colley 

Courtesy of: realtor.com