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February 26, 2010
Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December. Thursday, the public-sector Home Price Index showed the same.
Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December. And that’s an average, of course. Some regions performed well in December as compared to November, others didn’t.
- Values in the Middle Atlantic states improved slightly
- Values in New England were essentially unchanged
- Values in the Mountain states sagged, down 3.5%
These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.
For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.
Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not. Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.
Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers. National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.
So, when you need to know whether your home is gaining or losing value, you can’t look at the national data. You have to look at your block — what’s selling and not selling — and start your valuations from there.
February 25, 2010
The housing recovery showed particular weakness in the New Homes Sales category last month — good news for homebuyers around the country.
A “new home” is a home for which there’s no previous owner.
New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963 — the year the government first started tracking New Home Sales data.
Right now, there are roughly 234,000 new homes for sale nationwide and, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009’s pace.
The reasons for the spike in supply are varied:
- The original home buyer tax credit expired in November
- Weather conditions were awful in most of the country in January
- Weak employment and consumer confidence continue to hinder big ticket sales
Now, these might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it’s a welcome turn of events. Home prices are based on supply and demand, after all.
As a result, this season’s home buyers may be treated to “free” upgrades from home builders, plus seller concessions and lower sales prices overall.
It’s all a matter of timing, of course. New Home Sales reports on a 1-month lag so it’s not necessarily reflective of the current, post-Super Bowl home buying season. And from market to market, sales activity varies.
That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It’s a favorable time to buy a new home.
February 24, 2010
Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday. The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.
According to Case-Shiller representatives, the housing market is “in better shape than it was this time last year”, but some of the summer’s momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.
Meanwhile, it’s interesting to note the 5 markets that didn’t decline — Detroit, Los Angeles, Las Vegas, Phoenix and San Diego. Each of these metro regions were among the hardest hit nationwide when home prices first broke. Now, they’re leading the pack in price recovery.
For some real estate investors, that’s a positive signal. But we also have to consider the Case-Shiller Index’s flaws because they’re big ones.
As examples:
- Case-Shiller data is reported on a 2-month lag
- The Case-Shiller sample set includes just 20 U.S. cities
- There’s no “national real estate market” — real estate is local
That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.
If the markets that led the housing decline will lead the housing resurgence, December’s data shows that full recovery is right around the corner.
February 23, 2010
You can’t get your mortgage rates from the newspaper. Last week proved it. Again.
Friday morning, headlines and around the country read that mortgage rates were down 0.04 percent, on average, since the week prior.
A sampling of said headlines includes:
- US Mortgage Rates Drop For 2nd Straight Week (Reuters)
- Mortgage Rates On 30-year US Loans Fall To 4.93% (Business Week)
- 30-Year Fixed Mortgage Rate Falls Farther Below 5% (Marketwatch)
The story behind the headline was sourced from the Freddie Mac Primary Mortgage Market Survey, am industry-wide mortgage rate poll of more than 100 lenders. The PMMS has reported mortgage rate data to markets since 1971 and is the largest of its kind.
Unfortunately, rate shoppers can’t rely on it.
See, unlike governments and private-sector firms, when consumers are in need mortgage rate information, they need the information delivered in real-time; for making decisions on-the-spot. Consumers need to know what rates are doing right now.
The Freddie Mac survey can’t offer that.
According to Freddie Mac, the survey’s methodology is to collect mortgage rates from lenders between Monday and Wednesday and to publish that data Thursday morning. The survey results are an average of all reported mortgage rates. The problem is that mortgage rates change all day, every day. The PMMS results are skewed, therefore, by methodology.
And, meanwhile, the issue was compounded last week because mortgage rates shot higher Wednesday afternoon — after the survey had “closed”. The market deterioration ran into Thursday, too — again, unable to be captured by Freddie Mac’s PMMS.
Although the newspapers reported mortgage rates down last week, they weren’t. Conforming mortgage rates were higher by at least 1/8 percent, or roughly $11 per $100,000 borrowed per month. In some cases, rates were up by even more.
Newspapers and websites can give a lot of good information, but pricing is far too fluid to rely on a reporter. When you need to know what mortgage rates are doing in real-time, make sure you’re talking to a loan officer. Otherwise, you may just be getting yesterday’s news.
February 22, 2010
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| “OPINION HAS CAUSED MORE TROUBLE ON THIS LITTLE EARTH THAN PLAGUES…” Voltaire. And lately, there have been a lot of opinions about inflation being voiced from Fed officials, respected economists, and the media. But what does all this talk really mean for our economy and home loan rates? Here’s what you need to know.
