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Interest Rates Drop Back Down to Recent Low Point: Interest rate moved back down toward the low point of a range they have moved between since the beginning of the year. Interest rates are like any other security in that mortgage bonds are traded in the open market and movements are often governed by metrics that traders use to determine the risks and rewards of trades. Economic information that changes the macro picture can often change those metrics. Currently the metrics are favoring mortgage bonds at the expense of stock assets which is moving rates lower. We are currently close to mortgage bond pricing that gave us the best rates in 50 years before rates increased in May of 2013. On Friday rate pricing actually broke below a limit we have hit multiple times recently, only to see them move back to the higher end of the range. This can be an indicator of further rate improvements. Continued data for world economic activity is supporting the move lower for interest rates.
"Keep lifting me higher." Jackie Wilson may have been singing about love, but it's weak economic data and mixed corporate earnings that have been pushing Mortgage Bonds higher, helping home loan rates remain near historic lows.
The first reading of Gross Domestic Product (GDP) for the fourth quarter of 2014 fell to 2.6 percent from the 5 percent recorded in the third quarter. For all of 2014, GDP grew by 2.4 percent, just slightly above the 2.2 percent in 2013. GDP is considered the broadest measure of U.S. economic activity, and strong GDP is an essential sign of our economic recovery. Also of note, Durable Goods Orders (i.e., orders for items that last for an extended period of time) fell by 3.4 percent in December, while November's numbers were revised lower. These reports show that the U.S. economy continues to muddle along after a six year recovery.
In housing news, sales of new homes in December increased 11.6 percent from November, while the S&P/Case Shiller Home Price Index showed that home prices increased 4.3 percent annually in November. Home price gains have returned to more normal levels after the double digit gains seen at the end of 2013 and the beginning of 2014.
There was good news from the labor sector as Weekly Initial Jobless Claims fell to lows not seen in nearly 15 years. While a Labor Department spokesman noted that some of the decline could be attributed to the Martin Luther King Jr. holiday, the news correlated with the Fed's sentiment in its recent Monetary Policy Statement that, "Labor market conditions have improved further, with strong job gains and a lower unemployment rate." And indeed, consumer confidence has been growing as January's reading surged to 102.9, the highest level in seven years.
The bottom line is that home loan rates remain near some of their best levels of the year, 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
Existing December Home Sales Drop in December: The NRA released existing home sales numbers for December which showed activity slowed by 3.7% as compared with the previous month. The drop was explained by chief economist Lawrence Yun as a result of lower inventory, holiday seasonal slowdown and recent price increases. Inventory numbers fell that month for the first time in 16 months. In spite of the drop sales activity was still 6.1% above the same time last year. Yun predicts a stronger sales activity in 2015 than 2014 as rates moderate, more people become employed, new low down payment options and increasing consumer confidence. Recent consumer confidence levels rose to strength we have not seen in many years. For the same period, new home sales jumped up 11.6%. This suggests that home builders increased activity over the last two years is now being seen in the sales numbers.
Case Schiller Index Shows Slowing Price Appreciation: The 20 city index for November showed pricing increases slowed to 4.3% annually. This is inline with most predictions that price appreciation would slow after being unsustainably hot for the last 2 years. Managing Director, David Blitzer, suggests it is premature to use this data to predict 2015 activity and believes the typical spring rebound will boost numbers. Still he predicts that strong pricing gains will be limited to California, Florida, the Pacific Northwest, Denver and Dallas.
2014 Existing Home Sales End Strong: After a year of slowing activity Existing sales rebounded in December. If we annualize the December numbers it would be a pace of over 5 million sales per year. Total sales for 2014 were 3.1% below sales levels for 2013. Sales activity increased last year after inventory improved during the summer. Inventory did tighten by the end of the year after the increased pace in sales had its affect. First time home buyer activity remained low with numbers around 29% it was the lowest level in 30 years. 26% of all sales were cash which is still a major part of the market. 11% of sales were distressed in 2014 which is down from 14% in 2013.
FHA Makes Positive Changes for 2015: We start the year with some good news from FHA. It has been pretty much negative changes to FHA over the last few years as HUD has had to make changes to keep the program solvent. The rash of foreclosures during the Great Recession depleted the FHA reserve fund so FHA was forced to dramatically increase their mortgage insurance premiums. This has made FHA loans much less affordable and did not compare well to comparable conventional loans. FHA has just reversed course and lowered the annual MI premium by .50%. This will lower the monthly payment for FHA borrowers. They also announced a max loan amount increase for our area up to $517,500. Good news also as prices have increased.
Fannie Mae and Freddy Mac Increase Loan Limits and Relax Lending Standards: Recently Fannie and Freddy made announcements clarifying policies regarding ‘reps and warrants’ for lenders. This has reduced uncertainty for mortgage banks regarding their risk of having a loan rejected by the GSE’s. This should loosen up underwriting at many banks. Now they have added to the good news by announcing a loan limit increase to $517500.