Sep 25, 2013 | Housing Analysis
Home prices were still gaining in July, but for 15 of 20 cities included the S&P Case-Shiller 10 and 20-city Home Price Indices, the pace of increasing home prices is slowing down. National home prices rose by 1.80 percent in July as compared to 2.20 percent in June.
Home prices grew by 0.60 percent from June to July on a seasonally-adjusted basis. This was the lowest month-to-month gain since September 2012.
David Blitzer, index committee chairman of S&P Dow Jones Indices, said that higher mortgage rates are hitting the housing market. Mr. Blitzer noted that mortgage rates rose by more than a percentage point between May and the Federal Reserve’s statement last week.
The Fed was widely expected to reduce its monthly bond purchases from $85 billion to $75 billion, but the Fed decided not to reduce its bond purchases as the economy has not recovered sufficiently.
Mortgage Rates Fall
High home prices and unemployment are making it difficult for first-time and moderate income buyers to compete; buyers sitting on the sidelines are eventually expected to add to the demand for homes.
Mortgage rates fell after the Fed’s announcement, but Mr. Blitzer said that the drop in mortgage rates would likely have a temporary impact on housing. He said that the rate of increase [in home prices] may have peaked.
Conditions contributing to the run-up in home prices include a shortage of available homes and pent-up demand among home buyers. As of July, home prices for the Case-Shiller 20-city index increased by 12.40 percent year-over-year; this was the highest annual rate of increase since home prices peaked in 2006.
Home prices in the Case-Shiller 10-city index increased by 12.30 percent annually. In spite of the rapid price gains, July home prices remained 21 percent below their pre-recession peak.
Home prices in all 20 cities included in the 10 and 20 city indices increased on a month-to-month basis, with home prices increasing by 1.80 percent for the 20 city index and by 1.80 percent for the 10 city index.
Home Prices Show Strong Recovery
Las Vegas, Nevada had the highest annual gain in home prices for July with a 28 percent increase. Las Vegas was one of the cities hardest hit by the recession. Annual home prices for San Francisco, California rose by 25 percent, and New York City had the lowest annual growth rate for home prices at 3.50 percent.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, released its home prices report for properties securing mortgage loans owned or backed by Fannie and Freddie. The annual growth rate for home prices was 8.80 percent as of July, but remains 9.60 percent lower than the peak growth rate reported in April 2007.
Sep 24, 2013 | Housing Analysis
Sales of existing homes reached their highest volume in almost six years in August. The National Association of REALTORS reported Thursday that sales of existing homes rose 1.70 percent in August to a seasonally-adjusted annual rate of 5.48 million existing homes sold.
This was the highest number of existing home sales since February of 2007.
August’s results exceeded estimates of 5.20 existing homes sold, which was based on July’s unrevised reading of 5.39 million existing homes sold.
The NAR also reported that the national median home price increased to $212,100 in August. This represents a year-over-year increase of 14.70 percent and was the largest annual increase in the national median home price since October 2005.
Sales concentrated in areas with higher home prices contributed to this significant increase in the national median home price.
Homebuyers Increase Despite Higher Home Rates
The reading for existing home sales in August suggests that homebuyers are not shying away from higher home loan rates; it may also indicate that the recent shortage of existing homes for sale is beginning to ease.
August’s higher number of existing home sales was attributed to home buyers anxious to lock in lower loan rates in an environment of rising mortgage rates. Also, economists had expected the Federal Reserve to begin reducing its monthly securities purchases, which did not happen.
Had the Fed tapered its securities purchases, long-term interest rates including mortgage rates, would likely have continued rising. The Fed may have decided not to reduce its monthly securities purchase in an effort to slow rising mortgage rates.
The average rate for a 30-year fixed rate mortgage has increased by more than one percentage point since May. Home buyers may respond to rising mortgage rates by delaying their home purchase to see if mortgage rates will fall, or they may rush to buy a home before rates go higher.
Mortgage Rates Affect Home Buyers In Three Ways:
1. As rates increase, monthly house payments also rise, which can impact affordability for first-time and moderate income buyers.
2. National unemployment rates remain higher than the Federal Reserve’s target rate of 6.50 percent. While home prices are increasing and other facets of the economy are showing improvement, jobless claims remain higher than average.
3. Mortgage credit requirements are strict; this keeps some would-be buyers from qualifying for a home loan.
These factors are offset by high demand for homes and short supplies of available homes and developed lots in some areas.
Sep 23, 2013 | Housing Analysis
Last week’s economic news was dominated by the Federal Reserve’s decision not to taper its $85 billion in monthly securities purchases.
Fed Chairman Ben Bernanke noted in a scheduled statement after the Federal Open Market Committee meeting that economic conditions were not yet adequately improved to withstand any decrease in the federal quantitative easing program.
The Fed also reaffirmed that the target federal funds rate would remain at 0.00 to 0.25 percent until the national unemployment rate reached 6.50 percent and inflation reaches 2.00 percent.