On Friday, the Consumer Price Index (CPI), which measures the prices US consumers pay, came in lower than expected for January. The chart below shows the year-over-year headline CPI at 2.6%, below expectations of 2.8%. What’s more, when volatile food and energy are removed from the equation, the “Core” Consumer Price Index was actually negative - and the last time that happened was 28 years ago.
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Chart: Consumer Price Index
 So, if the CPI Report shows that inflation is currently non-existent, why are so many people expressing concern? The reality is that the factors which are currently restraining inflation pressures could easily swing the other way.
In fact, Kansas City Fed President Thomas Hoenig recently said, “Fiscal policy is on an unsustainable course. The US Government must make adjustments in its spending and tax programs. It is that simple. If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis.” And part of the crisis Mr. Hoenig is warning of is the possibility of hyperinflation, which occurs when prices rise so quickly that a currency becomes worthless.
Hoenig recently reminded us that he has a framed picture of a 500,000 German mark bill in his office…which would have purchased a home in 1921, but due to sudden inflation, wouldn’t purchase a loaf of bread just two years later. Adding to the inflation talk, recent Produce Price Index Reports, which measure inflation at the wholesale level, have shown a trend higher in wholesale inflation. January’s report, for example, was significantly higher than expected, due to rising energy costs.
Also chiming in with an opinion, Philadelphia Fed President Charles Plosser made some interesting comments regarding monetary policy and sales of assets that the Fed currently owns. Mr. Plosser stated that the Fed should begin to sell off their stockpile of Mortgage Backed Securities (MBS) as the economic recovery gains strength. With the Fed MBS buying program ending soon, and the Fed now potentially turning into a seller of MBS, Bond prices and home loan rates will very likely worsen over time. (More on this in the special “Video View” below…don’t miss it!)
In other news, the Empire State Manufacturing Index came in higher than expected and up from January’s reading. The report also showed business activity picking up and business leaders forecasting better economic conditions in the coming months. In addition, Housing Starts for January came in better than expected and at the highest level since July, thanks in large part to the extension of the Homebuyer Tax Credit.
Bond prices were unable to improve after falling below an important technical level this week, and as a result, home loan rates ended the week worse than where they began.
MANY PEOPLE ARE ASKING FOR OPINIONS ABOUT WHERE HOME LOAN RATES ARE HEADED…AND WHY. CHECK OUT THIS WEEK’S MORTGAGE MARKET GUIDE VIEW FOR A SPECIAL VIDEO THAT EXPLAINS HOW AND WHY HOME LOAN RATES MOVE…AND WHAT IT MEANS RIGHT NOW. |
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| While it’s hard to say what opinions might be uttered this week, there will definitely be plenty of news in store.
We’ll get a look at the housing market with Wednesday’s New Home Sales Report and Friday’s Existing Home Sales Report. It will be interesting to see if these reports are looking more positive, as many buyers are working to take advantage of the Homebuyer’s Tax Credit before it expires this spring. If you want to learn more about this Tax Credit and how it might help you or someone you know - don’t hesitate to get in touch with me, I can share all the details and important timelines.
Also this week, we’ll get several reads on the health of the economy with Thursday’s Durable Goods Report - which gives us an update on consumer and business buying behavior on big ticket items that last for an extended period of time - and Friday’s Gross Domestic Product Report, which is the broadest measure of economic activity.
Tuesday’s Consumer Confidence Report and Thursday’s Initial Jobless Claims Report will also be important to watch. Last week’s Initial Jobless Claims and Continuing Claims numbers were higher than expected, showing that the labor market is still struggling. The bottom line is that while some of the recent economic reports have had encouraging signs, the economy needs to create jobs and regain consumer confidence before any positive opinions on the economy will become reality.
And as if it won’t be a week jam packed full of opinions already, Fed Chairman Ben Bernanke will be weighing in with some thoughts of his own, as he testifies before Congress on Wednesday and Thursday.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Bonds ended the week below an important technical level. I’ll be watching closely to see if Bonds can reverse course and move higher this week, which would result in an improvement for home loan rates.
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February 19, 2010
Sometimes, headlines for housing can be misleading and this week gave us a terrific example.
On Wednesday, the Commerce Department released its Housing Starts data for January 2010. The data showed starts at a 6-month high.
A “Housing Start” is a privately-owned home on which construction has started.
Headlines on the Housing Starts story included:
- U.S. Housing Starts Hit 6-Month High (Reuters)
- U.S. Economy Receives Home Building Boost (Shepparton)
- Housing Starts Post Sharp Rebound (ABC)
Based to the headlines, the housing market looks poised for rapid growth through the Spring Market.
