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Tag: mortgage planning

  • Home buyers thought mortgage rates were finally going to go down. Why hasn’t it happened yet?

    Home buyers thought mortgage rates were finally going to go down. Why hasn’t it happened yet?

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    Why are mortgage rates still so high?

    After a year of mortgage rates near 8%, home buyers are eager for good news. Some forecasters have buoyed their hopes, estimating that the rate on the 30-year mortgage will drop to 6% or lower this year. 

    But rates have not fallen by much thus far. The 30-year rate is currently averaging 6.64%, according to Freddie Mac. That’s despite the fact that the U.S. Federal Reserve hasn’t raised its benchmark interest rate since July 2023 and signaled in December that it would cut that rate in 2024. Meanwhile, economists in the real-estate sector have been anticipating a drop in mortgage rates since last fall.

    “Homebuyers may be feeling like the lower mortgage rates they’ve been promised in 2024 are not materializing,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement. In a recent survey of Americans’ feelings about the housing market, 36% of respondents said they expect mortgage rates to fall in the next 12 months.

    While the Fed doesn’t set mortgage rates, it can influence them, just as it influences the overall U.S. economy through monetary policy. But even though the central bank has hit the brakes on tightening monetary policy, with the economy giving off mixed signals of strength and weakness, the timing of anticipated cuts to the benchmark rate remains unclear.

    That in turn creates uncertainty about when mortgage rates will drop enough to “unfreeze” the housing market. Home buyers are probably going to have to wait until the Fed acts definitively before they see those lower rates.

    The effect of a strong economy

    The strength of the U.S. economy is one reason mortgage rates have not yet fallen much, economists say. The job market is still hot, and inflation remains higher than the Fed’s goal, which is why the latest read on inflation, out Feb. 13, will be so closely watched. The fact that rates haven’t fallen this year is “a result of uncertainty about the economy and the timing of the Fed’s rate cuts,” Sturtevant said.

    “The strong job market is good news for the spring buying season, as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told MarketWatch.

    Another reason mortgage rates are still high is that lenders are trying to protect themselves against lower rates in the future, Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch. If rates fall, lenders run the risk that a borrower will pay off a loan early by refinancing. That would limit how much in interest that lender could expect to make.

    “In an odd sort of way, then, the expectation that mortgage rates will be lower in the future can lead lenders to increase rates today to compensate for the prepayment risk,” deRitis said. 

    Lower rates, more competition among buyers

    So when can prospective buyers expect mortgage rates to fall significantly? 

    “Homebuyers should expect mortgage rates to move lower as we head through 2024,” Sturtevant said. While Fannie Mae expects rates to fall below 6% by the end of the year, other economists, like Fratantoni, expect the 30-year rate to finish the last quarter of 2024 at 6.1%.

    But even if rates do fall, that won’t necessarily mean buyers will be better able to afford a home, because a drop in rates could heat up competition for homes even as it boosts buyers’ purchasing power.

    “There is still very low inventory in the market, and buyers need to act quickly when they find the right home for them,” Sturtevant said.

    For the many homeowners who currently have a mortgage rate below 4%, rates stuck in the 6% range may be leading them to put off plans to sell their home and buy a new one.

    But it’s worth noting that since 2000, rates on 30-year mortgages have ranged from a high of about 8.62% to a low of 2.81%, averaging about 5% over that span. And compared with the historical average of the 1970s, which was 7.7%, the current rates in the 6% rage are not that high, deRitis noted.

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  • This New Jersey financial pro just won nearly $500K on a sports bet. He'll use it to pay off student loans.

    This New Jersey financial pro just won nearly $500K on a sports bet. He'll use it to pay off student loans.

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    After winning nearly $500,000 on a $5 sports bet, a New Jersey financial adviser said he is planning to follow some of the advice he gives to clients and put the money to good use.

    Travis Dufner, a 32-year-old adviser with Millstone Financial Group in Millstone, N.J., is the bettor who has stepped forward to say he won the $489,378.01 parlay payoff. The wager involved picking 14 players who would score a touchdown over the holiday weekend’s NFL games.

    When…

    Master your money.

