As mortgage rates rise, more buyers in expensive metros are turning to adjustable-rate mortgages to curb costs.
But the potential savings between a fixed-rate mortgage and an adjustable-rate mortgage is narrowing. The average rate on the 30-year fixed-rate mortgage and 5/1 adjustable-rate mortgage have both jumped by about 70 basis points from August 2017 to August 2018, according to Freddie Mac. ARMs, however, still do typically offer a slightly lower initial interest rate that then rises after a set period, such as five or seven years.
ARMs are more common in expensive metros and among home buyers who are borrowing larger balances on their mortgage loans, according to CoreLogic, a real estate data firm. “As ARMs have a lower initial interest rate than [fixed-rate mortgages], buyers see bigger monthly savings in the initial payment, especially for bigger loans,” CoreLogic notes on its Insights blog.
For example, the ARM share is highest in metros like San Jose, which had the highest average sales price. San Jose had the largest share of ARMs in 2018, according to CoreLogic.
ARMs accounted for 51 percent of the dollar volume among mortgages of more than $1 million that were originated during August 2018. Among mortgages in the $400,001 to $1 million range, the ARM share was about 21 percent, and in the $200,001 to $400,000 range, ARMs accounted for just 7 percent of the mortgages.
As of August 2018, ARMs comprised about 15 percent of the dollar volume of conventional single-family mortgage originations. The ARM share has remained relatively stable since 2010, but has risen in some geographic areas and at certain higher price points.
ARMs earned a bad reputation during the housing crash when homeowners faced resets from their initial interest rate and could no longer afford their monthly payments. The ARM share was more than 50 percent during mid-2005 but then dropped to a low 4 percent in early 2009. Stricter underwriting requirements from lenders in recent years may have discouraged ARM volume from taking off again, CoreLogic notes.
A labor shortage of remodelers is prolonging or delaying kitchen and bath projects, according to a new report released by the National Kitchen & Bath Association. The labor shortage could also lead to higher project costs.
NKBA members cite delays on 30 percent of jobs due to a shortage of contractors, according to the report. Installers, carpenters, and kitchen and bath designers are among the toughest jobs to fill.
“The shortage of tradespeople will continue to have a significant impact on the United States’ macro economy, and we are concerned with how this shortage is impacting the kitchen and bath industry,” says Bill Darcy, CEO of the NKBA. “We will work with the industry and similar trade associations to focus on attracting strong next-generation talent to take on these important jobs that fuel the economy.”
NKBA members say the shortages are likely due to the limited number of younger workers coming into the industry. They recommend raising awareness about the benefits of a trades career, such as the income, steadiness of work, and the flexible work schedule, when trying to attract new talent.
In the first year of ownership, 44 percent of homeowners say they experienced an unexpected home repair. And 12 percent said they experienced a surprise repair within their first month of moving in, according to a new NerdWallet survey of about 2,000 U.S. adults.
Nearly half—or 48 percent—of surveyed American homeowners say unexpected home repair costs have caused them anxiety. Thirty-one percent of homeowners say they do not have money set aside for home repairs or improvements.
“Unexpected home repair costs can be a nightmare, especially for first-time home buyers,” says Holden Lewis, NerdWallet’s home expert. Buyers are already bogged down with the cost of buying a home, closing costs, moving, and outfitting their new home. “On top of all those expenses, you’re expected to keep some savings in reserve for emergency repairs,” Lewis says. “Don’t kick yourself if you don’t have an emergency fund left over after you buy your house. But you’ll be a less anxious homeowner if you make it a priority to build up that fund.”
Mortgage rates mostly held stable this week, a welcome relief to home buyers.
“Despite recent market volatility, mortgage rates remained steady this week,” says Sam Khater, Freddie Mac’s chief economist. “The stability in mortgage rates reflects the moderation in inflationary pressures in the economy due to the lower oil prices and subdued wage growth. On the margin, lower energy costs are a positive for the home sales market, particularly for lower-middle income suburban buyers who spend proportionately more income on transportation costs.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Nov. 15:
30-year fixed-rate mortgages: averaged 4.94 percent, with an average 0.5 point, unchanged from last week’s average. Last year at this time, 30-year rates averaged 3.95 percent.
15-year fixed-rate mortgages: averaged 4.36 percent, with an average 0.4 point, increasing slightly from last week’s 4.33 percent average. A year ago, 15-year rates averaged 3.31 percent.
5-year hybrid adjustable-rate mortgages: averaged 4.14 percent with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 3.21 percent.
Grays, mixed metals, and farmhouse styles are some of the most popular trends for remodelers taking on sprucing up their master bathroom.
The 2018 U.S. Houzz Bathroom Trends Study is based on a survey of more than 1,100 homeowners who are planning or recently have completed a master bathroom renovation. Some of the trends that emerged from the report:
1. Seeing gray: Gray colors continue to dominate for walls and flooring in the bathroom. Gray cabinets are also gaining popularity, climbing from a 10 percent share in 2016 to 16 percent in 2018.
