Thursday, October 31, 2013

Home price appreciation slowing but still steady.


 
Keeping you updated on the market!
For the week of

October 28, 2013



MARKET RECAP
Slowing But Still Steady
More evidence points to slowing home-price appreciation. The Federal Housing Finance Agency's (FHFA) latest data show home prices rose again in August, but the rate of increase slowed. Prices rose only 0.3% in August compared with 0.8% in July, which had been revised down from 1%.
We've been warning for some time now that the pace of home-price appreciation will likely abate. Double-digit annual price increases are unsustainable for simple economic reasons: Rising prices reduce demand. At the same time, rising prices draw in more supply, which presents more buying options and more price competition.
Supply is certainly on the rise. After trending lower through 2011 and 2012, the inventory of homes for sale has trended mostly higher through 2012, according to NAR data. We shouldn't be surprised, then, that homes are appreciating at a slower rate.
As for mortgage rates, they continued to trend lower this week. Bankrate.com's survey shows the average rate on the conforming 30-year fixed-rate loan at 4.27%. Freddie Mac's survey puts the average at 4.13%.
For the past month, we've been saying we expect the 30-year loan to fluctuate between 4.25% and 4.50%. We are obviously at the lower limit of that range, and we we don't expect rates to go much lower.
We say that because credit markets are already factoring in no tapering for the immediate future. This means most market participants don't expect the Federal Reserve to reduce its monthly purchases of Treasury notes and bonds and mortgage-backed securities (MBS) this year. The good news of continued Fed support is factored into today's mortgage rates.
Unless the economy materially worsens or the Fed ramps up its monthly purchases even more (which is unlikely), there really is no impetus for mortgage rates to fall much further. Indeed, the odds favor rates rising, because as soon as the Fed announces it will begin tapering, rates will rise. Keep in mind, the Fed will have to taper one of these days.
Of course, the rate itself is only one variable in the cost of a mortgage loan. Fees are another variable, and they could be on the rise. New rules on ability to pay are slated to hit the mortgage market in January. Unless something changes between now and then, fees borrowers pay will certainly rise because costs to lenders will rise.
To be sure, lenders are fighting back with a lobbying effort, and they appear to be making inroads. But we can never be sure in matters of politics. So the bottom line is the risk of waiting for something better tomorrow outweighs the benefit of acting on today's known lower-rate, lower-cost mortgage.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Pending Home Sales Index
(September)
Mon., Oct. 28,
10:00 am, ET
105 Index
Important. The slowdown in mortgage lending related to the government shutdown will be reflected in lower sales.
S&P/Case-Shiller Home Price Index
(August)
Tues., Oct. 29,
9:00 am, ET
0.4% (Monthly Increase)
Important. The index is expected to show a slowing rate of price appreciation.
Mortgage Applications
Wed., Oct. 30,
7:00 am, ET
None
Important. Activity should pick up on lower rates and the end of the government shutdown.
Federal Reserve FOMC Meeting
Wed., Oct. 30
2:00 pm ET
Federal Funds Rate: 0.0% to 0.25%
Important. The Fed will continue with quantitative easing and low interest rates.

 

Maybe Not So Normal After All
We long for a return to a normalized mortgage and housing market; that is, a market before the housing boom and bust. We certainly aren't there on the mortgage side, where a normalized market would be characterized by higher lending rates, more private-market participation, and less-restrictive lending practices.
Housing is a different story. We thought we were moving toward normalization, where owner-occupied buyers' share of the market was growing. It appears we jumped the gun.
The latest data from RealtyTrac show investors are still very much in force. Institutional investors, in particular, remain a major market player. Institutional investors – REITs, private equity, and hedge funds – accounted for 14% of all sales in September, up from 9% in August. Their activity is reflected in the percentage of all-cash purchases, which represented 49% of all residential purchases in September, up from 40% in August.
Of course, we have nothing against investors, but institutional investors are a new phenomenon. In the past, investors in the single-family rental market were primarily individuals or small partnerships. In recent years, billions of dollars of institutional money has flooded the market.
Institutional investors have certainly impacted prices. We suspect their money has also lead to increased price volatility. This is something to consider should you read of institutional money entering or leaving your particular local market. When institutional money enters a market, prices can move meaningfully higher. And the opposite is true when it leaves – prices can move meaningfully lower.

Article courtesy of Patti Wilson, American Momentum Bank.

