But despite the fed fund rate climb — the third in as many months — mortgage rates have been steadily moving in the opposite direction, remaining at the lowest level since March 31, according to Bankrate.com's weekly national survey of large lenders. And experts say it would take a hot economy to get mortgage rates moving sharply up again.

Mortgage rates are pegged to the yield on 10-year Treasury securities, and those yields have been moving lower due to the uncertain economic climate and the easing of inflation concerns, Greg McBride, senior financial analyst with Bankrate.com, told CBS MarketWatch last week.

"If the economy just does gangbusters like it did in the first half of the year, if inflation became an issue because it starts to suddenly accelerate, those are two factors that would force the Fed to become more aggressive with short-term rates and would drive long-term rates higher as investors demand higher returns to compensate for inflation and a stronger economy," he said.

That means the real estate market is still healthy for buyers and homeowners looking to refinance. In fact, the average 30-year fixed rate mortgage fell to a five-month low last week of 5.70 percent, down from 5.75 percent the week before. Three months ago, before the Fed began raising short-term interest rates, the average 30-year fixed mortgage rate was 6.3 percent.

Energy-efficient mortgages give buyers more house for less money

Your customers may be able to afford more house for less money if they consider buying one considered energy efficient. As housing costs continue to rise despite low interest rates, more and more lenders are offering energy efficient mortgages (EEMs), a loan program in which lenders estimate monthly energy savings resulting from energy efficient improvements to qualify borrowers for a larger mortgage.

The EEM recognizes that energy-efficient homes cost homeowners less to operate on a monthly basis than standard homes, therefore, borrowers who choose such homes can afford to spend more on their housing expenses because they will likely spend less on their energy costs.

In fact, in many cases, buyers can afford a home that would be otherwise would be out of reach. A recent study by the Environmental Protection Agency found that about 7 percent more families would qualify for home financing if the home were rated for an energy-efficient mortgage.

How a home is rated
Energy-efficient mortgage lenders require a home-energy rating to verify that the home meets certain minimum energy-savings standards. Home energy ratings involve an on-site inspection of a home by a residential energy efficiency professional.

The Residential Energy Services Network (RESNET) is a group of representatives from mortgage companies, real estate professionals, builders and others responsible for maintaining national standards for home energy ratings and accrediting energy rating providers. According to RESNET, a home energy rater will inspect a home’s insulation levels, window efficiency, wall-to-window ratios, the heating and cooling system efficiency, the solar orientation of the home, and the water heating system. Diagnostic testing, such as blower door for air leakage and duct leakage testing, is also part of the rating.

The data gathered by the home energy rater is input into a computer program and translated into points. The home receives a point score — between one and 100, depending on its relative efficiency. An estimate of the home’s energy costs is also provided. The home’s energy rating is then equated to a Star rating ranging from a 1 Star for a "very inefficient home" to a 5 Star for a "highly efficient home." Along with the rating sheet, a home owner receives a report listing cost-effective options for improving the home’s energy rating.

What to tell your customers
Maximum loan-to-value (LTV) is 100 percent and combined loan-to-value (CLTV) is 105 percent. LTVs are based on the value of the property. For new construction, LTV is based on the lesser of the purchase price or the appraised value of the Property plus the Energy Savings Value as determined through third-party verification.

In most EEMs, the borrower contribution is 3 percent from his or her own funds and/or other flexible sources, gifts, or grants. Utility and manufacturer rebates can also be applied toward the transaction.

Energy efficient homes can be a great investment for your customers. They’ll cost less to heat and cool and net a better return when selling because of the higher resale value. In fact, an October 1998 article in Appraisal Journal, cited that for every dollar saved on annual energy costs, a home increases in value $20 — and that was six years ago. The number is likely higher today.

And for you, the increasing market demand for energy efficient homes — both new and existing — translates more money in your pocket.

The number of sales to buyers under the age of 25 rose to 345,000 in 2003, up 20% from 287,000 in 2001, according to NAR. Sales to that age group outpaced home sales in general, which rose 15% from 2001 to 2003.

There are a lot of factors playing into this trend. Of course, we can thank the low interest rates and flexible loan options for much of the growth in this age group. But there’s also been an increase in homeownership education efforts by the media, the Department of Housing and Urban Development (HUD) and realty firms.

Further, there’s more awareness nowadays of the investment and tax break advantages of owning one’s own home. Plus, many of them are just plain tired of seeing their money disappear in rent each month — and living at home with the folks is not always an option for them.

But buying isn't right for everyone at this age. The likelihood they carry credit card and student loan debt is high — and will put a damper on their credit score and overall loan.

Plus, many people at this age are just beginning their careers, which may put them at the low end of the pay scale and could take them to new cities or countries as they move up the corporate ladder. And, being at the low end of the proverbial “totem pole” can also leave them susceptible to layoffs and job changes.

The best advice you can give your younger clients is the same thing they probably heard in college: Do your homework. Young buyers need to understand the ins and outs of the home buying process to see if it’s really something they want to commit to, and more importantly, afford.

The best advice for the people that advise them: Explain to them how much they can afford and the various mortgage products available to them. NAR’s First-Time Homebuyer Affordability Index shows a typical first-time buyer household, aged 25 to 44, with an income of $30,980, had 83.4 percent of the income needed to purchase a typical starter home with a 10 percent down payment. The median starter home price was $145,200, during the first quarter.

Apps up, refis down
The Market Composite Index of mortgage loan applications was 690.7, last week, an increase of 1.8 percent on a seasonally adjusted basis from 678.2 one week earlier, according to the Mortgage banker's Association.

On an unadjusted basis, the Index increased by 26.4 percent compared with last week but was down 1.5 percent compared with the same week one year earlier.

The MBA seasonally adjusted Purchase Index increased by 0.2 percent to 456.6 from 455.7 the previous week. The seasonally adjusted Refinance Index increased by 4.1 percent to 2052.5 from 1972.5 one week earlier. On an unadjusted basis, the Purchase Index has increased 13.6 percent while the Refinance Index has decreased 15.5 percent when compared with levels one year ago.

The refinance share of mortgage activity increased to 44.5 percent of total applications from 43.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 33.1 percent of total applications from 33.0 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.66 percent from 5.68 percent one week earlier. The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.02 percent from 5.03 percent one week earlier.

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