Contract Rate on New Home Loans Dips Under 4 Percent

On average, mortgage interest rates declined in May, according to data released earlier today by the Federal Housing Finance Agency (FHFA).  On conventional mortgages used to purchase newly-built homes, the average contract interest rate dropped by more than 30 basis points, from 4.19 to 3.88 percent.  This is the lowest the new home loan rate has been in a year and the first time it has dipped below 4.0 percent since February.

Initial fees increased slightly during the month, from 1.22 to 1.25 percent—far from enough to offset the decline in the contract rate.  The result was an average effective rate on new home loans (which amortizes initial fees over the estimated life of the loan) that also dropped by more than 30 basis points, staying barely above 4.0 percent (at 4.01).

Reversing the trend of the prior two months, the average size of conventional mortgages used to purchase new homes—and the price of the new homes purchased with the mortgages—both declined in May.  The average loan size declined 1.8 percent to $319,800, while the average home price fell by 3.6 percent to $418,800.  Despite the declines, both the average loan size and average new home price remain higher than they had been at any time prior to 2014.

Because the change in price was greater than the change in loan size, the average loan-to-price ratio on conventional mortgages used to purchase new homes increased substantially in May, from 77.0 to 78.6 percent—the highest it’s been since last August, and the first time above 78.0 percent in 2014.

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in May. For other details about the survey, see the technical note at the end of FHFA’s June 26 news release.

Rates on New Home Loans Remain Stable

The average characteristics of conventional mortgages used to buy newly built homes were little changed in April, according to data released earlier today by the Federal Housing Finance Agency (FHFA).  The average contract interest rate declined a scant 2 basis points to 4.19 percent, while the average initial fees and charges increased by a single basis point to 1.22 percent.  As a result, the effective interest rate (which amortizes initial fees over the estimated life of the loan) also declined by 2 basis points, to 4.33 percent.Meanwhile, the average size of the conventional mortgages used to purchase newly built homes increased from $322,600 to $325,800 in April, while the average price of the new homes purchased with the loans went from $427,200 to $434,500. This is the second consecutive month during which both the loan size and new home price both increased, although neither is yet quite back to the peak it reached in January.This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in April. For other details about the survey, see the technical note at the end of FHFA’s May 29 new release.

Rates on New Home Loans Back Up Over 4%

Earlier today, the Federal Housing Finance Agency (FHFA) reported an 8 basis point decline in mortgage interest rates between February and March. However, the decline was due entirely to loans on existing homes. The average contract interest rate on conventional mortgages used to purchase newly built homes actually increased in March, from 3.91 to 4.21 percent, reversing an anomalous drop to under 4 percent that occurred in February.Initial fees dropped on mortgages for both new and existing homes in March, but not enough to offset the movement in contract rates on new home loans. After amortizing initial fees over the estimated life of the loan, the effective rate on new home loans increased from 4.04 to 4.35 percent, moving back into a range typical of the latter half of 2013.

The average price and loan size on conventional mortgages used to purchase newly built homes also reversed previous month declines in March. The average price increased 5.4 percent to $427,200—the second highest number on record.Meanwhile, the average size of a loan used to purchase a new home increased 7.1 percent to $322,600, also the second highest number on record. As the above numbers imply, the average loan-to-price ratio increased in March, from 76.6 to 77.5 percent.  Again, this reversed a decline reported for the previous month.

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in March. For other details about the survey, see the technical note at the end of FHFA’s April 29 news release.

House Prices End the Year Higher

Data from Standard and Poor’s indicates that house prices rose in December 2013. According to the release, the seasonally adjusted S&P/Case-Shiller HPI – 20 City Composite rose by 0.8% in December 2013. This is the 23^rd consecutive month-over-month increase for the Index. Over this time period, the Index has risen by 21.7%. For the entire year of 2013, the 20 City Composite Index grew by 13.4%.

