Latest Update in mortgage industry is pretty well summarize in Jim B's newsletter.
Up We Go!!
The pressure continues on interest rates but the housing market continues to improve. Perhaps the naysayers will end up being on the wrong side of the market!!! 15 consecutive months of price improvements nationwide. Jim notes: "... price gains have pulled many owners with negative equity into positive territory ". Isn't that great news??!!
The only negative is that home owners wishing to stay in their homes have cut back on refinancing. This is understandable as many people that purchased in the past 7 years have had rates under 6% and many under 5% thus refinancing has no real attraction as rates increased to 4% and above.
We keep on humming along!
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Keeping you updated on the market! For the week of
July 8, 2013
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MARKET RECAP
Mortgage Rates Take a Breather
You would think mortgage rates would need a breather after experiencing their biggest jump in 26 years. In little more than a month, rates on most lending products have risen at least a full percentage point.
This past week, it was all quiet on the mortgage front. Rates were mostly staid, as concerns over the Federal Reserve “tapering” its purchases of mortgage backed securities (MBS) waned. As we’ve noted frequently in the past, the Fed's demand for these securities keeps yields low, which, in turn, keeps mortgage rates low.
We've also reported over the past few weeks how rising rates have taken the steam out of refinances. Steam continues to escape: Refinances dropped another 16% last week and are at their lowest level since July 2011. The refinance percentage of market activity has dropped to 64%, which is the lowest percentage since May 2011.
Purchase activity remains relatively robust in comparison, falling 3% for the reported week. But when the longer term is considered, we find purchase activity is up 12% year over year. Despite the spike in mortgage rates, home affordability remains high. The good news is that higher financing costs haven't materially dampened enthusiasm to buy and finance a home.
The question is how long will affordability remain high?
Prices have moved considerably higher, to be sure. CoreLogic's latest home price index shows home prices nationally posted a 15 th consecutive monthly increase in May. The latest increase pushes the year-over-year increase to 12.2%, the largest annual increase in over seven years.
What's more, it appears we can look forward to additional price gains. Clear Capital forecasts the housing market could outperform historical average price gains by 4% to 5% for the remainder of 2013.
Prices are obviously an important variable in affordability. Rising prices will make homes less affordable. Indeed, price gains have lowered affordability in many local markets ( San Francisco and New York City come immediately to mind). On the other side of the coin, price gains have pulled many owners with negative equity into positive territory.
Rising prices are also helping to alleviate the supply shortage. Home inventory is up 16.7% year to date, and will likely continue to rise with rising home prices. A basic economic law states supply rises and falls with prices; rising prices induce more supply to come to market. That's exactly what we are seeing today.
But more supply will eventually slow price growth. That's not a bad thing. Today's double-digit price gains are unsustainable, because they far exceed economic growth. Yes, prices are starting from a deep hole in many markets, but eventually price growth must moderate, lest we find ourselves in another housing bubble.
A sustainable price-growth rate is one that matches inflation and economic growth. A rate above that is sustainable for only a limited time, usually no more than two or three years.
For now, keep in mind that higher home prices and higher lending rates will eventually impact affordability. We might sound like a broken record on this point, but it's worth repeating: waiting is the risk in this market. |
Economic
Indicator
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Release
Date and Time
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Consensus
Estimate
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Analysis
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Consumer Credit
(May)
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Mon., July 8,
3:00 pm, ET
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$10 Billion (Increase)
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Moderately Important. Growth in non-revolving credit is indicative of growing home and auto demand.
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Mortgage Applications
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Wed., July 10,
7:00 am, ET
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None
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Important. Stabilizing rates should reignite refinance and purchase demand.
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Federal Reserve FOMC Minutes
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Wed., July 10,
2:00 pm, ET
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None
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Important. Most Fed governors are expected to support continuation of QE3.
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Producer Price Index
(June)
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Fri., July 12,
8:30 am, ET
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All Goods: 0.5% (Increase)
Core: 0.2% (Increase)
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Important. Producer-price inflation is showing signs of accelerating, which could pressure interest rates to rise.
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Are We There Yet?
We refer to the point when the Federal Reserve will withdraw from the MBS market.
Job growth is the tipping factor, according to most market watchers. On that front, it appears the Fed will likely remain MBS buyers for a while longer. The Fed has targeted an unemployment rate of 6.5% before it seriously considers tapering QE3. The unemployment rate is a full percentage point above the Fed's target, so we still have a ways to go.
Job growth, therefore, is key. If the economy added 150,000 jobs monthly, the unemployment rate could fall to 6.5% in seven months. But there's an extenuating factor: participation rate. If more people enter the employment market, higher job growth will be needed to absorb more participants.
If we were to make an educated guess when the Fed will begin to taper its MBS purchases, we would guess that early next spring is the most likely scenario. So we don't expect rates to rise much higher, at least through the summer, but neither do we expect them to move lower either.
With that said, the probability of higher rates is higher than the probability of lower rates at this point; thus further buttressing our argument on the dangers of waiting. |
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EQUAL HOUSING LENDER
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Topic Summary: