Apr 1, 2013 | Mortgage Rates
European Market Jitters Continue To Affect The US Economy
Mortgage rates fell last week as investor concerns over the European economy grew.
Fears of growing differences between wealthier European nations and European nations needing economic aid brought higher bond prices and lower mortgage rates.
Positive news for Cyprus came when an agreement for an EU bailout was reached, but strict terms indicate that Germany and other nations are growing less enthusiastic about bailing out the banks of EU nations with shaky economies.
Meanwhile, the Italian government has not been able to agree on a coalition government, which reduces the chances for economic reform in the EU’s third largest country.
European trade with the U.S. could fall as the result of the EU’s ongoing economic challenges; this in turn would likely reduce U.S. inflation, which is good for lower mortgage rates.
Low inflation could also prolong the Fed’s commitment to its quantitative easing program that is designed to keep long term interest rates, including mortgage rates, lower.
Last Week‘s Economic News Quiet, No Major Surprises
On Tuesday, New Home Sales for February were released, and came in short of investor expectations of 420,000 home sales on an annual basis.
February’s figure came in at 411,000 new homes sold as compared to January’s revised reading of 431,000 new homes sold.
Winter weather conditions are one reason for the decline in new home sales, which was the largest decline since February of 2011.
The National Association of REALTORS® released its Pending Home Sales Index for February on Wednesday; pending home sales reflected the results for New Home Sales with a reading of -0.4 percent as compared to expectations of a 2.0 percent reading.
January’s reading for Pending Home Sales was also higher at 4.5 percent.
Home prices and mortgage rates move according to supply and demand; if demand for homes falls, home prices are likely to do likewise as are mortgage rates.
But as demand for homes increases and prices rise, mortgage rates typically rise as well. Would-be buyers who have been waiting for their best deal may want to get into the housing market now, as strong signs of economic improvement are in play, but home prices and mortgage rates haven’t yet gone through the roof.
In other economic news, Thursday’s Jobless Claims Report fell short of Wall Street projections and came in at 357,000 new jobless claims against expectations of 340,000 new jobless claims.
The previous week’s jobless claims came in at 336,000 new jobless claims.
Analysts typically view a four-week rolling average of jobless claims as a more accurate indicator for the economy as jobless claims can vary widely week-to-week.
Consumer Sentiment for March was released Friday and came in at 78.6 and exceeded expectations of 72.5 for March.
The current reading also surpassed the prior reading of 71.8 percent. As consumers gain confidence in the economy, they are more likely to buy homes.
This week, the European Central Bank (ECB) meeting scheduled for Thursday and monthly Employment Data set for release Friday are among anticipated economic news events.
Feb 4, 2013 | Mortgage Rates
Mortgage rates worsened last week amid evidence of an improving economy. Conforming mortgage rates climbed in Massachusetts and nationwide, rising to a 4-month high.
Freddie Mac has the average 30-year fixed rate mortgage rate at 3.53% for borrowers willing to pay 0.7 discount points plus a full set of closing costs.
There was plenty of news on which for rates to move last week.
First, the Federal Open Market Committee (FOMC) met and voted to hold the Fed Funds Rate in its current target range near 0.00 percent. The Fed also recommitted to purchasing mortgage-backed securities (MBS) and Treasury securities on the open market until such time as the national Unemployment Rate reaches 6.5%, or until inflation rates rise.
Then, Friday, it was shown in the Non-Farm Payrolls report that the national jobless rate had climbed to 7.9 percent, a statistic Wall Street pinned to Hurricane Sandy. In addition, it was shown that 157,000 net new jobs were added to the U.S. economy in January.
This was a slight improvement from the month prior’s revised figures, and marked the 27th consecutive month of U.S. job growth.
Also last week, the National Association of REALTORS® reported the December Pending Home Sales Index to be lower than expected; largely the result of shortages of available homes in many areas.
In addition, Durable Orders for December were more than twice what investors expected; a further indication of a strengthening U.S. economy.
Lastly, the ISM Index for January surpassed Wall Street’s expectations. This manufacturing index is considered an indicator of future inflationary trends. An upward trend in this index suggests rising mortgage rates. While current mortgage rates remain relatively low, they can be expected to continue rising as the economy improves.
This upcoming week will be quieter with fewer economic series scheduled for release. Factory Orders for December will be announced, as will the ISM Services Index and Jobless Claims. Mortgage rates may continue to rise.
Jan 31, 2013 | Federal Reserve
The Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the Federal Funds Rate within its current range of zero to 0.25 percent, and to continue its current stimulus program of purchasing $85 billion monthly in Treasury bonds and mortgage-backed securities (MBS).
Citing weather-related events such as Hurricane Sandy and drought in the Midwest, the committee said in its statement that information received since its December 2012 meeting “suggests that growth in economic activity has paused in recent months in large part because of weather-related disruptions and other transitory factors.”
