Weekly Mortgage Market Update for February 27th
The market is changing. We don't know yet if it's shifting, stabilizing or not..yet. All real estate is local. Read what Michael Dutra of Shamrock Mortgage has to say regarding local and national markets.
Keeping you updated on the market!
For the week of
February 27, 2012
MARKET RECAP
So are things getting better or worse? We ask because the latest data on existing-home sales fail to provide a definitive answer. Sale were up once again, increasing 4.3 percent to a 4.57 million annualized rate in January, which, in turn, dropped supply to 6.1 months, the lowest inventory level in three years.
The fact that existing-home sales are rising is good news. The not-so-good news is that sales appear to be driven by discounting. The national median price fell 4.6 percent to $154,700, while the national average price dropped 4.0 percent to $201,200.
In short, existing-home sales are trending higher, but the trend is being fueled in part by price discounting – at least at the national level.We're always quick to point out that all real estate is local. National numbers – averages in particular – strip local data of their individuality and meaning. That's why we are always more interested in locally produced data, which nearly always differs from what the national numbers say.
For example, data from Pro Teck Valuation Services and Collateral Analytics show significant improvement in South Florida, which a few years ago was one of the leading bubble markets. On the flip side, their data show significant weakness in a few Connecticut burgs, which mostly endured the post-2007 sell-off unscathed.
The bottom line is markets aren't homogenous: The country has experienced varying degrees of price corrections and sales volumes since the market peaks of 2006 and 2007. These degrees are often smoothed away in aggregated national numbers, thus limiting their usefulness.
The mortgage market, on the other hand, has seen few degrees of variability of late. Mortgage rates have held a bottom achieved a couple months ago. The consensus among mortgage pundits is that this bottom will hold for 2012.
It's difficult to argue with the consensus when you consider the Federal Reserve has openly stated it intends to hold the fed funds rate – the influential short-term rate – at zero through 2014. On the long-end of the interest-rate spectrum, the Fed has stated it will continue to purchase longer-term Treasury securities and mortgage-backed assets to keep mortgage rates low.
This doesn't mean that mortgage rates can't get more expensive, though. The FHA recently announced it was raising premium fees on its forward mortgages by 10 basis points on conforming loans and 25 basis points on jumbo loans. These costs must be recouped from the borrower.
It's also worth keeping in mind that the Federal Reserve isn't omniscient. Market forces – such an unexpected spike in inflation or economic growth – will move rates higher, regardless of what the Fed does. So take the consensus for what it is – an opinion and not a guarantee.
Economic
IndicatorRelease
Date and TimeConsensus
EstimateAnalysis
Pending Home Sales Index
(January)Mon., Feb. 27,
10:00 am , et96 Index
Important. The trend in the index points to continuing improvement in existing-home sales.
S&P Case-Shiller Home Price Index
(December)Tues., Feb. 28,
9:00 am , et0.5% (Decrease)
Important. Home prices eroded in the 4 th quarter of 2011, though more contemporary data show signs of a turnaround.
Mortgage Applications
Wed., Feb. 29,
7:00 am , etNone
Important. The continuing decline in purchase applications points to lower sales, though the rise in cash purchases is an off-setting factor.
Gross Domestic Product
(4th Quarter 2011)Wed., Feb. 29,
8:30 am , et2.7% (Annualized Growth)
Moderately Important. Growth remains moderate and non-inflationary.
Personal Income & Outlays
(January)Thurs., March 1,
8:30 am , etIncome: 0.3% (Increase)
Outlays: 0.5% (Increase)Moderately Important. Recent income gains point to favorable future gains in consumer spending.
Construction Spending
(January)Thurs., March 1,
10:00 am , et0.4% (Increase)
Important. The rebound in residential spending reflects an improving new-home outlook.
Beware of the Incomplete and the Obscure
We came across a couple articles that piqued our interest this past week. One was on CNBC .com, where the writer laid out an interesting hypothesis on how fewer foreclosure sales could actually drive prices lower. The writer reasoned that foreclosures are in high demand and that distressed property buyers and sellers rule the market; therefore, if demand for foreclosed properties wanes, prices will wane as well.
A separate article appeared in The Wall Street Journal lamenting that mortgage rates aren't as low as they should be. The writer points to the spread between mortgage-backed securities (MBS) and posted mortgage rates, which is wider than historical norms. The writer deduces mortgage rates should be lower.
Both articles were interesting, but hardly conclusive. As for high foreclosure demand propping up overall prices, prices of non-distressed properties have held firm. If prices aren't firming in the new-home market, the surge in home builder optimism doesn't appear warranted. It seems to us that home builders are experiencing better pricing.
As for the spread between MBS and mortgage rates, many influential variables are at work besides MBS demand: time preferences, risk aversion, supply and demand, liquidity preferences are just a few. The spread between MBS prices and mortgage rates alone is a very incomplete picture of the mortgage market.
The point is, markets are dynamic and complex, so it's impossible to narrow price determination to only one or two variables. The variables can be insightful, to be sure, but they are hardly conclusive, much less predictive.
Michael S. Dutra
Regional Sales Manager
Shamrock Financial Corporation
(401) 486-6894 Phone
(401) 228-9693 Fax
Apply online at www.TeamDutra.com
NMLS #13530 Licensed in RI, MA, CT and NH
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