Saturday, January 26, 2013

Could we hear any more good news about the Mortgage and Real Estate Market??   Jim Belote's Mortgage Matters again talks about the improving market...this has been the trend for the past 6 month.   No doubt that many home owners and renters should be very confident that their investment in present real estate or buying in the future will be a smart move.

With the rally in the stock market in the past three months, the investment community continues to vote its confidence that we have turned a corner in the broader market.   Greece and Spain seem past the cliff as well as fears over China's economy slowng...then there is the America Consumer Market power reasserting its unabated desire to buy.

Kee this up and we will hear that buyers are struggling to find a home as buyers will out strip sellers.   Will it be the next 6 months or in 2014????

Time will tell

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

2012 was the year of the price increase.

Indeed, the median price for existing homes rose to $180,800 in December, an 11.5% gain over the median price a year ago. Prices rose steadily through 2012 on increased demand and reduced supply, which has fallen to 4.4 months at the current sales rate.

Low supply, though great for buttressing prices, is impeding sales-volume growth. Existing home sales posted at 4.94 million units on an annualized rate in December, which was below the consensus estimate for 5.09 million units.

That said, rising homes prices are still an overall benefit. Rising prices are shifting more home owners to a positive-equity position. This should help spur inventory growth, as more owners interested in selling won't be constrained by the prospect of bringing money to the table.

This rising equity offers an additional benefit: It raises the “wealth effect.” Home owners naturally feel more optimistic when they're not burdened by being underwater on their most important asset – their home. A rising wealth effect spurs additional spending and investing, which leads to more economic growth.

Additional investment is particularly important. Many economists focus on consumer spending, believing it's the key driver of economic growth. Spending is important, to be sure, but investment is the real driver, because production must precede consumption. In other words, you must produce to consume.

We see a lot of potential in residential investment, especially in the important single-family home sector. Over the past 50 years, single-family residential investment has averaged 2.5% of gross domestic product. We are far below that level today. This suggests to us that the market can support much higher levels of investment.

We are further encouraged by the trend in sales composition.
Many markets across the country have seen double-digit year-over-year drops in distressed sales as a percentage of total sales: Phoenix has seen a 32% drop; Colorado, a 29% drop; South Florida, a 14% drop; and Las Vegas (possibly the hardest hit bubble market), a 24% drop. If this trend continues, and we expect it will, residential real estate investment will move closer to regaining its rightful position as a primary economic driver.

As for mortgage rates, they haven't been trending lower or higher. The way financial markets have been performing lately, we don't see much impetus for rates to go lower. The economy is expected to pick up pace this year, and this is reflected in the higher yield on the 10-year Treasury note.

We might sound like a broken record on this point, but it's worth repeating: We simply see little reward (and more risk) in waiting to buy or refinance a home in this stage of the recovery.

Date and Time
Pending Home Sales Index
Mon., Jan. 28,
10:00 am, ET
Important. Low housing inventory continues to impede higher sales growth.
Mortgage Applications
Wed., Jan. 30,
7:00 am, ET
Important. Purchase application volume hit a 2.5-year high, which points to stronger home sales.
Federal Reserve FOMC Meeting
Wed., Jan. 30,
2:15 pm, ET
Fed Funds Rate: 0.0% to 0.25%
Important. Improving economic growth could persuade more Fed governors to reconsider the Fed's low-rate policies.
Employment Situation
Fri., Feb. 1,
8:30 am, ET
Unemployment Rate: 7.8%
Payrolls: 168,000 (Increase)
Very Important. Rising job growth will pressure interest rates to move higher.
Construction Spending
Fri., Feb. 1,
10:00 am, ET
0.6% (Increase)
Important. Residential spending is becoming an important variable in economic growth.

Don't Fear Higher Rates
We appear to hold the minority opinion on mortgage rates: Most market watchers believe they remain an important variable in sustaining both the housing and the economic recovery.

A few years ago, lower rates were an indispensable variable. Many households had mortgages three or four percentage points above today's rates. The savings realized by refinancing or purchasing a home at a lower rate could amount to hundreds of dollars each month. This was especially important to household cash flow at a time when the economy was mired in a recession.

But the fact is that most everyone will have taken advantage of today's historically low rates by the end of the year. After each refinance, the marginal economic benefit drops. In other words, the impact of lower rates has diminished.

Here's another consideration: Rising rates will likely be accompanied by greater economic growth. When we go back to the 1990s, mortgage rates were 300 or 400 hundred basis points higher than they are today, and the housing market performed fine. The key distinction is the 1990s were marked by strong economic growth, which meant more people were able to service a higher borrowing rate and a higher home price.

The point we want to emphasize is that higher mortgage rates won't stall the housing recovery if they are accompanied with economic growth, and that will likely be the only way rates will rise. This is why we say higher mortgage rates are nothing to fear, and if they are accompanied by higher economic growth, should actually be embraced.

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