Tuesday, March 31, 2015

Mortgage Rates Inch Lower to End March; Volatility Ahead

Mortgage rates fell again today extending a 3 day winning streak after shooting abruptly higher in the middle of last week.  That damage hasn't been completely undone yet, and we shouldn't expect it to be, given that underlying trading levels in bond markets have yet to make it back to the stronger levels seen last Tuesday.  In addition, it's the nature of the mortgage market for rates to move up more abruptly than they move down. 
3.75% remains the most prevalently-quoted conventional 30yr fixed rate for top tier scenarios.  Most of the lenders that moved up to 3.875% with last week's spike are now back down to 3.75% and a few of the most aggressive lenders are offering 3.625%, but the vast majority are at 3.75%.
Markets have been largely preoccupied with the month/quarter end trading process.  While traders typically react to news and economic data, there are other reasons to move money beyond the the direction of the economy.  Many investors are tasked with investing according to the decisions of their clients.  Month-end, and especially quarter-end are busier times for this sort of housekeeping trading.  
Even so, the morning's economic data managed to create volatility, but it was subdued compared to what it might have been if not for the month/quarter-end environment.  Naturally, with tomorrow marking the beginning of a new month, traders will have more liberty to react to the regular set of inputs.  Incidentally, those inputs increase in importance, meaning there is an exceptionally wide range of possibilities tomorrow, for better or worse.

Saturday, March 28, 2015

Investor Concerns Growing

Investor concerns about the economy grew significantly this week, especially Monday through Wednesday.  The Dow plummeted 476 points in three days with the largest drop of 292 points taking place on Wednesday.

As of late investors have been somewhat cheering the less than stellar economic data reports.  It has been seen that as long as the economy continues to show signs of mild weakness, the Fed will not move interest rates higher.  This of course is seen as a good thing for corporate borrowing and profits.

What is happening now is that investors are starting to realize that even too much weak economic news can be problematic.  Even though the lackluster economic reports will keep the Fed from taking action on raising rates, investors have now moved their focus on what the economic weakness being displayed really means.  If the trend continues, the benefits that corporations receive from low rates will be wiped out by significant declines in sales. 

The economy is not collapsing by any stretch of the imagination, however investors never want to be caught in the wrong investment position.  For this reason reaction in the market can be exaggerated when a few high influence investors make moves in their portfolios.  When this happens a “herding effect” can take place and everyone else follows thereby exaggerating market reaction.

Good news for housing is that on Monday the Existing Home Sales Report showed an increase of 1.2 percent for the month of February.  This comes after January’s decline of 4.9 percent.  What is pleasantly surprising is that the increase occurred despite the Northeast being buried in snow and bitter cold temps which kept many buyers waiting for the winter’s thaw.  The South and West led the increase with increases of 1.9 percent.  The Midwest was flat while the Northeast declined 6.5 percent.  Overall sales are higher than the same time last year by 4.7 percent.

The Federal Housing Finance Agency reported that home price appreciation has slowed, but still remains in positive territory.  Home prices increased 0.3 percent in January which follows December’s 0.7% rise.  Home prices remain 5.1 Percent ahead of last year’s numbers for January.

The final piece of the positive housing reports came with the new homes sales report released on Tuesday morning.  New home sales rose sharply in February to an annual rate of 539,000 from the previous month’s upward revision at 500,000.  These are the first two 500,000 plus readings since April and May of 2008.

Next week’s potential market moving reports:

·        Monday March 30th – Pending Home Sales Index
·        Tuesday March 31st – Case-Shiller Home Price Index & Consumer Confidence
·        Wednesday April 1st - MBA Applications, ADP Employment Report & ISM Manufacturing Index
·        Thursday April 2nd - First Time Jobless Claims & Factory Orders
·        Friday April 3rd – National Employment Situation

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Wednesday, March 25, 2015

Home Prices Surge to Fastest Pace in Year

Existing-home sales showed some improvement in February, but remain constrained by low inventories of homes for-sale that are pushing price growth to the fastest pace in a year, according to the National Association of REALTORS®.

"Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsustainable levels," says Lawrence Yun, NAR’s chief economist. "Stronger price growth is a boon for home owners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before [mortgage] rates rise."The median existing-home price for all housing types was $202,600 in February – 7.5 percent higher than a year ago.

Mortgage rates, for now, continue to hover near historical lows. The 30-year fixed-rate mortgage averaged 3.71 percent in February, according to mortgage giant Freddie Mac.

"With all indications pointing to a rate increase from the Federal Reserve this year – perhaps as early as this summer – affordability concerns could heighten as home prices and rents both continue to exceed wages," says Yun. Indeed, an NAR study earlier this month found a widening gap between rent and income growth across the country, which is making it more difficult for renters to become home owners.

Here are some more findings from NAR's latest housing report:4 Stats to Gauge the Market

1. Existing-home sales: Existing-home sales rose 1.2 percent month-over-month, reaching a seasonally adjusted annual rate of 4.88 million in February. Sales are 4.7 percent higher than a year ago.

2. Housing inventory: Housing inventories rose 1.6 percent to 1.89 million existing-homes for-sale in February, but remain 0.5 percent below a year ago. Unsold inventory is at a 4.6-month supply at the current sales pace. Most economists consider a 6-month supply healthy for the market.

3. Distressed sales: Foreclosures and short sales comprised 11 percent of sales in February, down from 16 percent a year ago. In February, 8 percent of sales were foreclosures, and 3 percent were short sales. On average, foreclosures sold for a discount of 17 percent below market value (in January, it was 15 percent) and short sales were discounted by 15 percent on average (from 12 percent in January).

4. Days on the market: Properties were on the market for 62 days, on average, in February, down from 69 days in January. Short sales were on the market for the longest – 120 days. Foreclosures tended to sell in 58 days and non-distressed homes took 61 days. Thirty-four percent of homes sold in February were on the market for less than a month, according to NAR’s report.

By Region

The following is an overview of how sales fared in February across the country:

Northeast: existing-home sales plunged 6.5 percent to an annual rate of 580,000, but are 3.6 percent above year ago levels. Median price: $241,800, up 3.3 percent year-over-year.
Midwest: existing-home sales were mostly unchanged from January at an annual level of 1.08 million, but are 4.9 percent higher than February 2014 levels. Median price: $152,900, up 8.8 percent from a year ago.
South: existing-home sales rose 1.9 percent to an annual rate of 2.11 million last month, and are 6 percent higher than year ago levels. Median price: $177,900, up 8.5 percent from a year ago.
West: existing-home sales increased 5.7 percent to an annual rate of 1.11 million in February, and are 2.8 percent above a year ago. Median price: $290,100 -- 4.2 percent above February 2014.

Source: National Association of REALTORS®

Sunday, March 22, 2015

A New Name...

There is a new name for Fed Chair Janet Yellen, it is “Goldie Lox”.  The stock market absolutely loved the message Yellen and the FOMC delivered on Wednesday.  The stock market has been planning for a Fed increase in rates possibly sooner than the anticipated June meeting. 

On Wednesday the FOMC announced that they are not rushing to raise rates.  Recent economic reports indicate that there may be some slowing happening in the economy.  A premature move by the Fed to raise rates could have a damaging impact on the economic recovery.  For now it remains business as usual…and investors are loving it.

The Fed is focused on four main areas in deciding when and how much to raise interest rates.  The four primary areas of attention are 1) Jobs  2) Core Inflation  3) Wage Growth  4) Inflation Expectations.

At the present time there is weakness in 3 out of 4 areas the Fed is focused on and future expectations are modest at this time.

The Fed announced that they believe the unemployment rate will continue to decline however they also revised downward expectations for economic growth and inflation.  The decline in unemployment is more in part from less participation than it is from employers increasing staffing.  Additionally wage growth appears all but stagnant, which is what continues to be the driver of virtually no inflation.  Retailers and service providers have been finding that their attempts to increase prices is being met with an immediate decline in sales.

Although not necessarily the recent economic data the FOMC was focused on when it said that there is economic weakness beginning to appear, housing starts for the month of February fell sharply.  The drop of 17 percent from January to February is the lowest level since January of 2014.

Weather across the Northeast appears to be the factor in driving down starts by a whopping 56.6 percent.  The Midwest experienced a decline of 37.0 percent, the west down 18.2 percent, and the south dropped only 2.5 percent.

Mortgage applications declined for the week ending March 13th despite low rates.  According the Mortgage Bankers Association applications for purchase loans declined 2.0 percent while refinance apps slowed by 5.0 percent.

Next week’s potential market moving reports:

·        Monday March 23rd – Existing Home Sales
·        Tuesday March 24th – Consumer Price Index, FHFA House Price Index & New Home Sales
·        Wednesday March 25th - MBA Applications & Durable Goods Orders
·        Thursday March 26th - First Time Jobless Claims
·        Friday March 27th – Gross Domestic Production

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Thursday, March 19, 2015

Lenders Managed Quick Closings despite Refi Surge

February was the second month in a row that refinancing made up more than half of all mortgage originations.  Ellie Mae's latest Origination Insight Report said that the refinancing share of originations jumped 8 percent from the January level to comprise 59 percent of lenders' loan volume.  Refinancing had averaged a 38 percent share throughout 2014, never rising above 50 percent after reaching a high water market of 47 percent in January of that year.  Despite the spike in refinancing lenders took an average of 36 days to close those loans, the shortest timeframe since Ellie Mae began tracking that data in August 2011.

"The drop in the average 30-year fixed rate in last few months has kept lenders busy with increased refinance business," said Jonathan Corr, president and CEO of Ellie Mae. "Considering the demand, the fact that lenders are taking fewer days to close the average refi loan is very good news."

Conventional loans made up 69 percent of originations in February with 68 percent of those loans refinances.  FHA loans had a 19 percent share, but the majority of those, 63 percent, were for home purchases.  Nine percent of originations were VA-backed loans.  
Loans for purchase took an average of 40 days to close.  The average closing time for all loans was 38 days.

Only 4 percent of loans carried an adjustable interest rate, down from 5.1 percent in January and the lowest share since at least late 2013.  The share of 15-year loans rose to 11.1 percent from 10.8 percent in January and was the highest percentage of originations for those loans since their 12.2 percent share in April 2014.

To get a meaningful view of lender pull-through, Ellie Mae reviewed a sampling of loan applications initiated 90 days prior-or the November 2014 applications-to calculate an overall closing rate of 60.0 percent in February 2015. It was the fourth consecutive month that the closing rate has been at or above 60 percent.

Ellie Mae's Origination Insight Report mines its data from a 66 percent sample of all mortgage applications that were initiated on the company's Encompass® origination platform which last year managed approximately 3.7 million loan applications. 

Monday, March 16, 2015

You Are Not Alone...

If you are having difficulty trying to get a read on what is happening in the stock market, you are not alone.  The stock market which has been considered a “Bull” market for quite some time, has been teetering on a possible correction. (A correction is known as a drop of 10% or more)

One day investors are celebrating, as they did on Thursday regarding the news that 29 or 31 banks passed their Fed stress tests.  The Dow rose 259 points.  Earlier in the week, investors got scared thinking about what will happen when the Fed raises interest rates, which is likely to happen in the next few months, and the market tanked.  Right now it appears that with the lack of significant economic data to trade on, investors are making bigger bets on smaller pieces of news in hopes of cashing in more on their trades.  This week was very light on economic data so from a reports perspective, there has been little for investors, analysts and economists to mull over. 

On Wednesday the Mortgage Bankers Association of American reported that applications for purchase loans rose by a slight 2.0 percent.  Refinance apps declined by 3.0 percent.  Mortgage rates over the last few weeks have been creeping higher in anticipation of the Fed increasing the cost of money which is likely to occur in May or June.  The announcement after next week’s FOMC meeting on Wednesday will hopefully shed more light on the Fed’s time table for taking action.

Real estate professionals from across the country are reporting an increase in buyer and seller activity.  Although some parts of the country it appears that an inventory shortage may be starting to occur again, we are seeing more homes come on the market for sale overall.  Buyer demand has jumped significantly as the spring buying season is beginning.

The Northeast, which has been under a deep freeze and tons of snow, is now experiencing a thaw.  Temperatures have risen above freezing, the snow and ice is melting, and residents are feeling like they can come out from hiding.  In the Northwest above average temperatures along with below average rainfall has buyer demand significantly higher for February and the first half of March according to agents and loan officers in the region.

In more good news for the labor market, first time jobless claims have dropped once again below the 300,000 benchmark down to 289,000 for the week ending March 7th.  This is a welcome change from the increasing trends we have been seeing over the last 30 days.

Spring is coming and optimism for the housing market is higher than it has been in the last 7 years.

Next week’s potential market moving reports:

·        Monday March 16th – Industrial Production and the Housing Market Index
·        Tuesday March 17th – Housing Starts
·        Wednesday March 18th - MBA Applications and the FOMC Meeting Announcement
·        Thursday March 19th - First Time Jobless Claims

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Saturday, March 7, 2015

Cautiously Waiting

The first four trading days of the week have the stock market sitting within one point of where it started Monday morning.  With little major economic data or unexpected international news, traders have been cautiously waiting on the sidelines to find any report that might move the markets to create opportunities for trading wins.

The ADP Employment Report, which usually has the ability to jolt the markets, did little to move investors.  ADP reported that private payrolls declined down to 212,000 from the previous month’s large upward revised report of 250,000.  Even though this might be a possible indication of slowing in the labor markets, investors did not appear to be overly concerned about the decline. 

Given that ADP’s January report ended up being much better than originally reported in early February, it is likely that investors may be expecting another significant upward revision to February’s numbers when the March report is released therefore they didn’t take much stock in the accuracy of the report.  ADP unfortunately has a fairly poor track record of predicting labor department statistics so investors do not tend to base their trading decisions heavily on ADP data.

Friday morning the labor department released the National Employment Report which showed that job growth appears to be very strong. (As you can see the exact opposite of the ADP’s report)  In February the labor force increased by 295,000 which was much more than expected.  Unemployment dropped from 5.7% down to 5.5%.  Early stock market reaction is largely negative as investors feel that the strong jobs report will lead the Fed to raise rates sooner than later.  The Fed, for quite some time, has been indicating that they are likely to begin raising interest slowly beginning in the summer. 

