Home values showed the sharpest quarterly declines since 2008, falling 3% in the first quarter this year, according to Zillow’s real estate market report.

Zillow said national prices were down 8.2% year-over-year to $169,000. Since peaking in June 2006, home values have fallen 29.5%.

Out of the 132 markets covered by Zillow, 97% saw home value decreases during the first quarter. Gainesville, Fla., had the largest quarterly price deficits, down 10.4%, followed by Ann Arbor, Mich., at 8.2%.

Of the top 25 MSAs covered by Zillow, the biggest difference in quarterly prices was seen in Detroit, down 5.2% to $70,600. Minneapolis-St. Paul and Chicago were both down 4.8%, with home prices averaging at $159,000 and $167,900, respectively.

Only Fort Myers, Fla., Champaign-Urbana, Ill., and Honolulu experienced price increases, with home values rising 2.4%, 0.8% and 0.3%, respectively. Home values in Sarasota, Fla., remained flat during the same time period.

“Home value declines are currently equal to those we experienced during the darkest days of the housing recession,” said Stan Humphries, chief economist at Zillow. “With accelerating declines in the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011.”

Zillow also reported that negative equity reached a record high in which 28.4% of single-family homeowners with mortgages are underwater. This is a 1.4% increase from the 4Q 2010.

As banks unfroze moratoriums and allowed foreclosures to resume, there were more foreclosures throughout the country in the first quarter. In March, one out of every 1,000 homes was foreclosed.

“We did expect substantial payback from the homebuyer tax credits, which buoyed the housing market last year, but underlying demand post-tax credit, as well as rising foreclosures and high negative equity rates, make it almost certain that we won’t see a bottom in home values until 2012 or later,” Humphries said.

As analysts expected, the unemployment rate decreased slightly to 8.8%.  While the employment numbers still have a long road to travel before getting to lower ground, the economy is slowly showing signs of life.  Unfortunately, this comes at the cost of interest rates.  The lower this number goes, the higher the rates will climb.  This is assuming there is no QE3 (Quantitative Easing) from the Feds.

While I don’t see rates moving up quickly, I don’t see them dropping to the 4th Quarter levels we saw last year either.  Housing remains very sluggish which should also help keep rates in check for now.

The Obama Administration is pushing for closure on the mortgage crisis, and it may be coming at the expense on Fannie Mae and Freddie Mac.  These two quasi-corporate government sponsored enterprises are being blamed for much of the mortgage meltdown due to their elasticized credit guidelines throughout the sub-prime gold rush.  Now a plan has been introduced to eventually phase them out, turning to privatization in the mortgage markets instead.

What does this mean for mortgage rates?  Possibly an end to the 30 Year Fixed mortgage, the most popular loan product in America due to its ability to keep payments low and affordable.  Since the 1950′s, the 30 Year Fixed mortgage has enabled more people to become homeowners by making it easier to qualify.  Longer amortization periods are backed by Fannie Mae and Freddie Mac so investors had a guarantee.    But without Fannie and Freddie, many private investors are not interested in long term loans, favoring shorter term rate periods such as adjustable rate mortgages or ARM’s instead.

I believe that we will see an evolution to new products and programs over the next few years and that the mortgage industry will be a different animal 10 years from now.  What’s working in Australia, Canada, and the U.K. is making its way here.  And although it may sound scary, I think it will greatly benefit consumers in the long run.

The first Friday of every month always has me on edge.  As I’m watching CNBC at around 7:30 am, I’m tensed up as I await the employment report knowing the results can wreak havoc on the bond market thus moving mortgage rates.  Not that I’m a proponent of a high unemployment number because I’m not, but high unemployment equals lower mortgage rates and lower unemployment equals higher mortgage rates.  Obviously I have no control over the numbers, so it’s just the anticipation of what the number comes in at and how the market reacts.  Now more than ever is this report so important in its affect on mortgage rates as it tells us how the economy is doing.

And so it was, last Friday, when unemployment edged down for the third straight month coming in at 8.9%.  As I listened to the talking heads deciphering the data expecting to hear rates were ticking up, I was surprised to hear that the financial markets were not convinced that this was enough to prove that the economy is in fact on a path to greater improvement.  There is still so much global uncertainty with oil/gas is on the rise and that is weighing heavily on the markets for now.  Look for a slight improvement in rates this week.

In news released this morning, non-farm payrolls rose 36K in January and the unemployment rate stood at 9%. Economists’ estimates were for the economy to add 163K jobs and the unemployment rate to stand at 9.5%. The data was mixed with the job creation number significantly below expectations however the jobless rate fell 0.4%.  Some analysts are saying the bad weather influenced the jobs creation number and traders took to selling bonds.

Seriously?  What’s interesting about these numbers is that the payrolls are what’s actually reported, while the unemployment rate is based on the government’s “household surveys”.  Hmmm…who’d they ask?

The pressure is on and rates are approaching fresh highs, hovering just under 5% for a 30 Year Fixed.

2/4/11

Contrary to previous forecasts last year, appreciation is expected to hit 1-3% next year and 3-4% in 2013.  We’re still feeling the weight of the foreclosures and bank-owned properties.  Until this slows, it creates a drag on prices.

Another “silent killer” weighing in on all of this is the difficulty of obtaining a mortgage these days.  Credit standards have been ratcheted so tightly that it too has choked the purchase market, although most don’t realize this is going on behind the scenes.