2. Taking the upgrade: More homeowners are upgrading their master bathrooms with special features when they remodel. The most popular premium features are dual showers, one-piece toilets, vessel sinks, and built-in vanities.
3. Mixing up the metals: Two in five renovating homeowners do not match metal finishes across fixtures and hardware in master bathrooms. Of the 58 percent of renovating homeowners who do match metal finishes, the most popular options are matte nickel and polished chrome (38 and 28 percent, respectively).
4. Going a little country: Farmhouse styles are jumping in popularity. While contemporary style continue to be the leading choice among renovating homeowners, the style has dropped over the past three years. Farmhouse style, on the other hand, has more than doubled in popularity, from 3 percent in 2016 to 7 percent in 2018.
5. Making it accessible: The majority of baby boomer homeowners (ages 55 or older) are addressing aging-related needs during master bathroom renovations. Nearly half of renovating baby boomers are changing the bathroom layout, and one-third are removing the bathtub. Other upgrades include installing accessibility features like seats, low curbs, grab bars, and non-slide floors in upgraded showers and bathtubs.
6. Building a master suite: The study found that homeowners are focusing on their master suite as a whole, not just the bathroom in their updates. Nearly half of master bathroom projects also were accompanied by master bedroom renovations (46 percent). Some homeowners are making their master baths even larger than their bedroom. One in ten master bathrooms is the same size or larger than the master bedroom (11 percent).
The last few years, the home improvement business has been booming as more homeowners look to spruce up their homes. But are owners getting too confident that they can do it all themselves? “Costs, pop culture, and perhaps overconfidence could be driving DIY culture,” according to a new study from NerdWallet, a personal finance website.
NerdWallet’s 2018 Home Improvement Report found that younger generations are particularly gung-ho about tackling home improvement projects themselves than other age groups. Homeowners under the age of 35 take on more than half of all their home repair or home improvement projects themselves, according to the study which surveyed about 2,000 adults in the U.S.
Eighty percent of all homeowners surveyed say that professionals charge too much for labor and materials. Further, 73 percent say there is a wide variety of resources available with enough information that homeowners feel they could do every single one of their home repair or improvement projects themselves if they chose to.
Some homeowners go DIY merely for the cost savings—but they tend to take on smaller projects when they do. Homeowners who did a kitchen renovation themselves typically spent $22,000 less than those who used a professional, according to the report. Landscaping and bedroom renovations were the most common projects that homeowners took on themselves rather than hiring a professional.
While homeowners may be more confident to take on a project, they don’t always complete it correctly. Forty-three percent of homeowners admit to butchering a DIY home project at least once. Thirty-five percent say a home improvement show influenced them to take on a DIY project that ended badly.
“Have some humility when you think about tackling repairs and renovations yourself,” says Holden Lewis, NerdWallet’s home expert. “If it’s a job you’ve never done before, and it’s hard to undo, think really hard whether you should do it yourself, even with the guidance of YouTube.”
For the most serious repairs, like those that involve plumbing and electricity, homeowners do say they are more likely to hire a pro.
Credit scores often take about 11 months to fully recover after a consumer purchases a home, according to a new study by LendingTree, an online loan marketplace.
After a buyer purchases a home, their credit scores fall by an average of 15 points, but it takes 160 days—or slightly over five months—for the full impact to take effect.
The analysis showed that after the full drop, recovery takes an average of another five months. For most borrowers, it took an average of 161 more days for scores to return to their prior levels. About 11 months later, credit scores tended to be fully recovered and were often higher, too.
“When a consumer takes out a mortgage, a large balance is added to his credit report,” LendingTree researchers explain in the report. “Credit scoring models consider a consumer’s total balance of money owed, and a large increase in outstanding debt drives scores lower. The presence of a new credit line item also weighs on the score, though to a lower extent.”
Borrowers’ credit scores recover as they make on-time payments. Having a mortgage also increases the diversity of accounts in the credit file, so borrowers can eventually see a boost to their scores from it.
LendingTree researchers evaluated the variation in credit scores across the country’s 50 largest cities to find where home buyers saw the fastest recovery to their credit scores after getting a mortgage. Those cities are:
1. Richmond, Va.
Average initial credit score: 693
Average decline in score: 13 points
Total time until recovery: 266 days
2. Minneapolis
Average initial credit score: 701
Average decline in score: 11 points
Total time until recovery: 267 days
3. Salt Lake City
Average initial credit score: 704
Average decline in score: 15 points
Total time until recovery: 272 days
On the other hand, the following cities saw the slowest recovery to their credit scores after purchasing a mortgage:
Washington (CNN)The continued strength of the American economy made it more likely that the Federal Reserve will stick to its plans to raise rates in December, part of a strategy to keep growth on an even keel into 2019.
Fed policymakers agreed to hold rates steady this month, according to a statement released Thursday at the conclusion of a two-day policy-setting meeting in Washington.
