A Mixed Blessing: Lower Unemployment

The very last statement of the Mortgage Matters newsletter really says it all:

"So rising rates are a mixed blessing, but a blessing that in the grand scheme of things will prove beneficial."

There is a lot of surprise in the market that employment went down though the number of new jobs was lower than expected.  Interesting twist provided to this information is share.  I am not sure lower participation in the economy can ever be a "good thing".    

Only when a lower employment rate equates to more people adding to the country's output is it a truly good sign.

Keeping you updated on the market! For the week of  January 20, 2014 MARKET RECAP Can We Trust the Numbers? We'd like to think we can, but we have to ask, even if we ask tongue-in-cheek: Are these numbers real and do they reflect the state of the economy? We're referring to the employment numbers released last Friday, which we found to be highly unusual and very surprising. According to the Bureau of Labor Statistics , the unemployment rate dropped to 6.7%, the lowest it has been since the Bush Administration. That's the good news, and news we can understand, given strong economic growth in the waning months of 2013. The bad news – and the news that left us scratching our heads – is that payrolls increased by a mere 74,000 in December, which fell far short of the consensus estimate for 193,000. Even more disconcerting, many of the new jobs – 55,000 – were in retail, which tends to be a lower-compensated segment of the economy. We were, quite frankly, expecting job growth to hover near 200,000, especially when considering payrolls increased 241,000 (revised up from 203,000) in November and 200,000 in October. We thought elevated monthly job growth would coincide with gross domestic product , which had risen through most of 2013. But at least the unemployment rate is falling, you might reason. This is a point of contention among economists, because it's falling on falling labor participation . Those working or seeking work has dropped to 62.6% of the population, the lowest since 1978. As recently as 2008, the labor participation rate was at 66%. Many market commentators fret over the low labor participation rate. But there appears to be a mitigating factor: There is evidence the lower participation rate is related to a higher retirement rate. If that's the case, today's flaccid labor participation rate is less dire than first appearances might lead us to believe. Employment and economic growth is a recurring theme in these pages because of their importance to the housing and mortgage markets. We've said repeatedly that we'd love to see more jobs and more economic growth, even if they lead to higher lending rates. The upside to disappointing job growth is falling mortgage lending rates, which is what happened this past week. Bankrate.com reports the average rate on the 30-year fixed-rate mortgage dropped nine basis points to 4.57%. Freddie Mac's survey shows the average rate on the 30-year loan fell 10 basis points to 4.41%. The sizable drop in mortgage rates over the past couple weeks has ignited application activity, which we're glad to see. The Mortgage Bankers Association's latest survey shows that refinance activity jumped 11% last week. More important, purchase applications increased 12%. The surge in purchase applications leads us to believe that job growth for December was an aberration. After all, a loan is frequently contingent on the borrower being employed. So if the December job numbers prove to be an aberration, then today's lower lending rates are likely an aberration, and also a window of opportunity. If the January job numbers move up to the 200,000 range, you can be assured mortgage lending rates will move up with them. Recent positive economic reports, along with our instincts, lead us to believe January's payroll numbers will be closer to 200,000 than 100,000. Economic Indicator Release Date and Time Consensus Estimate Analysis Mortgage Applications Wed., Jan. 22, 7:00 am, ET None Important. A sustained increase in purchase application activity would improve the housing-market outlook. FHFA Home Price Index (November) Thurs., Jan. 23, 9:00 am, ET 0.4% (Increase) Important. Recent pricing data point to a slowdown in monthly and yearly home-price appreciation. Existing Home Sales (December) Thurs., Jan. 23, 10:00 am, ET 4.95 Million (Annualized) Important. Tight inventory continues to limit overall sales growth. Leading Indicators (December) Thurs., Jan. 23, 10:00 am, ET 0.5% (Increase) Moderately Important. The trend in recent months is encouraging, pointing to sustained economic growth. A Mixed Blessing Do lenders prefer higher or lower interest rates? The answer isn't straightforward. Higher lending rates translate to higher income as long as the rate at which a lender borrows (generally a short-term rate) to fund a loan remains unchanged. On the flip side, higher rates lead to lower lending activity. We still think higher lending rates are in our best interest long term. We've noted many times that higher rates are reflective of the two important market variables we mention above – economic growth and job growth. Both can easily compensate for higher rates. If job growth is accompanied with rising wages, home affordability remains relatively unchanged. Higher rates also lead to more accommodating lending standards. We'll all agree that standards are tight today, possibly overly so. But Federal Reserve data lend credence to our assertion: When rates were rising last year, lending standards showed a measure of easing. This makes sense; higher rates lead to more profitable lending opportunities. What's more, the risk of lending to lower credit-quality borrowers is mitigated by price-appreciating collateral. So rising rates are a mixed blessing, but a blessing that in the grand scheme of things will prove beneficial.

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.

Remember Each Market is Different

• 
  A Difference In Opinion

As I share Jim Belote's Mortgage Matters, I very frequently am in solid agreement with the Market Recap provided.

