Home price appreciation slowing but still steady.

Keeping you updated on the market! For the week of October 28, 2013

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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.

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.

Mortgage Market Update - Now What?????

Keeping you updated on the market! For the week of October 7, 2013

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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.

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.