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  • Paid off your mortgage? Be careful — you’re at risk of title theft.

    Paid off your mortgage? Be careful — you’re at risk of title theft.

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    Homeowners may be thrilled when they finally pay off their mortgage, but the accomplishment comes with risks. 

    Retirement Tip of the Week: Be vigilant in protecting your identity and assets, and be aware of how you could fall victim to various scams or theft associated with your home.

    With title theft, thieves transfer a house deed from the rightful owner to another person’s name by using the owner’s personal information. Title theft could also take the form of using equity in a home, such as by opening a home equity line of credit, known as a HELOC, according to Quicken Loans. When a house is unoccupied, thieves could go so far as to sell or rent out the property. 

    Title theft isn’t particularly common, but it does happen, and it’s another reason people should protect their identity and other sensitive information. Older Americans could be at higher risk, especially if they have a lot of equity in their home. About 11,500 people reported losing more than $350 million to real-estate scams in 2021, although that figure includes fraud pertaining to real-estate advertisements and rental agreements, according to the FBI. 

    Homeowners should keep on top of their documents and may even want to occasionally confirm their information with their county deeds office, the FBI said. Any mail from a mortgage lender should be checked to make sure it doesn’t pertain to your specific property.

    If you are a victim of title theft, open an identity-theft case with the Federal Trade Commission, alert creditors about the fraud and look over your title insurance, which protects homeowners’ rights and which mortgage companies often require home buyers to have, Quicken Loans said. 

    There are companies that offer title-protection services, although critics say it’s not the same as title insurance and only alerts a homeowner of a problem after it has occurred. 

    “Do you need this service to protect your home from property thieves? The answer is no,” the Maryland Attorney General’s office said in a consumer alert about title-protection services. “Title fraud is very rare, and hardly ever successful. If someone ever tries to transfer your deed without your permission or knowledge, like these title lock companies suggest could happen, the transfer is fraudulent and void from the outset.” 

    Instead, homeowners should monitor their identity and keep an eye on their credit scores, the office said.

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  • HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

    HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

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    Goodbye pandemic refi cash-outs. Hello HELOCs?

    Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.

    It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve’s rapid rate hikes began squelching the option.

    Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.

    While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.

    “Borrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,” a BofA Global credit strategy team led by Pratik Gupta’s, wrote in a weekly client note.

    Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era’s wave of devastating home foreclosures.

    At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year.

    Home equity products are making a big comeback as households seek liquidity


    BofA Global, New York Fed Consumer Credit Panel/Equifax

    The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.

    BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.

    “The vast majority of that — $14 trillion — is from the cohort of homeowners who own their homes free & clear,” Gupta’s team wrote.

    Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.

    Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp.
    BAC,
    +1.23%    ,
    PNC Bank
    PNC,
    +0.57%    ,
    Wells Fargo,
    WFC,
    -0.05%    ,
    JPMorgan Chase
    JPM,
    +0.24%
    and Citizens
    CFG,
    +0.35%    ,
    according to the team, which notes several other major banks appear to have hit pause on their programs.

    A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.

    Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average
    DJIA,
    -0.04%
    was less than 0.1% lower, while the S&P 500 index
    SPX,
    -0.45%
    was off 0.5% and the Nasdaq Composite
    COMP,
    -1.16%
    fell 1.2%, according to FactSet.

    Related: The economy was supposed to cave in by now. It hasn’t — and GDP is set to rise again.

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  • ‘I’m paycheck to paycheck.’ I make $350K a year, but have $88K in student loans, $170K in car loans and a mortgage I pay $4,500 a month on. Do I need professional help?

    ‘I’m paycheck to paycheck.’ I make $350K a year, but have $88K in student loans, $170K in car loans and a mortgage I pay $4,500 a month on. Do I need professional help?

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    I’m the first of my generation to own a home and the first to earn this much annually and don’t want to mess this up. How, specifically, can a financial adviser help me?


    Getty Images

    Question: By the end of 2022, I will have made $350,000 before taxes as the sole breadwinner and head of household. This is a great starting point and I’m very aware how blessed we are to be in this position, but I’m always looking ahead on how to improve. I currently have $88K left in student loans (originally close to $150K) and very little credit card debt (less than $2K with more than $25K available). I have two auto loans totaling $170K for two electric vehicles at 5% interest.

