Ohop Lake Real Estate, Mortgage and the Economy - www.hoodcanalliving.com
Interest Rates Move To Best Levels Over The Last Year: The last time we saw mortgage bond pricing as favorable as this week was June 2013. That was right after the big QE taper announcement. A good summary for the factors affecting rates is below in the next section. Interest rate directions are very favorable right now. The main factor we can see that will spoil the party is if inflation shows a solid trend higher as we approach the Fed’s 2% target.
It's been said that every cloud has a silver lining. And while some key reports from last week could mean stormy skies ahead for our economy, the "silver lining" from the worse than expected news was that it helped home loan rates improve. Read on for key details.
Perhaps the biggest "cloud" for our economy last week came with the second reading on Gross Domestic Product (GDP) for the first quarter, which came in at -1.0 percent after the initial read of 0.1 percent. This is the first negative reading for GDP since the first quarter of 2011. GDP is the broadest measure of economic activity, and it will be important to see if the number improves as we head further into 2014. In housing news, research firm CoreLogic reported that there were 46,000 completed foreclosures in April, down 18 percent from April 2013. Before the housing market decline in 2007, completed foreclosures averaged 21,000 per month between 2000 and 2006. In addition, the Case Shiller 20-city Home Price Index grew at an annual rate of 12.4 percent in March. Overall, the report showed that housing prices are rising at more normal levels after the big gains seen in 2013.
Also of note, signs of inflation are starting to creep into our economy. Core Personal Consumption Expenditures (the Fed's favorite read on inflation) rose to 1.4 percent in April, after a 1.1 percent rise in March and a 0.9 percent gain in February. April's reading is the highest 12-month rate since March 2013.
What does this mean for home loan rates? Remember that home loan rates are tied to Mortgage Bonds, so as Bonds improve, rates improve. Mortgage Bonds have improved lately for many reasons, including our tepid economy, the weakened Euro and the Fed's big Bond-buying program. In addition, the uncertainty with Russia and the Ukraine has caused investors to move their money out of Stocks and into less risky assets like Bonds.
But rising inflation is something to keep an eye on. Inflation is the arch enemy of Bonds, as inflation reduces the value of fixed investments like Bonds. If inflation continues to heat up, Bonds could worsen, which would impact the improvement we've seen in home loan rates.
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.
Real Estate Miscellaneous Stats
New FHFA Chief Rebuffs Shrinking Role for Fannie and Freddy. Newly installed Chairman of the FHFA, Mel Watt, pushes back against moves to dissolve Fannie and Freddy or to lessen their role in the US Housing market. It has been the mistaken belief of many that Fannie and Freddy were the main cause of the financial melt down of 2007. I believe this opinion is held by those who do not understand the history and details of what was occurring in the mortgage industry. They were certainly participants but much of their falter was due to lack of oversight by those responsible to make sure they did not abuse their government guarantees, THE US CONGRESS. Instead of an intelligent analysis of the real problems, politicians choose to divert attention by manufacturing a villain and propose that they save us with some wonderful action. So both Democrats and Republicans found their villains that they could target and thus be our heroes. One misguided proposal has been to dissolve Fannie and Freddy. Mr. Watt sees no reason to lessen the role of the GSE’s. With proper oversight there is nothing in Fannie and Freddy’s 80 year history that suggests they cannot continue to be an important part one of the biggest sectors of our economy. It does not hurt that they have repaid their bailout funds and are now a source of revenue for the government. Increased government fees built in to their pricing has made it easier for private mortgage products to compete. Mr. Watt is dramatically changing the language of the former chairman with statements this last week. "I don't think it's FHFA's role to contract the footprint of Fannie and Freddie," Mr. Watt said during a discussion at the Brookings Institution in Washington. Winding down the companies without clear proof that private investors are willing to step back in "would be irresponsible." Finally a voice of reason is speaking to realty.
Lack of First Time Buyer’s Holds Back A Strong Housing Recovery: Economists and analysts continue to ask why housing is not leading us in to a stronger recovery with so much support from the Fed and time since the turn down. Even Fed Chairperson, Yellen, has made note that housing is not recovering as strong as hoped and they have really spent all their bullets. A recent Wall Street Journal article points out that first time buyers are purchasing at 88% of the average level over the last 10 years. There are many head winds facing first time buyers in the current environment. Recent data points out that income fell most for the age group of 25-34 from 2007 to 2012. Recent appreciation has made homes less affordable, many have credit issues to resolve, inventory is tight in most markets, many have high student loan debt and much tighter credit requirements are all factors. First time buyers are currently 16% of all transactions while they were 22-25% during the 2001 to 2007 period. The good news is we seem to be at the bottom and heading up. NAR chief economist, Lawrence Yun, suggests the market is improving but it may take a few years to get back to normal.
Most Affordable Areas Still Seeing Strong Appreciation: Most markets in the US are seeing slower appreciation rates in 2014 versus the robust averages in 2013. That is true for King and Snohomish Counties but not for some areas. The main metropolitan areas are becoming unaffordable for median income earning households. This is creating the typical move out. Those markets hit most hard are now seeing strong rebounds in housing values while others wane. King county average appreciation rates of 15% in 2013 have slowed to 11% so far this year but, some areas are at 20%. Shoreline, Maple Valley, Federal Way and Burien are some of these rapidly appreciating markets. Not all suburbs had strong growth. Kent, Renton/Benson Hill, Skyway and Enumclaw slowed below 5% appreciation. King County, overall, seems to have strong momentum. 17 out of 30 areas had stronger appreciation rates than the same period last year. Snohomish County measurables were weaker but that is blamed on lack of inventory and sales. The lower priced markets are appreciating at an average rate of 18% but are still below market peaks of years ago. Kent and Burien are still 30% below their peak levels. Not all high end areas are slowing. Redmond, Kirkland and Newcastle are still appreciating at 13-18% per year. A number of these markets have surpassed their housing boom peak prices. These include Central Seattle, Eastlake, Queen Anne and Redmond. Many are poised to surpass their peak values such as Green Lake and Ballard. Zillow chief economist, Stan Humphries, points out that appreciation rates can be skewed by the mix of low or high prices homes in current period sales. Still he says appreciation rates are low double digits in King County. He points out that affordability is not yet at boom levels but that is largely due to low interest rates. At the end of last year 38% of Seattle homes were affordable for median income earning households. It was 75% in Federal Way. The more central zip codes were even less affordable in the main metro job centers; just 3% in Seattle’s 98117 and 18% in Bellevue’s 98005. In order for area affordability to reach the peaks in 2006 interest rates would have to rise to 8%. This appears to be a long way off currently.
Ohop Lake Real Estate, Mortgage and the Economy - www.hoodcanalliving.com