That leaves the benchmark rate, which determines the cost of borrowing on credit cards, mortgages and other loans, unchanged in a range of 2% and 2.25%.
Since Fed officials met in late September, “the labor market continues to strengthen,” the statement read. “Economic activity has been rising at a strong rate.”
The statement also described job growth as “strong.”
The political shift in Washington is expected to have little impact on the US central bank’s trajectory. The Fed is expected to raise rates at its final 2018 meeting in December, with a majority of participants now in favor of the move.
Investors anticipate policymakers will push rates higher at least three more times in 2019, a standard policy response to a booming economy that also buys central bankers wiggle room in the event of a downturn.
Employers added 250,000 jobs in October, surpassing expectations. Wages have also grown 3.1% year-over-year, after years of American workers’ paychecks stagnating.
“The big-picture takeaway is that we don’t think the midterms will change the economic outlook,” Marina Grushin, a Goldman Sachs strategist wrote in a note to clients.
Next year’s divided Congress has also left analysts shrugging off the likelihood of any major legislative initiatives over the next two years, with low expectations for new tax cuts or other big moves — though concerns persist surrounding budget negotiations.
Fed officials next month will have to contend with yet another political twist over a potentially heated budget fight. The federal government is funded through Dec. 7, and lawmakers will need to reach agreement on fiscal spending plans to avert a partial government shutdown.
“Gridlock does not mean the economic boat will capsize,” S&P Global’s US chief economist Beth Ann Bovino wrote in a note to clients, “though it will likely increase uncertainty around fiscal deadlines.”
In the run-up to the elections, President Donald Trump repeatedly took credit for the booming economy, urging voters to stick with Republicans if they want more jobs — all while blasting his top Fed chief, Jerome Powell, for threatening Trump’s popularity by backing interest rate increases that run counter to the administration’s expansionary moves.
Fed officials worry low unemployment and higher wages could speed up inflation, forcing the central bank to raise rates more aggressively, and tip the economy into recession. US policy makers are also contending with a strengthening dollar as interest rates rise and more recent market volatility just as other central banks take steps to end crisis-era stimulus programs.
Business investment has only risen slightly in the third quarter due to the Trump administration’s escalating trade wars, and the stimulative effects of the December tax cuts also appears to have worn off.Fed officials noted on Thursday that the growth of business investment had “moderated since its rapid pace earlier this year.”
It’s left investors wondering whether Fed officials might lower next year’s growth forecast when they meet in December, especially given the recent tightening in financial conditions driven by the equity selloff over the past few months.
On Thursday, Fed officials refrained from mentioning recent market volatility in their statement. Doing so might have been interpreted as central bankers considering slowing down their rate hike plans.
Policymakers have tried to strike the right balance, telegraphing they would be prepared to adjust in either direction to keep the economy on even keel.
Fed officials debated at last month’s meeting how restrictive policy would need to be in the future, with “a few” participants arguing that additional rate hikes may be necessary “for a time” while others would need to see clear signs of the economy overheating before taking further action.
Rising home prices are helping homeowners get richer and richer. Equity-rich properties represented 25.7 percent—or nearly 14.5 million—of U.S. properties in the third quarter, a record high, ATTOM Data Solutions, a real estate research firm, reports. “Equity-rich” means the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value.
“As homeowners stay put longer, they continue to build more equity in their homes, despite the recent slowing in rates of home price appreciation,” says Daren Blomquist, senior vice president with ATTOM Data Solutions. “West Coast markets along with New York have the highest share of equity-rich homeowners, while markets in the Mississippi Valley and Rust Belt continue to have stubbornly high rates of seriously underwater homeowners when it comes to home equity.”
The following metros had the highest share of equity-rich properties in the third quarter:
Mortgage rates were on the rise this week, and as a result, home buyers faced higher borrowing costs. The 30-year fixed rate rose to its highest average in seven years, averaging 4.94 percent this week, Freddie Mac reports.
“The economy continued to show resilience as strong business activity and the growth in employment” drove mortgage rates higher, says Sam Khater, Freddie Mac’s chief economist. “Higher mortgage rates have led to a slowdown in national home price growth, but the price deceleration has been primarily concentrated in affluent coastal markets such as California and the state of Washington. The more affordable interior markets—which have not yet experienced a slowdown home price growth—may see price growth start to moderate and affordability squeezed if mortgage rates continue to march higher.”
Freddie Mac reports the following national averages for the week ending Nov. 8:
30-year fixed-rate mortgages: averaged 4.94 percent, with an average 0.5 point, increasing from last week’s 4.83 percent average. Last year at this time, 30-year rates averaged 3.90 percent.
15-year fixed-rate mortgages: averaged 4.33 percent, with an average 0.5 point, increasing from last week’s 4.23 percent average. A year ago, 15-year rates averaged 3.24 percent.
5-year hybrid adjustable-rate mortgages: averaged 4.14 percent, with an average 0.3 point, increasing from last week’s 4.04 percent average. A year ago, 5-year ARMs averaged 3.22 percent.
