Keeping you updated on the market!
For the week of
May 17, 2010
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MARKET RECAP
The pig is progressing through the python – the pig being the shadow inventory of foreclosures, the python being the market. According to Barclays Capital, there are currently 2.4 million loans in 90-plus day delinquency and another 2.1 million in foreclosure, totaling 4.5 million in shadow inventory. Barclays says that this inventory should reach the high-point this summer and then fall off, as the market absorbs an estimated 130,000 distressed properties per month.
New foreclosures shouldn't distend the market much further. Foreclosure filings dropped year-over-year for the first time since RealtyTrac began measuring such statistics, in January 2005. Granted, we are dropping from monumental levels, but it is good news nonetheless.
The aggregated numbers remain a little daunting, but it's worth noting how foreclosure activity is measured. RealtyTrac adds notices of default, notices of foreclosure sale, and actual foreclosures (so if a property goes all the way to REO, it will be counted three times) to arrive at activity. REOs are still at record levels, but the initial stages have declined substantially, which bodes well for the shadow inventory; hence, Barclays' optimistic prediction that the worst, if not yet over, is close to being over.
All these bits and pieces of housing data eventually work their way into home prices, which continue to stabilize, as demand for higher-priced homes (driven by improving job prospects) picks up and the sale of distressed properties cease changing hands at deeply discounted prices. On that front, the number of metropolitan areas where median prices are rising grew for the fourth consecutive time. In the latest quarter, prices gained in 91 of the 152 metropolitan areas tracked by the NAR compared to 67 in the fourth quarter of 2009 and 30 in the third quarter of 2009. In short, we're on the right path.
But the farther we go down that path, the fewer deals we'll encounter. A year ago, buyers were keeping to the sidelines because they were concerned with catching a falling knife – buying a home at $250,000 only to see a comparable property fetch $230,000 three months later. We believe those days are over, which is one reason we continue to implore those on the sidelines to get in the game.
Mortgage rates are the other reason. Yes, the 30-year fixed-rate loan continues to bob around 5 percent while the 15-year fixed-rate loan continues to bob around 4.5 percent, but they're not sinking, and they won't. Therefore, we see no reason for someone inclined to refinance or to buy a home not to, especially given the optimistic outlook on jobs and the economy and the continued expectation for higher mortgage rates.
The Post-Credit Era
We've been saying for the past month or so that we're not particularly worried about the end of the federal homebuyers tax credits. We also weren't particularly concerned when the Federal Reserve said it would cease purchasing mortgage-backed securities. After all, the only way to discover if a market is truly healthy and viable is to stop subsidizing it.
It's still early to render a verdict, but so far so good. People recognize that the combination of low rates and lower home prices represent a great opportunity, while many shoppers who failed to find a home to qualify for the tax credit remain undeterred and, just as important, rational – understanding the go-go days of the early 2000s are over. And that's a good thing. The market of that era was driven more by speculation and less by fundamentals. And though it was highly remunerative for many of us, we see how it turned out.
In housing, slow and steady wins the race, which is why we continue to advise our clients that today's market offers good fundamentally sound deals that can be financed at good economically advantageous interest rates. Sounds like a win-win deal to us.
Wednesday, May 19, 2010
Monday, May 10, 2010
Mortgage Market Update
May 10, 2010
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MARKET RECAP
In news that surprised no one, the pending home sales index surged to 102.9 in March. We all expected the months heading into April would produce more home sales, and that's the way it's playing out. What's more, it's likely to continue to play out over the next couple months, given closings usually occur a month or two after the contract has been signed.
Of course, the expiring federal tax credits are the impetus for the spring rush. Most market watchers are expecting a drop once they've worked their way through the system, so we shouldn't be terribly disappointed if sales growth stalls after being artificially stimulated.
That said, we remain optimistic. We think the housing market is sufficiently stable to stand on its own, particularly when considering the latest pricing data released by PMI Mortgage Insurance, which shows the risk of continued price declines is shrinking. Its latest report finds that 93% of the 384 metropolitan statistical areas it follows posted declining risk scores in the fourth quarter of 2009.