For most points expressed below:

1. Pressure on Interest Rates to rise

2. Housing Market to continue to improve in 2014

3. Real Estate Investment is on rise

I am in total agreement.

Yet, Jim's report notes that price increases can't be sustained as values have risen with rare exception since 2009.  Though this 

has happened on a national basis, home values were flat or lower until mid 2010 in Hampton Roads.

Thus as a local market, the gradual increases values(4-6%) seen each of the past two years is very sustainable.  In fact, Hampton Roads is expected to continue a roughly 4% increase trend through 2018(as far as projections go for now).   

As always, National Trends or analysis based on given markets(California and Nevada for value increases) will not

match every or any given local market.  Influences or given trends may be true but never will there be perfect consistency.

Every real estate market is a local phenomenon.

Keeping you updated on the market! For the week of  January 6, 2014 MARKET RECAP Trends Persist Heading into 2014 Trends established in 2013 show signs of persisting into 2014... but for how long? Take home prices, which continue to move strongly higher. The latest edition of the S&P/Case-Shiller Home Price Index shows prices rose 1.05% in October. Year over year, prices are up 13.63% in the composite 20-city index to post the strongest year-over-year gain since February 2006. There are a couple points worth noting: First, the latest index reading is for October, so it's two-month in arrears. That said, price data from other providers point to continued gains in November and December. The Case-Shiller index will very likely show that 2013 was a very good year for home prices. It's also worth noting that there is some market rotation going on. Gains are no longer being paced by formerly depressed Phoenix and Las Vegas (where sales dropped to a five-year low in November). Instead, they are being paced by Detroit and Atlanta – markets that have been struggling until recently. This makes sense: Trees don't grow to the stratosphere and holes aren't dug to the center of the earth. There is a limit to how high or how low markets will go until they reverse course. With that in mind, the Case-Shiller index has performed exceptionally well over the past two years. Aside from a hitch in 2010, the index has been on a tear since January 2009. This is unprecedented. And as we've noted before, it's also unsustainable. Once the last of the depressed markets rally, we expect national price appreciation, as well as price appreciation in more local markets, to slow. We wouldn't be surprised to see that begin as early as the first quarter of 2014. The other major trend – rising mortgage rates – is showing signs of being sustained into 2014. Bankrate.com's national survey shows the rate on the 30-year fixed-rate mortgage rose six basis points to 4.69% in the past week. We're not surprised that rates moved higher, because the yield on the influential 10-year U.S. Treasury note is on the rise. In fact, the yield on the 10-year note is above 3%, the highest it has been in over two years. The 30-year loan historically trades two percentage points above the 10-year note. Simple math, therefore, points to a 5% rate on the 30-year loan. We'll likely see 5% prevail by the end of the year, or even by mid-year. On a more positive note, we see a trend reversal in existing home sales. After stagnating in the second half of 2013, sales should gain traction in 2014. We say that because we agree with NAR's chief economist Lawrence Yun and his assessment of the market. Says Yun, “ We may have reached a cyclical low because the positive fundamentals of job creation and household formation are likely to foster a fairly stable level of contract activity in 2014.” We've expressed similar sentiments over the past few months. If our sentiment prevails, it's unlikely that markets will be derailed by higher lending rates and slowing home-price growth. Economic Indicator Release Date and Time Consensus Estimate Analysis International Trade (November) Tues., Jan. 7, 8:30 am, ET $39.9 Billion (Deficit) Moderately Important. The deficit is shrinking on stronger export growth driven by stronger economic growth. Federal Reserve FOMC Meeting Minutes Wed., Jan. 8, 2:00 pm, ET None Important. Expect additional information on the Fed's stance on quantitative easing. Consumer Credit (November) Wed., Jan. 8, 3:00 pm, ET $15 Billion (Increase) Moderately Important. Credit use is rising with consumer confidence and a more optimistic economic outlook. Employment Situation (December) Fri., Jan 10, 8:30 am, ET Unemployment Rate: 7.0% Payrolls: 190,000 (Increase) Very Important. Interest rates will move higher if job growth exceeds expectations. Yet Another Reason to Like This Market There is a common misconception that consumption is the prime driver of the economy. To be sure, consumption matters (because everything is made to be consumed), but production and investment shouldn't be overlooked. After all, production precedes consumption. You have to produce before you get paid with the money to consume. With that in mind, residential real estate investment (defined as investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales) matters. Investment goes hand-in-glove with production. The good news is that residential investment was up strongly in 2012 and 2013. The even better news, it still has a long way to go to reach historical norms. Demand for new investment should be strong through 2014, and very likely through 2015. Stronger residential investment isn't just good for us, it's good for the aggregate economy. Residential investment is a powerful contributor to gross domestic product (GDP) growth and employment. Housing activity contributes up 5% of GDP. The simple logic is that more investment activity will lead to more economic growth. The bottom line is that we look for another strong year for housing. As long as the economy continues to improve, rising lending rates won't alter our outlook.

