Keeping you updated on the market! For the week of July 29, 2013.

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MARKET RECAP More of the Same With Mortgage Rates For the past couple weeks, we've been speculating that mortgage rates have likely plateaued and were unlikely to push much higher. Our rationale was similar to that of many market participants: The threat of the Federal Reserve tapering from quantitative easing (money pumping and low interest rates) was overstated. A meaningful spike or dip in rates could be in waiting next Friday with the release of the July employment report. Job growth significantly higher than the consensus estimate could lead to a rate spike; disappointing job growth will likely drop rates (though nowhere near to the March lows). Job growth, a benefit of economic growth, means housing will continue to improve, even if interest rates rise. Job growth (and to a lesser extent wage growth) is key: More people working means more people who can afford a home and financing costs. For now, though, housing looks good. We say that even though sales of existing homes came in below expectations for June. The good news is market composition is healthier. Only 15% of sales were related to distressed properties – the lowest reading since the number was tracked in 2008. At the same time, the market is shifting more toward owner-occupied buyers and away from investors, who comprised only 17% of purchases for June. Prices also continue to trend higher. The national median price for an existing home rose a strong 5.5%, lifting the national number to $214,200. Rising prices, in turn, will further lift inventory, which remains tight and is limiting sales in many local markets. As for new homes, they're moving in the opposite direction: sales are up, but prices are down. New home sales, at 497,000 units on an annualized rate, handily beat the consensus estimate for 481,000 units. The pace of new-home sales is on a strong two-year run, and is approaching levels unseen since 2008. We were equally encouraged to see that sales maintained their strength in May and June despite the spike in mortgage rates. It's possible that new home sales maintained their momentum on price discounting. For June, the national median price of a new home was down 5% to $249,700. Year over year, though, the price trend remains up, with year-over-years gains approaching 10%. Given that supply remains tight, at 3.9 months supply at the current sales rate, homebuilders should be able to maintain pricing power into the foreseeable future.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Pending Home Sales Index (June)	Mon., July 29, 10:00 am, ET	5.0% (Increase)	Important. Underlying economic strength should lead to sales gains over the next few months.
Mortgage Applications	Wed., July 31, 7:00 am, ET	None	Important. Purchase applications need to gain momentum to support home-sales and price gains.
Federal Reserve FOMC Meeting Announcement	Wed., July 31, 2:00 pm, ET	None	Important. Dissent on quantitative has risen in recent months. Further dissent will pressure interest rates to rise.
Construction Spending (June)	Thurs., Aug. 1, 10:00 am, ET	6.0% (Increase)	Important. Gains in residential construction spending is a plus for economic growth.
Employment Situation (July)	Fri., Aug. 2, 8:30 am, ET	Unemployment Rate: 7.5% Payrolls:188,000 (Increase)	Very Important. Monthly payroll gains averaging close to 200,000 will push the Federal Reserve to taper quantitative easing.

 

Flexibility is Becoming the New Norm One of the more recurring laments over the past few years has centered on tight, rigid lending. We've all known someone who should have received financing, but didn't because lenders were too risk averse. One upside of an improving market is a willingness to accept more risk, and we are seeing more risk acceptance in the mortgage market. Down payment requirements are easing, while fewer borrowers are being turned down on credit scores alone. Piggyback loans have also resurfaced, as have stated-income loans. On the latter, far too many self-employed people have been excluded from the mortgage market. Fortunately, that's changing, which means more people are added to the pool of home sellers and buyers. More participants lead to more robust and more stable markets. Even subprime loans are coming back to serve a market of borrowers who have healthy incomes but who suffered a short sale or credit hit when the market imploded in 2008 and 2009. To be sure, we all want a more accommodating mortgage-lending market. The good news is we are making progress in that direction. Article courtesy of Patti Wilson, W.J.Bradley.

Update on FLorida Mortgages July 22, 2013.