The real story, though, is that although Housing Starts increased by close to 3 percent last month, the growth is mostly attributed to buildings with 5 or more units. This includes apartments and condominiums — a sector of the housing market that’s notoriously volatile.
If we isolate Housing Starts for single-family homes only, we see that starts grew by just 7,000 units last month and have failed to break a range since June 2009. January’s tally is slightly below the 8-month average.
Perhaps more interesting than the Housing Starts, though, is the Commerce Department’s accompanying data for Housing Permits. After a 5-month plateau that ended in November, Housing Permits posted multi-year highs for the second straight month.
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.
One reason permits are up is that home builders want to capitalize on the federal homebuyer tax credit’s dwindling time frame. Sales are expected to spike in March and April and more homes will come online to deal with that demand. Home buyers should shop carefully, but with an eye on the clock.
As the tax credit’s April 30, 2010 deadline approaches, competition for homes may be fierce.
February 18, 2010
 Mortgage markets reeled Wednesday after the Federal Reserve released the minutes from its January 26-27, 2010 meeting. Mortgage rates are now at their highest levels since the start of the year.
The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It’s a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers’ policy decisions.
The Minutes is a terrific look into the Fed’s collective mind and, yesterday, Wall Street didn’t like what it saw. Specifically, the report disclosed that:
- The Fed plans to break support for mortgage markets after March 31, 2010
- Raising the Fed Funds Rate will be a key part of the Fed’s strategy to tighten monetary policy
- The fundamentals behind consumer spending strengthened modestly
Furthermore, the Fed Minutes said that there is a growing risk of “higher medium-term inflation”. Inflation, of course, is awful for mortgage rates.
Overall, the Fed’s economic optimism appeared stronger after its January meeting as compared to its December one. A stronger economy should lead to better job growth and higher home prices throughout 2010.
Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more. Therefore, if you’re buying a home in the near-term, or know you’ll need a new mortgage, consider moving up your time frame.
Every 1/8 percent makes a difference in your household budget.
February 17, 2010
 According to the Census Bureau, 2.8 million peoplecommute to work 90 minutes or more each day, in each direction.
Now, your daily commute may not be as long, but time spent in cars, trains and buses is time away from work and from family. Drive-time can affect a person’s Quality of Life and it’s one reason why Forbes Magazine’s Best and Worst Commutes is worth reviewing.
Measuring travel time, road congestion and travel delays in the 60 largest metropolitan areas, Forbes ranks city commutes from best-to-worst with Salt Lake City topping the list and Tampa-St. Petersburg finishing it.
The Top 5 Commutes, as compiled by Forbes:
- Salt Lake City, Utah
- Buffalo-Niagara Falls, New York
- Rochester, New York
- Milwaukee-Waukesha-West Allis, Wisconsin
- Albany-Schenectady-Troy, New York
The bottom 5 are Tampa-St. Petersburg, Detroit, Atlanta, Orlando, and Dallas-Forth Worth.
Long commutes shouldn’t deter you from moving to a particular city, but the potential commute should be consideration. Before making an offer on your next home, make a rush-hour commute to work from your potential new neighborhood. Then imagine doing it every day.
You can read the complete Forbes list of Best and Worst Cities for Commuters on its website.
February 15, 2010
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| “IT AIN’T OVER TIL IT’S OVER.” Yogi Berra. And whether you find those words deeply wise or simply puzzling…The Fed has told us repeatedly that their massive purchasing program of Mortgage Backed Securities is just about over - and this translates to home loan rates rising in the near future.
As you can see in the chart below, the amounts of Mortgage Backed Securities the Fed is purchasing are slowly dwindling, as the program is set to wrap up by March 31st, and are clearly trying to ration out the remaining portion. Last week, the Fed purchased $11 Billion in Mortgage Backed Securities, which leaves them with $66 Billion to spend out of their original $1.25 Trillion allotment. So about 95% of the total has already been spent and has purchased about 3 out of every 4 home loans during the past year. When such a large buyer leaves the market, it is very likely that prices will worsen.
This is very important because as the Fed has less money to last through the remaining months of the program, their ability to keep home loan rates low via their purchasing power will wane. And those who can take advantage of currently low home loan rates do not wait, as the clock on these historically low rates is ticking.
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Chart: The Fed’s Purchase of MBS (By Month)
 Also last week, Fed Chairman Ben Bernanke provided a speech on a number of topics, perhaps the most important of these being switching the Fed’s benchmark from the commonly watched and monitored Fed Funds Rate, to a new benchmark of “interest paid on excess reserves”. Banks are required to keep money on reserve with the Fed and may, from time to time, have an excess in those reserves, which the Fed can pay interest on.
