Housing market shows strong signs of recovery!!

This past week would be considered uneventful by most investors and consumers standards when it comes to market moving economic news.  For all intensive purposes investors have been remaining on the sidelines and although there has been some movement in the market during the trading days, the indices are within a few points of where they started the week.  Investors are keyed in on three main areas, financial strength in Europe, economic growth in China, and still holding out hope that the Fed is going to announce another round of economic stimulus.

In the last week we have seen mortgage rates rise about 3/8% due to a variety of reasons.  The fear of inflation and the reality that inflation is actually happening is weighing on investor’s minds.  Evidence of this is that gasoline prices are up over 30 cents a gallon in the last 30 days and oil prices are up over 16% in the same amount of time.  I know this because I just renewed my home heating oil contract and I was shocked to see how much it increased in such a short period of time.

Zillow, the leading online housing information website recently reported that for people not planning on moving for a few years housing has become much better bet than renting.  According to Zillow, in more than 75% of the 200 metro areas they analyzed, they found that owning would make more financial sense because homeowners would reach a breakeven point in 3 years or less.

More good news coming in the direction of the housing market is that foreclosures continue to fall.  In July foreclosure filings declined for the 22^nd straight month.  There is some concern that although foreclosures have continued to decline, there has been a jump in new filings recently.  It is believed that the increase is being caused by both the stagnant employment situation as well as lenders having cleared up their systems for handling foreclosures since the “Robo-signing” scandal took place.  They can now resume the foreclosure processes under the new guidelines set forth by the government to make sure homeowners rights are protected.

The housing market is definitely showing signs of recovery.  In many areas home prices are stabilizing and even rising.  Now that interest rates are no longer sitting at record lows, it will be interesting to see if fence sitting homebuyers jump into the market or continue to remain on the sidelines.  The experts have mixed opinions on this and we will just have to wait and see what happens.

Mortgage applications for refinancing declined 2% last week.  Refi volume is at a very high level so the decline is not all that significant in relation the number of applications being handled by lenders at the present time.  The big question is how much the interest rate increases this week will impact next week’s application numbers.  I can say with confidence that I believe we will see a significant drop in refinance applications in next week’s MBA report.

There are two things that will impact homeowner’s decisions to refinance.  The first is that with all of the record lows that have been achieved in recent months, borrowers expectations have been reset to a lower level.  What this means is that in the past where an interest rate of 4% seemed like a steal, today that same rate will seem high to some homeowners.  This shift in perception may stop them from applying for a loan.  The second is that some homeowners continue to hold out on the belief that rates will turn even lower.  I was speaking with someone just the other day and they said they expected rates to go down to 2%. Not sure why they were thinking this way but I am sure they are not the only one thinking like this.  Unfortunately I think they are in for a rude awakening.   

JJ Mack