Uncertainty Rules Over Boston Mortgage Market

The ongoing turbulence in the world economy continues to impact the mortgage market. As a consequence, mortgage rates, property values and numerous other factors keep changing. Recently, mortgage rates in Boston fell again. Rates are not currently showing indications of inching up either. According to recent surveys, the rate for 30-year fixed-rate mortgage has fallen to 4.65% from 4.72% in Boston. Nationally, the rate for 30-year fixed-rate mortgage is 4.66%.

Additional movement for mortgage rates in Boston is present. The rate for 30-year jumbo mortgages for a loan of around $465,750 was 4.86% a few weeks back. It has recently dropped to 4.77%. For the 15-year fixed rate mortgage, rates have fallen to 3.66% from the 3.77%. The rate for 5/1 adjustable rate mortgage (ARM) has also come down slightly to 3.34% from 3.36%.

Mortgage Rates in Boston, MA

The drop in mortgage rates in Boston, relatively speaking, is not terribly severe, however, there is no positive sign of improvement in the market either. In such circumstances, banks are planning to focus on property purchase rather than refinancing. This is considered to be a strange decision according to numerous market experts. According to the banks, the overall market condition in Massachusetts has forced them pursue a refocused effort on purchase versus refinance.

On the other hand, property value continues to increase in Boston, and sales velocity is at some of the highest levels the market has ever seen. Boston has seen home sales prices increase by 10%, outpacing any similar gains seen at the national level where data shows a 6% increase.  Needless to say, this increase in value contrasts the market trend of the previous years.

Market experts are focusing on property values in Greater Boston. The drop in values in Greater Boston was less dramatic right after the housing bubble burst than the remainder of Massachusetts or the rest of the nation for that matter.

Boston Property Values Rise, Inventory Low

Immediately following the sustained economic progress and industrial development, sale prices increased in Boston. While the increase in value is considered to be beneficial for Boston sellers, buyers are faced with low inventory and bidding wars – we’re seeing sale prices greater than list prices for South Boston condo sales over the past 6 months.

Apart from general mortgage rates, there are additional significant changes in the commercial mortgage market also. However, changes are not that positive. By the second quarter of 2013, returns on commercial mortgages owned by life insurance companies dropped by nearly 1.92%. Total income was around 1.29% and the expense was 3.21% in the second quarter of 2013 with higher mortgage spreads serving as the main reason behind the loss.

It’s definitely not easy to predict whether the mortgage market in Boston is going to be stable in the coming months or not. As for now, increasing property prices, reduced mortgage rates, and low inventory levels of property listed for sale in Boston create an interesting dynamic not seen for more than 7 years in the Hub.

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Battle Brewing Over Developer Transfer Fees

Developers and builders are joining forces in the face of a new Federal Housing Finance Agency (FHFA) proposal. The plan that could affect sales in many of the nation’s master planned communities could pit real estate agents and home builders against each other. The battle will be fought mostly in Washington, as lobbyists on both sides of the issue prepare for a fight.

So what’s in this plan that has everyone so worked up? The regulation would mean that Freddie Mac, Fannie Mae and the Federal Home Loan Banks would no longer be allowed to buy mortgages on residences located in communities that require private transfer fees. The fees are paid at the time a home is sold. Usually amounting to less than one percent of the sale price, the money collected sometimes goes to homeowner associations and other community groups.

However, in some cases, the fees are nothing more than a way to generate more money for developers on a perpetual basis. The spirit of the proposal on the table seems to be attempting to protect government sponsored entities, such as the previously mentioned lenders, from this practice. The problem is in the semantics. In its current form, the proposal doesn’t distinguish between fees used to generate income and fees that go to support homeowner associations and common infrastructure. That means some master planned communities could potentially see a hit in overall sales.

Experts worry that without the aid of government lenders Fannie Mae and Freddie Mac, the housing market will suffer a great deal. As it stands now, those two lenders along with the FHA account for approximately 90% of the market when it comes to secondary mortgages. From there it’s a domino effect. If these institutions don’t invest in mortgages of the homes with private transfer fees, primary lenders will balk when it’s time to underwrite those mortgages. That will make homes unmarketable and further take a chunk out of housing values.

There are arguments both for and against the proposed regulations. In the one corner you have arguments that private transfer fees do nothing more than inflate the cost of homeownership for consumers. In the other corner you have arguments that the fees actually help consumers by making housing more affordable, providing funding for amenities and maintenance that would benefit the community.

One of the main arguments behind the new regulation is that private transfer fees artificially raise the cost of homeownership. However, opponents of the regulations say the opposite is true. Private transfer fees help fund things such as environmental mitigation, affordable housing, infrastructure, and community amenities, maintenance, and services that otherwise would have to come directly out of homeowners’ pockets, keeping the cost of living in these communities down while maintaining the desirability of living in such communities.

Time will tell what comes of the FHFA proposal. In the meantime, interested parties can send their opinions to regcomments@fhfa.gov using the subject line, “Guidance on Private Transfer Fee Covenants (2010-N-11).”