Monday, October 14, 2013

Keeping you updated on the market! For the week of October 14th, 2013.


MARKET RECAP
Was This Much Ado About Nothing?
Political wrangling on the federal debt ceiling and the Affordable Care Act (Obamacare) helped to hold mortgage rates in check for another week.
Bankrate.com's national survey reports an average rate of 4.39% on the 30-year fixed-rate mortgage. Freddie Mac's survey shows the national average rate at 4.23% on the same loan, which is roughly where it was last week.
Rates have been held at these levels on raised financial market risk. Many market participants are concerned the government slowdown will lead to slower economic growth. The rationale being that furloughed government workers would spend less, and thus the economy would slow.
At the same time, more investors are fearful the government will default on its debt. Most financial institutions and many individuals own U.S. Treasury notes and bonds (either directly or through a mutual fund). These securities are perceived as ultra-safe investments. A default would negate that perception and investors would sell en masse, thus generating huge financial losses.
The fears, quite frankly, are over done. The economy is powered as much by investing and savings as by consumption. To be sure, everything produced is made to consume, but there are vast production stages that generate paychecks and spending that go unnoticed in economic-growth statistics. In short, the furlough workers and the reduced government activity itself isn't having as much of an impact as many believe.
That said, private companies that require government approval to transact business are being hurt – mortgage lenders are one – and that could lead to slower economic growth.
As for defaulting on the natural debt, that's also very unlikely. The federal government brings in roughly $253 billion a month in revenue. Interest on the national debt is around $20 billion, or less than 8% of monthly income. There is plenty of revenue flowing in to pay creditors, as well as to pay people owed money through Social Security and government pensions.
For now, mortgage rates are at levels unseen since mid-June. When the latest political brouhaha began a few weeks ago, we opined that the rate on the 30-year loan would fall within a 4.25%-to-4.50% range. So far, we've been on target.
We seriously doubt rates will go any lower. More likely, they will move higher: Fears of a default have abated and a deal appears imminent on the debt ceiling that will have the government up-and-running in full soon.
In fact, the yield on the 10-year Treasury note is already up over 10-basis points this week. As the 10-year Treasury note goes, so, too, goes the 30-year fixed-rate mortgage.
Yields are moving up despite the high likelihood that the current Federal Reserve Chairman Ben Bernanke will be be replaced by lead candidate Janet Yellen. Ms Yellen supports continuing the quantitative easing and low-rate interest policies currently in place. Nevertheless, rates are still moving higher.
We believe we are at a bottom in interest rates, which means we see little reason to wait to apply for a mortgage. Admittedly, there are delays in dealing with the federal government to verify borrower information, but it's still worthwhile to get the process started nonetheless.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Mortgage Applications
Wed., Oct. 16,
7:00 am, ET
None
Important. The government slowdown continues to weigh on application activity.
Consumer Price Index
(September)
Wed., Oct. 16,
8:30 am, ET
All Goods: 0.2% (Increase)
Core: 0.2% (Increase)
Moderately Important. Inflation remains low and will have little impact on interest rates.
Homebuilders' Index
(October)
Wed., Oct. 16,
10:00 am, ET
58 Index
Important. Sentiment points to sustained building activity through 2013.
Housing Starts
(September)
Thurs., Oct. 17,
8:30 am, ET
905,000 Units (Annualized)
Important. Starts continue to move higher, but at a slowing rate.

 

The New Normal
It appears investors have finally had their fill. In many housing markets, sales volume and price appreciation have been driven by investors. Their activity was reflected in a high percentage of all-cash transactions. The number of these transactions has dropped noticeably over the past few months, particularly in popular investment markets like Las Vegas and Phoenix.
We will likely see a continued decline in investor activity going forward. This means price appreciation growth will continue to slow. We've mentioned in recent months that the days of double-digit year-over-year price appreciation are nearly over. Investors were a major contributor to price appreciation; their leaving the market will surely impact prices.
This isn't bad news. Stability is an important variable in a healthy market. When expectations are calibrated to how the housing market has historically operated, more people will be willing to buy and sell a home. The market in total will become more fluid – buying, selling, and financing will become an easier and more predictable process.
So embrace slower price growth, because it ensures a more stable, more profitable market in the long term. More important, it instills less speculation and a higher degree of certainty, which is what we all want when we attempt to accurately gauge the outcome of a major purchase like a home.