Mortgage Matter...OCT 21 Update

Keeping you updated on the market! For the week of  October 21, 2013 MARKET RECAP 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. Economic Indicator Release Date and Time Consensus Estimate Analysis 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. Mortgage Applications Wed., Oct. 23, 7:00 am, ET None 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 427,000 (Annualized) 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.

Home Prices up over 8% ---Mortgage Matters

More great news...this time from Jim Belote's Mortgage Matters.  Even if you don't get past the 1st half of the article, you will be doing handstands if you own a home.   Though noting that different indices that are watched vary doing in elements of the means they measure, the summary stated 

"The good news is that prices are up all the way around, no matter how they're measured."

Isn't that what we care about anyway????

Keeping you updated on the market! For the week of  September 2, 2013 MARKET RECAP The End of Rising Home Prices? When recent data is vetted, the answer appears “no.” Home prices will continue to rise. The latest data from S&P/Case-Shiller show prices increased 0.9% month over month in its 20-city index in June. Year over year, Case-Shiller shows prices are up 12%. Meanwhile, data from Lender Processing Services show home prices were up 1.2% for June, which translates to an 8.4% year-over-year gain. We frequently refer to price data from a number of providers, and you might have noticed that the numbers are never the same. We'll use Phoenix as an example. The latest data from the major data sources show year-over-year home-price gains for Phoenix, but the numbers differ. S&P/Case-Shiller FHFA CoreLogic LPS FNC Zillow 19.8% 21.2% 17.1% 16.6% 27.5% 22.0% Time frame, geography measures, and data-gathering methodology are responsible for the differences: CoreLogic uses a three-month moving average. Case-Shiller's definition of a metropolitan is generally broader than the other data service providers' definition. Zillow excludes foreclosure resales, whereas LPS “reflects” price discounts for REO and short sales. FNC attempts to capture the “characteristics” of a home sale in its home price index. The good news is that prices are up all the way around, no matter how they're measured. That said, Case-Shiller's latest release did reveal incidences of slowing price appreciation. We're not terribly surprised; we've been saying double-digit annual price increases are unsustainable for the long haul. We wouldn't be surprised to see year-over-year home-price growth dip into the single digits by the end of the year. That said, we don't believe home-price appreciation will be hindered by rising mortgage rates – as long as the economy improves. On that front, gross domestic product (GDP) growth was revised upward to a 2.5% annual rate for the second quarter. This is good news that points to stronger-than-expected growth for the third quarter. Strong GDP growth, in turn, frequently leads to stronger job growth. Strong GDP growth will also lead to rising mortgage rates, which actually retreated this past week. Last week, we mentioned that the Federal Reserve is the primary driver of interest rates these day. This isn't to say that other factors don't matter. This past week, talk of a U.S. military strike against Syria was ramped up. In response, many investors scurried for the havens of Treasuries and mortgage-backed securities, thus sending their yield lower. We don't believe concerns over Syria will be long lasting. Therefore, the reduction in lending rates is likely a temporary reprieve that potential borrowers should exploit. Economic Indicator Release Date and Time Consensus Estimate Analysis Construction Spending (July) Tues., Sept. 3, 10:00 am, ET 0.2% (Increase) Important. Surging residential construction continues to drive overall construction spending. Mortgage Applications Wed., Sept. 4, 7:00 am, ET None Important. The respite in rising interest rates has helped lift purchase-application activity. Federal Reserve Beige Book Wed., Sept. 4, 2:00 pm, ET None Important. Credit markets will look for more signs of the timing and extent of Fed tapering. Employment Situation (August) Fri., Sept. 6, 8:30 am, ET Unemployment Rate: 7.4% Payrolls: 165,000 (Increase) Very Important. Job growth is a key variable in the Federal Reserve's decision to raise interest rates. The Two-Percentage Point Spread The word “taper” seems to be on everyone's lips these day. As we note above, the Federal Reserve holds the key to higher interest rates. Most market watchers are simply waiting for the Fed to cut back (or “taper”) its purchases of Treasury notes and bonds and mortgage-backed securities. The consensus belief is that when tapering begins, rates will rise. That could be true. But then again, market's are anticipating entities. It's also possible that any interest-rate increases won't be very pronounced, because once tapering begins, its effects will already be built into lending rates. The same market watchers are also speculating on how the Fed will tape: will it taper purchases of both Treasuries and mortgage-backed securities, or only taper Treasuries? If it tapers only Treasuries, it's possible that mortgage rates won't be effected, at least that's the prognosis we've heard. We're not so sure that how tampering materializes matters, because Treasuries are benchmark instruments. The 10-year Treasury note, in particular, is very influential on the 30-year fixed-rate mortgage. As one goes, the other follows in lock-step. The point we want to emphasis is that regardless of how the Fed tapers it will impact the mortgage market. Unfortunately, we simply don't know the magnitude of the impact.