Median Home Prices Rise Again (For the 35th time)
The median existing-home price for all housing types in January was $199,600, which is 6.2 percent above January 2014. This marks the 35th consecutive month of year-over-year price gains.
Unsold inventory is at a 4.7-month supply at the current sales pace which is well-below the “sweet spot” of a 6 to 8 month supply. The lack of inventory is a big factor in why total Existing Home Sales dipped 4.9 percent on a month-over-month basis. However, the more closely watched year-over-year sales show a 3.2 percent gain.
Lawrence Yun, NAR chief economist, says the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country. “January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” he said. “Realtors® are reporting that low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”
He went on to say “The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise.”
The percent share of first-time buyers declined to 28 percent in January, the lowest since June 2014 (also 28 percent) and down from 29 percent in December. First-time buyers represented 26 percent of sales last January. Clearly, this represents a perfect opportunity for Spring sales as first time home buyers will begin to be a larger factor.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -40 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move higher from the prior week. We had our best rates on Tuesday and our worst rates on Wednesday. So far for the month of February, MBS are down an incredible -229 BPS which has caused mortgage rates to increase.
We had a holiday-shortened week. There were no Treasury auctions and our domestic economic data had little to no impact on long bond trades (which control interest rates). The FOMC released the minutes from their last meeting which received a lot of attention but they really didn’t provide any real momentum for bonds.
The bond market primarily focused on overseas events last week with Greece and Ukraine in the spotlight (once again). On of the biggest factors in mortgage rates being so low (compared to historical norms) is global fear and the flight to U.S. long bonds as a safety play. So, any reduction in global fear will take away some of that premium in our bonds.
Two weeks ago we got a cease-fire deal between Ukraine and the Russian Separatists which went into effect last week and reduced (temporarily) some risk premium in MBS.
With Greece, we finally got an official announcement straight out of Brussels on Friday. Greece and its euro zone creditors reached a deal to extend Greece’s bailout for four months. Greece has until Monday (which is a national holiday over there) to list the planned measures it intends to take. It is surprising that Germany has agreed to an open-framework of this nature, which also means that once the final memorandum is available, everyone will dissect the language to find out just who folded. Regardless, MBS sold off on Fridayin direct response to this announcement which gave us our highest mortgage rates since December 30th.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|23-Feb||10:00 AM||Existing Home Sales||–||4.95M||5.04M|
|24-Feb||9:00 AM||Case-Shiller 20-city Index||–||4.30%||4.30%|
|24-Feb||10:00 AM||Consumer Confidence||–||99.3||102.9|
|25-Feb||7:00 AM||MBA Mortgage Index||–||NA||-13.20%|
|25-Feb||10:00 AM||New Home Sales||–||471K||481K|
|25-Feb||10:30 AM||Crude Inventories||–||NA||-7.716M|
|26-Feb||8:30 AM||Initial Claims||–||290K||283K|
|26-Feb||8:30 AM||Continuing Claims||–||2400K||2425K|
|26-Feb||8:30 AM||Core CPI||–||0.10%||0.00%|
|26-Feb||8:30 AM||Durable Orders||–||1.80%||-3.30%|
|26-Feb||8:30 AM||Durable Goods -ex transportation||–||0.60%||-0.80%|
|26-Feb||9:00 AM||FHFA Housing Price Index||–||NA||0.80%|
|26-Feb||10:30 AM||Natural Gas Inventories||–||NA||-111 bcf|
|27-Feb||8:30 AM||GDP – Second Estimate||–||2.10%||2.60%|
|27-Feb||8:30 AM||GDP Deflator – Second Estimate||–||0.00%||0.00%|
|27-Feb||9:45 AM||Chicago PMI||–||58||59.4|
|27-Feb||10:00 AM||Michigan Sentiment – Final||–||93.8||93.6|
|27-Feb||10:00 AM||Pending Home Sales||–||2.20%||-3.70%|
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.The above 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.