Article Courtesy of Patti Wilson, American Momentum Bank.
 

Monday, October 7, 2013

Mortgage Market Update - Now What?????


 
Keeping you updated on the market!
For the week of

October 7, 2013



MARKET RECAP
Now What?
Things have played out pretty much as we expected: The Affordable Healthcare Act (Obamacare) was implemented on schedule. Congress and the president were unable to reach a budget agreement, hence the federal government shutdown.
Actually, the federal government didn't really shut down. Roughly 30% of the civilian government workforce was simply furloughed. Most government departments continue to function. So “shutdown” isn't the right word; “cutback” is more like it.
Whatever we call it, the furloughs and cutbacks have impacted the mortgage market. Because many IRS employees were furloughed, it's taking lenders longer to verify reported income with the IRS. Without verification, it's impossible to sell mortgage loans on the secondary financial markets. This liquidity is vital to mortgage lending.
Needless to say, delays are proving frustrating to lender and borrower alike, especially in light of lower mortgage rates. In the past weeks, we've opined that interest rates would likely fall with the rise in uncertainty the budget impasse and new healthcare legislation imparts. That's been the case: the yield on the 10-year U.S. Treasury note – a bellwether for long-term mortgage rates – has fallen 15 basis points to below 2.60%.
In turn, mortgage rates have fallen. Our best estimate was that we'd see the rate on the 30-year fixed-rate loan vacillate between 4.25% and 4.50%. Depending on which survey you look at, we are either right or somewhat right. Bankrate.com's national survey puts the average rate at 4.41%, while Freddie Mac's survey puts it at 4.22%.
The frustration on our end is raised because borrowers are having a difficult time exploiting today's lower rates. To be sure, lower rates are a nice relief, but if you're unable to close on a low-rate loan in a timely manner, what's the point?
But don't give up.
Anyone looking to refinance a mortgage or purchase a house shouldn't delay the financing process. If they are concerned about rates rising, they should consider locking their rate for a longer period. Admittedly, rates could go lower, but they could also go higher – and go higher in a hurry should a budget deal be announced.
Of course, none of us knows when that will happen. But with the long-term impetus for rates to rise, the benefits of waiting to capture a significantly lower rate is more than offset by the risk of waiting and being faced with a much higher rate.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Consumer Credit (August)
Mon., Oct. 7,
3:00 pm, ET
$10 Billion (Increase)
Important. Credit use is increasing at a slower pace due to falling retail spending.
International Trade
(August)
Tues., Oct. 8,
8:30 am, ET
$39.5 Billion (Deficit)
Moderately Important. U.S. businesses remain cautious on global economic growth.
Mortgage Applications
Wed., Oct. 9,
7:00 am, ET
None
Important. Government delays in processing income-verification requests will temper loan activity.
Federal Reserve FOMC Minutes
Wed., Oct. 9,
2:00 pm, ET
None
Important. Credit markets will receive additional insight on the Fed's tapering and interest-rate policies.

 

Has the Housing Recovery Stalled?
We've been warning that double-digit year-over-year home-price increases would likely end soon.
Perhaps we were too pessimistic. CoreLogic’s Pending Home Price Index report for September puts price growth in the 12.7%-range, and shows 0.2% appreciation month over month. This suggest home prices could continue to grow at a double-digit year-over-year rate through the end of the year.
To be sure, home prices could continue to post double-digit gains through 2013, but we doubt they will be sustained much longer than that. Double-digit annual gains are simply unsustainable for an extended period of time.
The good news is that single-digit annual price gains – 3%-to-5% – are sustainable, and we think they will prevail from 2014 on. We say that because there is still plenty of pent-up housing demand, particularly for younger adults who are suffering the most from the current economic malaise.
When the economy finally kicks into gear, and we expect that to occur sooner than later, more buyer demand will hit the market. Home sales volume will improve and prices will continue to appreciate.
We are not alone in our assessment. Goldman Sachs recently released a paper titled “Where is the Pent-Up Housing Demand?” that supports many of the contentions we've made over the past year: namely that lack of job growth, more than anything, is holding back the market. The paper also supports our contention that the vast majority of non-homeowners still aspire to homeownership. We are a buyer, not renter, nation.
So, no, the housing recovery hasn't stalled. We still see price appreciation, and we see substantial sales-volume increases when the long-overdue economic recovery finally arrives.

