Tuesday, April 16, 2013

Mortgage Rates Remain LOW...Dropped Again

The news has been very tough to hear in the past 24 hours.  The horror in Boston can not go overlooked!
My prayers with all those who are hurt, loss their lives or were otherwise traumatized by this event as well as all your families!

Yet, life will move on as American Resiliency and Courage along with Faith in a Living Savior demands.
Thus, this update for your future.

Keeping you updated on the market! For the week of 
April 15, 2013

Mortgage Rates Continue to Accommodate
A month or so ago, we thought rising mortgage rates (or at least rates maintaining a higher plateau) would be the norm.
So much for prognostications: Mortgage rates dropped again this week; this time, on a disappointing jobs report, which showed the economy in March created far fewer jobs than most economists had expected. Jobs reflect economic growth, and if the economy isn't growing neither is loan demand... and neither will interest rates.
The Federal Reserve remains determined to keep mortgage rates low for the relevant future. Minutes of the most recent meeting of the Fed governors reveals most still support the on-going policy of purchasing $85 billion in longer-term Treasury and mortgage-backed securities each month.
The Fed's demand for these securities helps keep mortgage rates low because private buyers know there is a ready market for these securities, thus mitigating interest-rate risk – the risk of capital loss should interest rates rise.
Of course, rates are only one aspect of a lending market; quality of underwriting is another. The quality of mortgage loans over the past few years have undoubtedly gotten better. Moreover, the market as a whole, with government support, has improved markedly.
For instance, overall foreclosure and delinquency rates continue to improve. For this, we can look to stricter underwriting standards.
Of course, stricter underwriting standards can be a doubled-edged sword, especially if they are too strict. It can be argued they are. Most of us have had to deal with (particularly in the conventional side of the market) a potential borrower who was denied funding but was a reasonable credit risk.
The regulatory environment obviously impacts underwriting standards and loan-grant decisions. This environment certainly lists toward safety (perhaps too much), but at least a couple Federal Reserve officials are voicing support for less restrictive regulations.
Despite tighter lending, housing continues to be the one bright spot in the economy. Prices remain on an upward trajectory, as does home-builder activity. We don't expect these trends to change.
We say that because home prices remain far below their peak. In 2005, the median price of a new home was nearly $230,000. Today, it's closer to $175,000. What's more, homes are not only cheaper on an absolute basis, they're cheaper relatively speaking: Back in 2005, a new home went for 4.2 times the median buyer's income. Today, the ratio is down to 3.25 times.
There is still plenty of room for housing to run. Over the past 50 years, housing starts have averaged 1.46 million per month. In early 2006, the pace was more than 2.2 million. Today, housing starts run at a rate of less than 1 million. Looking ahead, we expect housing starts will remain an important economic propellant.

Date and Time
Home Builder Index
Mon., April 15,
10:00 am, ET
45 Index
Important. Builders remain optimistic, but tight credit is weighing on the sector.
Consumer Price Index
Tues., April 16,
8:30 am, ET
All Goods: 0.0%
Core: 0.2% (Increase)
Important. Consumer-price inflation remains within the Federal Reserve's preferred range.
Housing Starts
Tues., April 16,
8:30 am, ET
930,000 (Annualized)
Important. Starts have been volatile in recent months, but the trend remains up.
Mortgage Applications
Wed., April 17,
7:00 am, ET
Important. Conventional funding will continue to gain ground due to rising government MIP costs.
Leading Indicators
Thurs., April 18,
10:00 am, ET
Important. The indicators point to lower investment expectations, which could weigh on economic growth.

Sputtering and Puttering
It's encouraging to see more people acknowledge the housing recovery. Fannie Mae, in a recent housing survey, found that 48% of respondents believe home prices will rise in the next 12 months, while the percentage that expects prices to drop remains at a survey low 10%.
In addition, most of the respondents Fannie Mae's surveyed had an overall positive view of housing. Sixty-four percent – a high percentage – even said they would buy a home if they were to move in the next three years. (Let's hope they do.)
Though bullish on housing, these same respondents were much less bullish on the economy and their personal finances. Only 20% of respondents said their household income is higher today than it was a year ago. More discouraging, the percentage of respondents who believe their personal financial situation will worsen over the next year rose by 4 percentage points to 21%.
There's a dichotomy at work: housing doing well, many other segments doing not so well. We are unlikely to get a full-fledged housing recovery until the other segments of the economy start doing well.
For the other economic segments to do well, we need less uncertainty: That means clarification and consistency on regulations, taxes, and government spending. Until that occurs, much of the economy will continue to sputter and putter along, and this will eventually drag on the pace of the housing recovery.

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