MLS may discourage discounted commission rates, report finds
Inman News, September 28, 2005
By Jessica Swesey
Rep. Michael Oxley, R-Ohio, ordered a report on real estate industry competition in March.
There is no price competition in the real estate industry, and the very structure of organized real estate is what may be preventing this, according to a report from the Government Accountability Office released today.
The use of the multiple listing service enables brokers to cooperate, but may discourage them from offering discounted commission rates, the report notes. And while the Internet has opened up more information to consumers, its power may be limited by real estate brokers.
In addition, some state laws and regulations may also impede price competition, the GAO said.
Price competition in the real estate industry has come under scrutiny because as the housing boom has pushed up home prices nationwide, fees paid for brokerage services have also climbed. The average commission on a home sale remains at about 6 percent of the total sales price, regardless of home price, local market conditions or effort required to sell the home, and this has raised questions over price competition.
Property listings displayed in MLSs give brokers information on commission splits that will be paid to the broker who secures a buyer for the property. The GAO says that this creates an incentive for brokers to show only properties with higher commission rates and not discounted commission properties.
MLSs "may encourage price conformity by, for example, showing the commission that buyers' brokers will receive for cooperating in the sale of a property," the report states. "Because, all else being equal, buyers' brokers have less incentive to show properties that offer them a lower commission, this system may discourage brokers from offering less than the prevailing commission rate."
Also, seller's brokers may resist cooperation with discount brokers by offering a lower commission cut or refusing to show their listings, the report notes. "Some discount full-service and discount limited-service brokerage firms we interviewed said that other brokers had refused to show homes listed by discounters," the GAO said.
State laws and regulations that prohibit brokers from offering rebates to consumers, as well as those requiring brokers to offer a minimum level of service also may be restricting price competition, the report said. The U.S. Justice Department and the Federal Trade Commission have argued that these laws potentially prevent price competition or reduce consumer choice in brokerage services.
At least 14 states prohibit real estate brokers from offering rebates on commissions, the report notes. The Justice Department this year sued the Kentucky Real Estate Commission for its policies against rebates and the Commission lifted the restrictions in July to settle the suit. South Dakota also lifted similar restrictions on rebates after officials began investigating the practice.
The report also points out 10 states that have passed or are considering legislation that would require brokers to perform a minimum level of service in real estate transactions. The Justice Department and FTC have charged that these so-called "minimum-service" laws would likely harm consumers by forcing them to purchase services they would prefer to do themselves.
State Realtor associations have been driving the support for these law changes, stating that the laws aim to protect consumers from receiving less services than they expect in a real estate transaction while also preventing situations in which full-service real estate professionals may feel obligated to assist consumers on the other side of a real estate deal who are working with limited-service real estate companies.
But opponents of the measures say that consumers should be able to choose which real estate services they receive in a real estate transaction, and there are not enough complaints against limited-service companies to justify the law changes.
Like discount brokerages, Internet brokerage companies may also face resistance from traditional brokers, the GAO report said. While the Internet has opened up property information to the public, wider use will depend on the availability of listings information, the report said, and there are potential restrictions.
For instance, the Justice Department's Antitrust Division is suing the National Association of Realtors over the trade group's policy that enables brokers to withhold their listings from all other brokers' Web sites. Antitrust officials charge that the policy obstructs real estate brokers who use innovative Web-based systems to offer lower costs to consumers. NAR has said the policy was intended to protect brokers' ownership rights in their property listings.
The GAO report on price competition in real estate was ordered in March by Rep. Michael Oxley, R-Ohio, who is chairman of the U.S. House Committee on Financial Services.
There has been an ongoing debate over the potential competitive effects of banks entering the real estate brokerage business, one of the things Oxley wanted the GAO to investigate. Banking conglomerates have requested permission from the Federal Reserve Board and the Treasury Department to sell and manage real estate under the 1999 Gramm-Leach-Bliley Act. For the past three years, Congress has denied financial holding companies and subsidiaries of national banks from taking over local real estate companies by denying yearly funds to finalize the proposed rule.
The Realtors association has lobbied to support this annual denial of funds, and has loudly opposed banks becoming brokers, saying that it would lead to conflicts of interest, fewer competitive loans, and higher rates for consumers.
The GAO report found about 30 states that potentially authorize state-chartered banks or their operating subsidiaries to engage in some form of real estate brokerage. However, few banks in these states have opened brokerage operations so their effect on competition has "likely been minimal," the report said.
