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.

There are lots of “FREE” credit report websites, some with catchy commercials and jingles.  But when you visit their website, you find that one of the conditions for your free report is to sign up for their monthly credit report monitoring service.  The problem is that these services come at a costly monthly membership fee.  One of these sites is actually run by Experian, one of the credit bureaus that is required to provide you with a truly free annual report.  While these credit report monitoring services can be helpful, they’re simply not necessary.

Instead, visit AnnualCreditReport.com which is a centralized service for consumers to request free annual credit reports. It was created by the three nationwide consumer credit reporting companies (aka “credit bureaus”) Equifax, Experian and TransUnion.  There, you can request your free report online, by phone, or by mail.  And they have a great FAQ’s link with a lot of info on how to protect your credit.

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.

Despite the Fed’s announcement last month to purchase $600 Billion in U.S. Treasuries through next June, rates took an unexpected turn for the worse jumping as much as 1 point in four weeks.   The expectations were high that rates would surely fall further, with some predicting the 30 year fixed in the mid-3% range.  While we bottomed out at around 3.99% for a 30 year fixed, we never came close to 3.50% without heavy points.

So why the jump in rates if the Fed is trying to keep rates low?  There are a couple of reasons.  For one, it’s the old addage “buy the rumor, sell the news.”  Rates started falling ahead of the annnouncement as this was being “priced in”.  This is typically the case when it comes to bonds, as traders play defense/offense on the outcome of the announcement and action by the Fed.  But another reason cited was that the Fed action coupled with the recent Bush tax cuts extension created more government debt and therefore putting the economy at greater risk of inflation.  Inflationary fears are the nemesis of the bond market.

Much of the fear was overdone and we’ve seen rates beginning to correct, albeit nowhere near the lows we saw a month ago.  However, with unemployment just shy of 10% and the housing market very slow to recover, I expect rates to test the lows seen last month if not falling lower still.

One of the worst ways to compare loans, in my opinion, is to shop the “APR” or Annual Percentage Rate.  The APR is an expression of the effective interest rate that will be paid on a loan, taking into account certain one-time fees and standardizing the way the rate is expressed.  While the formula can be complicated, the underlying foundation is made up of the interest rate and any service-related fees being charged on a loan.  Examples of service-related fees would be processing, underwriting, and closing fees.  Items such as appraisal reports, credit reports, and title insurance are tangible reports and therefore are not considered finance fees and don’t go into the APR.

The APR is intended to make it easier to compare lenders and loan options.  One should be able to call and inquire as to what a lender’s APR is and go with the lowest one.  Unfortunately, despite repeated attempts by regulators to establish usable and consistent standards, the APR does not represent the total cost of borrowing nor does it really create a comparable standard.  Some lenders will manipulate the APR, either intentionally or unintentionally by omitting certain fees from the APR, thus reducing the rate.

The best way to find the lowest rate and cheapest closing costs is to ask just that.  By asking a lender to break those out separately, you can better analyze and size up their offer.  As I mentioned in my previous article “Let’s Go Shopping”, requesting a Good Faith Estimate is the best way to accomplish this.

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.