Mortgage rates dipped slightly in the week ending February 27th.  The decline was slight and did little to impact loan applications according to the Mortgage Bankers Association of America.  The MBA reported that applications for purchases declined a negligible 0.2 percent while refinance applications move upward by only 1.0 percent.

Concern is starting to mount in regard to a possible economic slowdown.  We are a long way off from anyone using the dreaded “R” word (Recession) however analysts are beginning to talk.  The ISM Manufacturing Index reported that the composite index declined 6 tenths of a percent which is the slowest rate of growth since January of 2014.  Last January the Polar Vortex was believed to be putting the freeze (sorry for the pun) on activity as much of the country was dealing with abnormally low temperatures.

Next week’s potential market moving reports:

·        Wednesday March 11th - MBA Applications
·        Thursday March 12th - First Time Jobless Claims and Retail Sales
·        Friday March 13th – Producer Price Index and Consumer Sentiment

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Wednesday, March 4, 2015

Mortgage Rates Pause Ahead of Big Events

Mortgage rates paused today after moving swiftly higher over the past two days.  Markets reacted to two important pieces of data this morning, ADP Employment and the ISM Services Index.  Both of these are regarded as relevant anecdotes for the even more important Nonfarm Payrolls data coming up at the end of the week, but in today's case, they generally offset each other.  Weaker ADP numbers helped bond markets improve this morning and stronger ISM data (particularly the employment component) took things back in the other direction. 
Lenders were mostly already priced defensively enough to absorb the bond market weakness (meaning rate sheets weren't much improved from yesterday, despite the stronger trading levels in play earlier in the morning).  In fact, the average lender was higher in rate than yesterday for most of the morning, but many repriced positively in the afternoon as bond markets held their ground.  General strength in broader bond markets typically connotes strength in the mortgage-backed-securities (MBS) that most directly affect loan pricing.  Stronger MBS = lower rates.
Not only do we have Friday's big jobs report, but tomorrow has events that are plenty capable of causing volatility as well.  Chief among these is the European Central Bank press conference in the morning.  If it ends up having a material effect on rates, it would happen before most lenders release their first rate sheet of the day.  As such, if you don't lock today, you're at the mercy of the market's reaction to tomorrow's data.

Sunday, March 1, 2015

Sales May Be Slow, Pricing Remains Stable

This week housing reports dominated the headlines, however the data itself did little to impact the markets.  Despite the job market continuing to remain stable, and mortgage rates continuing to remain low, demand for housing for existing homes continues to remain flat. January sales of existing homes fell a larger than expected 4.9 percent.  The current rate of 4.82 million is the lowest rate since April 2014.

Price concessions, which are often used to incentivize buyers to purchase didn't seem to help the month's sales as the median price for existing homes declined 4.1 percent.  This is the first reading below $200,000 since March last year. The drop in sales created upward movement in inventory which jumped from 4.4 months in December up to Januarys 4.7 months.

National Association of Realtors, which always seems to have a great vision on market trends appears to be confused by the latest data.  The association says it is "puzzled" that homeowners are now staying in their homes 10 years on average versus the previous long term average of 7 years.  The part that remains unexplained is the reason the trend is higher.  Is it a lack of confidence in the real estate market? Are homeowners happy with their current mortgage rates and home affordability?  Nobody really seems to know.

The one good thing for homeowners is that although sales may be slow, pricing remains stable.  The S&P Case-Shiller Home Price Index showed that the adjusted 20-city index shows a sharp month-on-month gain of 0.9 percent. Since March of 2014, this is the strongest monthly gain.  The gap between home prices from last year had been closing and now appears to have leveled off.  December home prices remain 4.5 percent higher than the previous year and November’s difference was 4.3 percent.  December is the first time since March of 2013 that year over year prices have increased.

New homes sales tell a little bit of a different picture.  Sales of new homes in January came in stronger than expected at an annual pace of 481,000.  This is flat from the previous month however in December’s annual pace for sales jumped 8.1 percent.

The final real estate report for the week came from the Federal Housing Finance Agency.  The FHFA reiterated the positive report from Case-Shiller in showing that home prices gained 0.8 percent in December.  This follows November’s jump of 0.7 percent.  Home value appreciation is the one area of housing that in recent months has consistently been moving higher.  Because mortgage rates remain low, the increases in home prices are not having a major impact on housing affordability.

Next week’s potential market moving reports:

·        Monday March 2nd – ISM Manufacturing Index & Construction Spending
·        Wednesday March 4th - MBA Applications & ADP Employment Report
·        Thursday Mach 5th - First Time Jobless Claims
·        Friday March 6th – National Employment Situation

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.