The Improving Real Estate Market!

The Improving Real Estate Market!

Mortgage rates after weeks of slowly rising have returned to lower levels that we experienced 2 weeks ago.  The cause for the interest rate decline is the emerging concern about Europe’s financial instability and how it may impact the United States.  The biggest issue in Europe has been the banking crisis in Cyprus that has had their banks closed for over a week.  (Can you imagine what would happen in the U.S. if the banks closed down for a week and you could only access your money through an ATM?)

The stock market after initial negative reaction to the Cyprus banking crisis has now returned to its positive direction now that they seem to have a plan in place to assist in the financial recovery and stabilization of the Cyprus banking system.

I feel like a broken record when it comes to writing about real estate.  For months now I have had the pleasure of writing about the improving real estate market, and this week is no exception.  This week we had 3 significant housing reports released and for the most part they continue to reinforce the trend of moderate to strong housing growth.

The highlight of all the reports was the Case-Shiller Home Value Index which showed that home prices are continuing to increase, however the real story is that they are increasing at a faster pace.  Prices were reported to have risen 1% in February which is on top of January’s .9% and December’s .6% increases.

Additionally, home values are up 8.1% from the same time last year.  The increase in home prices is actually less surprising than the rate in which they are increasing.  If you look back at the last 5 months of home prices compared to a year ago, reports show that values were up 6.9% in January, 5.5% in December, 4.2% in November, 2.9% in October and 2% in September.  The pace in which values are increasing is blowing through virtually every economic forecast and there does not seem to be any end in sight to this trend.

The main cause of the rapid increases is that employment in the country is improving which means more people are feeling confident in making a home purchase.  When you combine that with limited inventory the result is rapid increases in home prices.  Although it is likely more homes will come on the market for the typical Spring market surge, the expected rise in inventory will not likely impact the rapid rise in values.  The amount of pent up demand of buyers in the market today will rapidly absorb the homes that come on the market.

JJ Mack
916-517-1800
jj.mack@apmortgage.com
www.apmcroseville.com

Sales traffic seems to be quite robust and shows no signs of slowing down!

Sales traffic seems to be quite robust and shows no signs of slowing down!

The housing market index to almost everyone’s surprise turned lower for the second straight month.  The issue seems to be more about builders having difficulty locating available lots to build and a lack of credit for new home construction than buyer demand.  The positive side to the report is that although present conditions seem challenging for builders, sales traffic seems to be quite robust and shows no signs of slowing down.

Housing starts made a partial comeback in February, however what many consider important for the future is that housing permits made a significant gain. Housing starts in February rebounded 0.8 percent, after they had dropped 7.3 percent in January.  The report also reinforces that the market is in a much better place than a year ago as housing starts are up a whopping 27.7 percent from the same time last year.  Housing permits continue on an upward trend increasing by 4.6 percent.

The final piece to the housing reports for the week came on Thursday with the existing home sales report.  An unexpected rise in existing home sales inventory occurred in February with a reported increase from 4.3 months up to 4.7.  Additionally exiting homes sales also improved rising .8 percent with January being revised upward to .8 percent as well.

Low supply of available homes for sale had been holding down sales but that appears to be changing as higher prices are bringing more homes into the market. Although the media has not been talking a whole lot about rising house prices, it appears that homeowners are beginning to do their own research and are finding that their homes are worth more than they initially thought.  The west coast appears to have the greatest shortage of available inventory of existing homes for sale.

Outside of housing reports for the week, the Federal Open Market Committee dominated mid week headlines.  The FOMC announced to no one’s surprise that they are leaving interest rates unchanged.  To go along with the no change rate policy the FOMC reiterated their desire to keep interest rates low for mortgages by keeping their bond and mortgage backed securities purchase program in place. 

Mortgage rates continue to remain low but the expected news from the FOMC had only a slight impact in lowering mortgage rates.  Overall mortgage rates continue to remain higher than their historic lows and it does not appear that they will return to set any new records.  In fact many experts state that because the economy, and especially the real estate market are improving, if it were not for the Fed’s bond buying program, mortgage rates would probably be at least 1/2 to 1 percent higher.

JJ Mack
916-517-1800
JJ.Mack@apmortgage.com
www.apmcroseville.com

Retails sales, real estate and the labor markets all have been showing improvements!

Retails sales, real estate and the labor markets all have been showing improvements!

The stock market as of Thursday finished with its 10^th straight day or increases.  The stock market continues to hit new record highs as investors remain confident that the mostly positive economic news and data that has been coming out will continue.  Investors do not seem to be phased by the impending March 27^th budget deadline that would shut down the government if a budget is not passed. 

In Congress the game of chicken continues to be played out by both Republicans and Democrats and neither side seems to be blinking in regard to wavering on their budget demands.  Most people believe that something will happen to avert a government shut down as if that happens, the results could be devastating to the economic recovery.

Speaking of recovery, more and more reports show that the economy is continuing a steady path of growth.  Retails sales, real estate and the labor markets all have been showing significant signs of improvement.  The latest figures on retail sales show an increase of 1%.  Despite the payroll taxes that have gone into effect for 2013, consumers do not seem to be deterred about shopping.

