Rates Remain Low / Housing Starts Tumble

Mortgage rates continue to hover near record lows with the rate on the benchmark thirty year flirting with 4.875% this week. The rate on the fifteen year fixed rate has dipped below 4.50% coming in at 4.375%. Thirty year rates on most government loan programs including FHA. VA and Rural Development have eased to 5%. Rates were helped this week after Federal Reserve Chairman Ben Bernanke gave a speech on Monday in which he cited “economic headwinds” as rationale for keeping rates low for the foreseeable future. Low interest rates helped keep the value of the dollar low against other major currencies and driven the price of gold to record highs in recent weeks as investors look for a safe alternative to the U.S. currency.
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Home Prices Still Rising

Mortgage rates remain at near eight month lows as strong demand in the bond market drove the yield on the ten year Treasury note below 3.20% before rising slightly to 3.25% today on a renewed rally in stocks. The rate on the benchmark thirty-year is hovering right at 5% with no points and the fifteen-year stands at 4.375. Thirty-year rates actually were pushing 6% back in the spring so this is quite an improvement and rather unexpected. The general consensus has been that as the economy pulls out of recession and as signs of economic growth become more evident, rates would rise as inflationary pressures mounted, but this has not materialized.

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Rates Lower – Single Family Starts Fall

We have had some good news on the housing front over the past week as the National Association of Homebuilders reported that builder confidence rose in September for the third consecutive month to its highest level since May of 2008. The Census Bureau also released a report on August home starts that showed builders broke ground on 598,000 new homes, up 1.5% from July.

The good news was tempered, however, by a surprising drop in the number of single family home starts. While overall starts were up, thanks to a resurgence in multi-family property starts, single-family starts actually fell 3% in August. Some analysts suggested the drop in single-family home starts could simply be an anomaly and point to the overall report as yet another sign that the housing market has bottomed.

Mortgage rates have continued to defy the rally in the stock market with the benchmark conforming thirty-year, fixed-rate settling in at 5.125% with no points. The fifteen year fixed also improved to just under 4.50% as the bond market continues to bet that the Federal Reserve will keep rates low for the foreseeable future. Fed Chairman, Ben Bernanke, has helped reaffirm this belief by stating that while the economy may be approaching the end of the recession the overall economy, and particularly job growth, are likely to remain weak for some time. With the apparent lack of any inflationary pressures on the horizon, the Fed is determined to keep monetary policy very accommodating to insure the economy does not slip back into recession. Over the short-run, I expect mortgage rates to remain in their current narrow range and could ease even further.

One late report out this week from the IRS said that, so far, 1.4 million first-time homebuyers have taken advantage of the $8,000 tax credit. The credit is due to expire on November 30th though there are already some calls from Congress that it should be extended. I’ll keep you posted.

Rates Ease and Home Prices Post Record Fall

Mortgage rates have eased since last week with the rate on the benchmark thirty-year, fixed-rate falling back below 5.50% to settle in at 5.375%. That’s a .25% improvement since last week’s spike up to 5.625%. Rate shave been benefiting form some profit taking in the stock market which has cooled a bit in August following it’s month long rally in July. This is interesting considering last Friday’s unemployment report for July showed far fewer jobs lost for the month than economists expected and an actual decline in the overall unemployment rate to 9.4%. News like this usually provides the impetus for renewing a stock rally as it indicates an economy that may be pulling out of recession and stocks did surge on the news but have since pulled back as worries that we’re not out of the woods yet continue to linger. I have felt all along that the optimism on Wall Street over the better part of this year has been premature and has put the cart well before the horse. The fact bond prices have remained high and rates low supports this theory.

After a plethora of good news on the housing front we finally received a sobering report on June home prices this week. The National Association of Realtors on Wednesday said that home prices fell a record 15.6% for the three month period ending June 30 compared with the same period in 2008. Analysts attribute much of the decline on the excess inventory of distressed properties on the market, those that are either in foreclosure or short-sales, as these properties on average sell at a 15% discount compared to non-distressed properties. Yet there was a glimmer of hope in the report as median home prices actually rose 4% and quarter-over-quarter home sales rose 3.8%. Though fairly typical of a normal spring buying season, it is yet another sign that the worst of the housing market correction may be behind us.

