Mortgage interest rates

3July

Will Rental Prices Affect Mortgage Rates?

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AptLivingIt’s no secret by now that the rental market across the U.S. is hot as rental prices are growing at their fastest pace in 5 years.  The national vacancy rate was 4.1% during the second quarter of this year and the asking rent increased to an average of $1,099 a month (0.8% increase from the first quarter).  So with the cost of renting creeping upward, will this affect those that are looking to buy instead of rent?

Some economists believe mortgage rates could increase as rent continues to rise.  Lawrence Yun, The National Association of Relator’s chief economist made a statement, “Given that housing is the biggest weight to overall consumer price inflation, if this rent trend continues, and it could easily because vacancy rates are falling and falling, then the overall CPI inflation will be higher than anticipated, which will then force the Federal Reserve to raise interest rates sooner than later.”  There are other economists; however that disagree and feel that interest rate policy will not hinge solely on apartment rents.

Mortgage rates have not seen much action over the past year (30-year fixed rate mortgage rate is 4.17%) but if they were to increase this wouldn’t be beneficial to homebuyers.  For housing to grow legs it is important to see job growth and income growth become stronger than it has been.  An increase in supply could also help push prices down.

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29May

Home Prices Rise in March

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HJust when you thought home prices couldn’t go any higher they are still pushing limits.  The S&P/Case-Shiller composite index recorded a 0.9% rise in March on a seasonally adjusted basis.  Economists had expected the index to report a 0.7% increase.

Although the index reported a year-over-year home price increase of 12.4% (well above Wall Street’s appraisal) this was down slightly from February’s year-over-year data of 12.9%.  As mortgage rates drop again, the housing market could see more growth and higher prices still.

March’s slight drop in year-over-year data reveals that home prices could be moderating.  Markets like Las Vegas, San Francisco, and Los Angeles have reported significant slowdowns.  Chairman of the index committee at S&P, David Blitzer, said, “Annual price increases for the two composites have slowed in the last four months and 13 cities saw annual price changes moderate in March.  The National Index also showed decelerating gains in the last quarter.”  It will be interesting to see over the next few months how much higher prices can go and even if they will or not.

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13March

Housing Geared Up to Grow this Spring

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The mercury is rising and springtime is just around the corner.  Regions hit hard by winter storms are starting to thaw and analysts are predicting the housing market will do the very same in coming months.  A tight housing supply continues to keep home prices high making this undoubtedly a seller’s market.  The overall housing market for the year is positioned for continued growth.

Housing industry and home construction real estate concept as two gears or cog wheels shaped as family residential structures as an icon of neighborhood cooperation and community network connections.Demand for housing is still strong and expected to stay this way through the spring according to some analysts.  The Conference Board, a nonprofit association of businesses, found the percentage of consumers who intend to buy a home within the next six months is the highest it has been since 2000.  One reason for this rising demand is young people who are still facing a tough job market.  A housing analyst with Moody’s Analytics predicts the economy will expand enough this year to enable these young people to move out of their parent’s home.  While they may mostly rent, a decrease in vacancy rates should put upward pressure on rental prices prompting interested home buyers who currently rent to make a real estate purchase.

The rise in home prices is great news for millions of homeowners who have been underwater on their mortgage.  Rising values should encourage owners to put their property on the market, helping to ease the tight housing supply.  CoreLogic reported almost 3.5 million homeowners were lifted out of negative equity between the end of 2012 and mid 2013.  Zillow estimated even more borrowers are back above water, citing 3.9 million homeowners.  Chief Economist Stan Humphries, of Zillow stated in a recent release, “We’ve reached an important milestone as negative equity has fallen below 20 percent nationwide, which has helped free up marginally more inventory and contribute to further stabilization of the market.”

During the past year, existing home and condo sales have increased 11 percent almost topping the highest level in four years.  The National Association of Realtors (NAR) predicts sales will remain about the same during this year.