Article Courtesy of Patti Wilson, American Momentum Bank.

Tuesday, October 1, 2013

Lower Mortgage Rates Prevail!!


MARKET RECAP
Lower Mortgage Rates Prevail
Mortgage rates can be as difficult to forecast as the flight path of a butterfly, but forecast we do.
Last week, we said we expected to see the 30-year fixed-rate mortgage fall after the Federal Reserve announced there would be no tapering of quantitative easing. Our forecast was for the rate on the 30-year loan to fall below 4.5%, and possibly trade in the 4.25%-to-4.5% range for the near future.
It looks like we got it right. Bankrate.com's latest survey shows the 30-year loan averaged 4.47% nationally. Of course, some local markets didn't see quite that much reduction, while others saw more. But all in all, we are seeing rates lower than we've seen in the past four months.
We expect the 30-year loan to hold near today's levels.
The fact is that economic growth remains sluggish. The latest and final revision of 2 nd quarter gross domestic product (GDP) shows less growth than expected. The consensus estimate was for GDP to grow at a 2.7% annualized rate, but the final number shows a 2.48% growth rate. Sluggish GDP growth gives the Federal Reserve reason and room to continue buying $40 billion worth of mortgage-backed securities (MBS) each month.
In addition, concerns over a looming federal government shutdown, due to political wrangling over the debt ceiling, will keep interest in Treasury notes and bonds high. Investors are also pondering what impact the Affordable Healthcare Act (Obamacare) will have on businesses when it's implemented next month.
In short, there's a lot of uncertainty that will keep investors interested in haven securities like Treasury notes and bonds and MBS. Their interest should help hold mortgage rates at these lower levels.
To be sure, we see little impetuous for mortgage rates to move much high. But keep an eye on next Friday's employment report. Should that come in stronger than expected, rates could temporarily spike.
On the flip side, if the employment report comes in weaker than expected, rates will move lower. The past couple employment reports have disappointed, so it's likely most economists have proffered less-optimistic predictions.
Our crystal ball points to job growth meeting or slightly exceeding exceptions. In that case, we could see an uptick in mortgage rates at the end of the week. But with all the other uncertainties baked into the credit markets, we doubt rates would move meaningfully higher.
So we see an extended opportunity to take advantage of lower rates. Keep in mind, though, the long-term bias – an eventual tapering and higher inflation – points to higher mortgage rates down the road.
The risk, as we've said so often, remains in procrastinating.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Construction Spending
(August)
Tues., Oct. 1,
10:00 am, ET
0.6%
(Increase)
Important. Gains in residential spending slowed in recent months, but commercial spending is moving higher.
Mortgage Applications
Wed., Oct. 2,
7:00 am, ET
None
Important. Purchase applications jumped to their highest level since July, which points to strength in underlying home sales.
Factory Orders
(August)
Thurs., Oct. 3,
10:00 am, ET
0.3%
(Increase)
Moderately Important. Orders remain subdued, thus reflecting sluggish economic growth.
Unemployment Situation
(September)
Fri., Oct. 4,
8:30 am, ET
Unemployment Rate: 7.3%
Payrolls: 180,000 (Increase)
Very Important. Another month of sluggish job growth and low-employment participation ensures continued quantitative easing.

 

Laws of Economics Still Work
Higher prices bring in more supply; more supply leads to lower prices.
This is how things are shaping up in the new-home market. Sales jumped 7.9% to an annual rate of 421,000 units in August. The number of new homes for sale rose 6,000 for the month. Supply stands at five months, a considerable improvement over the 4.6-month supply that prevailed a year ago.
More supply – more new homes – means pricing pressure. The median new home price slipped 0.7% to $254,600 in August, marking the fourth-consecutive monthly decline. This follows the news on existing-home sales, which showed a slight downtick in the median price to $212,100.

Over the past couple months, we've been warning that price appreciation will likely slow. The latest data from the S&P/Case-Shiller Home Price Index support our contention. Case-Shiller's 20-city index shows price growth slowed to 0.6% in July, down from 0.9% in the prior two months.

Trends don't last in perpetuity, so a slowdown in price-appreciation was (is) inevitable. Because trends don't last in perpetuity, we pounded the table hard in 2010 and 2011 for buyers to get in the game. We were adamant back then because we expected the downward price trend to soon reverse course, which it did.
We expect price-appreciation growth to continue to slow. More supply will come to market, because more sellers will see slowing price growth and will want to capture gains. In turn, their actions will further slow price-appreciation growth.
That said, if anyone is waiting for slow-to-no price growth, he or she needs to keep in mind that any money saved on a purchase price could easily be offset by higher financing costs.

