Jun 3, 2013 | Housing Analysis
Last week’s financial news was relatively limited due to the Memorial Day holiday and no economic reports being released on Wednesday.
The biggest news in terms of housing and mortgages was the S&P/Case-Shiller Housing Market Indices (HMI) released on Tuesday.
The March HMI data for national housing markets reflected a sharp increase in year-over-year home prices from 9.30 percent in February to 10.90 percent in March.
Twelve cities included in the Case-Shiller 20-city index reported double-digit year-over-year percentage gains for March home prices. While this data strongly supports recovering home prices, analysts cite the need for more jobs, which would enable more consumers to buy homes.
Thursday’s weekly Jobless Claims Report from the Labor Department highlighted ongoing problems with lagging employment as new jobless claims jumped to 354,000. The four-week moving average for new jobless claims increased by 6.75 percent to 347,250 new jobless claims.
Bullish Stock Market Affects Mortgage Interest Rates
Mortgage rates jumped in connection rising stock prices; Freddie Mac reported that the average rate for a 30-year fixed rate mortgage increased to 3.81 percent plus 0.80 percent in discount points. The average rate for a 15-year fixed rate mortgage increased to 2.98 percent plus 0.70 percent in discount points.
Rising mortgage rates suggest that home buyers may benefit from considering hybrid adjustable rate mortgages; the average rate for a 5/1 hybrid ARM was 2.66 percent with 0.50 percent in discount points.
The Chicago Purchasing Managers Index (Chicago PMI) measures how manufacturing and related businesses perform on a monthly basis. May’s reading increased to 58.70 and surpassed expectations of a 49.90 reading as well as April’s reading of 49.00. Readings above 50 are considered positive.
Consumer Sentiment rose in May to a reading of 84.50, which exceeded both the expected reading of 83.80 and April’s reading of 83.70. As consumers gain confidence in the economy, they are more likely to buy homes.
Next Week’s News
Construction spending for April is due Monday with a consensus of +1.00 percent as compared to -1.70 percent in March. Rising construction spending could indicate an increase in residential construction, which has been facing obstacles including increasing labor and material costs and a shortage of available land for residential building.
Thursday’s news includes the weekly Jobless Claims report and Freddie Mac’s weekly report of average mortgage rates.
Friday brings the monthly Jobs Report, which consists of the Department of Labor’s Non-farm Payrolls report and the monthly unemployment rate. These reports are significant for gauging national and regional labor markets and for anticipating the Fed’s decision regarding its current quantitative easing policy.
If the Fed ceases or reduces its purchase of Treasury securities and mortgage-backed securities (MBS), mortgage rates are likely to rise.
May 30, 2013 | Housing Analysis
The most recent S&P/Case-Shiller Index showed all three composites posting double-digit increases over the last four quarters. The national composite, which is the broadest based index, showed an increase of 10.2% annually. The 20-City composite posted even stronger annual growth at 10.9%.
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The Case-Shiller Index measures changes in home prices by tracking same-home sales using 10-City, 20-City and national housing markets; and the change in sales price from sale-to-sale. Detached, single-family residences are used in the Case-Shiller Index methodology and data is for closed purchase transactions only.
12 Of 20 Metro Markets Notch Double-Digit Annual Growth
Between March 2012 and March 2013, home values rose in all 20 Case-Shiller Index markets. Phoenix, Arizona (+22.5%) once again was leading the national price recovery, quite possibly due to its precipitous fall during the onset of the housing crisis.
Another notable gainer was San Francisco (+22.2%), followed by Las Vegas, Nevada (+20.6%) On the weaker end were Boston (+6.7%), Cleveland (+4.8%) and New York (+2.6%), but it is important to note that even these smaller numbers still represent significant gains across the board.
There were a total of 12 year-over-year double digit gainers in home value which included those mentioned above as well as Atlanta, Detroit, Los Angeles, Miami, Minneapolis, Portland, San Diego, Seattle and Tampa.
All 20 Metro Markets Show Positive Growth For 3 Consecutive Months
In another very strong supporting point for the housing recovery, all 20 metro markets measured showed positive home price growth for at least 3 consecutive months. This consistency in growth contributes to an overall indication of strength in the housing sector rebound.
The only potential back-pedaling in the report came from noting that higher than normal multi-family housing numbers, large numbers of homes still in the foreclosure process, and significant investor activity may demonstrate that the housing recovery is not yet complete.
This latest S&P/Case-Shiller Home Price Indices report seems to indicate that the housing market continues to show positive growth.
Now may very likely be the best time to move forward with your next Massachusetts real estate transaction. A positive next step is to call your local, trusted real estate professional for advice today.
May 28, 2013 | Housing Analysis
The National Association of REALTORS reported that sales of existing homes in April reached 4.97 million on a seasonally-adjusted annual basis.
Although this reading fell short of Wall Street’s expectations of 5.00 million existing homes sold, it surpassed the March 2013 upwardly revised reading of 4.94 million existing home sales. This represents a 0.60 percent increase from March to April, and a 9.70 increase year-over-year.
Low Mortgage Rates Contribute To High Sales Levels
Low mortgage rates and pent-up demand for homes are driving sales of existing homes, which reached their highest level since November 2009.
Lawrence Yun, chief economist for the National Association of REALTORS, indicated that housing market momentum is overcoming obstacles: “The robust housing market recovery is occurring in spite of tight access to credit and limited inventory. Without these frictions, existing home sales would be well above the five million unit pace.”
Inventories of homes for sale are gradually increasing; at the end of April, the total inventory of existing homes had increased by 11.9 percent to 2.16 million existing homes for sale. This represents a 5.20 month supply of available homes in April as compared to a 4.7 month supply of homes in March 2013. Listed inventory is 13.60 percent below April 2012, when there was a 6.60 month supply of homes available.
Average Home Sales Prices Up 14 Months In A Row
The national average price for all housing types was $192,800, and increase of 11.0 percent over April 2012. This represents the fourteenth consecutive month of rising average home prices; the last time this occurred was between April 2005 and May 2006.
Homes sold through foreclosure or short sales fell by three percent to 18 percent of existing homes sold in April. Of these sales, 11.0 percent were foreclosure sales and 7.0 percent were short sales. Foreclosure sales averaged 16.0 percent below market value and short sales averaged 14.0 percent below market value.
The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, provided more positive news for U.S. housing markets as of March 2013. Average home prices for homes mortgaged by Fannie Mae and Freddie Mac increased by 7.20 percent year-over-year, and were up by 1.20 percent from February 2013. FHFA also reported that home prices had risen by 6.70 percent in the first quarter of 2013 as compared to the same period in 2012.
New Home Sales Show Rising Trend As Well
In related news, the Department of Commerce reports that New Home Sales are up by 2.30 percent from March to 454,000 units on a seasonally-adjusted annual basis. This handily exceeds Wall Street’s consensus of 430,000 new homes sold in April, and is also higher than March’s reading of 444,000 new homes sold.
Buyers are turning to new homes due to pent-up demand in housing markets caused by low inventories of existing homes and low mortgage rates. It’s also likely that with home prices rising, would-be buyers are acting on indications that record low rates and home prices are expected to increase.
Rising home prices suggest that as demand increases, mortgage rates may not be far behind. Buyers in the Massachusetts market today can still gain the advantage of historically low mortgage rates.
May 24, 2013 | Holidays
Memorial Day weekend is widely regarded as the beginning of summer and many people kick off their summer plans on the weekend coming up.
We take this time to remember the brave men and women who have given their lives to protect and defend our liberty and freedom. But even while giving thanks for their sacrifice, we also celebrate the beginning of our summer with fun and (hopefully) sun!
As many people are more budget-conscious these days, holiday travel out of town may not be the best option for everyone. There are so many ways to enjoy the first long weekend of the summer, and since it is one of the busiest travel times of the year, maybe you should just plan to stay at your home this Memorial Day.