Keeping you updated on the market! For the week of July 22, 2013

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MARKET RECAP Fed Chairman Settles Mortgage Markets After sprinting a full percentage higher over the past two months, the 30-year fixed-rate mortgage has finally taken a breather. Last week, the bellwether loan was staid, holding near the prior week's rate. This week, the rate actually fell a few basis points. Lending markets have finally settled down, and for this we can thank Federal Reserve Chairman Ben Bernanke, who assured credit-market participants the Fed is unlikely to taper QE3 in the near future. This means the Fed will continue to purchase long-term U.S. Treasuries and mortgage-backed securities. In short, mortgage rates have likely plateaued for the near future, which gives frantic buyers some breathing room. The interesting lesson in the mortgage-rate surge is that it failed to materially impact the purchase market. Indeed, the four-week purchase-application trend held steady. What's more, the latest data from the Mortgage Bankers Association show purchase applications actually rose 1% last week. Purchase applications are obviously related to home sales and building activity. On the latter, there's concern rising rates could translate into falling activity because of falling consumer demand. The latest data on housing starts, released Wednesday, raised a few eyebrows, and a few concerns. Housing starts were down significantly, dropping 9.9% to 836,000 units on an annualized basis in June. After the news was released, we ran across a number of comments forecasting the end of the housing recovery. Upon closer inspection, though, it appears housing's imminent demise was highly exaggerated. We say that because the drop in starts was lead by the smaller and more volatile multifamily component, which declined 26.2% in June after rising 28.2% in May. In contrast, the larger and more stable single-family component slipped a modest 0.8% for the month after rising 0.5% in May. It's informative to consider the longer-term starts trend; by this measure, the residential construction industry looks quite healthy. Over the first   half of 2013, multifamily starts are up nearly 34% from the same year-ago period, while single family starts are up 20%. These are meaningful increases in activity and tell us we've come a long way in a short time. Moreover, there is plenty of room left to run. Starts remain low when viewed from a historical perspective. From 1959 through 2000, roughly 1.5 million housing units were started annually. (And keep in, the population was meaningful smaller back then.) So, yes, we've come a long way on residential construction, but we still have long way to go. This suggests that housing will remain healthy and will remain a key economic driver for at least the next couple years. And even if mortgages continue to climb, we think that's unlikely to change.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Existing Home Sales (June)	Mon., July 22, 10:00 am, ET	5.25 Million (Annualized)	Important. More supply coming to market will lead to higher sales volume in coming months.
FHFA House Price Index (May)	Tues., July 23, 9:00 am, ET	0.5% (Increase)	Moderately Important. Home prices will continue to post gains across most local markets.
Mortgage Applications	Wed., July 24, 7:00 am, ET	None	Important. Purchase activity should show noticeable improvement thanks to stabilizing rates.
Durable Goods Orders (June)	Thurs., July 25, 8:30 am, ET	1.0% (Increase)	Moderately Important. Rising orders are reflective of rising consumer confidence.

 

Don't Look Back, Look Ahead Anchoring can be a difficult psychological trait to overcome. By that, we mean the inclination to believe that the past will either return or be will maintained in the future. Anchoring occurs frequently in the investment world. Investors buy a stock, see it's share price cut in halve, and yet despite poor prospects, they'll continue to hold, believing that it's inevitable their purchase price will again prevail. We see the same phenomenon in the mortgage market. Many potential borrowers believe it's inevitable that mortgage rates will again hit multi-decade lows of a few months ago. Tomorrow will somehow present yesterday's opportunities. This isn't to say yesterday's prices can't return, but yesterday isn't today: the outlook and the variables influencing today's market are decidedly different. Today, we are looking at stronger economic growth and stronger residential construction across most of the United States. Neither variable bodes well for lower lending rates. The point we want to emphasis is to keep focused on the future, and the variables – Federal Reserve tapering, job growth, rising consumer spending, higher housing demand and construction – that will prevail in the future. With the future in mind, it's becoming increasingly difficult to make a case for a lower-rate lending environment.

Article courtesy of Patti Wilson, W.J.Bradley Bonita Beach FL.

