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Tuesday, October 22, 2013
Mortgage Matter...OCT 21 Update
Keeping you updated on the market!For the week of October 21, 2013
Time to Exhale
It appears a disaster was averted: The debt ceiling was raised and the federal government won't default on its debt.
We can't say we were surprised at the outcome. We mentioned last week that we thought a default was unlikely. The money was always there to make interest payments and to pay off maturing debt. In addition, there are too many politically connected constituents – banks not the least of them – for politicians to allow a default.
We also noted that “shutdown” was a misnomer. Over 80% of the federal government was still up and running. Unfortunately, the portion furloughed impacted the mortgage market. Applications for government-sponsored loans dropped by more than 7% last week. Conventional activity was similarly limited due to delays in verifying income with the tax collectors. With everyone back to work, mortgage lending should ramp up and loans should be approved in a more timely manner going forward.
When the political imbroglio began a few weeks ago, we noted that we expected the rate on the conforming 30-year fixed-rate loan to hold within a 4.25%-to-4.50% range. That's been the case. This week, Bankrate.com's survey showed the rate on the 30-year loan averaged 4.42%, while Freddie Mac's survey showed it averaged 4.28%.
We expect rates to remains staid for the next week or so. Some of the government departments furloughed were responsible for producing economic data. Since the furlough, there's been a dearth of insight into the state of the economy. That will soon change over the next week, and we should begin receiving an influx of scheduled data in short order.
In the meantime, the Federal Reserve offered some insight into the state of the economy this past week. Not surprising, nothing has really changed: Economic growth remains sluggish. In the Fed's Beige Book, a report released every six weeks, worlds like “modest” and “moderate” peppered the text, as they have in previous releases for much of 2013.
Of course, the private data providers continued to function. On that front, FNC's Residential Price Index shows housing prices moved higher by 0.6% in August to post the 18 th month of consecutive gains.
We've been warning over the past month that the strong price gains we've seen over the past two years will soon abate. Looking ahead, we expect price data providers CoreLogic, Case-Shiller, and Zillow to start reporting slower month-over-month gains.
A point worth emphasizing is the hotter the market, the greater the likelihood of reduced price growth. Another point worth emphasizing – one we've emphasized previously – is that slowing price growth isn't bad. We want to get back to the way real estate has historically functioned in most markets – slow, steady, with low volatility.
Release Date and Time
Existing Home Sales (September)
Mon., Oct. 21, 10:00 am, ET
5.35 Million (Annualized)
Important. Increased inventory and stabilizing price increases will help maintain the long-term upward trend.
Wed., Oct. 23, 7:00 am, ET
Important. With the federal government back to work, application activity will begin to trend higher.
FHFA Home Price Index (August)
Wed., Oct. 23, 10:00 am, ET
0.5% (Monthly Increase)
Important. The data will likely show signs of slowing price growth.
New Home Sales (September)
Thurs., Oct. 24, 10:00 am, ET
Important. Softer pricing is lifting new-home sales.
Another Reason to Embrace the Slowdown
Whenever we buy an asset, our natural desire is for that asset's value to appreciate. The faster it appreciates, the better we like it.
There is something to be said for slow and steady, though. When prices appreciate at a slower pace, they, in turn, lead to a wider, more stable market. We say that because the faster an asset's value appreciates, the faster it reduces the pool of potential buyers. The market, in short, becomes less inclusive, and frequently more volatile.
In addition, double-digit annual price gains have significantly lowered affordability. The Wall Street Journal reports that h ousing affordability hit a four-year low in August. The strong price gains we saw during spring and early summer pushed more homes out of the reach of more people.
This latest data suggest we could see a temporary slowdown in new and existing home sales in the waning months of 2013. Slower sales growth and lower price-appreciation should help recalibrate the market with more realistic exceptions. This is a good thing. As we noted last week, a return to a normalized market is the goal, and the sooner we get there the better.