Tuesday, May 13, 2014

This is Terrific News.......Sort of. Keeping you updated on the market for the week of May 13, 2014.

This is Terrific News... Sort of
We've been pounding the table for job growth since, well, it's been quite a while now. The good news is that it appears our demands are being addressed. The economy is finally showing signs of trending higher.
We say that because April payrolls increased 288,000 , far exceeding economists' estimates. This 200,000-plus gain comes on top of the 203,000 jobs added in March and the 222,000 added in February. We've noted frequently in the past that the economy needs to continually add 200,000-or-more jobs each month to sustain economic growth. April's payroll report is surely welcomed news.
The April job gains were sufficient to drop the unemployment rate to 6.3%. This means the Federal Reserve will very likely continue with its planned tapering of quantitative easing (further removing support for mortgage rates). With the economy improving, QE is less needed.
With that said, a few clouds still linger on the horizon – labor participation being the grayest.
Ninety-two million people are out of the labor force and 9.8 million are still officially unemployed, according to the Bureau of Labor Statistics . These are high numbers, to be sure, but there is at least one mitigating factor: more baby boomers are retiring, thus leaving the work force for good. Still, the unemployment rate among younger adults remains elevated, and these people are key drivers of the entry-level housing market.
Interestingly, mortgage rates across most product offerings eased since the latest job numbers were released last Friday. Usually such bullish economic news pressures rates to rise. That didn't occur. A subsequent speech by Federal Reserve Chair Janet Yellen was key to rates remaining subdued. Basically, Ms Yellen said the Fed will continue to maintain an “accommodating” monetary policy for the foreseeable future.
Today, mortgage rates are not only subdued, they're positively languid, residing at levels we haven't seen in six months. These lower rates haven't exactly ignited a refinance flurry, but at least purchase activity is showing some real signs of life.
Indeed, purchase applications surged 9% in the May 2 week, lifting the percentage of purchase activity to 51% of all activity. This marks the first time since 2009 that purchases have exceeded refinances.
Lest our enthusiasm run too wild, we need to keep in mind that purchase applications are still 16% lower than they were a year ago. Then again, it's also worth keeping in mind that the Mortgage Bankers Association tends to understate purchase activity because small lenders are underrepresented in the MBA's purchase index.
The bottom line is that we like the way things are trending, and we're looking forward to more home sales and rising purchase-mortgage activity in coming months.


Date and Time
Mortgage Applications
Wed., May 14,
7:00 am, ET
Important. A strong surge in purchase activity bodes will for the housing outlook.
Consumer Price Index
Thurs., May 15,
8:30 am, ET
0.2% (Increase)
Moderately Important. Consumer-price inflation won't move interest rates.
Homebuilder Index
Thurs., May 15,
10:00 am, ET
49 Index
Important. Optimism should continue to rise on improving activity.
Housing Starts
Fri., May 16,
8:30 am, ET
985,000 (Annualized)
Important. The important single-family segment is expected to drive overall growth.


Why the Housing Market Is in Better Shape Than We Think
We have to confess to being a little dour over the past couple months. Perhaps we were influenced by the surfeit of hand-wringing articles lamenting the problems with housing.

Yes, existing home sales are down and inventory is tight, but a chief reason sales are down is the decline in distressed sales – and that's a good thing. Fewer short sales and fewer foreclosures will keep prices moving on an upward trajectory, which, in turn, will lift the number of owners with positive equity.
At the same time, we've seen tight credit standards gradually become somewhat less tight. Competition, which is always a good thing, is forcing lenders to rethink underwriting policies. This is good for the market. Credit might still be tight, but it can only go in one direction – toward more accommodation, and that's where we are trending.

Demographics also favor more housing and lending activity. The fact is the population continues to grow, so demand for housing will have to rise. At the same time, housing starts – below 1 million annually – continue to trail the historical average of 1.5 million.
We mentioned last week that we remain unconvinced that we're destined to become a nation of home renters. In our travels and experiences, we continually find that people want pride of ownership, stable housing payments (rents continually rise), an appreciating asset, and eventual freedom from monthly payments. They also want mobility, which more of them will regain as the housing recovery moves along.
In other words, yeah, we like where things are going, and we are eager to get there.

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