Tuesday, August 6, 2013

Don't WAIT until Mortgage Rates DO go up!

Biggest news in Jim's Mortgage Matters is the expectation is that interest rates won't reach 5% anytime soon on 30 year fixed mortgage money...or as noted " .    It is really unknown when that well occur.

Another takeaway is that housing activity has slowed.  In Hampton Roads, it is not really very true but evidently the higher rates has impacted the trends nationally. 

Yet with a confidence that rates won't move much higher, buyers can feel very good that they still can get some great cheap loans for now.

Now is not the time to wait!!!

Keeping you updated on the market! For the week of 
August 5, 2013

Are Mortgage Rates the Real Issue?
Housing activity has slowed noticeably over the past couple months. Sales of new and existing homes have stagnated, while new residential construction has been volatile. Most market watchers say higher mortgage rates are to blame.
To be sure, higher mortgage rates raise the monthly cost of financing and owning a home, but rising home prices are also a contributing factor to overall costs.
On the latter, most data sources point to a sustained rise in home prices. The latest data release from S&P/Case-Shiller confirms the trend. Case-Shiller's home price index show that prices rose in 18 of the 20 cities it follows ( Minneapolis and Cleveland were slight laggards). Overall, home prices rose 1% in May compared to April. This latest increase lifts the year-over-year gain to 12.1%.
The laws of supply and demand state that when prices rise demand falls. But at the same time, rising prices draw more supply into the market. As we know, lack of supply has restrained sales growth over the past year. The good news is that we have seen supply in existing homes for sale increase over the past few months. Rising home prices are, no doubt, a contributing factor.
Going forward we see home-price gains moderating. This should help draw more homes into supply. We say that because more potential sellers will no longer be compelled to wait if they believe the price trend is moderating, or even stagnating. When you become more unsure of the future, you tend to act now; you don't wait.
We view moderating price gains as a positive. Indeed, low single-digit annual price gains would be more indicative of a normalized housing market. Double-digit year-over-year price gains aren't the norm, nor are they sustainable.
We remain somewhat skeptical, though, that recent mortgage-rate increases and tight supply are the main culprits behind the recent slowdown. Economic growth, or rather the lack of growth, could very well be the real culprit.
The fact is that economic growth remains sluggish. In the second-quarter of 2013, gross domestic product (GDP) grew at a 1.7% annualized rate (normal growth is around 3%).
Because the economy isn't quite firing on all cylinders, we doubt that we will see any dramatic moves in mortgage rates.
Job growth will be key. If we see sustained job growth over the next couple months, this will be indicative of stronger economic growth in the third quarter. If that occurs, rates will move higher, but we still don't think they'll move materially higher.
We don't expect to see 5% on the 30-year fixed-rate loan until the Federal Reserve unequivocally indicates it will cut back on quantitative easing, and that remains the great unknown.

Date and Time
International Trade
Tues., Aug. 6
8:30 am, ET
$44.2 Billion (Deficit)
Moderately Important. The rising deficit points to a modest improvement in domestic demand.
Mortgage Applications
Wed., Aug. 7,
7:00 am, ET
Important. Sluggish economic growth and higher lending rates have stalled purchase-application growth.
Consumer Credit
Wed., Aug. 7,
3:00 pm, ET
$15 Billion (Increase)
Important. Gains are occurring most strongly in student lending, which suggests consumer confidence is lagging.
Fri., Aug. 9,
10:00 am, ET
0.5% (Decrease)
Moderately Important. Falling inventories point to higher industrial output should economic growth accelerate.

Federal Reserve Speak
The language from the Federal Reserve can be frustratingly ambiguous. The minutes of the latest Fed governors meeting, released this past Wednesday, state that “economic activity expanded at a modest pace during the first half of the year,” which indicates the economy still isn't growing at a pace the Fed would like to see. At the same time, the Fed has hinted that it could begin tapering quantitative easing within the next month or two.
It can all be a bit confusing.
The key variable in the equation, and we've said this repeatedly, is job growth. Accelerating job growth means accelerating economic growth, and then, for sure, the Fed will begin to taper and mortgage rates will rise. But if job growth continues to come in at, or below, current expectations, we'll likely see the unemployment rate hold current levels, which is unacceptable to the Fed.
Our best guess is that the current mortgage-rate range will hold through summer. If we don't see a material change in the unemployment rate by the end of the third quarter, we'd expect the Fed's commitment to quantitative easing to push into 2014, which means mortgage rates would hold the current range through 2013.

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