***
JK's Note: The GAO report may be found here: http://www.gao.gov/new.items/d05947.pdf
30 September 2005
28 September 2005
Economists Predict Rosy Future for Northern Virginia!
Arlington Sun-Gazette, September 29-October 6, 2005
By Brian Trompeter
Area homebuyers can expect slightly higher interest rates and lower — but still quite healthy — housing price increases next year, economists and real estate experts said last Wednesday at the Northern Virginia Association of Realtors’ ninth annual economic summit at George Mason University (GMU) in Fairfax.
“In a nutshell, you couldn’t be in a better market,” said Stephen Fuller, director of the Center for Regional Analysis at GMU’s School of Public Policy.
The Washington area, which ranks highest nationally for per-capita federal spending, created 287,000 new jobs in the last five years — 134,000 of them in Northern Virginia, Fuller said.
“We’re working at jobs that produce more value,” he said. “That’s why we’re all tired. We’re working all the time. This is the economic model of the future.” The largest percentage of those jobs, about 22.5 percent, were in the high-paying business and professional services sector.
“The news is really upbeat,” said David Howell, vice president and broker of the McLean office of McEnearney Associates. “The whole key is a four-letter word: Jobs.”
Not all the news was good, though. Manufacturing jobs, something for which the area is not renowned, dropped by 0.1 percent, while jobs in information and media dipped by 0.4 percent.
The region has added 84,500 jobs since last August, but can build only about half of the 53,000 housing units needed to accommodate the new workers, he said.
Real estate continues to be a solid investment, with average 6.9-percent annual returns over the past 27 years, but rationality is returning to the market, Fuller said. For example, houses that used to be gobbled up in just four days now take an average of 18 days to sell — still far below the once-common three months.
As of August, the average housing sales price for all categories in Northern Virginia was $480,000. Many areas in the region boast high property values, so it’s not just a few areas that are distorting prices, Fuller said.
“You may have to work a tiny bit harder, but the rewards will be just as good,” he said. “There’s no bubble that I can see with our market in sight.”
Lawrence Yun, quantitative research director for the National Association of Realtors, said the Washington region’s economy is growing about 3 percent annually, thanks to high housing values that encourage people to spend money.
The Federal Reserve likely will raise interest rates a couple of more times to control inflation, Yun said. Because inflation rates have stayed low, lenders have not had to charge more for 30-year mortgages, he said.
Mortgage rates have hovered near 5.8 percent this year and likely will rise to about 6.4 percent in 2006, Yun said. Existing Northern Virginia home sales have declined 1 percent this year and may be off 3 percent in 2006, he said.
Homeowners still will see average $50,000 annual equity gains, even if housing prices level off somewhat, Yun said. While home prices will rise between 20 and 25 percent this year, they will increase only 8 to 12 percent in 2006, he said.
Another summit topic was the Base Realignment and Closure (BRAC) Commission’s recommendations to move thousands of military jobs out of the District of Columbia, Alexandria, Arlington and Baileys Crossroads.
But David Robertson, executive director of the Metropolitan Washington Council of Governments (COG), said the BRAC findings would not have a long-term negative effect.
Changes would not be implemented fully until 2010 and the vacated properties would be reabsorbed by the market in the following decade, Robertson said. Crystal City should make a quick recovery because of its convenient location and amenities, he said.
“There seems to be a never-ending need for upscale housing in that area,” Robertson said.
A downside to the BRAC proposals is it removes many employees from areas that are readily accessible by bus and Metrorail. The region would lose about 18,500 transit trips by 2010 and make up only about two-thirds of those by 2020, he said.
Christina Richardson of Weichert in Great Falls said she was pleased with the real estate market’s outstanding returns, but said some older customers on fixed incomes are moving because of rising tax assessments.
Barbara Aaron of Long & Foster in Reston said the presenters’ remarks mirrored her observations. The real estate market is stabilizing, with buyers writing more contracts contingent on the sale of their current homes, she said. One disturbing trend was the prevalence of speculators in the hot condominium market.
“That’s dangerous because they buy it at a low price and flip it before they settle,” Aaron said. “It’s not building value.”
By Brian Trompeter
Area homebuyers can expect slightly higher interest rates and lower — but still quite healthy — housing price increases next year, economists and real estate experts said last Wednesday at the Northern Virginia Association of Realtors’ ninth annual economic summit at George Mason University (GMU) in Fairfax.
