Hood Canal Real Estate, Mortgage, and Economy – June 9th, 2013

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Interest Rates Recent Moves Higher Put Rates At Levels 1 Year Highs: The Month of May was not good for interest rates. For those familiar with trader talk, the Fannie Mae 3.00% coupon lost over 425 basis points in pricing in one month. At the beginning of May we had rates approaching all time record lows. One month later we have rates up over .5% and are at levels we had over a year ago. Interest rates have suffered at the hands of a very hot stock market where the S&P was up almost 16% in 5 months. That increase would definitely considered to be ‘overheated’. The moves in the stock market do not appear to be connected to a commiserate improvement in the overall economy. These circumstances suggest to many that this stock market move is fueled by central bank support from nations around the world. Any suggestion of a pullback in support from central banks could cause a dramatic reversal. The lack of improving economic conditions and a stock market rally that is not reflective of economic conditions, suggest to many that interest rates could rebound back to lower levels. That being said, the over outlook for rates currently is negative. Regardless of the debate over what the Fed will do; as long as any data on the economy is better than forecasts there is very little chance of any significant improvement in interest rates. With central banks around the world led by the Fed manipulating interest rates over the last 2 years there is really no way to determine where the level of rates should actually be. That said; we cannot fight the reality of the present condition, unrelentingly negative for rates.

Industry News
"The great thing in the world is not so much where we stand as in what direction we are moving." Oliver Wendell Holmes. Consumers are certainly feeling more confident about the direction our economy is moving. Read on for details and what they mean for home loan rates.

http://www.mmgweekly.com/templates/mmgweekly/reg_chart/421/images/top-image_06-03-2013.jpgConsumer Confidence, which measures how optimistic or pessimistic consumers are with respect to the economy in the near future, hit a five-year high in May, coming in at 76.2. The Consumer Sentiment Index, a similar measure, also came in above expectations for May.

There was also good news on the housing front, as the Case Shiller 20-city Home Price Index rose 10.9 percent year-over-year. This was above expectations and the best annual gain in seven years. In addition, the second estimate for first quarter Gross Domestic Product (GDP) rose by 2.4 percent. By comparison, the final reading of GDP for the fourth quarter of 2012 was 0.4 percent. GDP is an important measure of productivity growth and a key indicator of economic strength.

In inflation news, the Personal Consumption Expenditures (PCE), the Fed's favorite measure of inflation, shows that inflation remains tame. In fact, the year-over-year core PCE (which excludes volatile food and energy measurements) is running at 1.1 percent, well below the Fed's upper end target of 2 percent and just above the all-time low.

What does all of this mean for home loan rates? Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates (which are tied to Mortgage Bonds) improve. Strong economic news often has the opposite result. With several strong economic reports released last week, Bonds and home loan rates felt the impact.

However, helping Bonds and home loan rates is the fact that inflation remains non-existent, as inflation reduces the value of fixed investments like Bonds. A big question moving forward is: Will the Fed continue its Bond purchase program known as Quantitative Easing? While low inflation gives the Fed cover to do so, there are growing opinions that the program should come to an end.

The bottom line is that home loan rates remain near historic lows and now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.
Real Estate Miscellaneous Stats

April pending home sales were expected to be up 1.3%. The data as reported sales were up just 0.3% from March. This was disappointing number but year over year pending sales up 10.3%. This is the best number since Apr 2010 when the home buyers credit ended.

April new home sales were expected to be down 1.8% were actually up 2.3%. The annual increase on prices continued with values up 15% which is the  largest increase since 1963. National median value is now at $271,600. Based on the sales pace there is only a 4.1 month supply on the market. Builders are able to increase prices which is a positive sign. Too rapid a rise in prices could be a concern as it may scare away many buyers.  Now markets will look to May sales data on both existing and new home sales as mortgage rates have risen since April.

