Friday, July 29, 2011
Investors purchasing government bonds, Keeping our mortgage rates low!!
Wow- last week I said that I had confidence in our government to resolve the debt issue. I hate to say this but I am beginning to have my doubts. If the Democrats and Republicans are as far apart in reaching an agreement as they say they are, then we have a potential economic train wreck on our hands. As I wrote last week, in the event that there is no agreement, the cost of borrowing will increase. In turn, if the ratings agencies lower the credit rating of the U.S. Government, then the interest rate increases could be significant.
Investors have been running scared out of the stock market purchasing government bonds in fear that the stock market will get hit hard if Congress does not resolve this issue in the next couple of days. You may ask, "Why would investors purchase government securities when there is fear of the government defaulting on debt and interest payments"?
The answer is that even though there is risk of default in the near future, ultimately once the debt ceiling is raised, the government will make good on all the payments and interest owed. This keeps investors comfortable in purchasing government debt. As long as investors continue to purchase government debt, mortgage rates will remain low.
The low rates for mortgages may play a part in the fact that this week we did receive both positive and only slightly negative reports on housing. The S&P Case-Shiller Home Value Index showed that home prices remained little changed in the last 30 days. Slightly negative news contained in the report is that overall home prices were lower by 3.6% from the same time last year. Although home prices remain lower, the gap is nothing significant.
The New Home Sales Report showed mixed information in that on one side it was reported that new home sales declined 1.0% from the prior month. The positive news in the report is that the median price of new homes being sold is actually higher by 7.2% from a year ago. That is a significant jump.
Mortgage applications were down slightly from the prior week. Purchase applications dropped 3.8% and refinances were down 5.5%. I personally am not paying much attention to this report in that the purchase drop can be something that fluctuates from week to week.
The most positive report on housing came from the Pending Home Sales Report. This report showed that sales increased 2.4% in June and that we also have 19.8% more homes in contract for purchase than the same time last year.
The true reading to determine if housing is moving in the right direction is the Existing Home Sales Report that will come out in July. This report will be a clear indictor of whether all these pending transactions actually make it to closing. Recently we have seen articles that have been talking about buyers backing out of contracts. July's report will tell us the real deal.
I believe that once the government takes care of the debt ceiling, housing reports will improve towards the latter part of the year. Let's remember, right now we are in the summer months and traditionally housing slows down.
Friday, July 22, 2011
The housing reports this week were filled with some nice surprises!!
Outside of the fact that our government has yet to come to an agreement on raising the debt ceiling, I am excited to announce that this week we have had primarily positive news on almost all fronts.
The stock market as of this report is up over 300 points for the week. Many investors believe that although Congress has yet to ink a debt deal, confidence remains that our that our elected officials will come through at the 11th hour.
Everyone knows that a failure to increase the debt ceiling would have terrible economic consequences. Even our government officials are smart enough to realize that creating another financial and economic crisis, because they didn't come to an agreement, would be political suicide. Can you imagine not one single government official getting re-elected? (Hmmm, something to think about)
The housing reports this week were filled with some nice surprises. The Housing Market Index showed increased optimism from builders that future demand will increase. Exactly why they feel this optimism is not quite clear however we will gladly accept a positive outlook on housing from anyone at this point.
Housing Starts jumped 14.6% in June exceeding most analyst predictions. Additionally, housing starts are 16.7% higher than a year ago. Although the biggest jump was in multifamily construction, single family starts rose a healthy 9.4%. Increases in housing took place throughout all regions. The Northeast saw the largest increase of 35.1%. The Midwest increased 25.3%, the South 10.6% and the West rose 5.4%.
Existing Home Sales dropped slightly by a minimal .8%. Despite the slight drop, the good news in this report is that the median home price rose 8.9% in June and prices are slightly higher than a year ago. Without question if we can sustain home prices rising, it will bring buyers into the market as they perceive that we have hit bottom and they better act fast. It is still early and we will need a few more positive reports in the coming months before we can determine if a rising trend actually exists.
Mortgage applications for purchases declined slightly. Many people believe that homebuyers are afraid to make a commitment to purchase a home at this time given the uncertainty of the government negotiations on the debt ceiling, and continued uncertainty regarding unemployment. Unfortunately lately there have been some headlines of layoffs appearing in the media of government employees and Cisco Systems that are scaring buyers.
First Time Jobless Claims rose 10,000 from the prior week. A rise in claims was not unexpected however the increase was more than anticipated. As I mentioned in the previous paragraph, the announced government layoffs along with Cisco's layoff announcement may increase first time claims in the coming weeks.
Oil prices have been rising slowly and are sitting at just under $100 a barrel. Since we have seen these oil prices before it is not believed that the rising prices are going to set back the economy however many more consumers are certainly keeping their summer travel plans closer to home to save money.
Friday, July 15, 2011
What are they thinking???
Hey ALL!
It is no wonder the economy can't seem to get going. We have a government that has become almost completely dysfunctional. You may event want to add on top of that schizophrenic.