In addition to finding a less risky pricing environment, buyers are also finding a more welcoming lending environment. According to the Federal Reserve's latest survey, most banks didn't tighten lending standards during the first quarter of 2010. The survey also showed more banks expressing a greater willingness to lend. We've stated in previous newsletters that an improving economy goes hand-in-hand with less stringent underwriting, because lending is perceived as less risky in a growing economy. We expect further easing as the economy continues to grow, enticing more marginal borrowers into the market.
Consumer spending is another important measure of an economy's health. On that front, personal consumption posted a 0.6 percent gain in March, following a 0.5 percent jump the month before. Economists have been saying for months that the economic recovery would be anemic until the consumer sector became healthier. It appears healthier today.
So, we have a growing economy, stabilizing home prices, and possibly easing underwriting standards. That sounds like a recipe for higher mortgage rates, but that wasn't the case last week. In fact, rates dropped across the board and held near all-time lows. Is it possible we've cried “wolf” once too often and that low rates are now a permanent fixture of the economy?
We don't think so, because the factors that most influence interest rates still point to higher rates. The financial calamity in Greece was given as the primary reason for last week's rate decrease. Money moved out of riskier European investments into safer US Treasury and government-insured mortgage-backed securities, In short, more money was available for mortgage lending; hence the lower rates. But this too shall pass, and likely sooner than most market watchers expect.
Good News on the Job Front
Employment, it's the reason we're hanging our hat on a sustained economic recovery. The numbers are, thankfully, improving. Payrolls jumped 290,000 last month, more than the median estimate after posting a revised 230,000 increase in March that was larger than initially estimated. The April gain included 66,000 temporary workers hired by the government to help conduct the 2010 census and, more importantly, a 231,000 rise in private payrolls. Yes, the unemployment rate rose to 9.9 percent, but mainly due to formerly discouraged workers becoming less discouraged and seeking work again.
The improving employment situation presages good news for the economy, but it also presages higher interest rates. The latest employment news could be the catalyst for the next move in long-term interest rates. Over the past two weeks, investors have gravitated toward the haven of US-dollar denominated investments, most notably long-term Treasury securities, and that's helped lower rates. But with a heating economy, the very real prospect of inflation igniting rises, which raises the very prospect of higher mortgage rates in the near future.
--------------------------------------------------------------------------------
MARKET RECAP
In news that surprised no one, the pending home sales index surged to 102.9 in March. We all expected the months heading into April would produce more home sales, and that's the way it's playing out. What's more, it's likely to continue to play out over the next couple months, given closings usually occur a month or two after the contract has been signed.
Of course, the expiring federal tax credits are the impetus for the spring rush. Most market watchers are expecting a drop once they've worked their way through the system, so we shouldn't be terribly disappointed if sales growth stalls after being artificially stimulated.
That said, we remain optimistic. We think the housing market is sufficiently stable to stand on its own, particularly when considering the latest pricing data released by PMI Mortgage Insurance, which shows the risk of continued price declines is shrinking. Its latest report finds that 93% of the 384 metropolitan statistical areas it follows posted declining risk scores in the fourth quarter of 2009.
In addition to finding a less risky pricing environment, buyers are also finding a more welcoming lending environment. According to the Federal Reserve's latest survey, most banks didn't tighten lending standards during the first quarter of 2010. The survey also showed more banks expressing a greater willingness to lend. We've stated in previous newsletters that an improving economy goes hand-in-hand with less stringent underwriting, because lending is perceived as less risky in a growing economy. We expect further easing as the economy continues to grow, enticing more marginal borrowers into the market.
Consumer spending is another important measure of an economy's health. On that front, personal consumption posted a 0.6 percent gain in March, following a 0.5 percent jump the month before. Economists have been saying for months that the economic recovery would be anemic until the consumer sector became healthier. It appears healthier today.