    I’ve recently been offered a $200K HELOC at 9%, which would help me bring down some of my monthly payments and do some small home repairs and improvements, but I want to make the right moves. And I’ve also been presented with a few long-term real estate investment opportunities that are rental properties out of state and are currently bringing it 10-12% ROI.  But my biggest concern is that after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper I’m paycheck to paycheck. I’d like to use this HELOC to consolidate debt while also participating in some of these investment opportunities. I’m the first of my generation to own a home and the first to earn this much annually and don’t want to mess this up. How, specifically, can a financial adviser help me? (Looking for a new financial adviser too? This tool can help match you with an adviser who might meet your needs.)

    Answer: You have a few questions to tackle here, so let’s go one by one. The first being the HELOC. Yes, HELOCs can be a good way to consolidate debt, but the rate you’re being offered isn’t favorable, as average HELOC rates are a little over 6%. “I would ask if 9% is the best rate you can get, because it appears a bit high,” says Chris Chen, certified financial planner at Insight Financial Strategists. What’s more, “I would like you to consider the potential impact that our Fed policy and inflation are having on interest rates, as HELOCs usually have variable interest rates and we’re in an environment with rising rates. You may start at 9% and end up significantly higher,” says Chen. 

    What’s more, your student loans, car loans and mortgage are all likely less than 9%, so it’s not likely that consolidation via a HELOC would save you money. “You may want to start somewhere different, like the snowball method, where you focus on one loan, usually the smallest one, and direct all of your resources to pay off that loan while maintaining payments on the others,” says Chen. This method could work to finish off your student loans and maybe one of your car loans, to start with. 

    Have an issue with your financial adviser or have questions about hiring a new one? Email picks@marketwatch.com.

    As for those real estate investments, what do you really know about those returns? “With regards to real estate investments, I assume that the 10% to 12% ROI you speak of is the income that you would be getting from the investment. If so, that’s very high and often when you get a return that is significantly higher than the norm, there’s something else that makes the investment less desirable. Be careful,” says Chen. (Looking for a new financial adviser too? This tool can help match you with an adviser who might meet your needs.)

    Certified financial planner Kaleb Paddock says you may actually want to work with a money coach before you work with a financial adviser. Whereas a financial adviser assists with developing investment strategies and long-term financial plans, a money coach offers a more educational experience and focuses on shorter term goals for money management. “A money coach will help you with paying off all of your debts, maximize your cash flow and help you create systems and processes to direct your money proactively,” says Paddock. 

    While having a high income is great, there’s a concept called Parkinson’s Law, which essentially states that your spending will always rise to meet your income no matter how high that income rises, explains Paddock. “Working with a money coach will help you defeat Parkinson’s Law, eliminate your debt and then enable you to supercharge your investing and life planning with a financial adviser,” says Paddock.

    A financial adviser could help too, and Danielle Harrison, certified financial planner at Harrison Financial Planning, says to look for one who does comprehensive financial planning and can help you create a more holistic plan for your money. “They can assist you in the creation of both short and long-term goals and then help you by giving guidance on the financial decisions and opportunities you are presented with,” says Harrison.

    A financial adviser would also help you take a long-term approach to your money and help you create a spending plan where you don’t feel like you’re living paycheck to paycheck on a $350,000 salary. “Everyone has blind spots when it comes to their finances, so finding a competent financial partner can be invaluable,” says Harrison. (Looking for a new financial adviser too? This tool can help match you with an adviser who might meet your needs.)

    Have an issue with your financial adviser or have questions about hiring a new one? Email picks@marketwatch.com.

    *Questions edited for brevity and clarity.

    The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.

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  • Weekend reads: What to expect now for home prices, stocks and bonds

    Weekend reads: What to expect now for home prices, stocks and bonds

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    This week Freddie Mac said the average interest rate on a 30-year mortgage loan in the U.S. had climbed to 6.70% from 6.29% the week before and 6.02% two weeks ago. The average rate a year ago was 3.01%.