“In a nutshell, you couldn’t be in a better market,” said Stephen Fuller, director of the Center for Regional Analysis at GMU’s School of Public Policy.
The Washington area, which ranks highest nationally for per-capita federal spending, created 287,000 new jobs in the last five years — 134,000 of them in Northern Virginia, Fuller said.
“We’re working at jobs that produce more value,” he said. “That’s why we’re all tired. We’re working all the time. This is the economic model of the future.” The largest percentage of those jobs, about 22.5 percent, were in the high-paying business and professional services sector.
“The news is really upbeat,” said David Howell, vice president and broker of the McLean office of McEnearney Associates. “The whole key is a four-letter word: Jobs.”
Not all the news was good, though. Manufacturing jobs, something for which the area is not renowned, dropped by 0.1 percent, while jobs in information and media dipped by 0.4 percent.
The region has added 84,500 jobs since last August, but can build only about half of the 53,000 housing units needed to accommodate the new workers, he said.
Real estate continues to be a solid investment, with average 6.9-percent annual returns over the past 27 years, but rationality is returning to the market, Fuller said. For example, houses that used to be gobbled up in just four days now take an average of 18 days to sell — still far below the once-common three months.
As of August, the average housing sales price for all categories in Northern Virginia was $480,000. Many areas in the region boast high property values, so it’s not just a few areas that are distorting prices, Fuller said.
“You may have to work a tiny bit harder, but the rewards will be just as good,” he said. “There’s no bubble that I can see with our market in sight.”
Lawrence Yun, quantitative research director for the National Association of Realtors, said the Washington region’s economy is growing about 3 percent annually, thanks to high housing values that encourage people to spend money.
The Federal Reserve likely will raise interest rates a couple of more times to control inflation, Yun said. Because inflation rates have stayed low, lenders have not had to charge more for 30-year mortgages, he said.
Mortgage rates have hovered near 5.8 percent this year and likely will rise to about 6.4 percent in 2006, Yun said. Existing Northern Virginia home sales have declined 1 percent this year and may be off 3 percent in 2006, he said.
Homeowners still will see average $50,000 annual equity gains, even if housing prices level off somewhat, Yun said. While home prices will rise between 20 and 25 percent this year, they will increase only 8 to 12 percent in 2006, he said.
Another summit topic was the Base Realignment and Closure (BRAC) Commission’s recommendations to move thousands of military jobs out of the District of Columbia, Alexandria, Arlington and Baileys Crossroads.
But David Robertson, executive director of the Metropolitan Washington Council of Governments (COG), said the BRAC findings would not have a long-term negative effect.
Changes would not be implemented fully until 2010 and the vacated properties would be reabsorbed by the market in the following decade, Robertson said. Crystal City should make a quick recovery because of its convenient location and amenities, he said.
“There seems to be a never-ending need for upscale housing in that area,” Robertson said.
A downside to the BRAC proposals is it removes many employees from areas that are readily accessible by bus and Metrorail. The region would lose about 18,500 transit trips by 2010 and make up only about two-thirds of those by 2020, he said.
Christina Richardson of Weichert in Great Falls said she was pleased with the real estate market’s outstanding returns, but said some older customers on fixed incomes are moving because of rising tax assessments.
Barbara Aaron of Long & Foster in Reston said the presenters’ remarks mirrored her observations. The real estate market is stabilizing, with buyers writing more contracts contingent on the sale of their current homes, she said. One disturbing trend was the prevalence of speculators in the hot condominium market.
“That’s dangerous because they buy it at a low price and flip it before they settle,” Aaron said. “It’s not building value.”
26 September 2005
Existing Home Sales Hit Second Highest Level
Source: The Associated Press, September 26, 2005
WASHINGTON (AP) -- Defying expectations, sales of previously owned homes rose in August to the second-highest level on record with home prices rising at the fastest pace in 26 years.
The National Association of Realtors reported Monday that sales of existing homes rose 2 percent in August to a seasonally adjusted annual rate of 7.29 million units, a sales pace that was exceeded only by an all-time high of 7.35 million units in June. Economists had been forecasting a slight decline, believing that the red-hot housing market was finally beginning to cool off.
