We tend to view most situations from an optimist's perspective, because optimists are more likely to see solutions that pessimists overlook; therefore, optimists tend to be better problem solvers.
Optimism, we have found, is also usually rewarded. The housing recovery has taken longer than most of us would like, but the market is recovering, and the recovery will likely gain pace as we progress through 2012.
Mortgage delinquencies are one area of continued progress. TransUnion forecasts delinquencies of 60 days or more will peak at 6 percent of all mortgages during the first quarter of 2012, and then fall to 5 percent by year's end. This is actually a continuation of a longer-term trend that has been overlooked: delinquencies this year are expected to fall 7 percent, which follows a 7 percent decline in 2010.
The trend in the National Association of Home Builders/First American Improving Markets Index is also cause for optimism. According to the index, the number of improving housing markets expanded for a fourth-consecutive month, rising 37 percent to 41 in December from 30 in November. The index states that the expansion in both number and geographic diversity of markets is proof that markets continue to grow more heterogeneous; that is, more dependent on local factors than national ones. This is a point we've been making for the past six months.
The news on pricing was less upbeat. CoreLogic reports that house prices dipped nationally month-over-month in October. Year-over-year, prices have declined 3.9 percent, but only 0.5 percent when distressed properties are removed from the equation.
A recent report by Barclays Capital should help ease pricing concerns. According to Barclays, the housing market will be buoyed by improving job growth and by the fact that prices for non-distressed properties are stabilizing without government support. On price stabilization, Barclays housing analyst Stephen Kim writes, “[W]e are amazed at how little attention it [the recovery in non-distressed homes] has been getting from the media and the street.”
We, on the other hand, are less amazed. We've been hammering the point on stabilizing prices for months, but we also know that bad news always sells better than good news.
Speaking of good news, mortgage rates continue to hold steady and near multi-decade lows. We've noticed that the yield on 10-year U.S. Treasury notes has trended lower most of this past week, which has been something of a surprise, given that the economic news, for the most part, has been positive.
Mortgage rates have been holding steady for the past month or so, but we think upward pressure is steadily building – mostly due to an improving economy and job growth (and for a reason we'll explicate below).
Release Date and Time
Tues., Dec.13,8:30 am , et
Important. Consumers continue to spend more than sentiment measures suggest, thus portending higher economic growth.
Tues., Dec.13,10:00 am, et
Important. Careful inventory management coupled with incremental sales growth should lead to improved job growth.
Wed., Dec. 14,7:00 am, et
Important. Refinance and purchase activity point to rising lending demand.
Wed., Dec. 14,8:30 am , et
Important. Rising import-price inflation could pressure interest rates.
Producer Price Index(November)
Thurs., Dec. 15,8:30 am , et
All Goods: 0.1% (Increase)Core: 0.2% (Increase)
Important. Rising core prices (less food and energy) point to rising producer-price inflation.
Thurs., Dec.15,9:15 am , et
Important. Continued production growth will eventually stimulate lagging consumer sectors.
Consumer Price Index(November)
Fri., Dec. 16,8:30 am , et
All Goods: No ChangeCore: 0.2% (Increase)
Important. Lower gasoline prices have slowed consumer-price inflation.
HARP 2.0 and Supply and Demand
A few weeks ago, we wrote about changes in the Home Affordable Refinance Program, dubbed HARP 2.0. This latest incarnation of HARP will impact the supply-and-demand dynamics in the mortgage market, namely due to the removal of the 125-percent loan-to-value cap.
More borrowers will qualify for mortgage loans; that obviously means there will be more demand for mortgage loans. What's more, demand could increase sooner rather than later, particularly if borrowers who don't need HARP, but want to exploit today's low rates to avoid the possibility of a delay, ratchet up demand.
To be sure, HARP 2.0 will be a good deal for many mortgagors who have been unable to refinance because of diminished home equity. Many of these mortgagors will benefit, even if mortgages rates were to rise a full-percentage point or more.
Now, we're not forecasting a percentage point rise in rates when HARP 2.0 kicks into gear, but more demand does tend to raise costs, including the cost of mortgage financing. This is something borrowers who don't need HARP but who could take advantage of today's rates should think about, because many of them won't benefit if mortgage rates move significantly higher.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.