Mortgage rates have risen since late last week throughout this week.  Refinance applications as expected have declined as they are very sensitive to any slight movement in mortgage rates.  Purchase applications have declined only slightly and the demand for housing is expected to continue to grow and recover.

Nationally there is a shortage of properties for sale which is creating multiple bid offers on properties and this is starting to return the market to the seller’s advantage.  Getting these multiple bid properties to appraise for the higher sales prices continues to be a challenge as appraisers are not able to locate data to support higher prices. 

Additionally, the appraisers are unwilling to make upward market adjustments to property values based on demand without enough supporting data.  The end result is it is going to take some time for property values to really increase regardless of demand because if the appraisers can’t or won’t support the higher values, the mortgage companies will not lend on the higher sales price.  Next week we will have a clearer picture on the housing market as many housing reports will be released.

The labor market continues to recover as first time jobless claims have dropped once again down to 332,000 for the week of March 9^th.  This is the second lowest claim level since the recession.  The 4 week moving average of claims has hit its lowest point since the recession.

JJ Mack
916-517-1800
jj.mack@apmortgage.com
www.apmcroseville.com

The central bank will continue to support the economy

The central bank will continue to support the economy!

The story this week has been stock market records and rising interest rates.  The stock market has been on a rapid rise hitting new all time highs almost daily.  Monday the Federal Reserve officials suggested that the central bank will continue to support the economy even as it continues to improve.  This simply means that they plan on keeping interest rates artificially low allowing businesses and consumers to continue to borrow money at very low interest rates.

Tuesday the market hit another record high during the day as investors continued to believe that the global economy will continue to improve because governments around the world are all doing what is necessary to supporteconomic stability and growth. 

Wednesday the market closed at yet another new record based upon the optimistic ADP employment report indicating that the economy added 198,000 jobs.  Additionally the prior months report was revised upward by 23,000 up to 215,000.  Although payrolls did not increase as much as the prior month, the employment sector continues to show modest improvement.

Finally, on Thursday the market once again topped the previous close. Manufacturing was up and first time jobless claims were less than expected.  Friday we will here from the Department of Labor on national unemployment however that report will be released after the writing of this article.

Mortgage rates have been rising all week long in response to the strong gains in the markets.  The positive movement in the stock markets and expectations of the continued economic improvement has investors putting more money into the stock market while selling off their bond investments.  The selling of bonds and mortgage backed securities drives the yield on securities higher causing interest rates to rise.

The forecast from Fiserv Case-Shiller predicts that home prices will increase by an average of 3.3% annually from now through September 2017.  This would be a completely different picture than what we have experienced since 1997 where house prices rose and fell sharply.  Between 1998 and 2006 prices averaged increases of 5% or more per year however once the real estate bubble burst home prices fell 30.5% from 2006 to September 2012.

Lastly the government spending cuts that went into effect on March 1^st have not seemed to dampen the mood of consumers and business owners.  The public seems to have gotten used to the craziness coming from the government and since many of the cuts do not impact the bulk of the population, most people are just going about their daily business.

JJ Mack
916-517-1800
JJ.Mack@apmortgage.com
www.apmcroseville.com

Home prices continue to increase gradually!

Home prices continue to increase gradually!

There was a time in our recent memory that the threat of $85,000,000,000 (That is Billion with a “B”) would have a major negative impact on the markets, interest rates and even consumer confidence.  Yet, even though our elected officials have once again proved that they cannot work together, the markets do not seem to be paying much attention to Washington’s gridlock.  It is clear that almost everyone believes that Congress will somehow come up with some type of temporary stop gap piece of legislation that will prevent what is supposed to happen, from happening. 

Well…it is Friday morning and Congress has worked through the night and still there is no resolution or solution.  The stock market futures as of this moment are only down slightly and interest rates are virtually unchanged so I guess most people simply are not paying attention, or they are just numb to it.

In the end we know that our elected officials with come up with something that will not solve any of our financial woes in this country.  We continue to increase our debt, and despite all the shouting from the mountain top that this needs to stop, I guarantee that once again our elected officials will “kick the can down the road” and not do anything to curtail spending.

Housing was the big news maker this week as there were 4 keyhousing reports released.  Here is the recap::

• FHFA House Price Index - Home prices continue to increase gradually.  The FHFA price index for December increased 0.6 percent which follows November’s rise of 0.4 percent.

 

• Case-Shiller Home Price Index - Home prices continue to rise by a very strong 0.9 percent for December's 20-city adjusted Case-Shiller index. This pace of increase is the best since last year's second quarter when monthly gains averaged 1.0 percent. From the same time last year the index is up 6.9 percent which is the highest since the giant housing bubble back in 2006.

• Pending Home Sales Index – The pending home sales report points to strong improvement for February. The number of contracts signed to purchase an existing home rose 4.5 percent from the prior month.  One of the biggest challenges to home sales is that properties for sale on the market are scarce and the pace of increasing sales is draining what inventory there is.  The market, believe it or not, is starting to return to the seller’s advantage.

• New home sales in January surged a monthly 15.6 percent to an annualized 437 thousand from an upwardly revised 378 thousand for December. The latest number well topped market expectations.

JJ Mack
916-517-1800
JJ.Mack@apmortgage.com
www.apmcroseville.com