    Would-be sellers who have low-rate mortgage loans are reluctant if it means they need to take out a new loan to fund their next home. Would-be buyers are forced out of the market, as the monthly principal and interest payment for a new 30-year loan, based on Freddie Mac’s figures, has increased 53% from a year ago.

    Home-sale contracts are being canceled at a record pace in some areas.

    But these factors could lead to a buyer’s market in 2023 if prices plunge. Here are the areas economists expect to see the largest home price declines.

    The strong dollar and the stock market

    Khaled Desouki/Agence France-Presse/Getty Images

    The dollar has strengthened as the Federal Reserve has taken the lead among central banks in raising interest rates. This is reverberating across the world, making it more costly for countries to make interest payments on dollar-denominated debt and increasing the cost of any commodity traded in dollars.

    The rising dollar lowers prices on imported goods for Americans and can also lower their international travel costs. But Michael Wilson, Morgan Stanley’s chief equity strategist, warns that earnings for the S&P 500
    SPX,
    -1.51%
    would decline as a direct result of the strong dollar and called the current foreign-exchange backdrop an “untenable situation” for the stock market.

    On the other hand: Companies are trying to blame weak earnings on the strong U.S. dollar, but that’s a lame excuse

    This is what happens when bearish sentiment runs high

    Michael Brush interviews David Baron, co-manager of the Baron Focused Growth Fund
    BFGFX,
    -0.76%    ,
    who describes opportunities cropping up as institutional investors dump stocks. He also explains his winning long-term strategy, which has included a very long-term investment in Tesla Inc.
    TSLA,
    -1.10%    .

    A a positive sign for the stock market: These 12 stocks have seen strong insider buying

    Time to buy bonds?

    When interest rates rise, bond prices fall. But it also means that if you have money to put to work, bond yields have become much more attractive.

    Khuram Chaudhry, a European equity quantitative strategist at JPMorgan in London, makes the case for buying bonds now.

    What about preferred stocks?

    Getty Images/iStockphoto

    Preferred stocks feature stated dividend yields and prices that move the same way bond prices do. That means prices for many issues are now heavily discounted to face value and that current yields are much higher than they were at the end of 2021. Here’s an in-depth guide on how to research preferred stocks and make your own selections.

    Related: 22 dividend stocks screened for quality and safety

    The problem with macro market projections

    Stanley Druckenmiller predicted a “hard landing” in 2023 for the U.S. economy while speaking at CNBC’s Delivering Alpha Investor Summit on Sept. 28.


    Bloomberg

    Stanley Druckenmiller predicted a U.S. recession in 2023 as a result of monetary policy tightening by the Federal Reserve. That may not be much of a stretch, considering that the U.S. economy contracted during the first half of 2022, according to revised GDP figures from the Bureau of Economic Analysis.

    But investors should be careful — macro forecasts often turn out to be incorrect, Mark Hulbert warns.

    More on stocks: It’s the worst September for stocks since 2008. What that means for October.

    Recessions and your retirement plans

    Getty Images

    Alessandra Malito has advice on how retirees and people planning for retirement can prepare for tough economic times.

    Also: Reset your retirement calculator now for today’s bleaker stock markets and make sure you’re still on track

    Investors tremble and a central bank scrambles

    The Bank of England’s headquarters.


    Agence France-Presse/Getty Images

    After the new U.K. government of Prime Minister Liz Truss announced a massive tax cut along with a new spending program to help counter rising fuel costs and new borrowing, the pound hit a new low against the dollar on Sept. 26 as investors and money managers panicked and sold-off U.K. government bonds. Steve Goldstein explains how and why the Bank of England came tot the rescue.

    A closer look at reverse mortgages

    Getty Images/iStockphoto

    Beth Pinsker digs deeply to explain how to use a reverse mortgage as a financial planning tool.

    Poking a little fun at Elon Musk

    Getty Images

    After Tesla CEO Elon Musk said the upcoming Cybertruck would be sufficiently waterproof to “serve briefly as a boat,” the San Francisco Bay Ferry offered this advice to patrons.

    Want more from MarketWatch? Sign up for this and other newsletters, and get the latest news, personal finance and investing advice.

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