It has happend: Rising Home Prices and Rising Rates

Well it is happening!!  Due to improving economy, interest rates are on rise.  Improving sales with sellers not taking advantage of improving home prices has resulted in housing shortage.   Nationally, it is reported below that absorption rate(defined as average time for all homes to sell if current rate maintains) is only 4.9 months!

A healthy market is 6 month absorption.  Thus over all we have a better than normal market with fewer homes and rising interest rates.  

IT IS TIME TO ACT!!!

Keeping you updated on the market! For the week of  February 4, 2013 MARKET RECAP New homes are suffering from the same affliction as existing homes – a dearth of inventory. The supply of new homes stands at only 151,000 units. With so few homes to offer, sales have suffered, dropping 7.3% in December to an annual rate of 369,000 units. The percentage drop in new-home sales, though mildly discouraging, shouldn't be fretted over. Sales were actually revised up by 22,000 units in November, so the 7.3% drop is from a much higher base than originally reported. That said, at the current sales pace, inventory is still only 4.9 months. The upside is that tight supply nearly always leads to higher prices. That's the case today: the national median price for a new home increased 1.3% to $248,900 in December to post the highest median price in five years. On the existing-home front, the pending sales index fell 4.3% in December to pull the year-over-year comparison, which had been trending in the double digits, down to a plus 6.9%. Until more inventory avails itself, establishing an uptrend in existing-home sales will be difficult. The good news is that prices – new and existing – should continue to trend higher, which will eventually draw more inventory and more buyer interest into the market. In fact, home prices increased 0.6% in the S&P/Case-Shiller Home Price Index for November. The year-over-year increase is now over 5%, the largest percentage year-over-year price increase since 2006. The most encouraging news in the index is that gains were found in nearly all the metropolitan areas Case-Shiller covers. Economic growth should also trend higher in 2013. We say this despite gross domestic product posting a surprising 0.1% contraction in the fourth quarter of 2012. We not concerned, because fewer government expenditures were the cause of the shortfall. Less government spending isn't necessarily bad, because resources government spends are resources taken from the private sector. As for the private sector, we expect it to pick up the slack. Residential investment will likely lead the way, which is also good news. Because residential investment is a leading economic indicator and a strong force for economic growth, it appears very unlikely the economy will slip back into a recession. Indeed, it appears much more likely economic growth will accelerate through the year. As economic growth accelerates, we should expect interest rates to move higher. They already have. The 30-year fixed-rate mortgage rose to a four-month high this week. Market forces appear to be overriding the Federal Reserve's strategy to hold rates near the all-time lows set in late November. With the stock market moving higher, we expect more pressure for rates to rise. We say this because investors are growing increasing confident, and when they grow confident they pull money out of bonds and put it into stocks. This asset rotation pressures interest rates and yields to rise. Last week, we said that the market shouldn't fear higher interest rates, because higher rates are a sign the economy is improving. On the other hand, this also means the risk of holding out for lower rates will only increase. Economic Indicator Release Date and Time Consensus Estimate Analysis Factory Orders (December) Mon., Feb. 4, 10:00 am, ET 0.9% (Increase) Moderately Important. Low inventory points to rising business activity in coming months. Mortgage Applications Wed., Feb. 6, 7:00 am, ET None Important. Rising mortgage rates have stalled application activity, but the trend still remains higher. Productivity & Costs (4th Quarter 2012) Thurs., Feb. 7, 8:30 am, ET Productivity: 1.4% (Increase) Costs: 1.2% (Increase) Moderately Important. Rising productivity and higher utilization rates could lead to a pick up in hiring in the first quarter of 2013. Consumer Credit (December) Thurs., Feb. 7, 3:00 pm, ET $15 Billion (Increase) Important. The rising trend in credit use is reflective of rising economic activity. The Best Time Ever For the past year, we've been urging potential buyers to take the plunge. Low lending rates and a low-cost-basis on homes significantly raise the probability of entering a profitable transaction. We continue to urge buyers to take the plunge. We've also noted that the sin of procrastination means many of the better deals have been taken. Fortunately, there are still many good deals left. The market remains a buyer's market. We are not alone in our sentiment. The online financial Website Business Insider offers a detailed slide show that buttresses our argument. When interest rates, home affordability, wage growth, and the widening gap between rents and mortgage payments are aggregated, Business Insider opines convincingly there has never been a better time to buy a home. Seeing where the market has been over the past year and seeing where it is expected to go in the future, we'd be hard pressed to disagree with their opinion.