We are definitely seeing a return to volatility in mortgage rates as a see-sawing stock market has made for fickle demand for bonds. While sitting near record lows for several weeks rates bounced back up by late last week and were approaching 5.375% on the conforming thirty-year, fixed-rate on Monday before settling back to 5.25% on Tuesday. Some of the pressure on rates can be attributed to the huge government bond auction this week that will push the nation’s overall debt to near its debt ceiling of just over $12 trillion. The $123 billion in government securities creates additional supply yet, so far, it appears there is still adequate demand to absorb the new debt which has allowed rates to ease somewhat. I believe we will continue to see this return to volatility in both bonds and equities as investors become less convinced that this year’s rally in stocks will continue.
I said I would keep you posted on the First Time Homebuyer’s Tax Credit and any attempts to have it extended beyond the current November 30th deadline. It appears Congress has taken up the issue in earnest with both sides of the aisle offering their two cents on what needs to be done. Senator Johnny Isaacson (R-GA), along with fellow Senator Chris Dodd (D-CN), has proposed raising the credit to $15,000 and making it available to all homebuyers, not just first-timers. The White House is weighing everything form extending the credit to allowing it to expire as scheduled and HUD Secretary Shaun Donovan told a Senate hearing that while the credit has obviously helped the market, the Administration wanted to carefully weigh the costs and benefits of extending the credit. A recent report from the Brookings Institute painted a less than glowing cost / benefit analysis of the tax credit which estimated that 85% of those getting the credit would have bought anyway and that the credit is costing the taxpayer $43,000 per sale. Also, the IRS reports it is already investigating more than 100,000 cases of fraud involving the program including one case of a four year old boy trying to claim the credit.
Home prices rose again in August according to the S&P Case-Schiller Home Price Index of 20 cities. The 1.6% increase marked the fourth consecutive month home prices have risen. More interestingly, while home prices were still down 11.3% from August of 2008, they were above economists’ forecasts who expected the year over year decline to be 11.9%. David Blitzer, Chairman of Standard and Poors index committee said, “Broadly speaking, the rate of annual decline in home price values continues to improve.” He added that while many markets remain in decline, the relative rate of decline, “has shown some real improvement.” It appears a drawdown of supply, as evidenced by last Friday’ s existing home sales figures which showed sales rose 9.4% in September decreasing the average number of months on the market down from 9.3 to 7.8 ( the lowest in two and a half years) is having a stabilizing effect on home prices. Let’s hope the good news continues.