May 2009

More Positive Data From The Housing Sector: Existing Home Sales AND New Home Sales Rise

As this week’s signal that homebuyers are returning to the market, both Existing Home Sales and New Homes Sales posted improvement versus month-prior figures this April.

According to the National Association of REALTORS, the number of Existing Home Sales rose by 130,000 units in April.

New Home Sales rose by a modest 1,000 units in April.

As a twist in the story, however, although sales activity is rising, the available housing inventory is rising faster.

Versus March 2009, there were 300,000 more homes for sale in April — an increase of 9 percent. In addition, the “housing supply” rose to 10.2 months, its highest level since October.

This is good news for home buyers, of course, because home prices are a product of Supply and Demand. Depending on local conditions, buyers may find themselves in a position to demand lower sale prices or additional seller concessions.

The housing market has not fully rebounded but it continues to show signs of strength. With a few more months like March and April, it’s reasonable to assume that homebuyers will lose some of their leverage for contract negotiation.

When that happens, expect home prices to rise.

Mortgage Rates Rose By More Than 1/2 Percent Wednesday

Conforming mortgage rates rose by 0.625 percent Wednesday. Yes, you read it right. Zero-point-six-two-five percent.

The surprise surge in pricing started shortly after 1:00 P.M. ET, then continued all the way until the market’s closing. It was the sharpest one-day surge in mortgage rates in recent history.

Perhaps ever.

For mortgage rate shoppers swept up in the surge, monthly payments are now higher by $29 per $100,000 borrowed.

That’s a significant shift.

For as rare as Wednesday’s events were, though, middle-of-the-day, 0.625 percent rate changes don’t just happen. Yesterday, the action was the result of a confluence of factors, including:

• Rising oil prices and gas prices
• Optimistic predictions about the end of the recession
• Concerns over the U.S. total debt load
• Fears of inflation

In addition, momentum trading played a role.

As markets worsened, selling begat more selling, amplifying Wall Street’s total losses. As mortgage bond prices fell, mortgage rates went up. By a lot.

Mortgage markets are notoriously fickle and yesterday’s events proved it. Days like Wednesday are precisely why insiders recommend shopping for mortgage rates in a compressed timeframe. The faster you finish, the lower the risk of losing low interest rates to new market conditions.

Market Commentary…05/27/2009

Lots of alerts from TBWS today, here’s why: The bubble in the mortgage markets finally and with super hyper speed, blew up today.

After holding and holding, while the 10 yr note rate climbed, mortgage rates jumped today to levels not seen in many months. We have been warning the mortgage markets couldn’t hold on forever while treasury rates increased.

Mortgage lenders became way too complacent with hedging risk, believing apparently that the $1.25T the Fed committed to buy would keep mortgage rates from increasing. Today, from almost the beginning mortgage markets looked very unstable; we sent several alerts suggesting deteriorating rates.

Frankly, we were not looking for the kind of pounding we got this afternoon.

Yields on Fannie Mae and Freddie Mac mortgage bonds rose for a fourth day, after yesterday for the first time exceeding where they stood before the Federal Reserve announced it would expand purchases to drive down loan rates.

It is finally hitting home that the Fed has a serious problem; the problem is how to keep mortgage rates down, the housing markets are the key to any economic recovery and one of the keys to getting the housing sector back on track is keeping mortgage rates affordable and low.

It was widely thought that buying $1.25T of MBSs would do it.

Not the case; we all know about the massive supply Treasury has to sell in the debt markets, as we have noted it is unlikely that can happen (raising $200B a month along the yield curve, not including T-bills under 1 yr) without higher rates and the potential of creating inflation fears.

Today may be a Waterloo for the Fed; what to do?

Buy more treasuries, buy more mortgages? Markets are not going to be placated by either move; the Fed can’t keep it up and as the US debt increases foreign central banks, led by China, may make good on recent comments to stop buying US debt.

Who then will fund our deficits and the Obama Administration’s aggressive fiscal budgets?

The US is completely dependent on foreign investments to fund our debt and that point is beginning to take front page.