Since the Fed Funds Rate is only a “target rate”, banks can still lend money to other bank overnight at their own negotiated rate. Sometimes near the end of the trading day, banks have been lending their excess reserves out overnight for a rate that differs from the Fed Funds Rate, but is higher than interest on those reserves from The Fed. This undermines the Fed’s ability to set a reliable benchmark.
The Fed wants to fix this by using the amount of interest they pay as the new benchmark, since the Fed has total control of this rate, which should be right at or just under the Fed Funds Rate.
There is one major take-away from this discussion - it appears that the Fed is getting their ducks in a row as they prepare to push interest rates higher. And when they do increase rates, the Fed does not want any obstacles that may undermine their plan.
AND SPEAKING OF OBSTACLES THAT COULD CAUSE PROBLEMS…WATER DAMAGE CAN WREAK HAVOC ON YOUR HOME AND YOUR FINANCES, AND IS ESPECIALLY IMPORTANT TO WATCH OUT FOR DURING COLD WINTER MONTHS. CHECK OUT THE MORTGAGE MARKET VIEW ARTICLE BELOW FOR TIPS ON PROTECTING YOUR HOME! |
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| The financial markets will be closed on Monday in observance of Presidents Day, and in terms of economic reports, there won’t be much action until midweek. On Wednesday, we’ll get a look at the health of the housing industry with reports on Housing Starts and Building Permits for January.
It will be interesting to watch the housing reports over the next several months, as many people are acting to take advantage of currently low home loan rates that may be on the rise soon, as well as the potential of a juicy tax credit. Remember - the Homebuyers Tax Credit is only available on homes purchased with a contract date before April 30th, and the transaction must settle by June 30th.
We’ll also get an update on inflation this Thursday, as the Producer Price Index will be released. This index measures price changes for wholesalers, and prefaces the more importantConsumer Price Index coming on Friday, which measures changes in the price paid by consumers for goods and services. These reports are both particularly important, as the Fed will be watching very carefully for any signs of inflation. If inflation begins to rise, the Fed will have no choice but to begin to hike rates to fight off the dangers that inflation could pose to our economy.
In addition to those reports, we’ll get our weekly look at employment through the Initial Jobless Claims data. Last week’s report showed some encouraging signs, but there is still a long way to go before we’ll see stabilization in the Unemployment Rate and some meaningful job creation. At the moment, 6.3 Million people remain unemployed for over six months - an increase of 5 million since the start of the recession in December of 2007. To reach the White House’s projection of a 6% unemployment rate by 2015, the US would need to create 225,000 jobs per month, every month, for the next five years. But that kind of long term job growth has never been seen before. The year 2006, was the only year in US history that had job gains average over 225,000. But that was for just a single year - doing it for five years may be too much of a stretch.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bond prices and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Bond prices fell early last week due to weak results from the Treasury auctions, but were able to rally towards the end of the week. When Bond prices are moving higher, home loan rates are improving - so I’ll be watching out to see if the current ground can be held. If you have any questions about how home loan rates move - and if an opportunity exists that would benefit you - please don’t hesitate to call or email me.
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February 12, 2010
 Consumer Sentiment has been on the rise since last February and it’s something to which home buyers should pay attention.
The affordability of your next home may hinge on consumer confidence.
As the economy recovers from a near-the-brink recession, many of the elements of a full recovery are in place. Business investment is returning, household spending is expanding, and financial systems are gaining strength.
Consumer confidence is at a 2-year high.
What’s missing from the recovery, though, is jobs growth. Another net 20,000 jobs were lost in January. Data like that hinders economic growth.
That said, twenty-thousand jobs lost is a much better figure than the several hundredthousand that were shed per month throughout early-2009, but it’s still a net negative number. Not only does household income drop when Americans lose jobs but so does the average American’s confidence in his or her own economic future.
This is one reason why jobs growth is so closely watched by Wall Street — jobs are linked to higher confidence levels which, in turn, is believed to spur consumer spending.
Consumer spending represents 70% of the U.S. economy.
As confidence rises, it could be good news for the economy, but bad news for home buyers. More spending expands the economy and, all things equal, that leads mortgage rates higher.
Same for home prices. More confidence means more buyers which, in turn, squeezes the supply-and-demand curve in favor of sellers.
Later this morning, the University of Michigan will release its February Consumer Sentiment survey. If the reading is higher-than-expected, prepare for mortgage rates to rise and home affordability to worsen.
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