The Federal Housing Finance Agency (FHFA) also released data on house prices. According to its seasonally adjusted House Price Index – Purchase-Only, house prices rose by 0.8% in December 2013. The FHFA House Price Index – Purchase-Only has now increased for for 24 of the past 26 months, rising by 14.8% during this period. Over the year, the FHFA House Price Index – Purchase-Only has climbed by 7.7%. As Figure 1 shows, following the 15.3% increase in the FHFA House Price Index – Purchase-Only that took place between April 2011 and December 2013, house prices are roughly the same as the level recorded in May 2005 and are now at 92% of the peak level reached in March 2007.

A previous post demonstrated that the recovery in house prices is a key contributor to the renewed expansion in housing equity. In a related fashion, rising house prices should also help expand the amount of homeowners with positive housing equity, shrinking the amount with negative housing equity. Figure 2 juxtaposes the FHFA House Price Index – Purchase-Only data displayed in Figure 1 onto a chart depicting the share of homes with negative housing equity. According to this chart, house prices in December 2011 were at 81% of their March 2007 peak. By September 2013, house prices reached 91% of this peak level. At the same time, the share of homes with negative equity reached 25.2% by the end of the fourth quarter of 2011. However, by the end of the third quarter of 2013, the share of homes with negative equity had fallen to 13.0%. Given that the FHFA House Price Index – Purchase Only ended the fourth quarter of 2013 at 92% of its peak, the share of homes with negative housing equity is expected to end the year even lower.

For full histories of the composites and 20 markets included in the Case-Shiller composites, click here cs.

For full histories of the FHFA US and 9 Census divisions, click here.

New Home Loans: Rate Edges Down, Purchase Price Up

Earlier today, the Federal Housing Finance Agency (FHFA) reported a slight (3 basis point) rise in mortgage interest rates for December.  However, the rise was driven entirely by loans used to purchase existing homes.  The average contract interest rate on conventional mortgages for new homes actually moved slightly in the opposite direction from 4.26 to 4.24 percent.

Initial fees, which have the potential to offset a small change in the contract interest rate, edged down on mortgages for both new and existing homes.  On mortgages for new home loans, the decline in initial fees was from 1.27 to 1.22 percent.  The result was a decline in the average effective interest rate on new home loans (which amortizes initial fees over the estimated life of the loan) of 2 basis points to 4.24 percent, the lowest it’s been since August.

While the interest rate changes were very small, the average size of conventional mortgages used to purchase new homes, as well as the price of the new homes purchased with the loans, made notable gains.  The average loan size increased 3.8 percent to $313,400, which represents an all-time high.

Meanwhile, the average price of a new home purchased with a conventional loan increased 1.9 percent to $409,500, also an all-time record (although it was nearly as high in April of 2013).

Because the average loan amount increased by more than the average new home price, the average loan-to-ratio price also increased, from 77.4 to 78.3 percent.

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in December.  For other details about the survey, see the technical note at the end of FHFA’s January 30 news release.

House Prices Rise, But At A More Moderate Pace

According to the Federal Housing Finance Agency (FHFA), house prices rose by 0.1% on a seasonally adjusted basis over the month of November 2013. This is the 22^nd consecutive month that house prices have increased. Over this 22-month period, house prices have risen by 13% and the November 2013 FHFA House Price Index is now roughly the same as the April 2005 index level.

As Figure 1 shows, despite the increase nationally, house price changes varied across regions of the country. According to the chart, house prices rose in five of the nine Census divisions; the Mountain division (0.5%), the West North Central division (0.5%), West South Central division (0.1%), East North Central division (0.5%), and the South Atlantic division (0.2%). However, these gains were partially offset by house price declines in the East South Central (-1.4%), New England (-0.4%), and Middle Atlantic (-0.4%) divisions. House prices in the Pacific division were unchanged during the month. Over the past year, however, house prices have risen in all nine Census divisions.