Big hit in the equity markets this afternoon on the hard hits taken in the mortgage markets. Without lower mortgage rates the economy isn’t going to recover at the pace recent thoughts had developed. If housing and home prices are not stabilized there isn’t going to be much of a recovery based on the timeframe markets had been expecting.

The $35B 5-yrs went at 2.310% with a 2.32 bid-to-cover and indirect take of 44.2%, the outing was solid. The results were against an average 2.13 cover over the past 16 auction since the start of 2008, and a 29.2% indirect bidder take. The market had been looking for a solid showing, and while this was less impressive than the 2-yrs, that was also expected.

The market had been looking for a draw of 2.33% plus and liked the lower yield. More Treasury borrowing tomorrow; $26B of 7 yr notes will complete this week’s $101B of borrowing.

Markets will have two weeks to breathe before Treasury comes back with 3 yr, 10 yr and 30 yr bond auctions on June 9, 10, and 11.

Tomorrow weekly jobless claims at 8:30 expected to be up 5K; and April durable goods orders (+0.5%). At 10:00 Apr new home sales are expected to be up 1.8%.

The selling today adds to the technically oversold markets. Mortgage rates cannot stand against the increase in long term treasury rates. The spread between the 10 yr note and 30 yr mortgages came back in line two weeks ago as we reported, back to about 165 basis point from a high of 270 basis point six months ago.

Keep all rate locks locked and strap in for a significant increase in market volatility with mortgage prices swinging with treasuries in large daily increments.

(Image Source: RateAlert powered by TBWS)

On A Monthly Basis, Home Values Look Better Than The Press-Reported Annual Figures

Each month, researchers measure home values in 20 large U.S. cities, then compile their findings in a report called the Case-Shiller Index. It’s a popular measurement of housing health across the country, but it’s far from perfect.

As 3 examples:

• It gives more weight to expensive homes than inexpensive ones
• Its sample set includes just 37 states of 50 states
• Real estate isn’t a “national” market — it’s local

All that said, however, the data is still important. The Case-Shiller Index helps identify broader trends in housing and it’s widely believed that the economy won’t recover until the sector starts to stabilize.

We may be at that recovery point now.

Despite newspaper headlines blaring about 19 percent drops from March 2008, the month-to-month values appear to be stabilizing and the latter is the more important development. 15 of the 20 markets covered by Case-Shiller either improved, stayed flat, or declined by 0.2 percent or less.

Versus 2008, the rate of speed at which home values are falling is slowing.

Furthermore, because the Case-Shiller Index is on a 2-month delay, it doesn’t account for all of this year’s Spring Buyers, or first-timers taking the $8,000 first-time homebuyer tax credit.

Two months don’t make a trend, but if Case-Shiller Index continues to report similar data for April and May, it could be the signal that housing finally bottomed.

What’s Ahead For Mortgage Rates This Week: May 26th

Mortgage markets reacted poorly to not-as-strong-as-expected housing data and employment data last week causing mortgage rates to rise on the week overall.

It was the third time in 4 weeks that mortgage rates were up.

To the detriment of rate shoppers, mortgage rates were especially volatile Thursday and Friday.

As an increasing number of traders punched out ahead of the 3-day weekend, the mortgage pricing swings grew wider and wider.

Rates were at their lowest last week on Wednesday morning. By Friday, some mortgage rates were higher by as much as 3/8 percent.

This week, with traders coming back to work, the pace of change should slow a bit, if not for the volume of closely-watched data expected to be released.

The data with the largest potential impact on mortgage rates this week is related to the housing market. There will be 3 separate reports — each expected to show that housing is still weak, but not as weak as it was.

• Tuesday: Case-Shiller Price Index
• Wednesday: Existing Home Sales
• Thursday: New Home Sales

However, because real estate is local in nature and these reports are broadly national, it’s important to not read into them too much. They’re good for an overview but shouldn’t be used as the basis for an offering price.

In addition, there will be two consumer confidence surveys released — one on Tuesday and one on Friday.

Consumer surveys can be important in a recovering economy because as confidence rises, spending often does, too, and consumer spending represents two-thirds of the U.S. economic engine. If confidence is rising, expect the stock market to benefit and the mortgage bond market to suffer.

This would lead mortgage rates higher.

It’s unlikely that mortgage markets will display the same volatility this week as compared to last week, but that doesn’t mean that mortgage rates won’t change. With so much data crossing the wires in the next 4 days, it’s likely that Friday’s rates will be different from today’s.

Therefore, if you’ve found a rate and payment with which you can be comfortable, consider locking it in. It’s unlikely to last long.

Over 24 Hours, Mortgage Rates Shoot Higher

Rates go up, rates go down. Catch them while you can.

After Wednesday’s mortgage market rally drove rates down by a bunch, Thursday’s sell-off pushed them right back up.

This has been a common pattern in the skittish world of mortgage rates this year.

With the U.S. economy still teetering between recession and growth, markets are looking for signals anywhere it can find them. Thursday’s clue came from a government report showing that more Americans are collecting unemployment benefits than at any point in history.

Strangely, mortgage rates rose on the news.

We call it “strange” because weak economic data has tended to draw mortgage rates lower lately to the benefit of prospective home buyers and would-be refinancers. Lower rates make homes more affordable.

Thursday, though, the pattern broke.

The main reason why mortgage rates rose Thursday isn’t because of the employment report or any other piece of data. Rates rose Thursday for the same reason that they had dropped the day prior — the Federal Reserve.

On Wednesday, the released minutes from the Fed’s last meeting suggested that the group might make a larger mortgage market intervention. On Thursday, in the face of worsening jobs data, markets bet the Fed wouldn’t.

Mortgage rate shoppers, unfortunately, got caught in the crosshairs.

Rates can — and do — change quickly, without warning. And, thus far this year, the changes have been extra sudden. This is one reason why it’s often prudent to lock a mortgage rate as soon as you find one that’s agreeable. Wait too long, and it could be gone.

Expect more volatility today with traders leaving early for Memorial Day Weekend. Less volume means more chances for rates to change.

How The “Fed Minutes” Can Change Mortgage Rates And Home Affordability

Mortgage rates fell after the Federal Reserve released its April 28-29, 2009 meeting’s internal notes Wednesday.

Officially known as “Fed Minutes”, the report is an in-depth account Federal Reserve’s last get-together, detailing the discussions and decisions that create our country’s monetary policy.

It’s the lengthy companion to the Federal Reserve’s brief, post-meeting press release.

For comparison’s sake, the Federal Reserve’s April 29 announcement contained 383 words. The minutes of that same meeting held 5,754 words. The extra words offer extra details about what the next monetary steps might be for the nation’s policymakers.

This is a big deal to markets because investors are always looking for clues about what’s next — especially considering how the April Fed Minutes showed that group discussed increasing its $1.25 trillion mortgage market commitment to something bigger.

Remember that the Fed’s mortgage-buying program is largely credited with keeping mortgage rates low this year. If there’s more buying ahead, that should help rates stay similarly low. Mortgage rates fell Wednesday in anticipation of a move like that. For now, though, the Fed Minutes are just talk.

As economic conditions change later this year, so might the Federal Reserve’s stance.

Housing Starts Are No Longer Falling, Another Positive Signal In Housing

A “housing start” is a new home on which construction has started and, for the fourth straight month, single-family home construction remained flat in April.

For the battered housing market, this is the latest in a series of signals that a long-awaited turnaround is coming.

* The number of homes under contract to sell are rising
* The national housing inventory is down by nearly 1 million from March 2009
* Home values are rising, according to a government report

The current plateau in Housing Starts may indicate that builders are more confident in the economy, and that Americans are, too. Especially in light of the freefall over the past few years.

Single-Family Housing Starts have hugged the 360,000 mark since January 2009.

However, there is a footnote to the story.

As noted by the Commerce Department in its official report, the April Housing Starts conclusion is suspect because of the data’s large Margin of Error. Had the government’s sample set included a different series of data, in other words, it may have concluded that housing starts had fallen instead of staying flat. Or risen.

We won’t know the final results of the report until 3 months from now but if the initial figures hold, it will fortify the argument that the housing market has, indeed, found its bottom.

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