Pocket Listings Are Back In Vogue:  The practice of holding homes for sale off the MLS is becoming more popular with the severe shortage of housing inventory. Agents with listings know that they have rare commodity and are trying to take advantage of their opportunities. What a difference from a couple years ago! While there are no statistics for this practice, many brokers report there is a lot of this activity. Bill Podley, broker-owner of Podley Properties, a Pasadena, Calif.-based firm that specializes in middle- and high-end communities, says he has heard estimates that as high as one-third of luxury and upper-cost homes selling in northeast Los Angeles County are made up of pocket listings. With the desire of many higher end sellers for privacy, and wanting to avoid a stampede of lookers, the private sales are a preferred method. Many brokers still suggest that these sellers are likely giving up some margin in the sales price to go this way. Some Real Estate firms are adapting their business model to take advantage. One firm conducts weekly “caravans” for its agents to view homes not yet on the multiple listing service but A company’s ability to market first to its own large pool of agents is a key reason why sellers end up choose these companies.

Loan Program Of The Month. Asset Based Conventional Loan: It is likely not common knowledge but there actually is Conventional Conforming loan program that allows for the use of asset liquidation for income. This allows a borrower to access a mortgage with lower rates and better terms than those available from a portfolio lender. Most borrowers that need to use this form of qualification have relied on portfolio loan programs from individual banks that typically carry higher interest rates and lower loan to value ratios. This is the next best thing to stated income loans that have been lost in the credit crisis.
Hood Canal Real Estate, Hood Canal Living, Hood Canal Blog

Hood Canal Real Estate, Mortgage, and Economy – June 1, 2013

 Hood Canal Real Estate, Hood Canal Blog, Hood Canal Living
Fed's Influence on Mortgage Rates
Shifting expectations for the timing of the Fed's move to taper its bond purchases were the main influence on mortgage rates this week and caused extremely high levels of daily volatility. Stronger than expected economic data and comments from Fed officials caused investors to think that the Fed will begin to scale back its bond purchases sooner than previously expected. As a result, mortgage rates ended the week higher.
With a decline in the Fed's bond purchases in sight, and an improved outlook for global economic growth, investors have grown less willing to own bonds. Central bank bond buying helped bond yields decline to historically low levels. Following the financial crisis, investors accepted these low yields in order to receive the safety of government guaranteed fixed income securities. Over the course of this month, however, sentiment has shifted and investors are demanding higher yields to own mortgage-backed securities (MBS) and other bonds. Since mortgage rates are largely determined by MBS prices, mortgage rates have moved higher.
Historically, shifting inflation expectations have been the primary cause of changes in MBS prices and mortgage rates, but not this month. Normally, as inflation expectations rise, so do mortgage rates, and vice versa. In May, though, this relationship did not hold true. Inflation measures have been falling, yet rates have been rising. The April Core PCE price index released this week was just 1.1% higher than one year ago. Core PCE is the Fed's preferred inflation indicator, and it's far below the Fed's long-run inflation goal of 2.0%. The Core CPI inflation report released last week also showed declining levels on an annual basis. This shift from the fundamental relationship between mortgage rates and inflation shows the enormous influence the Fed has had on mortgage rates.

Also Notable:
  • Chicago PMI manufacturing jumped to the highest level since March 2012
  • Pending Home Sales rose to the highest level since April 2010
  • The Case-Shiller home price index increased at the fastest annual rate since 2006
  • Consumer Confidence increased to the highest level since February 2008

Week Ahead
Next week, investors will be focused on the labor market data. The ADP forecast for private sector job gains in May will come out on Wednesday. This will be followed by the weekly Jobless Claims report on Thursday. The biggest economic report next week will be the important Employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, and it will carry even more weight than normal due to how it will influence Fed policy. In addition to the employment data, ISM Manufacturing will be released on Monday, and ISM Services will come out on Wednesday. The Fed's Beige Book will also be released on Wednesday. Construction Spending, the Trade Balance, Productivity, and Factory Orders will round out the busy schedule.

 Hood Canal Real Estate, Hood Canal Blog, Hood Canal Living