Not only do you get to skip packing suitcases and spending hours in the car, you’ll also save some money!
Below are six ideas to keep your kids smiling and get the whole family involved.
- Plan the Menu – Memorial Day means picnics, and there are all kinds of fun and colorful dishes you can make to celebrate.
- Make Decorations – Red, white and blue are the colors of the day. Get creative with centerpieces, balloons and table settings to make your Massachusetts home a festive holiday venue.
- Invite Friends and Relatives – The more the merrier, right? And you can always ask your guests to bring a snack or covered dish to share.
- Have a Plan B – How many times have you known it to rain on Memorial Day? Have a back-up plan in case Mother Nature makes you retreat inside.
- Have Indoor and Outdoor Games – If the weather cooperates, water games, such as balloons or a slip-n-slide are perfect, but have some board games or crafts ready to go in case you find yourself running for cover. Don’t forget to have some games for the adults too!
- Remember the Meaning of Memorial Day – The history behind the holiday is sometimes lost along the way. Make sure the kids realize why this holiday exists — to honor the people who fought to give us the freedom to celebrate.
So get out your address book or cell phone contact list and start calling your friends and relatives who have decided to forego the holiday traffic. With a little organization, you’ll be ready to throw a Memorial Day bash that no one will soon forget.
May 23, 2013 | Federal Reserve
Minutes of the April/May Federal Open Market Committee (FOMC) recently released may have a significant impact on mortgage rates going forward. One significant development from the meeting suggests that the present quantitative easing (QE) program may be modified in the near future.
The current QE program involves the Fed purchasing $85 billion per month in mortgage backed securities (MBS) and Treasury bonds. The Fed’s goal with QE is keeping long-term interest rates, including mortgage rates, low.
Considerations mentioned in favor of slowing the current QE program include concerns over “buoyant” financial markets as evidence of a developing economic “bubble”. FOMC members in favor of continuing the current easing program cited fears of economic deflation resulting from cutbacks in QE.
Fed Chief Calls Current Bond Buying Program “Overheated”
In related news, Fed chairman Ben Bernanke, in testimony before Congress, characterized the current QE program as “overheating the economy,” but he also stated that slowing economic growth is a worse alternative than continuing the current QE program. Chairman Bernanke noted that QE is supporting financial markets and the economy and indicated that it is not time to reduce the Fed’s support.
Diverse opinions within the FOMC added to the impasse over QE, as one member advocated for immediate tapering of the QE program, while another proposed expanding QE purchases.
The FOMC noted a number of challenges including the national unemployment rate of 7.60 percent at the end of March, that private sector hiring plans were “subdued,” and that jobless claims had trended up during the inter-meeting period. Among numerous economic positive statistics cited, the Fed noted that consumer spending improved and was driven by higher automotive sales and a drop in fuel prices.
The FOMC minutes reflect that some members had concerns about the ability of consumer spending to hold without notable improvement in hiring and business investment. Businesses contacts of FOMC members were reluctant to plan additional hiring and investing in their businesses based on reports of decreased manufacturing and lower international demand for products.
Good News Revealed About Low Future Inflation Expectations
The Fed predicted modest inflation over the medium term, and expected inflation to remain subdued until 2015. The Fed will maintain its benchmarks for adjusting the Federal Funds Rate and QE based on the national unemployment rate reaching 6.50 percent and the inflation rate reaching 2.00 percent.
The FOMC characterized the improving housing market as responsible for economic improvements for related businesses, but also acknowledged that increasing demand for housing was being caused by low inventories of available homes rather than buyer enthusiasm alone.
Improving home prices and easier consumer credit terms were viewed as contributing to improvement in overall economic conditions. These factors increase household cash flow and provide consumers with more discretionary income for spending.
While the FOMC members did not agree on how or if to revise their current QE policy, it seems likely that the next meeting will bring increased scrutiny of QE and its impact on current economic conditions.
