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.

Mortgage Delinquency Rates Fall

Data released by the Mortgage Bankers Association (MBA) indicates that the delinquency rate for mortgage loans on one-to-four-unit residential properties, considered single-family properties, decreased to a not seasonally adjusted rate of 5.69% of all loans outstanding at the end of the first quarter of 2014, 106 basis points below the 6.75% delinquency rate recorded in the first quarter of 2013. This level represents the lowest level since the first quarter of 2008.

According to MBA’s National Delinquency Survey, the four-quarter decrease in the delinquency rate reflected a decline across each stage of delinquency. In addition, the foreclosure inventory also fell. As Figure 1 below illustrates, the percentage of all loans past due fell by 106 basis points over the past four quarters. Loans 30-59 days past due fell by 45 basis points, loans 60-89 days past due fell by 15 basis points, and loans 90 or more days past due decreased by 45 basis points. The foreclosure inventory fell by 90 basis points over the past four quarters. In sum, the serious delinquency rate, the portion of loans either 90 or more days late or in the foreclosure inventory decreased by 135 basis points over the past year.

The recent four-quarter decline in the portion of loans that are seriously delinquent furthers a trend in place since 2010. Figure 2 compares the share of loans that became seriously delinquent based on their origination year with the annual average serious delinquency rate. According to this illustration, the share of single-family loans considered seriously delinquent peaked in 2010 at 9.0%. Since 2010, the proportion of seriously delinquent mortgages has fallen to 5.8%.

The extended decline in the percentage of loans considered seriously delinquent partially reflects a decrease in serious delinquency among loans originated in more recent years. According to the figure below, an average of 4.0% of loans originated in 2005 became seriously delinquent. However, 10.6% of loans originated in 2006, 11.5% of loans originated in 2007, and 6.4% of loans originated in 2008 ultimately became seriously delinquent. In contrast, 1.0% of loans originated in 2009 became seriously delinquent. Since 2010, less than 1.0% of originated loans have become seriously delinquent.

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.

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.

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.

Housing Remains a Key Component of Household Wealth

Recently released research by NAHB reaffirms that homeownership is an important component of household wealth accumulation.

Part of the reason why the primary residence is an important source of household wealth is because of its size on the household balance sheet.

As Figure 1 illustrates, the primary residence represents the largest asset category on the balance sheets of households. At $20.7 trillion, the primary residence accounted for almost one-third, 30%, of all assets held nationally by households in 2010. According to the report, the primary residence represented 62% of the median homeowner’s total assets and 42% of the median home owner’s wealth. In addition, the median value of the primary residence across all households was $100,000. In contrast, the median values of financial assets and vehicles were only $17,000 and $12,200 respectively.

Another reason why the home is a large part of household balance sheets is because it is a widely held asset. The report shows that two out of every three households, 67%, owned a primary residence in 2010 while just over half of households, 50%, held a retirement account. Meanwhile, 16% of households owned either stocks or bonds.

The recent bust in the housing market had a severe impact on household balance sheets. Plummeting house prices contributed to the decline in the value of household assets. At the same time, prices of other assets such as equities also dropped, thus leaving the average contribution of the primary residence to a household’s total assets relatively unchanged, as shown in the report. However, since the debt underlying the primary residence did not decline as quickly as house values, the average household experienced a decline in both total wealth and in housing’s contribution to a household’s net worth. Nevertheless, as house prices recover, so too should household wealth.

Equity in residential property tends to be a particularly important component of wealth for lower income, older households. According to the report, the median net worth for households over the age of 75 with household income below $35,000 was $110,900 in 2010. This is 25 times the net worth for households under age 45 in the same income bracket have. Also for 75+ households with incomes under $35,000, the median share of net worth held as equity in a primary residence is 60 percent. Younger households in the same income bracket tend to have no equity at all in a home (the median residential equity share of total net worth for households with incomes under $35,000 in which the head was younger than 54 was $0). Higher income households over age 75 have higher net worth and more equity in a home in absolute terms, but equity in a primary residence accounts for a smaller share of total net worth.

Rates Rise Again on Loans for New Homes

In July, interest rates on conventional mortgages used to purchase newly built homes increased for the second month in a row, according to data released yesterday by the Federal Housing Finance Agency (FHFA).  The new FHFA data show the average contract interest rate on conventional loans for newly built homes increasing by nearly 4 tenths of a percent, to 3.94 percent.  Initial fees were little changed, so the effective rate on the loans (after amortizing the fees) was also up roughly 4 tenths of a percent, to 4.07 percent.  Meanwhile, the average term on conventional new home loans continues to hover around 28 and half years (28.4 years in July).After the July increases, both the contract rate and effective rate on new home loans were higher than they’ve been at any time since January of last year.

The FHFA release also includes data on loan size and house prices. After two months of declines, the average size of new home loans and price of the homes purchased with the loans both increased in July.  The loan amount increased from $295,800 to $303,300, while the purchase price increased from $387,700 to $394,400.  Because the loan size increased by a few hundred dollars more than the purchase price, the average loan-to-price ratio on conventional mortgages for new homes edged up—from 78.4 to 78.6 percent, the highest it’s been since 2011.

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in July.  Loan terms are typically established 30 to 45 days before closing.  For other caveats and limitations of the survey, see the technical note at the end of FHFA’s August 29 news release.