Mortgage Market Update - 3/30/2012

The housing market continues to bounce around at what many experts believe is the bottom. In recent weeks I have written about how many of the housing reports have indicated a slowly strengthening real estate market. I don’t believe that trend is changing however in the last week we have seen the New Home Sales report as well as the Pending Home Sales report come in weaker than expected. With the employment picture steadily improving, it is a little bit confusing as to why the housing market is unable to gain much traction towards improvement.

On the bright side of housing, the Case-Shiller Home Value Index reported that home values in the 20 major cities they measure, have remained stable. Month after month we have been seeing continuing declines in values and this latest report provides some comfort that the downward trend has either stopped, or at least taken a breather.

The Mortgage Bankers Association reported this week that purchase applications increased 3.3% where as refinance applications declined 4.6%. As I have been reporting, real estate agents across the U.S. have been seeing increased traffic of buyers coming through their offices. In addition, many more homes are coming on the market from independent sellers. The interesting observation is that these new sellers are not in financial distress.

Mortgage rates have reversed direction and have been declining over the last week. Very few experts feel that rates will drop back to their record lows. The reverse in direction has many mortgage and real estate professionals breathing a sigh of relief. No one ever knows how the home buying public will react to an increase in mortgage rates.

First Time Jobless Claims continue to drop along with continuing claims. Next week there are two significant employment reports. On Wednesday ADP will release their payroll report and on Friday the government releases their National Employment Report. It is a little too early to hear much in the way of predictions about these reports. The few analysts that have spoken, seem to believe that the employment rate will remain virtually unchanged.

According to this week’s GDP report, the economy continues to grow at a modestly strong pace. A growing concern exists about what is going to happen to growth in the near future. More and more in the news lately we are hearing about the apparent economic slowdowns taking place in China and Europe. What has many investors spooked and sitting on the sidelines is that we don’t know how these slowdowns will impact the U.S. recovery.

Housing Recommendation: With home prices appearing to stabilize, home affordability still very high, and with mortgage rates coming back down, home purchasing is very desirable right now. In addition, with the increased inventory coming on the market in many areas, buyers will have a better selection. Time to get off the fence!

If you are a homeowner and you still have yet to refinance, “what in the world are you waiting for?”

Economic reports on tap for next week are:

• Monday April 2^nd – ISM Manufacturing Index
• Tuesday April 3^rd – FOMC Minutes Release
• Wednesday April 4^th - MBA Mortgage Applications and ADP Employment Report
• Thursday April 5^th - First Time Jobless Claims
• Friday April 6^th – National Unemployment, Stock and Bond Markets Closed

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at 916-517-1800.

Your Mortgage Consultant,

JJ Mack

I believe we are getting closer and closer to the housing market starting to awaken. I predict the market will be slow to rise, however I feel with great certainty that the continuing economic conditions in the U.S. along with the fact that the European Debt Crisis is appearing more under control, the pieces are in place for real estate conditions in the U.S. to radically improve in the second half of 2012.

Housing affordability has once again hit an all time high. When you combine the continued decline in housing prices with low mortgage rates and the improving employment picture, the pieces are coming together for housing to turn positive. As much as home values have declined further in recent months, the pace of the declines has slowed and more and more people are beginning to believe we are close to the bottom. In addition, with the media reporting more and more in recent weeks that now is the time to purchase, we are seeing in many markets homebuyers starting to wake up.

The Mortgage Bankers Association reported that even with record low interest rates, refinances declined slightly by 2%. On the flip side purchase applications rose 2.1% which continues the gradual trend of improvement. In the coming weeks we may see the refinance index increase due to the government’s recent launch of two new financing initiatives for underwater homeowners. Many homeowners who couldn’t refinance before, may now be able to take advantage of the record low mortgage rates.