So, we have a growing economy, stabilizing home prices, and possibly easing underwriting standards. That sounds like a recipe for higher mortgage rates, but that wasn't the case last week. In fact, rates dropped across the board and held near all-time lows. Is it possible we've cried “wolf” once too often and that low rates are now a permanent fixture of the economy?
We don't think so, because the factors that most influence interest rates still point to higher rates. The financial calamity in Greece was given as the primary reason for last week's rate decrease. Money moved out of riskier European investments into safer US Treasury and government-insured mortgage-backed securities, In short, more money was available for mortgage lending; hence the lower rates. But this too shall pass, and likely sooner than most market watchers expect.
Good News on the Job Front
Employment, it's the reason we're hanging our hat on a sustained economic recovery. The numbers are, thankfully, improving. Payrolls jumped 290,000 last month, more than the median estimate after posting a revised 230,000 increase in March that was larger than initially estimated. The April gain included 66,000 temporary workers hired by the government to help conduct the 2010 census and, more importantly, a 231,000 rise in private payrolls. Yes, the unemployment rate rose to 9.9 percent, but mainly due to formerly discouraged workers becoming less discouraged and seeking work again.
The improving employment situation presages good news for the economy, but it also presages higher interest rates. The latest employment news could be the catalyst for the next move in long-term interest rates. Over the past two weeks, investors have gravitated toward the haven of US-dollar denominated investments, most notably long-term Treasury securities, and that's helped lower rates. But with a heating economy, the very real prospect of inflation igniting rises, which raises the very prospect of higher mortgage rates in the near future.
Monday, May 3, 2010
Mortgage Matters
Keeping you updated on the market!
For the week of
May 3, 2010
--------------------------------------------------------------------------------
MARKET RECAP
The S&P/Case-Shiller home-price index is promoted as the leading indicator of the national trend in home prices, but we wonder if its worth is overstated – given that it tends to obfuscate as much as enlighten. For example, the index showed that home prices in 20 cities increased 0.6 percent in February. On a non-seasonally adjusted basis though, the 20-city home price index fell 0.9 percent to 144.03 while the 10-city home price index declined 0.6 percent to 156.8.
So what does it mean? Whether the 20-city or 10-city measure, changes to home prices have been so small nationally over the past few months that the Case-Shiller index has morphed into modern art – journalists and economists make of it what they want, which suggests they impart little value for handicapping the future. And let's not overlook the fact the data are already two months old when released – a lifetime in financial circles.
Things can change in a hurry. Consider the dynamics in the new home market over just one month. In March, sales surged 26.9 percent to 411,000 units, exceeding the consensus expectation by over 80,000 units. Meanwhile, inventory dropped to 6.7 months from 8.6 months, as did mean and median prices, suggesting a shift toward lower-priced homes.
Consumer confidence shifted just as suddenly, with consumers displaying much more optimism in April compared to March. The sentiment numbers suggest to us the labor market is improving, and consumers are much more willing to spend. In February, the mood was the polar opposite.
The one constant has been the Federal Reserve's willingness to hold the federal funds rate near zero, which it did once again after Wednesday's Federal Open Market Committee meeting. The Fed has held the rate near zero since December 2008 and said conditions are likely to justify leaving it at "exceptionally low" levels for "an extended period." The Fed also said that "economic activity has continued to strengthen” and "the labor market is beginning to improve,” which suggests that an “extended period” might not be as extended as many people think.
In short, mortgage rates are as low as they're going to go, and the Fed has proven over the past few months that there is little that can be done to move them lower.
What Now?
It's an important question, since it appears the homebuyers tax credits won't be extended. But it's a question not to be feared. We think it's time the housing market stood on its own feet anyway. After all, we can't gauge the health of a market if it's still supported with taxpayer stanchions.