It is becoming clearer that business, and even consumers are becoming more and more concerned about the daily news and warnings regarding the government defaulting on their debt unless the debt ceiling is raised. To be honest, when it comes to this whole debt ceiling thing, I understand just enough to be dangerous, which I think puts me in the same category as most of the citizens of the U.S.
What I do know is that the government needs to borrow more money. The Republicans say they won't approve additional borrowing unless Congress commits to reducing expenses and not increasing taxes. The Democrats say they want to reduce expenses and increase taxes and that is the only way to balance a budget. Although I am all for not increasing taxes, I can't see how the government will balance a budget without doing both.
As far as the Fed, it is no wonder the country and economy is on pins and needles. The Fed is clearly confused about what they will or won't do to help the recovery and Bernake is the king "confuser".
On Tuesday the FOMC minutes that were released indicated that some people in the committee believe that another round of stimulus may be necessary to spur the economy, or at least get it moving again. On Wednesday Chairman Bernake stated that the Fed is prepared to offer more assistance if the economy continues to falter. On Thursday Chairman Bernake stated that the Fed is not willing to launch another stimulus program.
Well Ben which is it...are you going to help or not?
In other news, mortgage rates continue to remain very low and little changed from the prior week. The Mortgage Bankers Association reported that despite very low rates, mortgage applications still declined. Purchase applications dropped 2.6% while refinances declined 6.2%.
Foreclosures for the first half of 2011 showed a significant drop of 29% from the same time a year ago. That is the good news. The not so good news is that it appears the drop is more a reflection of the banks slowing the process of initiating and completing foreclosures than anything else. The banks are already overloaded with properties they own and they are clearly in no rush to add more houses to their real estate owned inventory. Either way, keeping people in their homes has to be a good thing for the economy both financially and psychologically.
Inflation continues to remain under control. Prices on the wholesale and retail level came in showing that inflation pressure is virtually non-existent and will most likely remain that way for some time.
Lastly, first time jobless claims edged lower to 405,000. This is the closest we have been to the 400,000 mark in eight weeks. The question that needs to be answered is...is the drop related to an improving employment picture, or is it because it was a holiday week? Next week's report should shed some light on what is really going on.
Economic Reports on tap for next week:
o Monday July 18th - Housing Market Index
o Tuesday July 19th - Housing Starts
o Wednesday July 20th -MBA Mortgage Applications and Existing Home Sales
o Thursday July 21st - First Time Jobless Claims
It is no wonder the economy can't seem to get going. We have a government that has become almost completely dysfunctional. You may event want to add on top of that schizophrenic.
It is becoming clearer that business, and even consumers are becoming more and more concerned about the daily news and warnings regarding the government defaulting on their debt unless the debt ceiling is raised. To be honest, when it comes to this whole debt ceiling thing, I understand just enough to be dangerous, which I think puts me in the same category as most of the citizens of the U.S.
What I do know is that the government needs to borrow more money. The Republicans say they won't approve additional borrowing unless Congress commits to reducing expenses and not increasing taxes. The Democrats say they want to reduce expenses and increase taxes and that is the only way to balance a budget. Although I am all for not increasing taxes, I can't see how the government will balance a budget without doing both.
As far as the Fed, it is no wonder the country and economy is on pins and needles. The Fed is clearly confused about what they will or won't do to help the recovery and Bernake is the king "confuser".
On Tuesday the FOMC minutes that were released indicated that some people in the committee believe that another round of stimulus may be necessary to spur the economy, or at least get it moving again. On Wednesday Chairman Bernake stated that the Fed is prepared to offer more assistance if the economy continues to falter. On Thursday Chairman Bernake stated that the Fed is not willing to launch another stimulus program.
Well Ben which is it...are you going to help or not?
In other news, mortgage rates continue to remain very low and little changed from the prior week. The Mortgage Bankers Association reported that despite very low rates, mortgage applications still declined. Purchase applications dropped 2.6% while refinances declined 6.2%.
Foreclosures for the first half of 2011 showed a significant drop of 29% from the same time a year ago. That is the good news. The not so good news is that it appears the drop is more a reflection of the banks slowing the process of initiating and completing foreclosures than anything else. The banks are already overloaded with properties they own and they are clearly in no rush to add more houses to their real estate owned inventory. Either way, keeping people in their homes has to be a good thing for the economy both financially and psychologically.
Inflation continues to remain under control. Prices on the wholesale and retail level came in showing that inflation pressure is virtually non-existent and will most likely remain that way for some time.
Lastly, first time jobless claims edged lower to 405,000. This is the closest we have been to the 400,000 mark in eight weeks. The question that needs to be answered is...is the drop related to an improving employment picture, or is it because it was a holiday week? Next week's report should shed some light on what is really going on.