Although most folks choose to escrow their real estate taxes and homeowner’s insurance monthly, I am often asked whether or not this is wise.  As long as you have a minimum of 20% equity in your property, you actually have the choice of “waiving escrows” or paying the taxes and insurance on your own when the bills become due each year.   The only caveat being that most lenders charge an “escrow waiver fee”, which is commonly .25% or a quarter of one percent of the loan amount.  This is a one-time fee due at closing, not something added to the rate.

Upon first glance, one would think that the answer lies in whether you could get a better rate of return on the money that you’d be putting into escrow each month if you kept it and invested it versus the waiver fee.  But there are several factors that come into play when considering which way to go.   For starters, it is convenient for most folks because it is budgeted for and handled by the lender at no extra cost.   This way you’re not hit with a lump sum bill that you hadn’t budgeted for.  If you do have a tight budget or you’re not real disciplined, this is probably the way you should go.

On the flip side, most lenders require three months of reserves to start out an escrow account.  This is a cushion should the taxes or insurance premium go up (as they generally do) the following year.   And if there aren’t enough funds, they hit you up with a shortage which is due either as a lump sum or they will conveniently add it to your monthly payment, which can crimp your budget.

The biggest problem is that escrow accounts can be difficult for the average person to reconcile, although the lender sends an “Escrow Analysis Statement” at the end of the year.  But too many people rely on the lender to be correct, and millions of dollars go unaccounted for each year by way of escrow accounts.  My advice is to pony up the fee and waive the escrow account.  However, if you’re more comfortable carrying an escrow account, be sure that you can account for every penny flowing in and out of the escrow account.  If you don’t understand the analysis statement, be sure to contact the lender and go over it in detail until you do.

Ever wonder why there is such a disparity from lender to lender when it comes to rates and fees?  It really comes down to two things, marketing and their compensation.  You see, most lenders are compensated by the companies they sell the loans to and therefore the higher the rate, the more compensation they receive.  That is why it is in the lender’s best interest (no pun intended) to get you into a higher rate loan.  What may only amount to a $20-30 higher monthly payment for you can mean hundreds or even thousands more in compensation to the lender.

This is where the marketing aspect comes in.  Some lenders will use this compensation to subsidize the fees they normally charge.  That is why you can find lenders with lower rates and higher fees or higher rates and lower fees.  One way or another, you end up paying for it.  Essentially you’re just financing it into the rate, with less due out of pocket at closing.  If you shop long and hard enough, you can find the best of both worlds: a lender with low fees and low rates.

All of this is assuming a loan with no points as points should only be paid to buy the rate down.  However, this is usually not a wise investment.

Ever wonder why you can get a better deal going through a mortgage broker than you can if you go directly to a lender?  After all, the mortgage broker just turns around and sells it to a major national lender anyway?  So logic dictates that cutting out the “middle man” should yield you a better deal, right?  Not in the case of mortgages.

Believe it or not, 65% of all mortgages in America are originated by mortgage brokers.  Because many of those brokerages are small businesses, they can keep their overhead low and effectively lower their margins.  This means lower rates and closing costs for consumers.  Although lenders quietly solicit mortgage business, it costs them much more to originate a loan as they have to maintain a larger staff to do so.  Therefore, they rely on thousands of mortgage brokers who in turn have “mortgage sales people” to find the business.  The lender pays the broker a commission for finding, processing, and delivering the loan to them.

But not all mortgage brokers were created equal.  You still want to shop for the best deal as some charge unnecessary origination fees for their services.  But don’t be fooled, the lender is paying them for their services so you shouldn’t have to.

I am frequently asked about bi-weekly mortgage programs and whether or not they are a good choice.  As my readers know, I always like to give the short and sweet answer first which is NO, they are not.  But for those looking for an explanation I offer an in depth look at why they aren’t a good deal.  Yes, they pay off a loan quicker and accelerate equity build up.  But they often come with a price that is unnecessary as you can accomplish the same thing on your own using simple math.

A bi-weekly mortgage is set up so that your mortgage payment is automatically debited out of your checking account every two weeks, thus making 26 payments a year.  This is actually just one additional payment per year (26 payments divided by 2 equals 13 payments a year instead of the normal 12).  Of the bi-weekly mortgages we offer, most come at a higher rate, typically .25% higher.  Some even have set-up fees and ongoing monthly “administrative” fees.

Using a loan amount of $150,000 at 6% over 30 years set up as a bi-weekly loan, it took off 5.6 years paying the loan off in 24.4 years.  It also saved $32,855 in interest versus a traditional 30 year loan.  This assumes you stay in this mortgage for a long time to reap the benefits as well as recoup any fees associated with the loan.

Now what happens when you just make one extra payment a year on your own?  Using the same numbers as above, $150,000 at 6% over 30 years is $899 P&I per month so that would be an extra $899 a year.  But what if you just don’t have an extra $899 left over at the end of the year, especially around the holidays?  Well, the good news is you don’t have to.  The trick is, divide the monthly P&I payment by 12 and add that to your monthly payment each month (using round numbers, $899 divided by 12 equals $75 so the total monthly payment would be $974)  This scenario takes off 5.4 years and pays the loan off in 24.6 years, slightly longer than the bi-weekly.  But the real benefit is that you save $36,853 which is $3,998 more than the bi-weekly due to the way the loan is compounded.

So don’t be fooled by the touted advantages of the bi-weekly loan.  Use simple elementary level math to do the work for you!