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25February

Home Affordability Harder to Find

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Today’s housing market is witnessing tight inventories, high prices and tighter credit requirements, making homes less affordable for Americans.  The proof can be found in the pudding, or more specifically, in the U.S. mortgage applications report from The Mortgage Bankers Association (MBA) and in the home price report from the National Association of Realtors (NAR).

Applications for U.S. home mortgages dropped 2 percent to 397.2 as purchase and refinancing application decreased the week of February 7th.   The index recorded its lowest level since December 2000 at the end of last year.  The MBA’s refinancing index reported a .2 percent drop while loan requests for home purchases dropped 5 percent.  Some analysts attribute the drop in applications to the extreme winter weather much of the country has experienced but the data points to the theory of home affordability dropping.

Real estate market NAR recently released its data showing home prices increase 10.1 percent year-over-year in the fourth quarter of 2013.  The third quarter of 2013 reported 12.5 percent year-over year gains.  NAR chief economist Lawrence Yun in a release stated, “The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending.  At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”  Although home prices have pulled back some, affordability is still waning.

Interest rates might also be playing a hand in this situation.  Income levels have remained flat while interest rates have crept upward.  The expensive home prices, caused in part to lack of supply and higher rates, have knocked out several potential buyers from the market.  As rates increase, the amount of house one can afford drops, leading to issues of affordability.  “Pricing is still reacting to demand outstripping supply, and until we see an increase in inventory, you’re going to continue to see price increases that will be higher than what has been anticipated,” said Richard Smith, CEO of Realogy.

Housing supply has been impacted by the harsh winter weather touching most of the country in the past several weeks.  Builders can’t build new homes in these harsh conditions which keep the supply tight and buyers don’t want to venture out in these conditions to shop.  Once the weather warms up, the market could experience pent-up sellers looking to buy which would be reassuring of the housing market recovery.

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10January

Home Prices Reach for the Stars

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Temperatures across the U.S. are plunging and have left many cities frozen in ice and snow.  One thing not plunging is home prices.  The housing market has continued to experience rising prices along with rising mortgage rates leading to a decline in purchasing power.  Rising home prices and rates deal a double blow to affordability.

According to the S&P Case-Shiller Home Price Index, which follows 20 large cities in the U.S., home prices rose 13.61 percent year-over-year and increased .18 percent from the month of October to November.  Las Vegas had the largest year-over-year gain of 27.05 percent while New York and Cleveland tied for the smallest gain of 4.9 percent.

HomePriceReachUpCoreLogic’s most recent home price report for November 2013, reported home prices (including distressed sales) rose 11.8 percent year-over year.   November’s increase in home prices is the 21st straight month of year-over-year growth.  CoreLogic reports home prices gained 0.3 percent (excluding distressed sales) in November versus October.  CoreLogic economist Mark Fleming said in the release, “The housing market paused as expected in November for the holiday season with very low month-over-month appreciation.”

 According to CoreLogic data, 2013 was the best year for rising home prices in the past 8 years.  It is projected that  2013 year-end results will  show an overall  jump of 11.5 percent.  “It’s too early to tell if the marginal dip in the annual pace of house price inflation in November marks the start of the slowdown in price gains that we are expecting.  But we are confident that annual price gains will not remain in double-digit territory for much longer,” Capital Economics’ Paul Diggle commented.

This is positive news for potential home buyers  still waiting to get into the game.  Mortgage rates dipped to around 4.5 percent last week and many economists doubt this will hinder home sales in the short term (as noted in several  recent blogs).  Rates are still historically low.  Due to the recent pull back in mortgage rates, refinances ticked up 5 percent last week.  Overall refi activity is down 69 percent from a year ago when rates were more than a percentage point lower.

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31December

Home Mortgage Applications Hit 13-year Low

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Applications DownAs 2013 winds to a close, economic conditions have made large strides since the beginning of the year.  2013 Definitely had its fair share of headwinds surrounding the economy, job market and housing market.   Stock markets experienced strong gains the past few days, reaching new highs.  Home prices have increased and foreclosure rates are on the decline.  One thing holding the housing market back however is home mortgage applications.