The national unemployment rate was 7.30 percent and the Fed projects that inflation will remain under 2.00 percent through 2015.
In both the FOMC statement and his press conference, Chairman Bernanke repeatedly emphasized that the Fed would take no action to reduce QE until the economy strengthens. No automatic reduction of QE purchases would take place without full consideration of the nation’s economy.
The QE program is intended to keep long-term interest rates low, and the announcement that QE would not be tapered brought mortgage rates down after they had increased by more than one percent since May.
Builder Confidence High, Mortgage Rates Lower
The National Association of Home Builders/Wells Fargo Housing Market Index for September revealed that home builder confidence in housing market conditions remained stable at 58; a reading of 59 was expected. Readings over 50 indicate that more builders are confident about market conditions than not.
Housing starts for August did not reflect the high level of builder confidence and fell short of expectations at 891,000. Expected housing starts were estimated at 921,000. There was good news in that August’s reading surpassed the July reading of 883 housing starts. Building permits for August also dropped to 918,000 against expectations of 955,000 and July’s reading of 954,000 building permits.
Higher labor and materials costs and concerns over tight mortgage credit and rising mortgage rates likely contributed to the lower than expected readings for housing starts and building permits.
Freddie Mac’s Primary Mortgage Market Survey reported that average mortgage rates dropped across the board on Thursday. The average rate for a 30-year fixed rate mortgage fell by seven basis points to 4.50 percent with discount points moving from 0.80 percent to 0.70 percent.
The average rate for a 15-year fixed rate mortgage fell by five basis points from 3.59 percent to 3.54 percent with discount points unchanged at 0.70 percent.
The average rate for 5/1 adjustable rate mortgage was lower by 11 basis points to 3.11 percent. Discount points were unchanged at 0.50 percent. This provides a break for home buyers who’ve been faced with rising mortgage rates and home prices amidst a shortage of available homes in many areas.
This Week
Economic news scheduled for this week includes the Case/Shiller Home Price Index for July, the FHFA Home Price Index also for July. New home sales and the pending home sales index will be released.
Freddie Mac will release its weekly summary of average mortgage rates and weekly jobless claims will also be released Thursday. The week will end with consumer related data including personal income and consumer spending for August along with the University of Michigan’s consumer sentiment index for September.
Sep 18, 2013 | Housing Analysis
Home builder confidence was unchanged for September according to the National Association of Home Builders/Wells Fargo Housing Market Index HMI released Tuesday. After four months of rising confidence, September’s HMI reading came in at 58, which was not far from expectations of a reading of 59.
August’s reading of 58 was revised from 59. Readings over 50 indicate that more builders view housing market conditions as being positive than negative.
Housing Market Index Readings Rise
Components of September’s HMI include readings for home builder views of current market conditions, which maintained August’s reading of 62. The September reading for buyer foot-traffic rose to 47 from 46 in August.
Builder expectations for housing market conditions within the next six months slipped from a reading of 48 in August to 45 for September. Lower expectations for market conditions within the next six months likely take into consideration the coming winter months when weather conditions slow construction and home sales.
Home builder confidence has far outpaced actual home construction on a year-over-year basis; the HMI increased by 45 percent since September 2012. Investors expect a seasonally-adjusted reading of 921,000 housing starts for August on Wednesday. This figure represents a year-over-year increase of 23 percent for housing starts.
Rising mortgage rates affected September’s reading. In addition, David Crowe, chief economist for NAHB also cited consumer credit restrictions, a low inventory of lots available for development and rising labor costs as factors contributing to a plateau in builder confidence.
Fed Decision On Quantitative Easing Tapering Expected
Wednesday’s highly anticipated statement from the Federal Reserve’s Federal Open Market Committee (FOMC) has created a “wait-and-see” mood among home buyers, home builders and investors. The Fed is expected to announce whether or not it will begin tapering its $85 billion monthly purchases of securities.
This program, which is called quantitative easing, was designed to keep long-term interest rates low. Speculation on the Fed’s upcoming decision about reducing its securities purchases has caused mortgage rates to rise since May.
Economists are expecting the Fed to announce moderate tapering of QE to $75 billion in monthly purchases. Reducing or not reducing the fed’s securities purchases has become an elephant in the room to those concerned with mortgage rates; in recent months, the Fed has hinted at its intention to taper QE purchases before year-end.
If the Fed reduces its securities purchases, the demand for securities (bonds) is expected to fall, along with bond prices. When bond prices fall, mortgage rates typically rise. The good news is that once the Fed announces a decision on QE, the guesswork will be done for a while.
Sep 16, 2013 | Housing Analysis
Last week didn’t feature any housing-related news other than Freddie Mac’s weekly survey of mortgage interest rates.
Reports on consumer credit, job openings and weekly jobless claims suggest that without some relief in the jobs market, Americans may be taking a “wait-and-see” stance toward buying homes.