Rates Hold, Home Sales Picking Up

Mortgage Rates have managed to survive some significant volatility in both the equity and bond markets over the past week to remain at 5.50% for thirty-year, fixed-rates. Stocks reacted positively last week after some better than expected initial corporate earnings but have since pulled back on more sober earnings reports and a second monthly decline in consumer confidence. Bond market volatility has been driven by a reaction to stocks along with a massive $200 billion government debt auction this week.

It is expected that the Chinese and others will readily buy up this new debt but concerns linger as to how much of an appetite they will have in the long run as the Federal Reserve raises an unprecedented amount of cash to pay for stimulus and the purchase of mortgage-backed securities. As I have discussed before, it is this delicate balance between the issuance of new government bonds, creating excessive supply, and the purchase of mortgage-backed securities, to create demand, that has managed to keep rates low thus far. If bond prices can hold up through this week we should see reduced volatility and perhaps a slight dip in rates next week.

Last Friday the National Association of Realtors released June existing home sales figures that, while showing an increase of 3.6%, also showed prices of existing homes were 15.4% lower than in June of 2008. Still, the 3.6% increase in sales was slightly better than the 3.4% most economists had expected. On an even more positive note, the government said on Monday that new home sales rose by a whopping 11% in June to a seasonally adjusted 384,000 homes. And while that was still 21% below the same month last year, it still easily beat economists’ forecasts of 352,000 new homes sold.

Perhaps the best news of the week came on Tuesday when the Case-Shiller index of home prices was released for May showing that home values rose on a monthly basis for the first time in nearly three years. The .50% increase was the first month-over-month increase since July of 2006. The Case-Shiller index also showed that home prices for May were off some 17.1% in the 20 major markets but May also marked the fourth straight month where the year-over-year decline lessened in those markets.

I have been reporting a lot of real estate statistics over the past eight months and what jumps out at me most is that in January it seemed for every positive report on housing, there were two that were negative. . . a kind of ‘one step up and two steps back’ scenario. By the middle of the spring, I was reporting roughly a 50/50 split between good news and bad news but now, for the last several months, all I am seeing is positive news. Granted, much of it, though positive, has not exactly been enough to make one jump for joy for a resurgent real estate market but it has been encouraging nonetheless. Two things are abundantly obvious in the recent data. Home sales, both new and existing, are rising and home prices are stabilizing. This has what has long been needed to correct the oversupply of housing through lower prices and increased demand. Let us hope this positive trend continues.

Housing Market Bottoms Out

Mortgage rates eased slightly this week as the bond market was reassured by comments form Chinese officials who indicated they still had a taste for US Treasury debt and that the dollar would remain their primary foreign currency reserve. Thirty year mortgage rates settled to just below 5.50% to 5.375% as the yield on the ten year Treasury fell back to 3.5% after pushing 4% two weeks ago. Fifteen year mortgage rates were even more attractive with the no point coupon at 4.75%. With inflation in check and the stock market sputtering I don’t see any significant upward pressure on rates in the short-run. There will be several economic reports over the next week that could create some daily volatility as investors attempt to determine whether the economy is turning the corner or still stuck in a rut.

A report released on Tuesday showed that we may have finally reached the bottom of the housing market nationally. The S&P Case Shiller Index of home prices, though down 18.1% from the same month a year ago, showed only a .6% drop from March to April. This is nearly three quarters lower than the previous month’s decline of 2.2%. The Case Shiller index has shown a monthly decline for every month since July of 2006. Yale Economist and co-creator of the index, Robert Shiller, called it, ” a striking improvement in the rate of home price decline.” The good news was tempered, however, by another report that showed more prime mortgage loans became delinquent in the latest quarter and a report on consumer confidence showed a surprise dip. It will be interesting to see in this week’s report from the National Association of Realtors on pending home sales whether more evidence of a housing recovery can be seen.

Housing Starts Shoot UP 17%

Mortgage rates have eased somewhat this week as weakness in the stock market has translated into higher demand for bonds. Stocks have been hit by a renewed sense of uncertainty as investors wonder if the rally over the last several months has gotten ahead of the economic realities. A stock’s loss is a bond’s gain and the thirty-year fixed mortgage rate now stands at 5.50%. Fifteen year fixed rates are just below 5% at 4.875%. The jumbo market continues to be nearly non-existent with thirty year rates for loans over $417,000 back over 7% with no relief in sight.

