Wednesday, January 1, 2014

Perspective on 2013/2014 Housing Market

Here is a great update summarizing a Mortgage Company's view of 2013 and preview for 2014.

It is always refreshing to hear a honest assessment of one's own prediction, especially when they are perfect.  Yet, an accurate prediction of any year's economy has odds close to winning the Powerball Lottery!   So many variable go into the U.S. let alone the World economy that impacts us all.

As Jim properly notes in this update, all markets are local.  Thus, everyone needs to speak with a local Realtor in his/her market to really know how the local market is faring at any given time.

Yet, Jim's summary of the recent mortgage rates rise in context of the economy could be broadly applied:  

To be sure, mortgage rates are on the rise, but this shouldn't be feared as long as the trend in the mitigating factors – income growth and job growth, in particular – continue to trend in the right direction.

As you read the 2014 comments, you can see the trend is expected to continue!!


Keeping you updated on the market! For the week of 
December 30, 2013

Perception Finally Becomes Reality
After the Federal Reserve announced tapering would commence in 2014, interest rates stood pat. They didn't move meaningfully higher, though they had moved meaningfully higher in anticipation of the announcement.
Now it appears rates are moving higher on the announcement itself.
We saw rates on most mortgage products move higher this past week. On a national level, reports the average rate on the 30-year fixed-rate loan increased five basis points to 4.63% to hit a three-month high. Interestingly, the rate on the five-year ARM also moved meaningfully higher, rising 10 basis points to 3.43% on average.
Last week we noted that ARM rates should be muted. Fed officials have stated they will continue to support low short-term rates. Despite the Fed's stated support, though, it appears market participants are questioning the Fed's ability to actually maintain these rates. That said, rates on short-term Treasury securities continue to hold lows established earlier this year, which suggests that we could see a pullback in ARM rates this coming week.
As for the 30-year fixed-rate mortgage, we don't anticipate a pullback. When we're not following mortgage-backed security yields, we're following the yield on the 10-year Treasury note, which is a good proxy for where the 30-year fixed-rate mortgage is headed. As the 10-year note goes, so goes the 30-year fixed-rate mortgage.
Because so many homes are financed, rising rates obviously impact affordability. Freddie Mac recently delved into the relationship.
As to be expected, rising rates are hurting affordability. But it's not a universal phenomenon. Real estate markets, as we all know, are local markets. National numbers are frequently irrelevant to any particular market. That said, Freddie is finding more local markets are becoming unaffordable, though most of these markets are concentrated on the East Coast.
Freddie Mac is quick to note (as are we) that rising rates are offset by rising income. Fortunately, incomes are taking flight in many sectors of the economy. As long as incomes continue to rise, and as long as job growth continues to gain momentum, the impact of rising rates on the real estate market will be muted.
Low household debt is another mitigating factor to rising rates. After the 2008-2009 recession, many households reduced their debt. Average household debt is currently at a multi-year low. This means many households are in a position to support more debt and a higher monthly payment for big-ticket items like a house.
To be sure, mortgage rates are on the rise, but this shouldn't be feared as long as the trend in the mitigating factors – income growth and job growth, in particular – continue to trend in the right direction.

Date and Time
Pending Home Sales
Mon., Dec. 30,
10:00 am, ET
Important. Rate increases and low inventory continue to weigh on sales growth.
Home Price Index
Tues., Dec. 31,
9:00 am, ET
Important. Expect to see some weakening in price growth based on data from other price providers.
Mortgage Applications
Thurs., Jan. 2,
7:00 am, ET
Important. Rising rates and fee increases will likely restrain overall activity through early 2014.
Construction Spending
Thurs., Jan. 2,
10:00 am, ET
0.9% (Increase)
Moderately Important. Residential spending continues to power overall spending gains.

The Year that Was, The Year that Will Be
This time last year we forecast that the rate on the 30-year fixed-rate loan would be at or above 5%. We also forecast a significant increase in economic growth. The market didn't quite conform to our expectations: The rate on the 30-year loan didn't hit 5% and economic growth was anemic, at least through the first nine months of 2013.
Perhaps we were 12 months ahead of the curve. We say that because we see 5% on the 30-year loan for 2014. We also see stronger growth, which is already materializing, in both the overall economy and the labor market.
We also forecast that 2013 would be a good year for housing. We were right. What's more, we reiterate that forecast for 2014. We see more activity, particularly in the new-home market. The trend in sales through the second half of 2013 has been strong. We expect that trend to continue deep into 2014 based on home-builder optimism.
As for existing-home sales, we expect they will stagnate through the first quarter of 2014. The dearth of inventory continues to plaque the sector. The good news here is that inventory appears to have bottomed and should improve as 2014 progresses.
As for prices, we still believe the pace of appreciation will slow. We've mentioned many times this year that double-digit price gains are simply unsustainable. Low-to-mid single-digit increases are the norm – and are what's sustainable in a healthy market.
The bottom line is that 2014 will be another good year for residential real estate, which should give us another reason to celebrate the new year.

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