Monthly Archives: April 2010

The Headlines Were Overly Rosy On February’s Case-Shiller Index

April 30, 2010
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Case-Shiller Change In Home Values Jan-Feb 2010

Earlier this week, Standard & Poors released its February Case-Shiller Index, a home price tracker for select metropolitan areas. 

Overwhelmingly, home values fell in the 20 markets tracked by the Case-Shiller. Only San Diego showed a modest increase.  The other 19 markets averaged a 1.23 percent decline between January and February.

However, that’s not the story you read in the most papers. Instead, headlines read that home values were up in the United States, citing annualized data.

Unfortunately for active home buyers and sellers, year-over-year data isn’t all that helpful when making a real estate decisions. It’s the month-to-month data that matters. Month-to-month changes in home prices are what defines a housing market. Month-to-month is what sets the tone for contracts and negotiations on a purchase.

The rosier, annualized data published this past week just doesn’t capture the reality of what was the February 2010 market.  And even then, the data is somewhat useless because it’s from February and May will be upon us next week.

Case-Shiller is on a 2-month lag — hardly reflective of the “right now” of real estate in Tumwater.

When you’re looking for real estate data that actionable, consider using sources that are more “real-time”. A real estate agent may be the right place to start.  Because for all the data that Case-Shiller and the other housing indices collect, it can never be as relevant to your individual needs as a well-executed, timely market analysis.

Fixed-Rates Stable, Posting Little Change From Last Week’s Figures

April 29, 2010
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McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.06 percent with an average 0.7 point for the week ending April 29, 2010, down slightly from last week when it averaged 5.07 percent. Last year at this time, the 30-year FRM averaged 4.78 percent.

The 15-year FRM this week averaged 4.39 percent with an average 0.7 point, unchanged from last week when it averaged 4.39 percent. A year ago at this time, the 15-year FRM averaged 4.48 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.00 percent this week, with an average 0.6 point, down from last week when it averaged 4.03 percent. A year ago, the 5-year ARM averaged 4.80 percent.

The 1-year Treasury-indexed ARM averaged 4.25 percent this week with an average 0.5 point, up from last week when it averaged 4.22 percent. At this time last year, the 1-year ARM averaged 4.77 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

“Mortgage rates on 30-year fixed loans have averaged about 5 percent over the first four months of this year, staying within a band of roughly a quarter percentage point and virtually matching 2009’s annual average,” said Frank Nothaft, Freddie Mac vice president and chief economist.” These low rates have been helping to moderate house price declines over the course of the year.

“Prices on existing homes showed a 12-month increase of 0.7 percent in February, which was the first annual increase since December 2006, according to the S&P/Case-Shiller® 20-city composite index [PDF]. In addition, nine cities experienced positive growth, matching the number in January. Further, the Census Bureau’s Constant Quality price index showed that new home prices rose 2.5 percent in the first quarter on an annual basis.”

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

TO READ THE ENTIRE REPORT ISSUED BY FREDDI MAC TODAY CLICK HERE.

A Simple Explanation Of The Federal Reserve Statement

April 28, 2010
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Putting the FOMC statement in plain EnglishToday, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its current target range of 0.000-0.250 percent.

In its press release, the FOMC noted that, since March, the U.S. economy “has continued to strengthen” and that the jobs markets “is beginning to improve”.  This is a step up from the last meeting after which the Fed said jobs were “stabilizing”. 

It also reiterated that business spending “has risen significantly”.

Today’s statement marks the 7th straight press release in which the Fed shows optimism for the U.S. economy. Furthermore, the Fed has now closed all but one of the programs it created to support markets during last year’s financial crisis.

Threats remain to growth, however. The Fed fingered a few:

  1. Employers are reluctant to hire new workers
  2. High unemployment threatens consumer spending
  3. Consumer credit (still) remains tight

Also in its statement, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent “for an extended period”.  This was expected.

Overall, the statement’s tone was positive and the Fed noted that inflation is within tolerance. 

Mortgage market reaction has been muted thus far. Mortgage rates in Lacey are unchanged post-FOMC.

The FOMC’s next scheduled meeting is a 2-day affair, June 22-23, 2010.  The 55-day span between meetings will be the FOMC’s longest of 2010.

The Fed Adjourns From A 2-Day Meeting Today And What It Means For Mortgage Rates

April 28, 2010
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Comparing 30-year fixed mortgage rate to Fed Funds Rate since 1990The Federal Reserve adjourns from a scheduled, 2-day meeting today.  It’s one of 8 scheduled Fed meetings for 2010.

Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.

The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.

The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans.  Prime Rate is equal to the Fed Funds Rate + 3 percent.  Credit card rates, therefore, will likely stay flat today, too.

Mortgage rates, however, should change.  Possibly by a lot.  The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).

The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight vrious parts of the economy, identifying strengths, weaknesses and probable threats to growth. 

These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip –  mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.

It’s a difficult time to be shopping mortgages in Washington State.

Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.

Therefore, if you’re actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall.  This is, however, a lot of room for them to rise.

The Fed adjourns at 2:15 PM ET.  Call your loan officer to lock your rate.

New Homes Sales Were Strong in March, But Not As Strong As The News Would Have You Believe

April 27, 2010
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New Home Sales Mar 2009-Mar 2010The sales of newly-built homes soared in March. Even more than what was expected. But the news may not be as glowing as what the media is telling us.

Take a look at the headlines from last Friday:

  • Sales of new homes rocketed up 27 percent in March (WaPo)
  • New-home sales rise fastest in 47 years (CNNMoney)
  • Sales of New Homes Climb by Most Since 1963 (Business Week)

None of these statements is false, per se, but each is somewhat misleading.  The biggest reason why March’s New Home Sales was even able to rise 27 percent is because data from the month before it — February — was the worst in New Home Sales history.

In February, new homes sold posted its lowest level in recorded history. 

A better comparison would be against March a year earlier; or October 2009, the month before the home buyer tax credit’s initial expiration date. 

Against both of those time periods, March 2010 fared well.

Home buyers – first-timers and repeats alike — went under contract last month, taking advantage of the soon-to-expire federal home buyer tax credit program.  The credit gives up to $8,000 for first-time buyers and up to $6,500 for repeat ones.

Buyers must be in mutual contract on or before April 30, 2010 to be eligible for the credit, and must closed on or before June 30, 2010.

The New Home Sales data included other strong housing data, too. The current supply of new homes nationwide is at a multi-year low.  Along with stronger home demand, this should push Olympia home prices higher throughout the coming months.

It’s no wonder builders are bullish on the economy.

What’s Ahead For Mortgage Rates This Week : April 26, 2010

April 26, 2010
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Federal Reserve meets Apr 27-28 2010Mortgage markets worsened last week in see-saw trading. By the time Friday’s market closed, mortgage rates in Washington State were higher across the board — ARMs, fixed rates, FHA and conventional.

The biggest stories of last week were actually non-stories. 

First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product.  In addition, Greece moved closer to securing emergency funding that will help it stave off default.

When these two issues were threats earlier in the month, mortgage bonds rallied on safe haven buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and mortgage rates rose.

By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.

  • Monday : Greece is expected to announce an aid package
  • Tuesday : Case-Shiller Index reports on home values from February
  • Wednesday : Fed adjourns from its 2-day meeting
  • Thursday : Initial Unemployment Claims are released
  • Friday : GDP and consumer confidence numbers are released

Furthermore, Wall Street will have its eye on the Senate’s questioning of key Goldman Sachs employees in the wake of the SEC’s fraud charge.

In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse.  And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.

The best defense against rising mortgage rates is to execute a rate lock. If you’re nervous about rates moving higher, call your loan officer and execute your rate lock today.

Home Resales Boom Into The End Of The Tax Credit; Home Values Seen Rising.

April 23, 2010
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Existing Home Sales Mar 2008-Mar 2010Existing Home Sales rose in March, as expected. U.S. home buyers closed on 7 percent more homes as compared to February.

Furthermore, versus March 2009 — a month many people equate to the low point of the U.S. economy — sales volume was up 16 percent.

“Existing home sale” is the technical term for a home resale; a home previously inhabited by a person.  It’s the opposite of a “new home sale” which is a sale of a newly-constructed home.

Existing Homes Data is tracked by the National Association of Realtors® and a closer look at the March data reveals some other interesting notes:

  1. Year-over-year sales are higher for the 9th straight month
  2. Real estate investors represented 19 percent of all homes purchased
  3. First-time home buyers account for 44 percent of all buyers

Also worth noting is that the supply of available homes is down on a broader basis.  At the current rate of sales, the existing home inventory will be exhausted in 8 months.