Economic Reports on tap for next week:
o Monday July 18th - Housing Market Index
o Tuesday July 19th - Housing Starts
o Wednesday July 20th -MBA Mortgage Applications and Existing Home Sales
o Thursday July 21st - First Time Jobless Claims
Friday, July 1, 2011
Mortgage Market Update - 7/1/2011
It is such a great day for writing my newsletter. We are heading into the July 4th holiday weekend and, believe it or not, I did not have to search hard to find good economic news to write about this week.
Now that the Greece Debt Crisis seems to be resolved, Wall Street is loving it. This week alone, the Dow rose over 550 points as of Friday morning. In fact this week is responsible for almost all of the gains in the market for the entire first half of the year.
Housing continues to send mixed signals as to which direction it is heading, however there seems to be a light shining on it for the moment. Although growth in mortgage applications has been virtually stagnant for both purchase and refinances, that does not mean there is no good news in housing.
The Case-Shiller House Value Index reported the first increase in home prices in 8 months. Although the gain is minimal, breaking the trend of house price declines is a very important milestone. Sometimes it is something as little as this that can move fence sitting buyers to take action so as not to miss out on the bottom of the market.
None of us know if we have hit bottom, however the recent increase in mortgage rates combined with the improvement in home values can have a strong psychological impact on the housing market. Even the media is finally beginning to discuss housing in a positive way. (It is a miracle)
As I mentioned in last week's newsletter, the National Association of Realtors alluded to the fact that this week there would be good news about housing. Well NAR did not let us down as they reported that Pending Homes Sales for the month of May jumped 8.2%, which is more than any so called experts had expected.
The other major change to housing is that with all of the positive momentum in the stock market, many investors are taking their money out of government bonds and dumping them into the stock market. When investors sell bonds, that causes mortgage rates to rise. In the last week we have seen mortgage rates jump almost ¼% which can be a positive or negative for the housing market.
The positive is that fence sitting homebuyer may jump into the market if they perceive that mortgage rates are on the way up. The potential negative to housing is that qualifying for a mortgage is challenging enough. Higher rates reduce home affordability which can once again have a negative impact on values in the future.
I personally am not concerned about rates at this time in that one week does not set a pattern for any direction on housing or mortgage rates.
Next week the markets will turn their focus to employment. Between the ADP Employment Report and the National Unemployment numbers to be released on Friday, these reports will warrant the attention of most investors.
Outside of the major employment reports, there is not much activity on tap for next week. Additionally, this is a big vacation week so although the markets can move radically, it can easily be driven by just a few investors because of the expected low trading volume.
Economic Reports on tap for next week:
o Wednesday June 6th -MBA Mortgage Applications and ADP Employment Report
o Thursday July 7th - First Time Jobless Claims
o Friday July 8th - National Unemployment
Your Mortgage Consultant,
JJ Mack
916-517-1800
Now that the Greece Debt Crisis seems to be resolved, Wall Street is loving it. This week alone, the Dow rose over 550 points as of Friday morning. In fact this week is responsible for almost all of the gains in the market for the entire first half of the year.
Housing continues to send mixed signals as to which direction it is heading, however there seems to be a light shining on it for the moment. Although growth in mortgage applications has been virtually stagnant for both purchase and refinances, that does not mean there is no good news in housing.
The Case-Shiller House Value Index reported the first increase in home prices in 8 months. Although the gain is minimal, breaking the trend of house price declines is a very important milestone. Sometimes it is something as little as this that can move fence sitting buyers to take action so as not to miss out on the bottom of the market.
None of us know if we have hit bottom, however the recent increase in mortgage rates combined with the improvement in home values can have a strong psychological impact on the housing market. Even the media is finally beginning to discuss housing in a positive way. (It is a miracle)
As I mentioned in last week's newsletter, the National Association of Realtors alluded to the fact that this week there would be good news about housing. Well NAR did not let us down as they reported that Pending Homes Sales for the month of May jumped 8.2%, which is more than any so called experts had expected.
The other major change to housing is that with all of the positive momentum in the stock market, many investors are taking their money out of government bonds and dumping them into the stock market. When investors sell bonds, that causes mortgage rates to rise. In the last week we have seen mortgage rates jump almost ¼% which can be a positive or negative for the housing market.
The positive is that fence sitting homebuyer may jump into the market if they perceive that mortgage rates are on the way up. The potential negative to housing is that qualifying for a mortgage is challenging enough. Higher rates reduce home affordability which can once again have a negative impact on values in the future.
I personally am not concerned about rates at this time in that one week does not set a pattern for any direction on housing or mortgage rates.
Next week the markets will turn their focus to employment. Between the ADP Employment Report and the National Unemployment numbers to be released on Friday, these reports will warrant the attention of most investors.
Outside of the major employment reports, there is not much activity on tap for next week. Additionally, this is a big vacation week so although the markets can move radically, it can easily be driven by just a few investors because of the expected low trading volume.
Economic Reports on tap for next week:
o Wednesday June 6th -MBA Mortgage Applications and ADP Employment Report
o Thursday July 7th - First Time Jobless Claims
o Friday July 8th - National Unemployment
Your Mortgage Consultant,
JJ Mack
916-517-1800
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