Concerns over the then-looming fiscal cliff crisis may have also contributed to the economic contraction during the last quarter of 2012. Positive economic trends observed by the Fed included:
- Improved household spending
- Improving housing markets
- Growth in business fixed investments
The Fed initiated its third round of quantitative easing (QE3) in September as part of an ongoing effort to hold down interest rates and to encourage business spending. The benchmark Federal Funds Rate will remain between zero and.0.25 percent until the unemployment rate falls to 6.5 percent and provided that inflation remains stable.
The Fed Funds Rate has stayed near zero since December 2008.
The national unemployment rate was 7.8 percent in December, and Wall Street expects it to be 7.7 percent for January. The Department of Labor will release its monthly jobs report on Friday; this report includes the monthly unemployment rate. Inflation is expected to remain at or below the Fed’s target level of 2.0 percent or less for the medium-term.
While noting that “strains on global financial markets have eased somewhat,” the FOMC said that it “continues to see downside risks to the economic outlook.” Low overall interest rates and gradual inflation work in favor of home buyers as home prices and mortgage rates are likely to rise at a gradual pace.
Mortgage rates in Worcester County area improved slightly after the FOMC release.
Jan 29, 2013 | Housing Analysis
The National Association of REALTORS® (NAR) reports that the Pending Home Sales Index fell 4.3 percent in December as compared to the month prior. The index now reads 101.7.
The Pending Home Sales Index measures the number of U.S. homes that have gone “into contract”, but have not yet closed. The report is based on data collected from local real estate associations, and from national brokers.
Despite December’s drop, however, the annual rate at which contracts for a home purchase were drawn increased 6.9 percent from one year ago, and marked the 20th consecutive month of annual purchase contract gains.
NAR reports that 80% of homes under contract are closed with 60 days, with the majority of the remained homes “sold” within months 3 and 4.
Analysts believe that December’s Pending Home Sales Index drop is not a result of a weakening housing market. Rather, it’s a function of a falling national home supply; in particular, a shortage of homes in the West Region offered a prices under $100,000.
The national housing inventory is currently at an 11-year low. However, regionally, results varied :
- Northwest : -5.4 percent from November; +8.4 percent from one year ago
- Midwest : +0.9 percent from November; +14.4 percent from one year ago
- South : -4.5 percent from November; +10.1 percent from one year ago
- West: -8.2 percent from November; -5.3 percent from one year ago
Although December’s Pending Home Sales Index dropped as compared to November, the year-to-year growth of pending home sales suggests a broader improvement in the U.S. housing market. Furthermore, the index is a strong indicator of existing home sales, which means that this season’s home sales should outpace those from 2012.
The Pending Home Sales Index is bench-marked to 100, the value from 2001, which was the index’s first year of existence. 2001 was considered a strong year for the housing market so last month’s 101.7 is considered a positive measure for the housing market.
Analysts project a strong Spring market in Massachusetts and nationwide.
Jan 28, 2013 | Mortgage Rates
Mortgage rates rose last week as investors gained confidence in the global economy. China and Europe posted better-than-expected manufacturing rates, U.S. Jobless Claims fell for the second straight week, and the worst of the European debt crisis appears to have passed.
Last week’s economic news provided further evidence of a strengthening U.S. economy.
The National Association of REALTORS® released its Existing Home Sales report, which indicates that existing home sales improved by 13 percent on a year-over-year basis and are now at their highest point since 2007. The group expects sales of existing homes to increase by 9 percent in 2013.
The Commerce Department released its monthly New Home Sales report; while new home sales for December fell short of Wall Street’s expectations, sales of new homes are almost 20 percent higher than they were one year ago.
Growing demand for homes coupled with lower inventories of available homes suggests that the days of rock-bottom home prices and low mortgage rates are dwindling.
According to Freddie Mac, the average mortgage rate for a 30-year fixed rate loan was 3.42 percent with borrowers paying 0.7 percent in discount points plus closing costs. The average rate for a 15- year fixed rate mortgage was 2.71 percent with borrowers paying 0.7 percent in discount points plus closing costs.
While slight, the week-over-week increase in mortgage rates in Worcester County area could become a trend.
Weekly Jobless Claims fell below Wall Street forecasts for the second week in a row. 330,000 new jobless claims were filed; far fewer new claims were filed than the 360,000 new jobless claims expected by investors. New jobless claims also fell below the prior week’s 335,000 new jobless claims. Fewer jobless claims are a sign of a stabilizing economy.
Mortgage rates typically rise as investors gain confidence in the economy and financial markets.
This week’s economic news calendar is jam-packed.
Investors await the outcome of the Federal Open Market Committee’s first scheduled meeting of 2013, treasury auctions are scheduled for Tuesday, Wednesday and Thursday, and the Pending Home Sales Index will be released.
Plus, the Department of Labor’s Non-farm Payrolls Report and Unemployment Report will be released Friday morning.
