Tuesday, July 30, 2013

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

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.


Date and Time
Pending Home Sales Index
Mon., July 29,
10:00 am, ET
Important. Underlying economic strength should lead to sales gains over the next few months.
Mortgage Applications
Wed., July 31,
7:00 am, ET
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
Important. Dissent on quantitative has risen in recent months. Further dissent will pressure interest rates to rise.
Construction Spending
Thurs., Aug. 1,
10:00 am, ET
Important. Gains in residential construction spending is a plus for economic growth.
Employment Situation
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.

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