Thursday, October 31, 2013

Home price appreciation slowing but still steady.

Keeping you updated on the market!
For the week of

October 28, 2013

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.'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.


Date and Time
Pending Home Sales Index
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
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
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.

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