The two black eyes to housing come to us from the foreclosure arena. Foreclosure starts jumped 28% in January and foreclosure sales increased 29%. The most interesting stat regarding foreclosures is that 47% of the foreclosures are repeats. That is a tell tale sign that loan modifications are helping just over 50% of the people who get them. That is not something we like to see.

The biggest news for the week is the national unemployment rate remained unchanged at 8.3%. The economy created 277,000 jobs last month. This increase follows an upward revision for January figures by 61,000. Job growth is the best it has been since 2006 and shows that the employment sector is gaining strength.

The other piece of news that bodes well for economic stability is that Greece is on the verge of completing their debt restructuring. This agreement with bond holders all but guarantees that Greece will not default on their obligations stabilizing world financial markets.

Housing Recommendation: Last week I talked about how I am seeing more “for sale” signs coming out on properties in my area. Reports around the country are similar to mine and it appears that homeowners who have been waiting to sell, are beginning to believe that the market is turning and that now is time to test the waters. With rates amazingly low and home affordability at a new record, now is the time to get out and start looking. If you have been thinking about purchasing, then get on the phone with your local real estate agent and get their perspective on what is happening in your own market. The housing market is not going to change overnight, however the one thing that is being reported is that there may be many houses for sale, but the good houses are sold almost as soon as they hit the market.

The European Debt crisis has been noticeably absent from the news this week. No the crisis is not solved…however it does seem like the imminent reports of a Greek debt default have gone away. The stock market investors don’t know what to do with themselves. The market continues to trade within a very narrow range. Gas prices are hurting at the pump but not enough to really have consumers changing their spending habits.

The housing market continues to be mixed in the recently released reports. Depending on how you look at the data, you can either feel that housing is improving, or it is worsening. Let me explain…

Contract signings for existing home purchases increased 2.0 percent in January which points to strength ahead for homes that actually reach the stage of a final sale. We must recognize that not all transactions reach the point of closing due to factors such as borrower loan rejections and low appraisals. However, if contracts are increasing, home sales should actually increase as well in the coming months. The greatest strength in housing is in the South. Contracts have jumped 10.5% from a year ago and so far in 2012 they are up 8.0%.

As I mentioned before, the mixed feelings on housing comes from the preliminary Existing Home Sale data confirmed by today’s S&P Case-Shiller Report. This report shows a very steep ½% decline in home prices for their 20-city index. Additionally the report indicates that home prices are down from the same time last year by 4%. My one comment about the S&P Report is that we have seen other housing reports in the past contradict their findings. The best thing you can do is look at what is happening in your neighborhood, or even better yet, speak to your local real estate professional and see what they say about your local market.

Some home purchasers believe that home prices will keep falling making a home purchase even more affordable. In my opinion the only catch to this is that housing inventory is continuing to drop. Sooner or later the critical mass of homes available for sale will drop below the necessary supply and that will ultimately reverse the trend of declining home values. I personally think we are closer to this equilibrium point than most people believe.

Despite the S&P Case-Shiller report showing declining home values, there are areas in the country in which we are already seeing multiple offers on properties and home values rising. Believe it or not, these bidding wars are not on amazingly low priced homes, they are on homes that are priced properly to sell at market value. Here is a real estate truth. A home priced right from the beginning, will sell within 30 days or less. Further evidence that home prices may soon begin a broad based increase, the Mortgage Bankers Association reported that last week applications for home purchases increased 8.2 percent.

Housing Recommendation: In my area of the country, I am seeing many more homes going up for sale. What excites me most is that underneath the “for sale” signs, I am seeing the sign riders that say “In Contract”. This tells me that demand for housing is returning and that the spring buying and selling season may be starting a little bit earlier than normal. Mortgage rates are still amazingly low and home affordability is at a record high. If you are looking to purchase a home, waiting to see if home prices will drop another ½% or 1% before taking action in my opinion will most likely backfire. History has proven time and time again that unless we are in a recession, home prices always rise in the spring. We are not in a recession and we are on “Spring’s” doorstep. It’s time to ring the bell.