The strong demand pushed prices up to a record level of $220,000 last month, a gain of 15.8 percent from August 2004. That was the biggest 12-month increase since a 17.2 percent increase in July 1979.
By region of the country, sales were up in every area but the South, which saw a small 0.4 percent drop last month.
While the Realtors predicted that Hurricane Katrina, which came ashore in New Orleans in late August, would impact sales in September, they said the impact in August appeared to be minimal.
Sales were up 5.6 percent in the West and rose by 1.9 percent in the Midwest and 1.7 percent in the Northeast.
The 15.8 percent rise in median home prices -- the point where half the homes sold for more and half for less -- was just the latest in a string of double-digit increases in home prices over the past number of months.
Federal Reserve Chairman Alan Greenspan has worried that exotic mortgage products such as interest-only loans are allowing people to purchase homes that they may not be able to afford if interest rates rise, pushing their monthly payments higher.
David Lereah, chief economist for the Realtors, said he believed that price increases will slow in coming months as the inventory of homes for sale continues to rise.
WASHINGTON (AP) -- Defying expectations, sales of previously owned homes rose in August to the second-highest level on record with home prices rising at the fastest pace in 26 years.
The National Association of Realtors reported Monday that sales of existing homes rose 2 percent in August to a seasonally adjusted annual rate of 7.29 million units, a sales pace that was exceeded only by an all-time high of 7.35 million units in June. Economists had been forecasting a slight decline, believing that the red-hot housing market was finally beginning to cool off.
The strong demand pushed prices up to a record level of $220,000 last month, a gain of 15.8 percent from August 2004. That was the biggest 12-month increase since a 17.2 percent increase in July 1979.
By region of the country, sales were up in every area but the South, which saw a small 0.4 percent drop last month.
While the Realtors predicted that Hurricane Katrina, which came ashore in New Orleans in late August, would impact sales in September, they said the impact in August appeared to be minimal.
Sales were up 5.6 percent in the West and rose by 1.9 percent in the Midwest and 1.7 percent in the Northeast.
The 15.8 percent rise in median home prices -- the point where half the homes sold for more and half for less -- was just the latest in a string of double-digit increases in home prices over the past number of months.
Federal Reserve Chairman Alan Greenspan has worried that exotic mortgage products such as interest-only loans are allowing people to purchase homes that they may not be able to afford if interest rates rise, pushing their monthly payments higher.
David Lereah, chief economist for the Realtors, said he believed that price increases will slow in coming months as the inventory of homes for sale continues to rise.
23 September 2005
What Determines a Buyer's or Seller's Market Anyway?
Source: Washington Times, by M. Anthony Carr, September 23, 2005
With all the talk of a real estate bubble, it makes a lot of people wonder when, exactly, it turns from a seller's market to a buyer's market.
The elusive bubble the media discusses has not evolved yet. I did some research and found the first mention of overinflated properties back in 2001 when RealtyTimes.com columnist Broderick Perkins interviewed several real estate bubble-watchers to find out their definition of a seller's versus a buyer's market.
Simply put, you know you're in a seller's market when the buyers have little or no power in the negotiating arena during the sales process. These bubble-watchers were defining a buyer's market as a market where there was a certain amount of inventory on the market, generally upward to nine months' worth of homes. Some brought it down to as low as three months, and others pegged it right in the middle at six months.
I would default to the lower end - three to six months of inventory. At this level, while buyers are not in absolute control of the market, if sellers prepare the house well and price it right, they'll find multiple buyers at the door. However, all things being equal, a house will linger on the market and sellers will be more willing to provide subsidies and drop prices.
The way you determine this supply of inventory is by dividing the number of homes on the market in a given month by the number of houses sold that same month. Example: Of 5,000 houses on the market, if 2,500 of them sell, it equals a two-months' supply of homes, meaning that if no other houses come on the market, all the houses will be sold within two months. Generally, here are the characteristics of a seller's market:
• Booming local economy. Local businesses are hiring at a brisk pace. New companies are opening shop.
• Low existing housing inventory. More jobs are coming into a market where there's not enough inventory to house all the workers, thus creating financial pressure on local resale units.
• Low home production. Builders are not producing enough homes to fill the job base. In the Washington market, for instance, the local economy is pumping out more than 80,000 jobs in 2005, yet only about 35,000 houses are coming on line during the same period of time.
