A More Conservative View: Mortgage Matters

Conservative View of 2014

The tide is changing in Jim Belote's Mortgage Matters newsletter.

As you read the latest update, it appears that Jim's sources cause him to feel that 2014 won't have the strenght fo 2013.   

Jim doesn't say directly that 2014 will be weaker than 2013, only that price appreciation won't match 2013 and interest rates will rise.   In fairness, he notes "Admittedly, we've been talking about a price slowdown for some time, and yet the data from the major home-price aggregators has contradicted us. Are our eyes lying?"

Personally, I see Hampton Roads continue a trend of improving values.  Last years, homes from $350,000 and lower reaped the most benefit from the improving housing market.  In 2014, I expect the improvent to rise into the $350,000 to $500,000 range.

The reason for the improvement will be simple.   As home owners have seen and will see their homes up to $350,000 sell in 90-120 days, these sellers will come to buy the $400,000 to $500,000 homes that languished in 2013.   As higher price ranges have seen unequal improvement, the top level of the improvement could surprise us all and get in the upper tier of Hampton Roads homes.

Time will tell who is right!!!!!

Keeping you updated on the market! For the week of  January 13, 2014 MARKET RECAP Change Is on the Way The most noteworthy change in 2014 is the confirmation of a new Federal Reserve chairperson. This past Monday it was made official: Janet Yellen now chairs the Federal Reserve. In the course of a regular workday, few of us give the Federal Reserve much thought. But the Fed does matter; its policies are very influential to housing and credit markets, and to the economy as a whole. So the lead question is, is the new boss much different than the old boss? For the immediate future the answer is “no.” Everyone is aware that the Fed under the old regime leader, Ben Bernanke, was foreshadowing a tapering, which came to pass. Starting this month, the Fed will purchase $75 billion in Treasury notes and bonds and mortgage-backed securities instead of $85 billion. We don't expect a further reduction until the unemployment rate falls below 7% and stays there. At the same time, personal consumption expenditures (PCE) remain sedate, running at 1.2% on an annualized basis. PCE is the Fed's preferred measure of inflation, and it would like to see PCE running at 2% annually instead of 1.2%. Therefore, we don't expect the Fed to announce any rate changes, possibly until 2015. So the Federal Reserve has changed chairpersons, but its current policies are unlikely to change. With that said, we still see changes in the mortgage market. We see rates rising, to be specific. Even if the Fed wants to hold interest rates low, it can't mandate the rate at which market participants lend. Markets are anticipatory, and they are anticipating economic growth, which is why the yield on the 10-year Treasury note – a leading proxy for the 30-year fixed-rate mortgage – is now hovering at 3%. This is why we expect a change in mortgage lending rates; “change” being a euphemism for higher mortgage rates in 2014. A slowdown in home-price appreciation is another looming change. Admittedly, we've been talking about a price slowdown for some time, and yet the data from the major home-price aggregators has contradicted us. Are our eyes lying? It's appearing less likely. The latest price data from Trulia show the year-over-year increase in asking prices slowed for the first time in nearly two years. Asking prices rose 0.4% month over month in December, and that translates to an 11.9% year-over-year gain. But in November the year-over-year gain was 12.2%. 2014 won't be a repeat of 2013, and that's a good thing. Yes, mortgages won't be quite as affordable and slowing home-price growth won't immediately lift as many homeowners into positive equity, but these negatives will be offset by big-picture gains in job growth and more economic activity – two themes we've been banging the drum on for the past six months. Economic Indicator Release Date and Time Consensus Estimate Analysis Retail Sales (December) Tues., Jan. 14, 8:30 am, ET 0.2% (Increase) Important. Sales continue to track higher, which is reflective of an improving economy. Mortgage Applications Wed., Jan. 15, 7:00 am, ET None Important. Purchase application activity is stabilizing, which is positive for the home-sales outlook. Consumer Price Index (December) Thurs., Jan. 16, 8:30 am, ET All Goods: 0.3% (Increase) Core: 0.1% (Increase) Important. Consumer-price inflation remains subdued and should have no influence on interest rates. Home Builders' Index (January) Thurs., Jan. 16, 10:00 am, ET 58 Index Important. Builder sentiment points to elevated housing construction in 2014. Housing Starts (December) Fri., Jan 17, 8:30 am, ET 990,000 Units (Annualized) Important. Starts are approaching pre-crash levels, and that bodes well for the economy as a whole. More Important Than Most People Realize Speaking of positive equity, RealtyTrac reports that the universe of equity-rich properties, defined as equity 50% higher than what's owed, swelled to 9.1 million in the fourth-quarter of 2013 from 7.4 million in the previous quarter. On the other end of the spectrum, those deeply underwater – owing 25% or more than what the house is worth – declined to 20% in December from 25% at the start of 2013. These two trends are obviously encouraging to our respective industries, but they're also important to the national economy. We say that because fewer people will view a house as an albatross. Many people have been reluctant to buy a house for fear if they need to move in a year or two, they'll be stuck with an asset that has lost value. Today, people feel more secure because they don't believe their mobility will be compromised. This is obviously an important factor in bringing more people into the housing market. This is also an important factor in economic growth. If someone buys a house in Denver and two years later is offered a better job in Chicago, that person needs to feel confident the house can be sold without incurring a loss. When people feel more mobile and more confident, they're more likely to take steps to improve their economic situation. The perception of unimpeded mobility is crucial to maintaining a vibrant housing market. Thankfully, we should see more labor mobility in 2014, which will lead to a more vibrant housing market and a more vibrant economy.