– Dec. 18, 2009 – Mortgage rates rose for the second consecutive week but the number of homeowners who applied for refinancing remained strong.

The average fixed rate on a 30-year mortgage was 4.94 percent this week, up from 4.81 percent last week, Freddie Mac said Thursday.

Mortgage rates are closely tied to yields on long-term government debt, which have risen since the average fixed rate on 30-year mortgages hit a record low of 4.71 percent the week of Dec. 3.

A Federal Reserve program to buy $1.25 trillion in mortgage-backed securities has kept rates on 30-year mortgages around 5 percent this year. The program, geared to make homebuying more affordable, is set to end next spring.

The low rates resulted in a wave of refinancing activity: Roughly three out of four mortgage applications were for refinancing during the first two weeks of December, the Mortgage Bankers Association reported.

Freddie Mac collects mortgage rates each week from lenders around the country. Rates often fluctuate, even within a given day.

The average rate on a 15-year fixed mortgage rose to 4.38 percent from 4.32 percent last week.

Rates on five-year, adjustable-rate mortgages averaged 4.37 percent, up from 4.26 percent last week. Rates on one-year, adjustable-rate mortgages rose to 4.34 percent from 4.24 percent.

The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 point for 30-year loans. The fee averaged 0.6 point for 15-year and five-year loans, and 0.5 point for one-year mortgages.


Courtesy Florida Association of Realtors
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FIRST TIME HOMEBUYERS ARE DRIVING THE TREND TOWARD SMALLER NEW HOMES


WASHINGTON – Dec. 17, 2009 – Out of the depths of housing’s worst downturn, smaller new homes are turning into a bright spot for some home builders.

The trend toward more compact new homes is being driven partly by the fact that more customers are first-time buyers who have less to spend.

Home builders are responding by offering smaller designs with features such as high ceilings and large windows that create a spacious feel and options that let buyers personalize the model they choose.

KB Home’s smaller model helped it achieve a 62 percent increase in year-over-year net orders in the third quarter.

The trend cuts across the industry. The median square footage of new homes has dropped 9 percent from a peak of 2,300 square feet in the third quarter of 2006 to 2,100 square feet in the July-September period this year, according to data from the National Association of Home Builders (NAHB).

Housing size drops with each recession, but economists expect the current movement toward smaller homes to continue for some time in part because of the severity of the current housing market slump.

First-time buyers are driving the trend toward smaller homes because that is what they can afford, says David Crowe, chief economist at the NAHB.

As the economy improves, move-up buyers generally enter the market and begin buying larger homes. But this time, so many homeowners owe more on their homes than their properties are worth that many potential move-up buyers will be stuck even as the economy strengthens.

That means first-time homebuyers will still be buying smaller homes while larger homes will find fewer buyers.

“This downsizing is more sustainable,” Crowe says. “The first-time buyer will continue to be a large part of the market because the move-up buyer will not have as much equity. It’s going to take them awhile to climb out.”

The NAHB doesn’t keep data on the percentage of new home sales that are made by first-time home buyers, but about half of all home purchasers were first-time buyers in October, according to the National Association of Realtors.

For builders, smaller, less-expensive homes mean less profit. But the industry is already facing strong competition from a high supply of foreclosed homes selling at comparatively low prices.

A WELCOME CHANGE

Some analysts say the downsizing trend could be good news for builders.

“The appetite for smaller homes may be a welcome change for home builders as new home sales have been challenged in the past few years,” says Tom Lydon, editor of ETF Trends, which educates investors on fund choices and market trends.

Major home builders such as KB Home and Pulte Homes are responding to the shift in demand by offering more of the smaller properties.

At Pulte Homes, its most popular designs today are 100 to 200 square feet less than the most-popular plans in 2005-06.

So the lower-priced homes don’t seem bare-bones to buyers, open floor plans and 9-foot ceilings provide a sense of roominess. Fireplaces are an option.

To hold down costs, Corian – a surfacing material created by DuPont – is a standard for kitchen counters instead of granite. Appliances are standard models instead of pricier stainless steel.

“It’s not just making it smaller, it’s maximizing the space in the home,” says Caryn Klebba, a spokeswoman at Pulte Homes. “It’s a 9- or 10-foot ceiling rather than a cathedral ceiling.” Cathedral ceilings are 14 to 18 feet.

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