Article courtesy of Patti Wilson of American Momentum Bank.

Monday, September 2, 2013

The End of Rising Home Prices? September 2, 2013


 
Keeping you updated on the market!
For the week of

September 2, 2013




MARKET RECAP
The End of Rising Home Prices?
When recent data is vetted, the answer appears “no.” Home prices will continue to rise.
The latest data from S&P/Case-Shiller show prices increased 0.9% month over month in its 20-city index in June. Year over year, Case-Shiller shows prices are up 12%. Meanwhile, data from Lender Processing Services show home prices were up 1.2% for June, which translates to an 8.4% year-over-year gain.
We frequently refer to price data from a number of providers, and you might have noticed that the numbers are never the same. We'll use Phoenix as an example. The latest data from the major data sources show year-over-year home-price gains for Phoenix, but the numbers differ.
S&P/Case-Shiller
FHFA
CoreLogic
LPS
FNC
Zillow
19.8%
21.2%
17.1%
16.6%
27.5%
22.0%
Time frame, geography measures, and data-gathering methodology are responsible for the differences: CoreLogic uses a three-month moving average. Case-Shiller's definition of a metropolitan is generally broader than the other data service providers' definition. Zillow excludes foreclosure resales, whereas LPS “reflects” price discounts for REO and short sales. FNC attempts to capture the “characteristics” of a home sale in its home price index.
The good news is that prices are up all the way around, no matter how they're measured.
That said, Case-Shiller's latest release did reveal incidences of slowing price appreciation. We're not terribly surprised; we've been saying double-digit annual price increases are unsustainable for the long haul. We wouldn't be surprised to see year-over-year home-price growth dip into the single digits by the end of the year.
That said, we don't believe home-price appreciation will be hindered by rising mortgage rates – as long as the economy improves. On that front, gross domestic product (GDP) growth was revised upward to a 2.5% annual rate for the second quarter. This is good news that points to stronger-than-expected growth for the third quarter. Strong GDP growth, in turn, frequently leads to stronger job growth.
Strong GDP growth will also lead to rising mortgage rates, which actually retreated this past week. Last week, we mentioned that the Federal Reserve is the primary driver of interest rates these day. This isn't to say that other factors don't matter. This past week, talk of a U.S. military strike against Syria was ramped up. In response, many investors scurried for the havens of Treasuries and mortgage-backed securities, thus sending their yield lower.
We don't believe concerns over Syria will be long lasting. Therefore, the reduction in lending rates is likely a temporary reprieve that potential borrowers should exploit.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Construction Spending
(July)
Tues., Sept. 3,
10:00 am, ET
0.2%
(Increase)
Important. Surging residential construction continues to drive overall construction spending.
Mortgage Applications
Wed., Sept. 4,
7:00 am, ET
None
Important. The respite in rising interest rates has helped lift purchase-application activity.
Federal Reserve Beige Book
Wed., Sept. 4,
2:00 pm, ET
None
Important. Credit markets will look for more signs of the timing and extent of Fed tapering.
Employment Situation
(August)
Fri., Sept. 6,
8:30 am, ET
Unemployment Rate: 7.4%
Payrolls: 165,000 (Increase)
Very Important. Job growth is a key variable in the Federal Reserve's decision to raise interest rates.

 

The Two-Percentage Point Spread
The word “taper” seems to be on everyone's lips these day. As we note above, the Federal Reserve holds the key to higher interest rates. Most market watchers are simply waiting for the Fed to cut back (or “taper”) its purchases of Treasury notes and bonds and mortgage-backed securities. The consensus belief is that when tapering begins, rates will rise.
That could be true. But then again, market's are anticipating entities. It's also possible that any interest-rate increases won't be very pronounced, because once tapering begins, its effects will already be built into lending rates.
The same market watchers are also speculating on how the Fed will tape: will it taper purchases of both Treasuries and mortgage-backed securities, or only taper Treasuries? If it tapers only Treasuries, it's possible that mortgage rates won't be effected, at least that's the prognosis we've heard.
We're not so sure that how tampering materializes matters, because Treasuries are benchmark instruments. The 10-year Treasury note, in particular, is very influential on the 30-year fixed-rate mortgage. As one goes, the other follows in lock-step.
The point we want to emphasis is that regardless of how the Fed tapers it will impact the mortgage market. Unfortunately, we simply don't know the magnitude of the impact.

