Tuesday, May 28, 2013

Mortage Matters: Housing Market Shaping Up

Sometimes, it is best to allow people to speak and to share great insights.  I find this so true with Jim Belote's Mortgage Matters.

As always with great input on mortgage rates and changes on the housing market which support what I have blogged recently...imagine that.

Yet, the summary statement in this article sums it up quite well:

In short, the housing market is shaping up nicely as we head into the summer selling season. We expect sales to improve materially as the summer progresses.

Nice, huh???

Believe it!!  Now is the time to act whether buying or selling!
What are your plans in 2013??

Keeping you updated on the market! For the week of 
May 27, 2013

Three weeks and three-consecutive mortgage-rate increases. That's the lead story on the financing-front of housing. The rate on the 30-year fixed-rate loan is up over 20 basis points nationally based on Bankrate.com's survey of mortgage lenders.

In fact, rates are up to levels last seen in late-March and early-April.
There are a couple of variables at work in the mortgage market. For one, the economy and job growth have shown signs of picking up pace over the past month. More economic growth and more job growth means more loan demand, which pressures interest rates to rise.

More recently, speculation over the Federal Reserve and quantitative easing have pushed rates higher. Specifically, investors and speculators believe it's more likely that the latest round of quantitative easing could end sooner than later. The Fed itself has suggested as much: Chairman Ben Bernanke, speaking to Congress this week, didn't rule out the possibility of tapering the latest round of quantitative easing (QE3) by Labor Day if the labor market continues to improve.

Quantitative easing is simply the Federal Reserve injecting money into the banking system by purchasing U.S. Treasury notes and bonds and mortgage-backed securities. The Fed purchases these instruments by creating new money, which it credits to banks' Fed account when the banks sell the instruments to the Fed.

Lately, the Fed has been purchasing theses instruments at the rate of $85 billion per month. The purchases create demand, which, in turn, reduces yield to produce the record-low mortgage rates we've experienced in the past year.

To be sure, Labor Day isn't set in stone, and the Fed is still concerned the labor market could backslide, but it's becoming more apparent quantitative easing won't go on indefinitely. This means a floor has been placed under mortgage rates, so it's become more likely that rates have gone as low as they will go (sans an unseen economic catastrophe).

If housing continues to pick up pace, the Fed will have even more reason to back away from quantitative easing. Housing appears to be picking up pace.

Sales of existing homes increased 0.6% to an annual rate of 4.97 millions units for April. Sales of single-family homes were particularly robust, increasing 1.2% for the month. Existing-home prices also improved strongly. The median price of an existing home increased 4.8% to $192,800 in April – the highest price of the recovery.

We've frequently mentioned that rising prices spur more supply to come to market. That's exactly what's happening. An additional 230,000 units came to market in April. This lifted the supply of existing homes to 5.2 months from 4.7 months at the current sales rate.

On the new-home front, sales growth was even more dramatic, with sales rising 2.3% to 454,000 units on an annualized basis in April. Meanwhile, prices soared, increasing 8.3% to a record median price of $271,600.
That said, new homes aren't pouring into the market like with existing homes: New homes for sale rose only 5,000 for the month, which means inventory remains low at 4.1 months.

In short, the housing market is shaping up nicely as we head into the summer selling season. We expect sales to improve materially as the summer progresses.
Date and Time
Consumer Confidence
Tues., May 28,
10:00 am, ET
70 Index
Moderately Important. Job growth is pushing confidence higher.
Mortgage Applications
Wed., May 29,
7:00 am, ET
Important. Rising mortgage rates have slowed refinance and purchase activity.
Pending Home Sales
Thurs., May 30,
10:00 am, ET
106 Index
Important. More inventory will lead to more sales.
Personal Income
Fri., May 31,
8:30 am, ET
Important. Improving wage and salary growth support a rising home-sales trend.
Don't Fear Higher Interest Rates
We've discussed this before, but it's worth discussing again: Rising interest rates won't derail the recovery (both economic and housing). We appear to be in the minority opinion, though; many of our colleagues think otherwise.
Our thesis goes like this: Rising rates will be accompanied by economic and job growth, which means more people will be able to afford a home, along with the cost of higher lending rates.
At this point, more people working trumps historically low interest rates. Moreover, rising rates accompanied with economic growth will spur people to action: If they believe rates are more likely to rise than fall, they will tend to act now instead of procrastinating.
It's also worth noting that we are still in an unnatural lending environment. The Federal Reserve's manipulation of mortgage rates is an anomaly that can't go indefinitely. (The market can take only so much liquidity before serious dislocations occur.) We think the return to normalcy – a lending market based on natural lending rates, economic growth, and job growth – offers many more positives than negatives.
We've had higher mortgage lending rates in the past and have prospered. If higher rates are accompanied with a strong economy, we see no reason why we wouldn't prosper again.
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