Hood Canal Real Estate, Mortgage, and Economy Blog 4/13/14
Interest Rates Make A Big Move Better: Interest rates have been trending higher over the last 2 months after hitting 2014 lows back on February 10th. This week there were large loses in the stock markets accompanied by the typical improvement in interest rates. It is not clear to many analysts what caused this change in direction. There were some, less than encouraging, comments from the head of the IMF regarding slow growth in Europe along with returned concerns over deflation. Initial jobless claims fell this week which is usually a positive indicator for the economy but slowing growth in China and growing sentiment that the stock markets are due for a correction overshadowed jobs numbers. We are close to the low interest rates for the year which will be a strong impediment for further improvements. To hit new lows will require more news that economies are not recovering and inflation remains low.
"The one function that TV news performs very well is that when there is no news, we give it to you with the same emphasis as if there were." David Brinkley. While last week's economic calendar may have started off on the quiet side, the news picked up steam in the second half of the week. Read on for the highlights.
There was good news in the labor markets, as weekly Initial Jobless Claims fell by 32,000 in the latest week to 300,000. This was near a seven-year low and a signal that the labor markets may be coming out of hibernation as spring starts to bloom. In addition the 4-week moving average of claims, which irons out seasonal abnormalities, also fell. Meanwhile, the Consumer Sentiment Index for April came in above expectations, showing that consumers are feeling positive about the economy as we head into warmer months. The housing sector also had good news to report, as foreclosure activity across the nation continues to decline. RealtyTrac reported that foreclosure filings fell to the lowest level since the second quarter of 2007. In addition, March was the forty-second consecutive month where foreclosure activity decreased from the previous year, with foreclosure filings declining by 23 percent from March 2013 to March 2014.
What does this mean for home loan rates? Typically good news helps Stocks improve at the expense of Bonds, including Mortgage Bonds (the type of Bonds on which home loan rates are based). However, Bonds and home loan rates were able to improve last week as the Stock market seemed to begin a correction from recent gains.
In addition, the minutes from the Fed's March meeting of the Federal Open Market Committee imply that the Fed will continue tapering its Bond and Treasury purchases this year. Remember that the Fed is now purchasing $30 billion in Treasuries and $25 billion in Mortgage Bonds to help stimulate the economy and housing market. This is down from the original $85 billion per month that the Fed had been purchasing. Additional tapering of these purchases will continue to impact our economy and home loan rates as we move ahead this year, and this is an important story to monitor.
The bottom line is that home loan rates remain attractive compared to historical levels, and now remains 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.
Federal Reserve Update: Fed Chairman Yellen corrects misunderstanding. Janet Yellen has continued the policy of her predecessor to have an open and transparent Fed. Some suggest this is dangerous territory and creates more volatility in markets. This may be true as we have seen relatively high volatility in markets during a relatively tame economic period. Others point to the remaining QE activity as the source of uncertainty and volatility. This week Chairman Yellen corrected an interpretation that a hike in Federal Funds rates were set in stone for 2015. She corrected that notion with comments that any Fed activity will be data dependent. The Fed still seems interested in supporting a healthy stock market while also stimulating real estate markets and an increase in inflation. This has caused a tempering of expectations of rate hikes.
Real Estate Miscellaneous Stats
Foreclosure Rates In US Markets Down 34% From One Year Ago: Foreclosure rates are at the lowest levels since July 2007. This represents 42 months of consecutive drops in foreclosure numbers. The first quarter of 2014 had just under 372000 foreclosure notices. This is still a large number. March foreclosures were actually up 6% from February. Even though overall numbers are down foreclosures are actually up in 29 states. Utah was up 226% and Oregon up 176%. Some of the foreclosure hotbeds are still up with Nevada and Florida up 21% from the prior year. California foreclosure notices were actually up 10%. This is the first increase since early 2012. According to Realty Trac executives, banks are now turning their attention to properties that were eligible for foreclosure but action has not been taken. This is especially true in judicial foreclosure states where impediments to foreclosing are higher. Even non-judicial have seen jumps such as in California. They also estimate there are 500000 properties that are still occupied by former owners and renters that have not been up for sale. These are expected to hit the market soon. They also have data that indicates over half of all foreclosed properties are still occupied by former owners or tenants. Distressed properties are still taking significant amounts of time to foreclose and then sell in many markets but much less so in others such as California. Realtors there say banks are moving through their inventory much more quickly. Other areas of the country still have a persistent lack of recovery such as Florida. Florida’s foreclosure rate has decreased over the last 3 quarters but is still 1 in 129 housholds for the first quarter 2014. Florida still has 8 of the top 10 markets for foreclosure rates.
January Case/Shiller Housing Market Index was released last week. National median values were up 13.2% year over year. The trend seems to be continuing up with month to month gains at 0.7%. This is not current data so it can only give an ideas of trends and momentum. Price appreciation on a year-over-year basis in most markets, has eased in recent months. This is a typical time of year for a slow down with unusually severe winter weather slowed demand for properties in some markets. Most analysts still expect a robust spring. King County experienced the same slow down as many parts of the country but most are pointing to the Seahawks Super Bowl run as the reason. Median values in King County actually dropped in February by $5000.00 to $405,000.00. Pending sales were also down 13% from one year ago at the same time. Some of this is due to a persistent shortage of available homes for sale. People are reacting differently to current conditions. Some are motivated by higher rates and higher prices to buy or sell sooner than later. Others are holding on to homes with the idea that appreciation will work in their favor. Many buyers are reluctant to enter a competitive market and overpay for a home; especially if it is not something that is ideal. Zillow reports that 40% of Seattle area homeowners are still underwater on their homes. Most seem to be holding out instead of trying for a short sale. The hottest markets still seem to be causing a desperate frenzy which is causing some to overpay. This is causing problems with appraisals which look backward at values. If sales are scarce in the subject area the data can be months old. This is something to be aware of for buyers who are on the edge for down payments. With appreciation rates as high as they are it will be hard to convince sellers that they should lower their prices based on an appraisal. Snohomish County values were actually up from $295k to $315k from just the previous month.
February Pending Home Sales was reported by National Association of Realtors to be down 0.8% from January. These sales numbers were the lowest level since Octber 2011. Year over year numbers were down 10.5% which is the 8th straight decline in pending home sales in a row.
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Hood Canal Real Estate, Mortgage, and Economy Blog 4/13/14