Article courtesy of Patti Wilson W. J. B.
 

Monday, August 26, 2013

Mortgage update for the week of August 26, 2013


 
Keeping you updated on the market!
For the week of

August 26, 2013



MARKET RECAP
Expectations Theory Sways Markets
Existing-home sales soared to 5.39 million annualized units in July, far surpassing the consensus estimate for 5.12 million units. The NAR cited “panic” over rising interest rates for the surge in buying activity.
“ Panic” might be an overstatement. Expectations, more than anything, was the likely motivator. More consumers, shocked by the spike in lending rates that occurred two months ago, expect both interest rates and housing prices to push higher.
Therefore, it's understandable that buyers acted as they did. The past – at least the near-term past – is frequently prologue.
On the lending front, rates have moved to a higher plateau compared to the plateau they occupied earlier this year. This past week, mortgage rates moved notably higher again, as if they were attempting to reach an even higher plateau. Rates today are about where they were two years ago.
Rising rates have jarred memories: Everyone today now realizes rates don't move only down; they also move up.
A few years ago, it appeared home prices could move only down. Since then, price action continues to prove that's hardly the case.
The median price of an existing home rose to $213,500 in July, a 13.7% increase from July 2012. This marked the 17th-consecutive month where prices have increased year over year. As improbable as this might seem, the national median price is a mere 7.3% below the all-time high of $230,000 that existed seven years ago.
It can be dangerous to extrapolate a trend indefinitely; trees don't grow to the sky, submarines don't descend to the depths of the ocean. But trends can hold for a while. We expect both trends – higher mortgage rates and higher housing prices – to prevail into the relevant future.
The Federal Reserve assures us that mortgage rates will occupy a higher plateau. (We further explicate this subject below.) Home prices will remain at a higher plateau as well. Inventory remains tight, and buyer interest continues to expand.
Just as important, the composition of the housing market is as healthy as it has been in years: Foreclosures and short sales continue to drop as a percentage of overall sales. Concurrently, price appreciation continues to lift more owners above water.
Expectations point to less affordable housing in the future, so it's perfectly logical to act (buy) on those expectations today.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
S&P/Case-Shiller Home Price Index
(June)
Tues., Aug. 27,
9:00 am, ET
0.5%
(Monthly Increase)
Important. Home-price appreciation is a major positive that's lifting consumer confidence.
Mortgage Applications
Wed., Aug. 28,
7:00 am, ET
None
Important. Expectations of higher rates are driving purchase-application volume.
Pending Home Sales Index
(July)
Wed., Aug. 28,
10:00 am, ET
0.7%
(Increase)
Important. Increased supply and rising prices are spurring more sales activity.
Gross Domestic Product
(2nd quarter 2013)
Thurs., Aug. 29,
8:30 am, ET
2.4% (Annualized Growth)
Important. GDP growth is expected to be revised upward, though it remains sluggish .

 

It's All About the Federal Reserve
Until the recent past, interest rates were driven by the economy: recession or expansion, job growth, inflation, risk aversion, productivity, etc. These factors would converge to form an interest rate that best reflected consumers and investors expectations.
It's different today. The Federal Reserve is the overriding factor in lending markets. Everyone is trying to game the Fed's next move on quantitative easing. Specifically, everyone is attempting to forecast when the Fed will begin tapering its purchases of Treasury notes and bonds and mortgage-backed securities. The Fed's purchases – its demand – for these instruments is largely responsible for the low lending rates we've enjoyed over the past few years.
The chief reason mortgage rates moved so high so quickly in past months is that many market watchers expected the Fed to begin tapering next month. Markets, after all, are anticipating entities (they act on expectations), so mortgage rates naturally move higher on the prospect of higher rates.
Based on the minutes of the last meeting of Fed governors, the Fed is unlikely to begin tapering as early as September. Inflation remains low and job growth remains sluggish. We don't expect either to pick up soon, which is why we think tapering could be delayed until later in 2013, and possibly into 2014.
But as long as market participants are anticipating higher interest rates, there is a good chance rates will continue to rise. (Paradoxically, when the Fed actually begins tapering – when expectations become reality – rates could actually fall.)
Needless to say, this is confounding market, but it's still one in which we think it's more prudent to act today than to wait and anticipate tomorrow.

