Monday, March 11, 2013

Tick Tock Tick Tock Time Running Out

Jim Belote's Mortgage Matters is singing just another song out of the same hymn book!!

Though mortgage applications(what mortgage officers watch) are volatile due to fewer refinances, the housing market continues to hum.

As I believe we will hear Jim and other mortgage watchers share in the coming weeks and months, no longer should you wait for lower rates.  All the signals point to higher rates!

Including the Stock Market rising value.   

Though always a bit lengthy, Jim's Mortgage Matters is a good read to stay on top of those rates.

Keeping you updated on the market! For the week of 
March 11, 2013

Mortgage application activity has been volatile this year, and the recent past proved no different: both refinance and purchase application activity surged nearly 15% in the latest reported week.

That said, the increased activity had little impact on mortgage rates, which have been quiet after falling palpably a couple weeks back. Borrowers are obviously taking advantage of a good deal, and rationally so.

We'd like to see the trend in mortgage activity hold, particularly in purchase loans. This would bode well for the home sales outlook. We've been advocating that prospective home buyers use leverage (mortgages) in a market where home prices are rising. Leverage increases returns in such an environment. At the same time, it frees capital for other uses.

Improvements can be found in other areas of the mortgage market as well. Delinquencies, for instance, which are trending lower. Lender Processing Services reports that delinquencies are down to 7.03% of all mortgages, a marked improvement from the 7.17% that prevailed in December and the 7.67% that prevailed in January 2012.

The falling trend in delinquencies is a by-product of improved job creation. More mortgage holders working means more mortgage holders are able to service their loans. We expect both trends – rising job creation and better mortgage servicing – to continue through 2013.

Pricing is another trend we expect to hold through the year. That is, we expect home prices to continue to trend higher. On that front, the data continue to support our expectations.

CoreLogic's latest home-price data show home prices nationwide increased 9.7% year-over-year in January, which represents the biggest increase since April 2006. This also marks the 11th-consecutive monthly increase in home prices nationally.

We see no reason for prices to backslide. First, distressed inventory continues to be reduced in an orderly manner. Fewer homes are queuing into the foreclosure process, and investor interest remains robust (and very robust among institutional firms).

Second, inventory remains lows, and that's highly unlikely to change. We have entered into what appears to be a self-fulfilling expectations market: Potential home sellers expect prices to rise, so they withhold their home from the market. This keeps inventory low. Buyers, in turn, are forced to bid against each other on reduced inventory. This leads to price increases.

The good news is that affordability remains high. So even though prices are rising, homes remain within the wheelhouse of a rising level of potential buyers.

In short, the Goldilocks market of low interest rates, low (but rising) home prices remains. How long it will remain is anyone's guess. We do know, though, it won't remain in perpetuity.

Date and Time
Mortgage Applications
Wed., March 13,
7:00 am, ET
Important. Purchase activity surges, which portends strong buyer interest for the spring selling season.
Retail Sales
Wed., March 13,
8:30 am, ET
Important. Spending is trending higher on rising consumer wealth.
Producer Prices
Thurs., March 14,
8:30 am, ET
All Goods: 0.6% (Increase)
Core: 0.2% (Increase)
Moderately Important. Producer prices remain low at the core level and are noninflationary.
Consumer Price Index
Fri. March 15,
8:30 am, ET
All Goods: 0.5% (Increase)
Core: 0.2% (Increase)
Important. The trend in consumer prices remain within Federal Reserve guidelines and won't impact interest rates.

What's the Stock Market Got to Do With It?

The stock market has been going like gangbusters since the beginning of the year. In fact, stocks are now trading at a new all-time high.

A rising stock market will impact the housing and mortgage markets. We say that because rising stock prices impact household wealth. A rising stock prices (combined with rising home prices) have allowed Americans to regain the $16 trillion in wealth they lost during the last recession. In fact, economists calculate that net worth has topped the pre-recession peak of $67.3 trillion.
When people feel wealthier they loosen the purse strings, especially for high-valuer items like homes. Therefore, we expect more people will be trading up this year, which is yet another reason we don't expect home prices to backslide.

The stock market also tends to perpetuate its own trend: Downward momentum tends to lead to more selling and lower prices. The reverse is also true. Upward momentum tends to lead to more buying and rising stock prices.

More money flowing into stocks will mean more money flowing out of bonds. Rising stock prices also tend to portend rising economic growth. This means the pressure for lending rates – including mortgage rates – to rise will likely increase.

We've said many times in the recent past that the risk of holding out for lower mortgage rates is on the rise. The surge in stock market prices provides us another reason to urge clients not to procrastinate. Sure, it's a tune we've been singing for a few months now, but only because it's so popular and so true.

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