Mortgage Matters July 15, 2013

Keeping you updated on the market! For the week of July 15, 2013

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MARKET RECAP Mortgage Rates Hit Two-Year High We know more than a few people who are smacking themselves on the forehead these days, frustrated they didn't take advantage of the mortgage rates that prevailed two months and 75-basis points ago. Frustration stems from holding out for another 25-basis point drop. You may know it by the popular idiom “penny wise, pound foolish:” Hope to save 25-basis points, but loose 75-basis points in the process. Of course, no one knows with certainty where mortgage rates are heading, but whenever a market has been in a sustained trend, and mortgage rates were in a sustained downward trend for years, the probability grows that each successive day will bring a reversal of that trend. (Economists refer to this phenomenon as Minsky's “Financial Instability Hypothesis.”) To be sure, mortgage lending rates are higher, but not unreasonably so. Today's rates still remain attractive from a historical perspective. The good news is that there have been a few positives associated with rising rates. Though they have slowed refinance activity considerably, they have prompted more homebuyers into action, for fear rates could go higher still. We're not surprised; we've noted many times in the past that anticipation rules people's actions. With all the focus on mortgage rates over the past few weeks, it's worth noting that the housing market nationally is as healthy as it has been in years. CoreLogic's latest data on distressed properties reveal just how healthier the market has become. The inventory of properties in a state of foreclosure fell 29% year over year in May, which means fewer than 2.3 million mortgages – or 5.6% of home loans – remain seriously delinquent. This is the lowest level since December 2008. At the same time, Lender Processing Services data show the number of borrowers who remain underwater fell 47% from the first quarter of 2012 to the first quarter of 2013, which means the percentage of underwater borrowers has dropped to 14.7% of all active loans. This, too, is a multi-year low. Rising home prices and rising consumer demand for homes will continue to reduce distressed inventory and lift more homeowners into positive equity. When stronger job growth is factored in, we're looking at a very healthy outlook for both existing- and new-home sales over the next 12 months. With that said, many pundits remain focused on rising mortgage rates, but we believe unduly so. As long as the economy continues to improve and create jobs, the housing market will continue to improve regardless if rates rise. We were in the minority a year ago when we said mortgage rates were no longer the key variable in the recovery. It appears we were right on that account.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Consumer Price Index (June)	Tues., July 16, 8:30 am, ET	All Goods: 0.3% (Increase) Core: 0.2% (Increase)	Important. The CPI remains below the Federal Reserve's trigger rate of 2.5% and should not impact interest rates.
Homebuilders' Index (July)	Tues., July 16, 10:00 am, ET	53 Index	Important. Homebuilder sentiment points to stronger starts and higher new-home sales through 2013.
Mortgage Applications	Wed., July 17, 7:00 am, ET	None	Important. Rising rates continue to slow refinances, but the four-week purchase trend remains stable.
Housing Starts (June)	Wed., July 17, 8:30 am, ET	954,000 Units (Annualized)	Important. Housing is once again becoming an important driver of economic growth.

 

Job Growth and Interest Rates Last week, we mentioned that Federal Reserve monetary policy is, in essence, closely tethered to job growth: The Fed won't reign in loose monetary policy and low interest rates until the unemployment rate is around 6.5%. The problem, as we noted, is that the unemployment rate is a moving target. Yes, unexpectedly strong job growth can occur, as what occurred in June, with payroll growth hitting 195,000 for the month, roughly 25,000 higher than most estimates. At the same time, unemployment held steady at 7.6% because more people have entered (or re-entered) the job market. So it would appear the Fed would be firmly committed to holding interest rates low for the foreseeable future until 6.5% unemployment is achieved. It's becoming more likely that's not the case. The minutes from the latest meeting of Federal Reserve policymakers show that half want to wind down quantitative easing (money printing, low interest rates) by the end of the year. Given the unimpeded rise in interest rates over the past two months, it's become obvious many credit-market participants are expecting the Fed to wind down sooner than later. The point we need to emphasize is that waiting for 3.5% 30-year fixed-rate mortgages will likely mean waiting for quite a while. At this point, 5% is the more likely future rate, which makes today's rates, in the mid-4% range, look attractive in comparison. Article courtesy of Patti Wilson of W.J. Bradley.