Sunday, January 29, 2012

Market Recap for the week of January 30, 2012

The data on housing were mixed this past week, but we would say that, for the most part, they listed more positively than negatively.
Last Friday, the NAR reported sales of existing homes rose 5 percent to an annual rate of 4.61 units in December. This marked the third-consecutive month of sales growth. This latest increase helped reduce inventory to 2.38 million units, the equivalent of a 6.2-month supply at December's sales pace.
Pricing was the one bugaboo in the NAR's data. The median price for an existing home was $166,100 for 2011, a 2.5 percent drop from 2010 and the lowest median price since 2002. This is a disappointment, but hardly a disaster. We’ve said many times that national numbers usually lack a meaningful connection to local markets.
The news on distressed properties was a little more encouraging. RealtyTrac reports that homes in some stage of foreclosure dropped 11 percent in the third quarter of 2011 compared to the previous quarter. Of course, part of the improvement is due to the ongoing matter of banks working through last year's auto-signing imbroglio. That said, our own anecdotal evidence suggests an improving distressed-property market.
The new-home market is also improving, just not so obviously. New home sales eased 2.2 percent to an annual rate of 307,000 units in December, which pushed inventory up to a 6.1-month supply. Like existing-home prices, new-home prices were also pressured for the month, with the national median price dropping to $210,300.
Recent new-home data suggest that December's numbers might just be a hiccup: Homebuilder sentiment has improved markedly in recent months, as has the longer-term sales trend.
Speaking of trends, the trend in mortgage rates is expected to hold for the long term. On Wednesday, the Federal Reserve stated that interest rates will remain low until at least through 2014, pushing back a previous date of mid-2013. According to Federal Reserve data, the economy simply isn't growing at the pace it had expected.
The impact of the Fed's revised policy was both immediate and palpable. Before the announcement, the 10-year Treasury note yield had been creeping higher and was yielding 2.06 percent just before Fed Chairman Ben Bernanke stepped up to the mike. After he had stepped down, the yield had dropped to 1.96 percent.
So it appears low base mortgage rates are with us for the long term, but that doesn't mean low-cost mortgages are. A r ecent increase in fees Fannie Mae and Freddie Mac charge lenders will push costs higher. Expect the fee increase to raise borrowing costs a quarter percentage point.
It's worth pointing out that we said “appears” in connection with low mortgage rates. Nothing is certain where the economy and investor behavior is concerned. To be sure, if we were forced to place a bet, we’d likely bet on January 2013 mortgage rates matching January 2012 rates. We suspect most everyone else would place that same bet. That fact, in and of itself, is a contrarian indicator that rates aren't necessarily destined to stay at today's levels.

Economic Indicator
Release Date and Time
Consensus Estimate
S&P Case/Shiller Home Price Index(November)
Tues., Jan. 31,9:00 am, et
0.1% (Increase)
Moderately Important. Prices weakened in the fourth quarter, but are showing signs of stabilizing in January.
Consumer Confidence(January)
Tues., Jan. 31,10:00 am, et
68 Index
Important. Improving confidence will help home sales heading into the spring-buying season.
Mortgage Applications
Wed., Feb.1,7 :00 am, et
Important. Activity dropped in the past week, but the four-week trend remains positive.
Construction Spending(December)
Wed., Feb. 1,10:00 am, et
0.2% (Increase)
Important. Spending on residential real estate construction continues to build momentum.
Productivity & Costs(4th Quarter 2011)
Thurs., Feb. 2,8:30 am , et
Productivity: 0.2% (Decrease)Costs: 0.1% (Decrease)
Moderately Important. The drop in productivity and costs reflects slower fourth-quarter economic growth.
Employment Situation(January)
Fri., Feb. 3,8:30 am , et
Unemployment Rate: 8.5%Payrolls: 105,000 (Increase)
Very Important. Falling job growth will further anchor low interest rates.

Buy Low, Be Happy, an online real estate marketing firm, recently released a study on homeowner satisfaction. HomeGain found that homeowners with the lowest cost basis were the happiest. Specifically, HomeGain found homeowners who acquired their properties for less than $75,000 were the most satisfied.
Now, HomeGain's survey might seem like an exercise in belaboring the obvious, but it's proof that price really does matter. Despite what has occurred in housing over the past four years, if you purchased a $75,000 home a few years ago, you're likely ahead on your purchase (which is why you're satisfied).
Though it might be obvious, HomeGain's point is, nevertheless, worth driving home to our clients. Price matters, and it matters a lot. Buying at a sufficiently low price can offset many sins.
Low prices are found mostly in depressed markets, which is the housing market today. Depressed markets are ephemeral, so if we want to maximize our clients' happiness in 2020, it behooves us to impress upon them the importance of buying today.
Article Courtesy of Patti Wilson, Senior Loan Officer Mutual Bank of Omaha.