• Higher prices. Home sales prices are escalating. During the last several years, the national increase has been in the 5 to 7 percent range. In a seller's market, it's not unusual to experience double-digit increases. Some communities could double in price in just a year or two.
• Contingency waivers. Buyers want to purchase a house, period. They no longer offer under list price, ask to sell their house first before settlement, or try to buy without financing already approved. There is no negotiating for the "perfect" terms. Getting the house is the perfect term.
• Seller subsidies disappear. While buyers used to ask for some sort of assistance -- lower price, points paid, closing costs -- the buyers must come to the table without any help from the seller.
• Higher down payments. Buyers benefit from high appreciation and begin bringing down payments such as 25-plus percent to the transaction.
• Appraisals diminish. With down payments of $100,000-plus, there's plenty of equity coming to the table to ease the risk factor for most lenders, so that the appraised value is not as important as the actual purchasing price. If the appraisal comes in $20,000 less than asking price -- that's OK because the buyer has enough cash to compensate for the lower value.
The buyer's market would look like this:
• Job growth eases. Job losses are possible. Local companies are closing, a particular sector goes bust or there are no longer enough people in town to support the local housing inventory.
• Inventory rises. More houses appear on the market as people move out of town to find jobs elsewhere. Builders, who may have been building homes in the tail end of a seller's market, may find that they are now stuck with speculation homes they can't sell.
• Foreclosures increase. This creates a new venue of market with investors moving in to find good deals.
• Values diminish. Home prices begin to depreciate, and some homeowners will find themselves "upside down" in their property -- owing more on the house than what it's worth.
• Equity falls. Some sellers may have to come to the table with money to sell the house instead of reaping a large amount of equity. Some sellers will opt for a "short sale." They take action to return the property to the lender instead of filing foreclosure.
• Starter homes. A first-time buyer market emerges as the once-high prices drop to a level where some can afford to purchase now. This will bring about the use of low- to no-down payment mortgages in a market where they can negotiate the use of such mortgages.
• Seller subsidies increase. Buyers once had to turn over first-born children to the sellers. Now it's the other way around. Price cuts, closing-cost assistance and other seller subsidies become the norm.
If you noticed, interest rates and the prices of houses did not determine a seller's or buyer's market. Some of the hottest markets in the past existed in high-priced and high-interest-rate environments.
With all the talk of a real estate bubble, it makes a lot of people wonder when, exactly, it turns from a seller's market to a buyer's market.
The elusive bubble the media discusses has not evolved yet. I did some research and found the first mention of overinflated properties back in 2001 when RealtyTimes.com columnist Broderick Perkins interviewed several real estate bubble-watchers to find out their definition of a seller's versus a buyer's market.
Simply put, you know you're in a seller's market when the buyers have little or no power in the negotiating arena during the sales process. These bubble-watchers were defining a buyer's market as a market where there was a certain amount of inventory on the market, generally upward to nine months' worth of homes. Some brought it down to as low as three months, and others pegged it right in the middle at six months.
I would default to the lower end - three to six months of inventory. At this level, while buyers are not in absolute control of the market, if sellers prepare the house well and price it right, they'll find multiple buyers at the door. However, all things being equal, a house will linger on the market and sellers will be more willing to provide subsidies and drop prices.
The way you determine this supply of inventory is by dividing the number of homes on the market in a given month by the number of houses sold that same month. Example: Of 5,000 houses on the market, if 2,500 of them sell, it equals a two-months' supply of homes, meaning that if no other houses come on the market, all the houses will be sold within two months. Generally, here are the characteristics of a seller's market:
• Booming local economy. Local businesses are hiring at a brisk pace. New companies are opening shop.
• Low existing housing inventory. More jobs are coming into a market where there's not enough inventory to house all the workers, thus creating financial pressure on local resale units.
• Low home production. Builders are not producing enough homes to fill the job base. In the Washington market, for instance, the local economy is pumping out more than 80,000 jobs in 2005, yet only about 35,000 houses are coming on line during the same period of time.
• Higher prices. Home sales prices are escalating. During the last several years, the national increase has been in the 5 to 7 percent range. In a seller's market, it's not unusual to experience double-digit increases. Some communities could double in price in just a year or two.
• Contingency waivers. Buyers want to purchase a house, period. They no longer offer under list price, ask to sell their house first before settlement, or try to buy without financing already approved. There is no negotiating for the "perfect" terms. Getting the house is the perfect term.