Article courtesy of Patti Wilson, W. J. Bradley. 

Monday, August 19, 2013

Mortgage Matters -Update for the week of August 19, 2013


 
Keeping you updated on the market!
For the week of

August 19, 2013



MARKET RECAP
Optimism Reigns, Tread Cautiously
 Homebuilders haven't felt this upbeat since the waning days of 2005. We know this because the NAHB/Wells Fargo Homebuilder Sentiment Index hit 59 this month, a number last seen nearly eight years ago.
Moreover, it appears unlikely optimism will fade anytime soon: Many homebuilders are reporting higher current sales and stronger pricing. Spirits are always buttressed when buyers are willing to enter the market when prices are rising.
On the existing-home side, the logjam of tight supply appears to be loosening. Nationally, the number of existing homes for sale remains 5% lower than the number that existed this time last year. Inventory, though, was up 1.4% in June. In many local markets inventory is being drawn in by persistent price appreciation. This is no surprise: rising prices always draw more supply to market.
Rising prices have also drawn more housing scrutiny. This, too, is no surprise. The closely followed S&P/Case-Shiller Home Price Index is up 12.1% year over year. Of course, real estate markets are local markets, and in many local markets gains far exceed the national numbers ( Las Vegas and Phoenix come ready to mind).
Double-digit average annual price increases are unsustainable over the long term. Price growth within the 2%-to-5% range is the norm. Therefore, we're not surprised to see growing speculation on the prospects of another housing bubble.
On that front, we're not terribly concerned. We don't think housing is even close to approaching the bubble that developed seven years ago. Much of the strong price gains we're seeing are off a severely depressed base (again Las Vegas and Phoenix come to mind).
When the bigger picture is brought into focus, prices nationally remain reasonable.
Since the housing bubble burst in 2007, people continually question whether housing is a safe investment? This is understandable: The perception before the bubble burst was that houses were always a safe investment.
It's important to keep in mind that safety, reward, and risk aren't imbedded in an asset class – houses, stocks, bond, etc. – they're embedded in time and price. A house purchased in 2000 was safe and offered a lot of reward with little risk. By 2007, the paradigm had reversed – houses were unsafe and risk was high. As a general rule, the longer the uptrend is sustained, the more risky an asset class becomes.
We liken today's housing market to the middle innings of a baseball: There is still more action (price gains) ahead. But there is also plenty of action already behind us, which is why when housing was skimming along the bottom (at the beginning of the game), we continually pounded the table to get in the game.

 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Mortgage Applications
Wed., Aug. 21,
7:00 am, ET
None
Important. Rising rates could stimulate higher purchase-loan activity.
Existing Home Sales
(July)
Wed., Aug. 21,
7:00 am, ET
5.12 Million (Annualized)
Important. Rising inventory is helping to lift sales volume.
Federal Reserve FOMC Minutes
Wed., Aug. 21,
2:00 pm, ET
None
Important. Hawkish commentary on low rates and bond purchases will push interest rates higher.
New Home Sales
(July)
Fri., Aug. 23,
10:00 am, ET
485,000 (Annualized)
Important. Sales are expected to ease in July, but the long-term trend remains on an up-sloping trajectory.

 

Pressure is Mounting
For the past six weeks, mortgage rates have been placid – trending in a very tight band. Next week, they could break out of the upper band. We say that because the 10-year U.S. Treasury note – a benchmark lending rate – has broken out to the upside. As the 10-year note goes, so, too, usually goes the 30-year fixed-rate mortgage.
Over the past few months, we've frequently opined that the days of the 3.5% 30-year loan that prevailed earlier this year were gone and were unlikely to return anytime soon. At the same time, we've opined that rates are primed to rise. We continue to hold these opinions to this day.
That said, we don't see mortgage rates moving materially higher in the short term. Economic growth remains anemic, and job growth continues to lag behind the Federal Reserve's target rate. Therefore, the institutional imperative supports keeping rates low.
Our assessment of the mortgage-rate environment points to mildly rising rates (perhaps five to 10 basis points). Longer-term – over the next year – the probabilities overwhelming point to rates moving higher, which is why we continue to say that the risk in this market resides in procrastination.

Article courtesy of Patti Wilson W.J. Bradley.