Tuesday, April 17, 2012

Keeping you Updated on the Mortgage Market

For the week of April 16, 2012

The shift from winter tranquility to spring volatility is readily apparent in the mortgage markets. Fed Chairman Bernanke has noted that there are still considerable challenges which face the economy and that the Fed’s low rate stance is what is driving them back downward. Freshly-released minutes of the last Fed meeting from three weeks ago reflected the strong economy leading up to that point. This pushed rates back up, with the deepening woes in Europe and the weak March employment report causing rates to go back down again.

The statement accompanied by the close of the Monetary Policy Setting Committee and subsequent testimony of Fed Chairman Bernanke both suggest that the economic climate may require additional support for the coming time period. The meeting minutes themselves indicate otherwise, in them is a stronger assessment of the state of the economy – one in which the Fed may be less inclined to start or expand any programs designed to keep interest and mortgage rates low into the future.

In other words, the economy is growing but with less strength than previously thought. Interest rates had been easing somewhat, as an accumulation of the most recent economic data pointed towards expansion, with slightly less upward momentum at the end of the first quarter than at the beginning of it. The mixed signals are continuing.

Adding to the challenge of determining whether or not the current market conditions are moving upward or downward is the recent unemployment figures with 357,000 new applications for unemployment benefits filed during the last week of March. However, fewer people getting laid off is different than more people getting hired and new jobs being created. While job retention is an indicator of economic improvement, it is still a wobbly economy which needs steadying.

Broadening the recovery means hiring the under-employed as well as the unemployed. Over the past three months, a spate of hiring pushed new job creation well over the 200,000 level. Upon closer examination, the 120,000 new hires in March are exactly one-half of the February gain. This weaker-than-expected report counterbalances the FOMC’s ‘stronger’ minutes, and underlies the cause of retreating interest rates. While the nation’s unemployment rate slipped to 8.2% for the month, the contraction in the labor force itself accounts for at least a portion of the declining rates.

Economic Indicator - Release Date and Time -Consensus Estimate - Analysis

Bureau of Labor/PPI
April 16, 2012, 8:30 a.m. EST
Unchanged at 0.4 percent, but up from 0.1 January 2012
Moderately Important. Increase is holding steady which can help
Business Outlook Survey
April 19, 2012, 12pm EST
Up 2.3 from 10.2 in February 2012 to 12.5 in March
Important.With moderate price pressures, positive future movement is suggested.
Durable Goods Report
April 20, 2012, 8:30 a.m. EST
2.2 percent increase, following the 3.6 percent January decrease
Moderately Important. Increase is offset by prior decrease
S & P/Case Shiller Home Price Index
April 24, 2012, 9:00 a.m. EST
+0.2% positive annual growth in Denver
Moderately Important.Regional growth is tempered by national market condition decreases

Regional Growth Leading Recovery

Looking at the S&P/Case Shiller home price index, there are not enough signs to completely guarantee that prices have stopped their descent which began in 2006. The main overlying positive sign in median housing prices is that prices are not descending as rapidly compared to the last few years. The index itself is still down by more than 30 percent.

That covers the national outlook. The regional outlook, particularly for Denver, is a little bit rosier. Many residential developers, realtors, investors, and mortgage lenders are busy in some areas of the country; Denver being one of them.

There are still issues with the national foreclosure settlement between the major mortgage lenders, the state attorney generals, and the federal government. It remains uncertain how the market itself will behave once the five banks involved begin to write-down principal mortgage amounts of underwater properties. Analysts point out that it could stem the pace of foreclosures or enlarge the REO portfolios of these lending entities.

The only certainty for 2012, is that the housing recovery will be seen on a regional level, rather than national. Fortunately, for the Denver housing market, that is good news as it is one of the regions which is showing positive momentum and the beginnings of growth.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.

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