But that's okay; we think the housing and mortgage markets are sufficiently healthy to stand alone. Pessimism is the intellectual position, but the fact is the economy is getting better: Despite worries that American consumers might hunker down for years — spooked by debt, lost savings, and unemployment — austerity has given way to shadows of a new shopping spree: households are replacing cars, upgrading home furnishings, and amassing gadgets. What's more, wealth – at least wealth measured by equity holdings – is booming.
On the mortgage side, private investors are returning. A California firm recently completed the first private-sector sale of a security backed by mortgages in nearly two years, potentially reopening a market slammed shut by the housing crisis. The $238-million deal was of the highest quality, to be sure, with borrowers making an average down payment of 45 percent and mortgage payments comprising less than 30 percent of income. But as the economy continues to improve and investors become less risk adverse, less restrictive mortgages will be securitized.
Bottom line: we see a growing economy, improving employment, stable home prices, and less restrictive (though higher rate) mortgages in our future. In other words, we see a market for buying and refinancing today.
For the week of
May 3, 2010
--------------------------------------------------------------------------------
MARKET RECAP
The S&P/Case-Shiller home-price index is promoted as the leading indicator of the national trend in home prices, but we wonder if its worth is overstated – given that it tends to obfuscate as much as enlighten. For example, the index showed that home prices in 20 cities increased 0.6 percent in February. On a non-seasonally adjusted basis though, the 20-city home price index fell 0.9 percent to 144.03 while the 10-city home price index declined 0.6 percent to 156.8.
So what does it mean? Whether the 20-city or 10-city measure, changes to home prices have been so small nationally over the past few months that the Case-Shiller index has morphed into modern art – journalists and economists make of it what they want, which suggests they impart little value for handicapping the future. And let's not overlook the fact the data are already two months old when released – a lifetime in financial circles.
Things can change in a hurry. Consider the dynamics in the new home market over just one month. In March, sales surged 26.9 percent to 411,000 units, exceeding the consensus expectation by over 80,000 units. Meanwhile, inventory dropped to 6.7 months from 8.6 months, as did mean and median prices, suggesting a shift toward lower-priced homes.
Consumer confidence shifted just as suddenly, with consumers displaying much more optimism in April compared to March. The sentiment numbers suggest to us the labor market is improving, and consumers are much more willing to spend. In February, the mood was the polar opposite.
The one constant has been the Federal Reserve's willingness to hold the federal funds rate near zero, which it did once again after Wednesday's Federal Open Market Committee meeting. The Fed has held the rate near zero since December 2008 and said conditions are likely to justify leaving it at "exceptionally low" levels for "an extended period." The Fed also said that "economic activity has continued to strengthen” and "the labor market is beginning to improve,” which suggests that an “extended period” might not be as extended as many people think.
In short, mortgage rates are as low as they're going to go, and the Fed has proven over the past few months that there is little that can be done to move them lower.
What Now?
It's an important question, since it appears the homebuyers tax credits won't be extended. But it's a question not to be feared. We think it's time the housing market stood on its own feet anyway. After all, we can't gauge the health of a market if it's still supported with taxpayer stanchions.
But that's okay; we think the housing and mortgage markets are sufficiently healthy to stand alone. Pessimism is the intellectual position, but the fact is the economy is getting better: Despite worries that American consumers might hunker down for years — spooked by debt, lost savings, and unemployment — austerity has given way to shadows of a new shopping spree: households are replacing cars, upgrading home furnishings, and amassing gadgets. What's more, wealth – at least wealth measured by equity holdings – is booming.
On the mortgage side, private investors are returning. A California firm recently completed the first private-sector sale of a security backed by mortgages in nearly two years, potentially reopening a market slammed shut by the housing crisis. The $238-million deal was of the highest quality, to be sure, with borrowers making an average down payment of 45 percent and mortgage payments comprising less than 30 percent of income. But as the economy continues to improve and investors become less risk adverse, less restrictive mortgages will be securitized.
Bottom line: we see a growing economy, improving employment, stable home prices, and less restrictive (though higher rate) mortgages in our future. In other words, we see a market for buying and refinancing today.
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