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What’s Ahead For Mortgage Rates This Week : January 31, 2011

January 31, 2011 Leave a comment

Jobs in focus this weekMortgage markets improved this week as positive economic data was overshadowed by geopolitical strife. A flight-to-quality drove buy-side activity in mortgage bond markets, which, in turn, helped conforming rates fall.

Last week marks the first time this year that mortgage rates fell on a week-over-week basis, and considering why rates fell, it points to the fragile nature of the global economy.

By all accounts, last week showed that the U.S. economy is in recovery.

  1. Housing data rises to its best levels in 8 months (LA Times)
  2. Consumer sentiment hit a 7-month high (NPR)
  3. Business investment increased 1.4% in December

Furthermore, the Federal Open Market Committee met last week and said that the economy continues to expand (although the pace is slower-than-optimal).

Normally, positive news like this would drive mortgage rates higher, and during the early part of the week, it did. But then, as political problems in Egypt grew larger, international investors began to shift money from their risky assets into the relative safety of the U.S. bond market.

This includes mortgage-backed bonds, of course. The buyer influx pushed up prices and, because bond yields move opposite price, mortgage rates dropped.

The week ended with rates at their lowest levels of the week.

Next week, though, rates could reverse. There’s two developing stories rate shoppers should watch.

The first is related to Egypt. In addition to buying mortgage-backed bonds, investors are gambling that oil prices will rise, too. Egypt is the world’s 21st largest oil producer and a disruption of its supply could send gas prices soaring. This circumstance would be inflationary and inflation is the enemy of mortgage bonds.

Crude oil jumped 4.3% Friday afternoon. If that continues, mortgage rates should start rising.

The second is tied to jobs. Last month’s jobs data was weaker-than-expected on Wall Street and it sparked a mini-rally in mortgage rates to start the year. Jobs are paramount to economic recovery so if this month’s figures are lower than the consensus figure of 150,000, expect mortgage rates to fall.  If the number is stronger than 150,000, expect mortgage rates to rise.

The jobs report is released Friday at 8:30 AM ET.

New Home Sales Reach 8-Month High

January 28, 2011 Leave a comment

New Home Supply (Dec 2009 - Dec 2010)Sales of new homes rose sharply in December, posting a 17.5 percent gain from the month prior.

According to the Department of Housing and Urban Development, New Home Sales climbed to 329,000 in December, besting November by close to 50,000 units on a seasonally-adjusted annual basis.

Last month’s reading is an 8-month high for New Home Sales, and the latest in a series of signals that housing is improving around the country.

Note that December’s Existing Homes Sales and Building Permits reports also showed marked gains last month, climbing 12 percent and 6 percent, respectively.

Furthermore, an interesting pattern is emerging in the price points of home sales. The highest levels of relative growth are occurring within the “move-up buyer” segments. Entry-level price points are lagging the market, as a whole.

December’s New Home Sales data breaks down by price point as follows:

  • Homes under $200,000 : 36% of the market (-9% from November)
  • Homes between $200,000-$299,999 : 32% of the market (+7% from November)
  • Homes between $300,000-$499,999 : 27% of the market (+7% from November)

Luxury homes accounted for less than 5% of the newly-built home market, suggesting that homeowners are either not “buying new” as frequently, or are choosing to renovate their existing properties instead.

The 2010 housing market finished on a tear, and that momentum is carrying forward into 2011. Expect the spring season to show strongly, putting pressure on home prices to rise.

Coupled with rising mortgage rates, the long-term cost of homeownership is unlikely to be as low as it is today.

A Simple Explanation Of The Federal Reserve Statement (January 26, 2011 Edition)

January 26, 2011 Leave a comment

Putting the FOMC statement in plain EnglishToday, the Federal Open Market Committee voted 10-to-0 to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that since December’s meeting, economic growth is ongoing, but at a pace deemed “insufficient” to make a material impact on the jobs market. In addition, the Fed said household spending “picked up” late last year, although it continues to be held back by joblessness, tight credit and lower housing wealth.

This is similar to the language used in the FOMC’s November and December 2010 statements.

Also like its last two statements, the Fed used this month’s press release to re-affirm its plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package in place.

And finally, of particular interest to home buyers and mortgage rate shoppers, for the second straight month, the Federal Open Market Committee’s statement contained an entire paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, while fostering maximum employment. 

The Fed acknowledges progress toward this goal, but calls that progress “disappointingly slow”. Inflation is too low right now, and joblessness too high.

Over time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC has been positive since the statement’s release. Mortgage rates are unchanged, but poised to improve.

The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.

The Home Price Index Shows Flat For November

January 26, 2011 Leave a comment

Home Price Index from peak to presentHome values were reported unchanged in November 2010, on average, according to the Federal Home Finance Agency’s Home Price Index

We say “on average” because the government’s Home Price Index is a data composite for the country. The index doesn’t measure citywide changes , nor does it get granular down to the neighborhood level.

Instead, the Home Price Index groups state data in 9 regions with each regions having as few as 4 states in it, and as many as 8.

Not surprisingly, each of the regions posted different price change figures for the period of October-to-November 2010.

A sampling includes:

  • Values in the Pacific region rose +1.2%
  • Values in the New England region rose +0.3%
  • Values in the Mountain region fell -1.9%

The complete regional list is available at the FHFA website.

That said, none of these numbers are particularly helpful to today’s home buyers and sellers and that’s because everyday people don’t buy and sell homes on the Regional Level. We do it locally and the government’s Home Price Index can’t capture data at that level.

It’s a similar reason to why the Case-Shiller Index is irrelevant to buyers and sellers.

