Tuesday, June 18, 2013

The Tide Continues to Rise: Mortgage Rates


The signs were all there:

    Improving Housing Market

           Overextended Time Frame for Cheap Money

                 Fed's "notes on ending purchase of mortgage backed 
                            securities

                       Stock Market recovery in 2012 and thus far in 2013

Now, Jim Belote's Weekly Update begins with:

    Mortgage Rates Continue Their March to Higher Ground
                (my italics and bolding for emphasis)


As you can see as you read the article below, Jim notes the reality that I noted in the past few blogs on market trend:

We're not surprised to see an uptick in purchase activity; expectations govern behavior. If potential borrowers believe higher rates are in the future, they'll act today to beat the increase. If they are fence sitting, their expectations of lower rates will keep them there, but a change in expectations (exceptions of higher rates, to be specific) will prompt them into action.


Thus, the real estate market and mortgage origination activity will increase now as interest rates rise because buyers want to beat the next increase!!  

As a buyer, you have to understand that you must be more proactive when you see the home you like.   The competition is out there!

As a home owner, if you want to move, now is the time!  With buyers "off the fence", you have ready, willing and able buyers looking to snatch up a home before the rates rise more.

Let me know if you agree!!   





Keeping you updated on the market! For the week of 
June 17, 2013

MARKET RECAP
Mortgage Rates Continue Their March to Higher Ground

Mortgage lending rates were once again the lead story in housing, as well as in many media outlets.

In many markets, rates are up 60 basis points or more over the past six weeks. This means potential borrowers and new home buyers are facing financing rates unseen since April 2012.

Interestingly, rising rates actually had a stimulative effect on mortgage activity last week, according to Mortgage Bankers Association data. The MBA's latest activity report shows that both refinances and purchases were up 5%. For most of the past month, refinance activity was declining at a double-digit weekly rate, while purchase activity was mostly flat lining.
We're not surprised to see an uptick in purchase activity; expectations govern behavior. If potential borrowers believe higher rates are in the future, they'll act today to beat the increase. If they are fence sitting, their expectations of lower rates will keep them there, but a change in expectations (exceptions of higher rates, to be specific) will prompt them into action.

We admit to being slightly surprised (and pleasantly so) at the reversal in refinance activity. With mortgage rates holding so low for so long, it's easy to take for granted that everyone who could take advantage of a refinance has. That's obviously not the case. And even though financing rates are higher for refinances, expectations still play a role.

The good news is that more homeowners are in a position to refinance. CoreLogic reports that the number of underwater homeowners has dropped below 10 million for the first time in more than three years. That's a significant improvement over the 12.1 million who were underwater at the end of 2011.

Of course, these homeowners have been floated by the relentless increase in home prices that's occurred over the past year. CoreLogic's data show prices up nationally 12% year over year in April. Moreover, the numbers from most housing-data providers corroborate CoreLogic's numbers.

Despite higher rates, we expect refinance and purchase activity to remain robust. We also expect housing activity to rise: Higher prices will draw more inventory into the market. Above-water homeowners (and even submerged owners who don't have to bring money to the table) are more willing to list their home. As we know, lack of inventory has restrained sales growth over most of 2013.

We've frequently stated that today's higher lending rates aren't necessarily to be feared, especially when placed within an historical context: It wasn't all that long ago when a 6% 30-year fixed-rate loan was considered a bargain.

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Home Builders' Index
(June)
Mon., June 17,
10:00 am, ET
45 Index
Important. Sentiment has stagnated on input bottlenecks related to construction.
Housing Starts
(May)
Tues., June 18,
8:30 am, ET
928,000 (Annualized)
Important. Permit activity points to more starts heading into summer.
Mortgage Applications
Wed., June 19,
7:00 am, ET
None
Important. Purchase activity remains elevated despite rising rates.
Federal Reserve FOMC Meeting
Announcement
Wed., June 19,
2:00 pm, ET
None
Very Important. Any foreshadowing of a change in Fed policy will move interest rates.
Existing Home Sales
(May)
Thurs., June 20
10:00 am, ET
5 Million (Annualized)
Important. Rising inventory should lead to rising sales volume.

Gauging the Odds
Last week we delved into the Federal Reserve and “tapering.” Specifically, we explained why we thought the Fed was unlikely to materially reduce its purchases of mortgage-backed securities (MBS) this year.

Mortgage rates have risen on the precept that the Fed was indeed shifting its policy toward purchasing fewer MBS. Lower Fed demand for MBS, would, in turn, lead to higher yields in order to increase more private-buyer demand. Last week we mentioned that reduced MBS supply may have played a role in reduced Fed purchases.

We can add a couple more reasons why think the Fed's appetite for MBS hasn't diminished: For one, employment and wage growth is still anemic. The Fed has hinted that it won't materially alter quantitative easing (buying MBS and U.S. Treasuries) until the unemployment rate drops to 6.5%; it's currently at 7.6%. In addition, manufacturing has weakened in recent months, which suggests economic growth also has room for improvement.

We'll have more insight into the Fed's “ tapering ” leanings this coming Wednesday after the board of governors meeting and the subsequent press conference. We expect that the Fed won't announce any material changes to its policies. Therefore, we don't expect mortgage rates to move materially higher. You'll note in the above Bankrate.com graph, rates have been plateauing.

With that said, we don't expect rates to move materially lower either, so the risk of waiting remains.


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