Despite banks releasing foreclosures and REO into the Olympia market, that’s still one half-month less from February.

When supplies drops, home prices tend to rise. It suggests an underlying strength in housing that should support home prices through the next few months — especially as the home buyer tax credit finishes working its way through the system.

That said, real estate markets are local. You shouldn’t assume that what’s happening on the national level is also happening here at home.  Be sure to check with your real estate agent about local market conditions before making a decision to buy or sell.

How Iceland’s Volcanoes Are Helping Mortgage Rates Fall

April 21, 2010
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Mortgage rates react to natural disastersMortgage rates and home affordability have improved lately, thanks to an unlikely ally — Mother Nature.

In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.

It’s a drag on commerce that’s spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table. 

In trading circles, it’s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets.  This includes government-backed securities — mortgage-bonds among them.

Demand for bonds rise, pushing up prices and driving down rates.

Conforming and FHA mortgage rates in Washington State touched a 3-week low earlier this week.

Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There’s literally thousands of influences on the U.S. mortgage market.

If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.

When that happens, mortgage rates will rise.

Therefore, use the seismic uncertainty to your advantage.  Consider locking your mortgage rate sooner rather than later — while rates are still low.

Daily Rate Lock Recommendation – 04/20/2010

April 20, 2010
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Tuesday’s bond market has opened down slightly with no relevant economic news on tap today and the stock markets in positive ground. The major stock indexes are showing gains with the Dow up 25 points and the Nasdaq up 12 points. The bond market is currently down 3/32, which will likely mean an increase of approximately .250 of a discount point in this morning’s mortgage rates. However, most of this increase is a result of yesterday’s late weakness in bonds and not of this morning’s minor loss.

There is no relevant data scheduled for release today or tomorrow. This likely leaves the bond market, and therefore mortgage rates, to the mercy of the stock markets. If the stock indexes rally again like they did late yesterday, we may see bonds fall and another afternoon increase in mortgage rates. But if they remain near current levels, mortgage rates should follow suit.

There are a couple of key names posting quarterly earnings after the markets cl ose today, including Apple. If they beat analysts’ forecasts, we will probably see stock rise tomorrow and bonds fall. If the corporate earnings fall short of expectations and the stock markets post losses tomorrow, bonds should benefit as investors seek safe-haven from the volatility. That would be good news for mortgage shoppers since it should lead to improvements in mortgage rates.

Thursday morning brings us the release of March’s Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments, leading to higher mortgage rates. However, a slight increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.5% increase in the overall reading and a 0.1% rise in the core data.

Also Thursday, the National Association of Realtors will post March’s Existing Homes Sales numbers. A similar report to this one and actually the week’s least important data- March’s New Home Sales will be released Friday morning. Both of these releases give us an indication of housing sector strength and mortgage credit demand, but unless they vary greatly from analysts’ forecasts, I don’t think they will cause much movement in mortgage rates. Both are expected to show increases from February’s levels.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Float if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days. .. Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2010

Daily Rate Lock Recommendation – 04/19/2010

April 19, 2010
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The bond market has slipped well into negative ground after the stock markets have moved well off earlier lows. The Dow is currently up 65 points after being down slightly earlier. The Nasdaq is still in negative ground but is close to the high of the day. The bond market is currently down 9/32, which will likely cause afternoon upward revisions to mortgage rates of approximately .125 – .250 of a discount point from this morning’s rates.

This week is moderately active in terms of economic news scheduled for release. There are five reports scheduled, but only two of them carry the potential to cause noticeable movement in mortgage rates. Accordingly, there is a decent possibility of seeing a relatively calm week in the mortgage market, assuming that the stock markets do the same.

The Conference Board, who is a New York-based business research group, gave us today’s only economic data. They reported t hat their Leading Economic Indicators (LEI) rose 1.4% last month, exceeding forecasts of a 1.0% increase. This means that the index is predicting rapid growth in economic activity over of the next several months, which can be considered negative news for the bond market and mortgage rates. However, since this data is considered to be only moderately important, its impact on this morning’s rates was fairly minimal.

There is no relevant data scheduled for release tomorrow or Wednesday. Look for the stock markets to heavily influence bond trading and mortgage pricing the next couple of days. If the major stock indexes rally, bonds could suffer and push mortgage rates higher. Thursday or Friday will likely end up being the most important day of the week with the Producer Price Index (PPI) and Durable Goods reports being released respectively.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 da ys… Float if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2010