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.

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