• Seller subsidies disappear. While buyers used to ask for some sort of assistance -- lower price, points paid, closing costs -- the buyers must come to the table without any help from the seller.
• Higher down payments. Buyers benefit from high appreciation and begin bringing down payments such as 25-plus percent to the transaction.
• Appraisals diminish. With down payments of $100,000-plus, there's plenty of equity coming to the table to ease the risk factor for most lenders, so that the appraised value is not as important as the actual purchasing price. If the appraisal comes in $20,000 less than asking price -- that's OK because the buyer has enough cash to compensate for the lower value.
The buyer's market would look like this:
• Job growth eases. Job losses are possible. Local companies are closing, a particular sector goes bust or there are no longer enough people in town to support the local housing inventory.
• Inventory rises. More houses appear on the market as people move out of town to find jobs elsewhere. Builders, who may have been building homes in the tail end of a seller's market, may find that they are now stuck with speculation homes they can't sell.
• Foreclosures increase. This creates a new venue of market with investors moving in to find good deals.
• Values diminish. Home prices begin to depreciate, and some homeowners will find themselves "upside down" in their property -- owing more on the house than what it's worth.
• Equity falls. Some sellers may have to come to the table with money to sell the house instead of reaping a large amount of equity. Some sellers will opt for a "short sale." They take action to return the property to the lender instead of filing foreclosure.
• Starter homes. A first-time buyer market emerges as the once-high prices drop to a level where some can afford to purchase now. This will bring about the use of low- to no-down payment mortgages in a market where they can negotiate the use of such mortgages.
• Seller subsidies increase. Buyers once had to turn over first-born children to the sellers. Now it's the other way around. Price cuts, closing-cost assistance and other seller subsidies become the norm.
If you noticed, interest rates and the prices of houses did not determine a seller's or buyer's market. Some of the hottest markets in the past existed in high-priced and high-interest-rate environments.
22 September 2005
Fed action sparks rise in real estate rates: Katrina not expected to impact economy long-term
Source: Inman News, September 22, 2005
Long-term mortgage rates rose for the second consecutive week after the Fed raised the cost of money Tuesday, according to surveys conducted by Freddie Mac and Bankrate.com.
In Freddie Mac's survey, the 30-year fixed-rate mortgage averaged 5.8 percent for the week ended today, up from last week when it averaged 5.74 percent. The average for the 15-year fixed-rate mortgage is 5.37 percent, up from last week when it averaged 5.32 percent. Points on the 30- and 15-year averaged 0.6 and 0.7, respectively.
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.31 percent this week, with an average 0.8 point, up from last week when it averaged 5.26 percent. The one-year Treasury-indexed ARM averaged 4.48 percent this week, with an average 0.7 point, up slightly from last week when it averaged 4.46 percent.
"Mortgage rates look like they are back on track where the Fed wants them, which is gradually rising," said Frank Nothaft, vice president and chief economist at Freddie Mac. "Freddie Mac's economic forecast calls for a cooling of the housing market going into next year, and gently rising rates are part of that scenario.
"However, the resiliency of the housing sector continues to amaze. Mortgage applications are running at a strong pace, according to the Mortgage Bankers Association, and the most recent housing starts figures, although coming in lower than expected, were still at near-record levels. 2005 will be another banner year for the housing industry."
In Bankrate.com's survey, mortgage rates increased slightly as the Federal Reserve raised short-term interest rates for the 11th consecutive time, and oil prices remained volatile. The average 30-year fixed-rate mortgage increased from 5.84 percent to 5.88 percent, according to Bankrate.com. The 30-year fixed-rate mortgages in this week's survey had an average of 0.36 discount and origination points.
Bankrate.com reported that the average 15-year fixed mortgage rate increased as well, rising from 5.44 percent to 5.5 percent, while the average jumbo 30-year fixed-rate climbed from 6.02 percent to 6.05 percent. Adjustable-rate mortgages also moved slightly higher, with the average 5/1 adjustable-rate mortgage rising from 5.4 percent to 5.46 percent, while the average one-year ARM ticked higher from 4.87 percent to 4.9 percent.