House price changes are a key determinant of the amount of housing equity held by homeowners. Relative to the amount of housing-related debt taken on by homeowners, increasing house prices will raise the available amount of housing equity while falling house prices will lower the amount of housing equity. As Figure 2 below illustrates, between January 2012 and October 2013, house prices rose by 13%. Over roughly the same period, the first quarter of 2012 and the third quarter of 2013, the amount of housing equity expanded by 55%.

Since housing equity is often used by households to finance remodeling activity, the recent growth in house prices may be contributing to the current recovery in remodeling spending. NAHB’s Remodeling Market Index (RMI) further illustrates the recovery in remodeling activity. The Index has eclipsed 50 in 5 of the past 6 quarters dating back to the third quarter of 2012 and is currently at its historical high of 57. An RMI above 50 indicates that more remodelers report market activity is higher compared to the prior quarter than report that it is lower. As house prices continue to recover, NAHB expects remodeling activity to improve, growing by 0.7% in 2014 and by 2.1% in 2015.

For full histories of the FHFA US and 9 Census divisions, click here.

Rates on New Home Loans Join Downward Trend

On Christmas Eve, the Federal Housing Finance Agency (FHFA) reported a 10 basis point decline in mortgage interest rates for the month of November.  Data from FHFA’s Monthly Interest Rate Survey (MIRS) cover conventional single-family mortgages and distinguish whether the loans are for the purchase of new or existing homes.  In October, rates on existing home loans declined while rates on new home loans stubbornly continued to inch up.   But in November, rates on both types of loans declined.  In particular, the November data show a 6 basis point decline in the average contract interest rate on loans to purchase newly-built homes, from 4.32 to 4.26 percent.Initial fees have the potential to offset a decline in the contract interest rate, but the initial fees on mortgages for new homes also declined in November, from an average of 1.30 to 1.27 percent.  (Although down from October, this is still relatively high by historical standards, as the average fee on new home loans has only been as high as 1.27 percent five times since 1996.) The combination of declines in the contract rate and initial fees took the average effective interest rate on new home loans (which amortizes initial fees over the estimated life of the loan) down 8 basis points to 4.39 percent (after two consecutive months above 4.40).

The November data on conventional new home mortgages showed relatively little change in the average size of the loans ($302,000), the average price of the homes purchased with the loans ($401,800), or the average loan-to-price ratio (77.4 percent).

The MIRS collects data on loans closed over the last five working days of the month. For other caveats and survey details, see the technical note at the end of FHFA’s December 24 MIRS release.

Interest Rates on New Home Loans Remain Stubborn

Earlier today, the Federal Housing Finance Agency (FHFA) reported a 4 basis point decline in mortgage interest rates for the month of October.  However, the decline was driven entirely by loans on existing homes.  The average contract interest rate on conventional mortgages for new homes stubbornly refused to follow suit, moving instead in the opposite direction from 4.30 to 4.32 percent.  Although this technically continues the upward trend of the previous four months, October’s 2 basis point change is small and represents a substantial leveling off from the June-September increases that averaged 22 basis points a month.Initial fees have the potential to offset a small increase in the contract interest rate, but the initial fees on mortgages for new homes also increased in October, from 1.14 to 1.30 percent.  This is the fourth time fees on new home loans have hit 1.30 percent (or higher) since October of last year (following an extended period when they remained below 1.30 every month from the start of 1997 through September of 2012).  As a result, the average effective interest rate on new home loans (which amortizes initial fees over the estimated life of the loan) increased by 3 basis points to 4.47 percent, the highest it’s been since July of 2011.Also in October, the average size of conventional loans used to purchase new homes—as well as the price of the new homes purchased with the loans—reversed the previous month’s declines.  The average loan size increased 2.6 percent to $302,500, while the average home price increased 3.4 percent to $401,800.  This marks only the third time in its history that the average price of new homes purchased with conventional loans has been above $400,000.The result of the price and loan size changes is an average loan-to-price ratio that declined for the second month in a row, from 77.5 to 77.1 percent, the lowest it’s been since March.