Monday, January 2, 2012

Keeping you updated on the market! For the week of January 2, 2012

The news is understandably slow the week between Christmas and New Year's Day. The most notable release was last Friday's news on new home sales, which rose to an annualized rate of 315,000 units in November, a 1.6-percent gain over October.

To be sure, we have a long way to go until we reach the normalized construction rate of 1.5-million units per year. Nevertheless, we expect the new-home market to gain pace in 2012. After all, there are only 158,000 units in inventory. Even at the current slow sales pace, this equates to a record low six-month supply

Over the past three years, new-home construction has fallen far below historical norms and also below the level needed to keep pace with population growth. The fact is our country gains roughly 2.7 million people and one million new households annually.

You might not see supply as a problem. We are all familiar with the glut of distressed properties. Indeed, Bank of America expects eight million distressed homes to come to market over the next four years. These homes, we've so often heard, will continue to depress new home construction.
We view B-of-A's outlook with a skeptical eye. There is a likely prospect that many of these distressed properties will simply go away. Destruction is too frequently overlooked in many supply projections. A house is not a permanent structure. Many are destroyed by fire, wind and flood each year. Many more are lost through simple decay and abandonment. Based on U.S. Census data, 300,000 homes are lost annually. That number will surely rise in years to come.

In short, the math – low inventory plus more households minus more home destruction – suggests to us a rebound in new-home construction. We are not alone in this contention, either. Wells Fargo projects that housing starts will continue to rise each year for the next five years before reaching once again the normalized construction rate of 1.5-million units annually by 2017.

Of course, projections are one thing, betting on those projections is another. Here, we see an encouraging trend. Big money is starting to wager on housing. The Wall Street Journal reports that many large hedge funds are investing billions in housing-related investments. Other investors have followed suit. Shares of homebuilders are up 30 percent over the past three months, making them one of the best performing investments in the market.

Economic Indicator
Release Date and Time
Consensus Estimate
Construction Spending(November)
Tues., Jan. 3,10:00 am, et
No Change
Important. Residential spending is accelerating and contributing more to economic growth.
Mortgage Applications
Wed., Jan. 4,7:00 am, et
Important. Markets are anticipating increased purchase activity to start 2012.
Factory Orders(November)
Wed., Jan. 4,10:00 am, et
2.5% (Increase)
Important. Growing order momentum is indicative of increased economic activity.
Employment Situation(December)
Fri., Jan. 6,8:30 am , et
Unemployment Rate: 8.7%Payrolls: 150,000 (Increase)
Very Important. Job growth is accelerating, which is encouraging for housing, but less so for low interest rates

Up For A New Year
As we approach the end of the old year nearly all of us stop to ask, “How will the new year unfold?” Of course, none of us know with any certainty the answer to that question, but it can be insightful (and fun) to ponder. So, how will 2012 unfold, at least as it pertains to the housing and mortgage markets?

Both markets will obviously be influenced by economic growth, which, in turn, will spur job growth. We see a pick up in economic growth and job growth in 2012.

The economy has been growing at a sluggish rate for too long now. The United States is unique in that Americans tire of pessimism quicker than most other cultures, and then we do something about it. In our opinion, rising consumer confidence points to a lot of pent-up demand that is waiting to bust loose, and will bust loose in 2012.

A pick up in demand, in turn, necessitates new hires. In fact, a recent survey by found that nearly one in four employers is keen to add new permanent full-time employees. These employers are simply waiting for a clear sign the coast is clear. We think they will get that sign in the first quarter of 2012.

Greater economic activity will obviously impact the housing market. We see accelerated sales volume in both the new and existing home markets. We also expect to see prices stabilize in the first half of the year, and then appreciate perceptibly in the second half.

As for the mortgage market? This is much more difficult to call. The Federal Reserve has stated it intends to hold rates low through 2012. However, all it takes are a few persuasive signs that the economy is back on track, and the Fed could easily backtrack from its stated goals. All we can say is that we would be much less surprised to see mortgage rates 50 basis points higher six months from today than 50 basis points lower.
Article Courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank
(239) 357-0739