According to the Mortgage Bankers Association (MBA), U.S. home mortgage applications fell for the  second consecutive week,  hitting a 13-year low, dropping 6.3 percent from the week prior,  December 20th.  Rising mortgage rates might be scaring away some potential home buyers.  The 30-year fixed mortgage rate averaged 4.64 percent last week.  Rates have steadily increased in response to the Federal Reserve’s decision to begin tapering asset purchases by $10 billion a month.

“Following the Federal Reserve’s taper announcement, mortgage application volume dropped again last week, with rates increasing and refinance application volume falling to its lowest level since November 2008.  Purchase application volume was weak too, continuing to run more than ten percent below last year’s pace. Notably, government purchase application volume is almost 25 percent below where it was at this time last year, with the larger drop compared to conventional purchase likely due to the increase in FHA premiums over the course of the year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

As rates continue to tick up, the number of refinances will drop accordingly.  Refinances as a percentage of total mortgage activity, dropped to 65 percent from 66 percent in the week prior .  The MBA’s seasonally adjusted index of refinancing applications dropped 7.7 percent.

Reported November new home sales numbers offered more attractive data than application numbers.  Signed purchase contracts for new  homes dropped slightly but this was after October’s data was revised up 25 percent.  Squaring “the near highest level of new home sales in years with a multiyear low in mortgage applications to buy a home continues to tell me that investors are beginning to get their feet wet in the new home space with the goal of renting these homes out,” analyst Peter Boockvar of the Lindsey Group said. “The secular shift to renting should continue.”  When Boockvar broke down the numbers by region in the U.S. he noted, “The South is surging; the rest of the nation is not.  If you back out the South October surge, the numbers are in line with the tepid demand since July, when [mortgage] rates surged.”

With 2014 right around the corner, it will be interesting to see what the new year holds for the housing market.

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24December

Oh Come, All Ye Taper

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The long awaited final Federal Reserve meeting of the year and concluding meeting for Bernanke’s term has arrived.  Thursday the Federal Reserve released the news that it would finally begin to taper quantitative easing, albeit a slight taper, signaling the Federal Reserve is seeing signs of growth and strength in the job market.  Federal Reserve officials stated they would taper bond purchases from $85 billion a month to $75 billion.  How will this affect you and the housing market?

TaperBondsAs the Federal Reserve slows its printing press in light of the taper, rates are likely to increase, meaning homebuyers will pay more for home loans in the form of mortgage rates and business loans will cost more as well.  Current 30-year fixed rates are hovering around 4.57 percent and will probably head higher.  Ellen Haberle, an economist at the online real-estate brokerage Redfin commented, “Homebuyers aren’t going to be happy.  In the weeks ahead, mortgage rates are likely to reach or exceed 5 percent.”  It is important to note these rates are still at historic lows even though they are starting to climb.  Analysts believe this is not enough to halt the housing market recovery.  “It’s a better economy that gets people to buy houses,” said senior financial analyst at Bankrate.com, Greg McBride.

In most recent housing data the fear of a taper seems to have vanished.  Housing starts soared to a six-year high, jumping 22.7 percent in November according to the Commerce Department.  This was the biggest increase since January 1990 and the highest level of starts since February 2008.  Starts for multi-family homes jumped 26.8 percent and have risen strongly during the recovery as demand for rentals remains high for those unemployed or unable to qualify for a home loan.

Homebuilder confidence this month was positive and builders were optimistic regarding current sales conditions, forward looking sales and potential homebuyers.  The National Association of Home Builders monthly sentiment index (HMI) increased 4 points, its highest level since August.  “This is definitely an encouraging sign as we move into 2014.  This indicates that an increasing number of builders have a positive view on where the industry is going,” says NAHB Chairman Rick Judson, a homebuilder from Charlotte, N.C.

Now that there is more certainty in the housing market and the economy, businesses and consumers can make more educated decisions concerning hiring, taking out loans and making large purchases.  Craig Strent, CEO of Apex Home Loans in Rockville, MD, stated, “Mortgage interest rates generally hate the idea of uncertainty, so this definitely brings some certainty in terms of the Fed showing their cards as far as the direction of rates.”

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