Experts Bullish on Housing
Home prices are now rising at their fastest pace since 2005. Housing bulls are running again, pointing to rising construction starts, rising home sales and falling mortgage delinquencies.
“Low prevailing mortgage rates, the limited supply of existing homes for sale (either due to the few foreclosure completions or the number of underwater borrowers who cannot sell), and the anemic levels of new home construction are facilitating affordability and feeding demand,” noted analysts at Fitch Ratings. “These factors are offsetting weak fundamentals that would otherwise hinder home price growth, such as high structural unemployment and lackluster wage growth.”
With economic growth starting to pick up in 2013, so will mortgage rates. Mortgage rates directly correlate with economic growth. As the economy grows, so will rates. But is that a bad thing for housing? Actually, its not.
Historically, when mortgage rates start to trend upward, purchasers finally “get off the fence” and pull the trigger on that next home particulary with home prices rising. Plus, the uptick in mortgage rates that results from a growing economy will still be relatively low compared to other periods when the housing market flourished. It will certainly dampen the refinance activity but will spur purchase activity.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -83 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move much higher. We had our highest mortgage rates on Friday morning and our lowest rates on Monday morning.
We had a holiday-shortened week and light trading volumes until Wednesday. Wednesday was our first big trading day with all of the participants back at their desk for the first time in two weeks. And when they got back, many of them pulled their funds out of their parking spot in bonds and put that money back to work as stocks had their single best week in over a year. This in turn pressured MBS pricing and pushed mortgage rates higher.
As usual, we had a mixed bag of economic data. Both ISM Manufacturing and Non-Manufacturing were stronger than expected. Also, Auto Sales and the ADP Private Payroll report were strong. These reports show economic growth and therefore are a negative for bonds. Bonds are what drive mortgage rates, so this pushed rates higher. The Unemployment Rate moved upward from 7.7% to 7.8%. This negative economic news did help bonds recover from their worse levels.
But the biggest catalyst of the week was the release of the Federal Open Market Committee’s (FOMC aka “the Fed”) minutes from their last meeting. In that report, the market learned that some of the voting members were discussing ending their massive Treasury bond buying program earlier than the Fed had guided. While this was not an official policy change, the fact that they were at least discussing it spooked the bond markets as the Fed is the single largest purchaser of Mortgage Backed Securities and Treasuries. The market reacted by selling off bonds and forcing mortgage rates higher.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|8-Jan||3:00 PM||Consumer Credit||–||$10.6B||$14.2B|
|9-Jan||7:00 AM||MBA Mortgage Index||–||NA||NA|
|9-Jan||10:30 AM||Crude Inventories||–||NA||-11.1M|
|10-Jan||8:30 AM||Initial Claims||–||366K||372K|
|10-Jan||8:30 AM||Continuing Claims||–||3200K||3245K|
|10-Jan||10:00 AM||Wholesale Inventories||–||0.10%||0.60%|
|10-Jan||10:30 AM||Natural Gas Inventories||–||NA||-135BCF|
|11-Jan||8:30 AM||Trade Balance||–||-$41.8B||-$42.2B|
|11-Jan||8:30 AM||Export Prices ex-ag.||–||NA||-0.70%|
|11-Jan||8:30 AM||Import Prices ex-oil||–||NA||-0.20%|
|11-Jan||2:00 PM||Treasury Budget||–||NA||-$86.0B|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.