Fixed mortgage rates have been marching to a different tune than that set by the Federal Open Market Committee, according to Bankrate.com. Even though the Fed has increased short-term interest rates by a total of 2.75 percentage points since June 2004, the average 30-year fixed-rate mortgage has fallen by nearly one-half percentage point in that time. In raising interest rates Sept. 20, the Fed acknowledged the short-term economic impact of Hurricane Katrina but indicated that over the long term it will "not pose a more persistent threat." The Fed is, instead, preferring to focus on inflation, which is sweet music to bond investors' ears. The Fed's aim to keep inflation low has been a prime contributor to the decline in long-term government bond yields and mortgage rates over the past 15 months. Mortgage rates are closely related to yields on Treasury securities.
The following is a sampling of Bankrate's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:
New York – 5.86 percent with 0.18 point
Los Angeles – 5.91 percent with 0.55 point
Chicago – 5.96 percent with no points
San Francisco – 5.92 percent with 0.33 point
Philadelphia – 5.81 percent with 0.34 point
Detroit – 5.85 percent with 0.25 point
Boston – 5.94 percent with 0.1 point
Houston – 5.88 percent with 0.75 point
Dallas – 5.88 percent with 0.57 point
Washington, D.C. – 5.75 percent with 0.53 point
Long-term mortgage rates rose for the second consecutive week after the Fed raised the cost of money Tuesday, according to surveys conducted by Freddie Mac and Bankrate.com.
In Freddie Mac's survey, the 30-year fixed-rate mortgage averaged 5.8 percent for the week ended today, up from last week when it averaged 5.74 percent. The average for the 15-year fixed-rate mortgage is 5.37 percent, up from last week when it averaged 5.32 percent. Points on the 30- and 15-year averaged 0.6 and 0.7, respectively.
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.31 percent this week, with an average 0.8 point, up from last week when it averaged 5.26 percent. The one-year Treasury-indexed ARM averaged 4.48 percent this week, with an average 0.7 point, up slightly from last week when it averaged 4.46 percent.
"Mortgage rates look like they are back on track where the Fed wants them, which is gradually rising," said Frank Nothaft, vice president and chief economist at Freddie Mac. "Freddie Mac's economic forecast calls for a cooling of the housing market going into next year, and gently rising rates are part of that scenario.
"However, the resiliency of the housing sector continues to amaze. Mortgage applications are running at a strong pace, according to the Mortgage Bankers Association, and the most recent housing starts figures, although coming in lower than expected, were still at near-record levels. 2005 will be another banner year for the housing industry."
In Bankrate.com's survey, mortgage rates increased slightly as the Federal Reserve raised short-term interest rates for the 11th consecutive time, and oil prices remained volatile. The average 30-year fixed-rate mortgage increased from 5.84 percent to 5.88 percent, according to Bankrate.com. The 30-year fixed-rate mortgages in this week's survey had an average of 0.36 discount and origination points.
Bankrate.com reported that the average 15-year fixed mortgage rate increased as well, rising from 5.44 percent to 5.5 percent, while the average jumbo 30-year fixed-rate climbed from 6.02 percent to 6.05 percent. Adjustable-rate mortgages also moved slightly higher, with the average 5/1 adjustable-rate mortgage rising from 5.4 percent to 5.46 percent, while the average one-year ARM ticked higher from 4.87 percent to 4.9 percent.
Fixed mortgage rates have been marching to a different tune than that set by the Federal Open Market Committee, according to Bankrate.com. Even though the Fed has increased short-term interest rates by a total of 2.75 percentage points since June 2004, the average 30-year fixed-rate mortgage has fallen by nearly one-half percentage point in that time. In raising interest rates Sept. 20, the Fed acknowledged the short-term economic impact of Hurricane Katrina but indicated that over the long term it will "not pose a more persistent threat." The Fed is, instead, preferring to focus on inflation, which is sweet music to bond investors' ears. The Fed's aim to keep inflation low has been a prime contributor to the decline in long-term government bond yields and mortgage rates over the past 15 months. Mortgage rates are closely related to yields on Treasury securities.
The following is a sampling of Bankrate's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:
New York – 5.86 percent with 0.18 point
Los Angeles – 5.91 percent with 0.55 point
Chicago – 5.96 percent with no points
San Francisco – 5.92 percent with 0.33 point
Philadelphia – 5.81 percent with 0.34 point
Detroit – 5.85 percent with 0.25 point
Boston – 5.94 percent with 0.1 point
Houston – 5.88 percent with 0.75 point
Dallas – 5.88 percent with 0.57 point
Washington, D.C. – 5.75 percent with 0.53 point
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