Thursday, January 3, 2013

Could the News be Any Better??

Hallelujah!!!   The Congress got together for at least a partial deal!!  You would think it was time to celebrate but there is more to do on the debt side.   Call your Congressman and Senator!!!

And the Real Estate News??  It only keeps coming!!!   As reported previously and echoed again in Jim Belote's Mortgage Matters, the Housing Market is coming back!!  More good news.

With the sense of calm that will occur in the market due to the recent compromise in Congress, sellers should feel very confident that the market improvements will continue.  And buyers, you best run!!  The prices will only continue to firm and, as noted in the Mortgage Matters, interest rates are projected to rise over time.  No one can tell you the exact time when the rates could move up.

Yet do you want to wait to get the double whammy of higher prices and higher rates???

Keeping you updated on the market! For the week of 
December 31, 2012

Last week, we sang hosannas for home builders and new-home sales. This week, existing home-sales get their turn.

We praise existing homes because sales have taken a significant turn for the better. Late last week, existing-home sales posted at an annualized rate of 5.04 million units for November – a 5.9% increase over October. The pace of existing-home sales has risen to the point they are on par with the federal-tax-credit days in the spring of 2010.

The good news is the market is much healthier today compared to 2010. Back then, we were skeptical that tax credits would sustain existing home sales. Our view was that the credits were simply pulling sales in from future demand, while aggregate demand remained low.

This time is different. We expect sales to continue to trend higher. The housing market is more robust today than it was in 2010. For one, distress properties are becoming less of a factor. For November, distressed properties accounted for 22% of existing-home sales, down from 24% in October. What's more, that percentage has been trending down for much of 2012.

Supply has been an issue, and a mixed blessing. Current inventory of existing homes is at a multi-year low of 4.8 months. The number of existing homes on the market, 2.03 million, is retarding sales-volume growth. On the other hand, low supply is helping prices. The national medium price of an existing home is up to $180,600, a 10.1% increase over the median price this time last year.

All in all, the latest data show that housing – new and existing – is increasingly taking leadership for economic growth. In other words, the world is finely returning to some sense of normalcy.
Normalcy might not be the word we'd use to describe mortgage lending. Yes, rates continue to skim along multi-decade lows; that is, when they are not setting new multi-decade lows.

But this is an unusual lending market. Rates are low, but risk aversion remains high (particularly among regulators). The Federal Reserve is doing everything within its power – by purchasing mortgage-backed securities and long-term Treasury notes – to hold interest rates low. This is an unprecedented move by the Fed.

 To be sure, the Fed's efforts have worked, but it's worth keeping in mind that the events of today are an aberration. A more normal lending environment would consist of higher-rate 30-year mortgages. From an investor's standpoint, the rate today barely compensates for inflation and doesn't compensate for risk and the time value of money.

The point we want to emphasis is that the housing market has returned to normal; we think that it's a matter of time (which isn't too far into the future) when mortgage lending returns to normal too.
Date and Time
Mortgage Applications
Wed., Jan. 2,
7:00 am, ET
Important. Markets expect the rising trend in purchase applications to continue into 2013.
Construction Spending
Wed., Jan. 2,
10:00 am, ET
0.1% (Increase)
Important. The residential sector is fueling gains in overall construction spending.
Federal Reserve FOMC Minutes
Wed., Jan. 2,
2:00 pm, ET
Moderately Important. The Fed minutes will likely report moderate, but sustained, economic growth.
Employment Situation
Fri., Jan 4,
8:30 am, ET
Unemployment Rate: 7.8%
Payrolls: 140,000 (Increase)
Very Important. Accelerating job growth will make it more difficult for the Fed to maintain its low-interest-rate policies.
A Look Back and a Look Ahead
It appears we were fairly accurate in our predictions for 2012. This time last year we predicted that home sales volumes would continue to improve. We said the same for pricing. We even expected prices in the sand & shore states to lead the rebound. That's been the case (even Las Vegas is rebounding).

One reason we thought 2012 would be a strong year for housing is shadow inventory would be less of an issue than many pundits were ominously projecting. Our rationale was simple: What's known doesn't roil markets; it's the unknown that roils markets. The problems associated with shadow inventory are well-known and well-vetted. Markets are masters at dealing with what's known.

Now, we said “fairly” accurate, not completely accurate. Our prediction on mortgage rates was wrong. We expected higher lending rates in December 2012 compared to December 2011. That wasn't the case. In our defense, we didn't expect the Federal Reserve to intervene in the mortgage market to the extent it has.

For 2013, we are doubling down: Existing-home and new-home sales will continue to improve, as will overall pricing. Home starts will also pick up pace throughout the year. As for shadow inventory, it will become even less of an issue than it is today.

We're also doubling down on mortgage rates. We see higher rates this time next year. We say that because the Federal Reserve's interventionist policies are becoming less effective. After the Fed announced it would double its purchases of longer-term notes and bonds, the yield on the 10-year Treasury actually increased 20 basis points. This suggests to us markets are becoming more concerned with inflation.

So that's our call for 2013. Have a safe and happy New Year.
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