Consumer Credit Rose By $10.40 Billion In July
The Federal Reserve reported Tuesday that revolving credit fell by an annual rate of 2.60 percent as compared to an annual decrease of 5.20 percent in June. Non-revolving consumer credit such as vehicle and education loans rose at an annual rate of 7.40 percent.
Freddie Mac’s Primary Mortgage Market Survey indicated that mortgage rates were unchanged for both 30-year and 15-year fixed rate mortgage loans. The average rate for a 30-year FRM was 4.57 percent with discount points of 0.80 percent; this was higher than last week’s 0.70 percent.
Average rates for a 15-year fixed rate mortgage were unchanged at 3.57 percent with 0.70 percent in discount points. The average rate for a 5/1 adjustable rate mortgage fell by six basis points from 3.28 to 3.22 percent with discount points unchanged at 0.50 percent.
Mortgage rates are likely to change next week in response to any announcement by the Federal Reserve regarding its plan for reducing the amount of monthly bond purchases in its current quantitative easing program.
Mortgage rates would likely rise if the Fed begins tapering its $85 billion monthly purchase of securities, but if the Fed maintains its current rate of purchases, mortgage rates could remain steady or fall in response to the news.
Retail sales fell short of expectations on Friday. The Department of Commerce reported a seasonally-adjusted growth rate of 0.20 percent in August against an expected reading of 0.50 percent and July’s revised reading of 0.40 percent, which was initially reported at 0.20 percent.
The University of Michigan/Thompson Reuters Consumer Sentiment Index for September fell to its lowest reading since April. The September reading was 76.80 percent as compared to expectations of 81.50 percent and August’s reading of 82.10 percent.
What’s Coming, Will The Fed Taper Its Securities Purchases?
This week’s economic news is highlighted by the Fed’s FOMC statement scheduled on Wednesday after its two-day meeting. The announcement is expected to include an indication of the Fed’s intention concerning its QE program and whether or not monthly securities purchases will be reduced. Fed chairman Ben Bernanke is scheduled to give a press conference after the FOMC statement.
Other scheduled economic news for this week includes the Consumer Price Index and Home Builders Housing Market Index on Tuesday; Wednesday brings reports on Housing Starts and Building Permits in addition to the FOMC statement and press conference. Thursday’s economic reports include Weekly Jobless Claims and the Freddie Mac PMMS along with Existing Home Sales and Leading Indicators.
Sep 9, 2013 | Housing Analysis
Last week was relatively calm due to the Labor Day Holiday on Monday providing little mortgage and housing related news. However, there were several positive indicators for overall economic conditions.
Construction spending rose by 0.60 percent in July and surpassed economists’ expectations of 0.30 percent and June’s zero percent growth. While this may seem a small increase, any indication that construction spending is increasing could indicate that residential construction is ramping up.
This would be good news for home buyers, who’ve been facing a shortage of available homes in many areas of the U.S.
The Fed Released Its Latest Beige Book Report
Federal Reserve districts reported rising consumer spending in most districts, modest expansion in manufacturing and moderate residential real estate sales. Higher mortgage rates may have dampened home buyer enthusiasm, but an ongoing shortage of available homes is also likely to have contributed to slower sales.
Mortgage rates will likely rise if the Fed tapers its $85 billion monthly purchase of mortgage-backed securities and Treasury bonds as demand for bonds is expected to decrease. When bond prices fall, mortgage rates usually rise.
ADP released its report on private sector jobs added for August; 176,000 jobs were added against expectations of 185,000 jobs added and July’s 198,000 jobs added. The three-month rolling average of private sector jobs added shows steady job growth as jobs added rose from 140,000 in May to 188,000 jobs for August.
Freddie Mac’s Primary Mortgage Market Survey reported that the average rate for a 30-year fixed rate mortgage rose by six basis points to 4.57 percent with discount points unchanged at 9.70 percent.
The average rate for a 15-year fixed rate mortgage rose by five basis points to 3.59 percent with discount points unchanged at 0.70 percent. The average rate for a 5/1 adjustable rate mortgage rose by four basis points to 3.28 percent with discount points unchanged at 0.50 percent.
According to the Bureau of Labor Statistics Non-Farm Payrolls Report for August, 169,000 jobs were created, which fell shy of expectations of 173,000 new jobs. Expectations were based on the original number of 162,000 jobs created in July, but July’s number was revised downward to 104,000 jobs created.
The unemployment report for August was 7.30 percent, down 0.10 percent from July’s reading of 7.40 percent.
The combination of higher mortgage rates, persistently high unemployment and fewer jobs created could signal the Fed to postpone its plan to start reducing its monthly securities purchases.
What’s Coming Up
This week’s scheduled mortgage and housing news is relatively flat, but Freddie Mac’s Primary Mortgage Market Survey will provide the last indication of mortgage rates’ direction before the FOMC meeting on September 18.
The Fed will also likely be watching the Weekly Jobs report and the University of Michigan’s Consumer Sentiment Index as part of its decision-making process on whether to taper or maintain current QE securities purchases.