The above information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in October.   For other details about the survey, see the technical note at the end of FHFA’s November 26 news release.

Rates on New Home Loans: Still Rising

In September, interest rates on conventional mortgages used to purchase newly built homes increased for the fourth month in a row, according to data released today by the Federal Housing Finance Agency (FHFA).

During the month, the average contract interest rate increased by 10 basis points to 4.30 percent, while initial fees increased to 1.14 percent (from an average of 1.06 percent the previous month).  The combination drove FHFA’s key measure of the average effective interest rate on new home loans (which amortizes the initial fees and incorporates them into the rate) up by 11 basis points to 4.44 percent—the highest it’s been since July of 2011 (the month prior to a substantial 36 basis point drop).

The FHFA release also includes data on loan size and house prices, and the averages on both for newly built homes declined in September.  The average price of a new home purchased with a conventional mortgage declined by $11,900 to $388,500.  (The average price depends on the mix of new homes purchased with conventional loans during a particular month, in addition to anything that may be happening to house prices in general.)  The average amount of the loans showed an even more pronounced decline of $13,500, taking it down to $294,800.As the above numbers imply, the average loan-to-price ratio on conventional mortgages used to purchase new homes also declined in September—down to 77.5 percent, after three consecutive months during which it remained above the 78 percent mark.

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in September.  Rates and other terms on loans are usually set 30 to 45 days before the loans actually close.  For other caveats and limitations of the survey, see the technical note at the end of FHFA’s October 29 news release.

House Prices Continue To Climb

House prices continued to rise in July, contributing to the overall recovery in the housing market. According to the most recent release by the Federal Housing Finance Agency, U.S. house prices rose by 1.0% on a month-over-month seasonally adjusted basis in July. This is the 18^th consecutive monthly increase for the House Price Index – Purchase Only. Since January 2012, house prices have risen by 12.5%.

Meanwhile, Standard and Poor’s also reported that house prices rose in July. According to the most recent release, the S&P/Case-Shiller House Price Index –20 City Composite grew by 12.4% over the past year. This is the 14^th consecutive year-over-year increase registered by the index. Since March 2012, house prices, as measured by the S&P/Case-Shiller House Price Index, have risen by 21.2%.

According to the FHFA, house prices nationally are 14% above the trough reached in April 2007. However, they remain 10% away from their pre-recession peak. As Chart 2 illustrates, home prices in most areas have exhibited a sustained recovery, but have not yet returned to their pre-recession peak, a situation that keeps a portion of homeowners in a negative housing equity position.

Chart 2 also indicates that the regions of the country with the largest increases typically still have the most to rise before reaching their peak level. For example, house prices in the Pacific region have climbed by 27% from their trough, but house prices in that region are still 23% below their peak level.  The Pacific region includes Hawaii, Alaska, Washington, Oregon, and California. According to Standard and Poor’s/Case-Shiller, house prices in Los Angeles, San Diego, and San Francisco have risen by 30%, 30%, and 50% from their respective troughs, but house prices in these cities remain 25%, 25%, and 19% away from their respective peaks. House prices in Seattle have risen by 28% from their trough, but are 17% below their peak level.

In contrast, house prices in the West South Central region of the country have fully recovered their pre-recession peak level. As of July 2013, house prices in this region are 12% above their trough and, despite the recent month-over-month decline, are 7% above their pre-recession peak. The West South Central region is composed of Oklahoma, Arkansas, Texas, and Louisiana. According to Standard and Poor’s/Case-Shiller, house prices in Dallas are currently 17% above their trough and 4% above their June 2007 peak.

For full histories of the FHFA US and 9 Census divisions, click here.

For full histories of the composites and 20 markets included in the Case-Shiller composites, click here.