Monday, July 1, 2013

More Buyers Buying!! Now is not the time to wait

In reviewing multiple sites, I have found that Jim's Mortgage Matters really does a good job of summarizing trends.

Note the quick analysis on refinances being down with the new rates(up a point-1% in past 30 days) while purchases are up 2%.
Purchase applications have seen a double digit increase over the past year(16%).

As Jim notes, no one can predict where mortgages will go!!!
Yet, Fed action seems to indicate they will continue to rise...but who knows!  Home prices continue to strengthen also.

So are you willing to risk the chance of the double whammy of higher rates and higher prices???   Again, no guarantee that you will face this situation but the probability is very real.

Keeping you updated on the market! For the week of 
July 1, 2013

The Power of Expectation
Mortgage rates continue to be the lead story in the financial press, and for good reason – rates are up a full-percentage point over the past month and are now at July 2011 levels.
It's understandable that the spike in mortgage rates would slow refinance activity. Indeed ,that's been the case: Refinances have dropped considerably over the past month, and the latest weekly data show yet another drop, with activity falling 5%. Refinances are now at a two-year low, and their percentage of overall lending has dropped to 67%.
Purchase activity is a different story: Purchases were up, rising 2% from the previous week. Total purchase applications are actually up 16% year over year, indicating homebuyers have yet to be put off by rising mortgage rates.
We've written frequently about expectations. If buyers expect lower prices, they'll frequently (but not always) wait for lower prices. We saw a lot of that behavior when mortgage rates were trending lower. Many borrowers, especially on the purchase end, would wait and wait and wait. (Refinancers were more willing to act, knowing if rates continued to drop they could refinance again.)
On the other side of the coin, people tend to be spurred into action by rising prices. They don't want to pay more tomorrow for what they can get cheaper today. We've seen that in the purchase market over the past month. Home prices have been rising steadily over the past 18 months, but now mortgage rates are rising too. More borrowers (and most lenders, for that matter) don't expect to see a return to the ultra-low rates of a couple months ago. Many believe the trend has shifted and rising rates are the new norm.
We think rising rates are the new norm too. We say that because credit markets are much more sensitive to the Federal Reserve and the prospect of it curtailing its mortgage-backed securities (MBS) purchases.
When the Fed curtails (or even hints at curtailing) its purchases, interest rates will rise, which means today's bond investors will suffer losses. (When interest rates rise, the price of fixed-income investments like bonds fall.) Obviously, these investors don't want to suffer losses, so they'll sell if they think demand for bonds and fixed-income securities will fall.
Of course, we can't predict with certainty whether mortgage rates will move higher in the near future. After all, a significant macro event – a major terrorist attack, a large bankruptcy, a European bank run – could spur money to flow back into haven investments, like U.S. Treasuries and MBS.
That said, we see higher rates and more volatile rates as the likely scenario. For this reason, we continue to say that waiting is the real risk in this market.

Date and Time
Construction Spending
Mon., July 1,
10:00 am, ET
Important. Residential construction spending is driving overall spending growth.
Mortgage Applications
Wed., July 3,
7:00 am, ET
Important. Rising rates have spurred more buyers into action.
International Trade
Wed., July 3,
8:30 am, ET
$40.2 Billion (Deficit)
Moderately Important. The increase in non-energy imports points to an entrenched recovery.
Employment Situation
Fri., July 5,
8:30 am, ET
Unemployment Rate: 7.5%
Payrolls:165,000 (Increase)
Very Important. Interest rates will rise if payrolls increase more than anticipated.

Full Steam Ahead
Sales of new and existing home are gaining momentum: More supply is coming to market and prices continue to rise. On the latter, the S&P/Case-Shiller Home Price Index shows prices up 1.7% in its 20-city index month over month; the year-over-year rate is exceptionally strong, at plus 12%.
But will rising mortgage rates derail the recovery?
We don't think so. Many people have the perception that rising mortgage rates lead to lower (or at least less growth) in home prices. The rationale goes that rising mortgage rates lower affordability, so home prices fall to compensate for higher financing costs.
The perception was recently refuted in the New York Times. Douglas Duncan, chief economist at Fannie Mae was quoted to say, “There’s no strong correlation between interest rates and home prices.”
Mortgage rates rose sharply in the late 1970s, but home prices continued to rise too. In the 1990s, rates were relatively flat and home prices continued to move higher. In 2007 and 2008, both mortgages rates and home prices fell. In 2013, rates have increased and so, too, have home prices. In other words, there really isn't much of a correlation.
To be sure, mortgage rates matter, but they're less important than many people believe. Job and economic growth are by far the more important variables, and both have been improving in recent months.

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