More signs the housing market is stabilizing could be found in a report released by the Census Bureau that showed housing starts jumped 17.2% in May to an annualized pace of 532,000 after a revised estimate of 454,000 in April. The data also revealed that new building permits rose by 4% in May. Other news, on the economy as a whole, showed inflation at the wholesale level remains in check with the Producer Price Index rising by a modest .2% last month. Economists had expected a rise of three times that at .6%. Year over year, wholesale prices have fallen by 5% – the largest annual rate of price decline since 1949.

There is a lot of talk in the media about the fact that financing for real estate is so difficult to obtain these days and it is true that underwriting and credit standards have tightened significantly. Yet most of the difficulties lie in the second home, investor and condo markets. For primary residence purchasers buying single family detached homes, however, times could not be better. Low rates are still with us ( yes 5.50% is low) there is an $8,000 first –time buyer tax credit, home prices are their lowest in years and mortgage programs abound. FHA , Rural Development and VA loans are still extremely attractive options with relaxed down payment, credit, and debt ratio requirements and offer repeat and first-time buyers alike an opportunity to take advantage of the amazing deals to be found right now. I would be happy to explain these programs in detail with anyone interested.

30 Year Fixed Spikes 1/2 Point

What a difference a week makes! Last Wednesday I reported that the days of long-term mortgage rates under 5% were likely at an end. Seven days later we find the thirty-year fixed rate for conforming mortgages near 5.50%. A series of government Treasury auctions last week were met with little enthusiasm as investors are demanding a higher return than these bonds can deliver. The continued strength in the stock market, which saw one of its best months in recent memory in May, has also drawn investors away from bonds putting downward pressure on prices and increasing bond yields significantly. As of Tuesday, the yield on the ten year Treasury note stood at 3.64%

There is good news to on the housing front to report. On Tuesday, the National Association of Realtors reported that pending home sales rose a whopping 6.7% in April after a surprise jump of 3.2% in March. This shattered consensus expectations of a rise of only .5%. Also on Tuesday, the Commerce Department reported a surprise jump in construction spending in April. Commerce said spending rose .8% in April, the biggest increase since August. Analysts were anticipating a 1.3% decline. Most significantly, spending on residential construction rose .7% providing further indication that the housing market is attempting to recover. Another report from the Institute for Supply Management said its index of manufacturing activity rose to 42.8 in May from 40.1 in April – its highest reading since September. This news helped offset a report that showed consumer spending slipped .1% in April after falling .3% in March. All combined, the silver linings seen in reports on the health of the economy continue to lead many analysts to believe the severity for the recession is easing and that a recover will likely begin in the third quarter of this year.

My observations on the local real estate market tend to show the majority of purchasers we are currently seeing in the market are a mix of out of state second-home buyers taking advantage of the incredible deals and first-time homebuyers jumping off the fence sensing that prices will not go lower and seeing rates begin to rise. I am also seeing some locals taking advantage of the market conditions to downsize or make a change from single-family to condominium living. All in all, I see a good mix of buyers right now and plenty of financing options to fit their needs. We are returning to a normal market void of speculators and flippers which should lay the groundwork for long-term recovery and sustainability.

Higher Interest Rates Drop Refi Applications

We are beginning to see a bit more volatility with rates as compared to the past several months as the stock market continues to post gains despite continued economic uncertainty. Rates have been held down by the Federal Reserve’s program of buying up mortgage-backed securities and the minutes from their last meeting released last week revealed they are considering purchasing an additional $750 billion for a grand total of $1.5 trillion. This news helped thirty-year mortgage rates remain barely below 5% despite a broad sell-off in the bond market that saw the yield on the ten year Treasury note rise to 3.43% – its highest level in months.

On Tuesday, a dismal housing report showing home prices decline some 19% year over year in the first quarter was outweighed by a report showing consumer confidence jumped by its biggest amount in six years to its highest levels in eight months reigniting the rally in the stock market. On Wednesday, the Mortgage Banker’s Association of America reported that applications dropped 14% last week as the highest interest rates in two months have sharply curtailed refinances.

If the current exuberance in the equity markets continues to put downward pressure on bond prices, we may see the last of sub 5% mortgage rates. Investors are looking for higher returns and seem to believe increasingly of late that the end of the recession will be sooner rather than later. Still, I do not expect mortgage rates to spike dramatically but, rather, slowly rise as risk aversion diminishes in the markets. Look for rates to stay around 5% for the next month or so with increased day to day volatility.