November’s Case-Shiller Index showed home values down 1 percent in November, but that conclusion is a composite of just 20 cities nationwide — and they’re not even the 20 largest cities. Philadelphia, Houston and San Jose are conspicuously absent from the Case-Shiller list.

So why are reports like the Home Price and the Case-Shiller Index even published at all? Because, as national indicators, they help governments make policy, businesses make decisions, and banks make guidelines. Entities like that are national and require data that describe the economy as a whole. Home buyers and sellers, by contrast, need it locally.

Since peaking in April 2007, the Home Price Index is off 14.9 percent.

The Fed Meets Today. What It Means To Mortgage Rates.

January 25, 2011 Leave a comment

Fed Funds Rate vs Conforming Fixed Rate (2000-2010)The Federal Open Market Committee begins a 2-day meeting today in Washington D.C. It’s the group’s first meeting of 2011 — one of 8 scheduled for the year.

The Fed meets every 45 days, on average. Its last meeting was December 14, 2010.

Rate shoppers and home buyers should make a note. Mortgage rates and home affordability could change dramatically beginning tomorrow afternoon.

Because Wall Street watches FOMC meetings closely, so should you. The meetings provide insight on the future of U.S. monetary policy, as told by the nation’s central banker. Investors make trades based on the FOMC’s commentary which is one reason why mortgage rates tend to undulate through the hours leading up to the FOMC’s adjournment, and the days immediately after.

Wall Street is shifting old bets, and placing new ones.

A terrific example of this is what happened after the Fed’s November 3, 2010 meeting.

In its post-meeting press release, the Federal Reserve announced a new, $600 billion, market-bolstering plan dubbed “QE2”. Wall Street had widely expected the Fed to create the program, but had underestimated its size.

Starting a $600 billion program sparked fears of a Fed-led inflation run, which, in turn, caused mortgage markets to deteriorate in a hurry. In the 3 days following the program’s announcement, mortgage rates spiked to multi-month highs and have not since recovered.

QE2 marked the beginning of the end of the Refi Boom and low rates. Today, conforming rates are relatively low as compared to higher, but are much higher than they were prior to the FOMC’s November 2010 meeting.

Then, December’s FOMC meeting did little to change the direction of rates. We shouldn’t expect that January’s will, either. After the FOMC’s 2:15 PM ET adjournment Wednesday, mortgage rates should resume climbing, as they have done for the past 10 weeks.

If you’re shopping for a mortgage rate, therefore, the prudent move is to lock prior to Wednesday’s FOMC adjournment because, after once the Fed’s outlook is released, it will be too late. 

What’s Ahead For Mortgage Rates This Week : January 24, 2011

January 24, 2011 Leave a comment

Federal Reserve Meets Jan 25-26 2011Mortgage markets worsened last week in a holiday-shortened trading week.

As the body of U.S. economic data continues to show slow, steady improvement, Wall Street is becoming a net-seller of mortgage-backed bonds. As a result, conforming mortgages rates are rising.

This is why conforming and FHA mortgage rates rose last week. Existing home supplies plunged to a 2-year low in December, and unemployment claims dropped more than expected, giving hope for the U.S. economy in 2011.

This week, that trend may continue. There’s a lot of news set for release.

The biggest story of the week is Federal Open Market Committee’s 2-day meeting. Scheduled for Tuesday and Wednesday, the FOMC’s meeting is the first of its 8 scheduled meetings this year.

In it, the FOMC is expected to vote the Fed Funds Rate unchanged in its target range near 0.000 percent, but it won’t be what the Fed does that’s so important to mortgage markets — it will be what the Fed says. Wall Street will be watching the FOMC’s post-meeting press release for clues about the economy, and the central banker’s next steps. From what it reads, Wall Street will react.

This week is also heavy on housing data.

Following up on last week’s Existing Home Sales and Housing Starts figures, this week features 4 additional releases:

  1. Case-Shiller Index (Tuesday)
  2. Home Price Index (Tuesday)
  3. New Home Sales (Wednesday)
  4. Pending Home Sales (Thursday)

Strength in housing should lead mortgage rates higher as it becomes more clear that the sector is on solid ground.

Since November 3, mortgage rates have been trending higher across the country. The Refi Boom is over, but low rates remain — for now. If you’ve yet to lock a mortgage rate, consider doing it soon. 

Before long, rates won’t be so low.

Home Supplies Plummet, Putting Pressure On Prices To Rise

January 21, 2011 Leave a comment

Existing Home Supply 2009-2010Existing Home Sales surged 12 percent last month, closing 2010’s housing market with strength. An “existing home” is a home that cannot be categorized as new construction; a resale.

According to the National Association of REALTORS®, seasonally-adjusted, annualized Existing Home Sales figures climbed by more than a half-million units in December as compared to November. It’s the 3rd straight month of home resale improvement nationwide.

Sales volume is now as high as it’s been since May 2010 — just after the federal home buyer tax credit’s expiration.

In addition, the number of months needed to sell the complete, current home inventory at the current pace of sales fell by 1.4 months, tying December for the biggest one-month home supply improvement in 2 years.

It’s yet another signal that the housing market is in recovery. Not that this data should surprise anyone. November’s Pending Home Sales report told us to expect it two weeks ago.

Broken down by buyer-type, home sales split as follows:

  • First-time home buyers : 33% of all sales
  • Repeat buyers : 47% of all sales
  • Real estate investors : 20% of all sales

Cash buyers represented 29 percent of all transaction, down 2 ticks from November. This may suggest that mortgage guidelines are loosening — another sign of economic improvement.

So, take note, home buyers. This spring, along with mortgage rates, home values should rise, too. Expect less “bang for your buck” as the housing recovery takes hold across the nation.

The best deals of the year may be the ones made this month.

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