Lee Morof's Real Estate Blog

Highlights of economic news from last week, include a survey of senior loan officers from U.S. and foreign banks doing business in the U.S.

They indicated that banks were gradually easing lending standards for business and consumer loans, but viewed lending criteria for home loans as more restrictive than other types of loans.

According to CoreLogic, U.S. home prices increased at their fastest pace since February 2006. Mortgage rates rose incrementally, and the Weekly Jobless Claims report came in lower than the expected 339,000 at 333,000 new jobless claims.

Monday: Bank loan officers surveyed indicated that while mortgage lending requirements have been eased for low risk mortgage loans, it remains challenging for those with less-than-stellar credit to qualify for home loans.

Bankers noted some concern that easing credit standards may signal to the Fed that it’s time to taper the quantitative easing program that’s designed to keep long term interest rates, including mortgage rates, low.

Tuesday: The CoreLogic Home Prices report for June showed that home prices rose 1.90 percent in June, and rose by 11.88 percent year-over-year. 48 states showed rising home prices while only Mississippi and Delaware showed a decline.

Nevada led the list of higher home prices with a 27.00 percent gain year-over-year; Nevada home values were among the hardest-hit in the economic downturn.

Thursday: Weekly Jobless Claims came in at 333,000, which were higher than last week’s reading of 328,000 new jobless claims. The four-week average is considered a less volatile indicator of unemployment trends.

The four week rolling average for new jobless claims decreased by 6250 to 335,000. This was the lowest reading for the four-week rolling average since November 2007.

Freddie Mac’s weekly report on mortgage rates brought not-so-good news; the average rate for 30-year fixed rate mortgages rose by one basis point to 4.40 percent, while the average rate for a 15-year fixed mortgage was unchanged at 3.43 percent. The average rate for a 5/1 adjustable-rate mortgage rose by one basis point to 3.19 percent.

Discount points for 30-year fixed rate mortgages and 15-year fixed rate mortgages were unchanged at 0.7 percent, while average discount points for a 5/1 adjustable rate mortgage dropped to 0.5 percent.

What’s Coming Up

This week’s economic news includes the federal budget for Monday. Retail Sales and Core Retail Sales will be reported on Tuesday; the Producers Price Index (PPI) and Core PPI will be out on Wednesday.

Thursday’s news includes weekly jobless claims and Freddie Mac’s mortgage rates update. The Consumer Price Index (CPI) and Core CPI (excluding volatile food and energy sectors) will also be released. The NAHB Home Builders Housing Market Index (HMI) is also due Thursday.

Friday’s scheduled economic news includes Housing Starts, Building Permits and Consumer Sentiment for July.

U.S. housing markets continue to drive the economic recovery according to data released by RealtyTrac Inc.

National home prices rose by 11.90 percent year-over-year for June.

48 states reported rising home prices with only Delaware and Mississippi reporting lower home prices. Nevada led the states with a 26.50 percent gain over June 2012.

Cities also fared well on housing prices; 99 of the 100 largest U.S. cities reported gains in home prices.

Rising Home Prices And Mortgage Rates, Short Supply Of Homes

According to Mark Fleming, chief economist for CoreLogic, home price trends are rising at their fastest pace since 1977. While good news for sellers, homebuyers may find fewer affordable options over time while also contending with rising mortgage rates.

In spite of rapidly rising home prices, national home prices remain about 19 percent below their peak in April 2006.

Why The Shortage Of Available Homes?

Some homeowners are hoping to recoup losses on their homes before listing them for sale. This could be a risky decision, as many economists have previously characterized the last peak of the housing market to be a “bubble,” or an abnormal spike in home values. 

In some markets cash buyers are snapping up homes and making it difficult for mortgage-dependent homebuyers to compete.

Another common scenario that presents challenges to home buyers in areas where homes are in high demand occurs when there are multiple purchase offers for one home.

Buyers who rely on mortgage loans for financing their home purchase can improve their chances by being pre-approved for a mortgage before shopping for a home.

Fewer Foreclosed Homes Contribute To Rising Home Prices

RealtyTrac estimates that 500,000 home mortgages will be foreclosed this year. This is approximately 25 percent lower than the number of 2012 residential foreclosures.

Bank-owned homes are typically offered at lower prices and with incentives such as direct financing, but most are sold as-is with no warranties or guarantees as to their condition.  Multiple foreclosed homes within a community can drag down home prices, so fewer foreclosed homes is positive for homeowners and communities alike.

Want To Buy A Home? Don’t Give Up

Rising mortgage rates and home prices can present challenges, but working with your local real estate professional can help with finding an affordable home. Programs are available for assisting eligible first-time buyers with their down payment and closing costs.

Adjustable-rate mortgage loans that provide a low fixed rate for a specified introductory period provide an alternative to higher payments required of a fixed-rate mortgage. An adjustable-rate mortgage may be a good option for first-time buyers who plan to “move up” within a few years. 

For assistance in finding an affordable home please feel free to reach out to your trusted  real estate professional today.

The past week brought encouraging economic news from several sources.

The FOMC statement indicated that the Federal Reserve has not set a date for rolling back its quantitative easing program and ADP reported more private sector jobs added than expected.

While weekly jobless claims were fewer than expected, the national unemployment rate remained elevated:

Monday: Pending Home Sales: The National Association of REALTORS reported that sales contracts fell in June due to rising mortgage rates and a tight inventory of available homes.

Tuesday: The S&P Case-Shiller Home Price Indices showed that national home prices increased by 12.2 percent annually.

All 20 cities used in the 10 and 20 city home price indices posted gains in average home prices. Average U.S. home prices remained approximately 25 percent below their peak in 2006.

Consumer confidence dropped in July to a reading of 80.3 as compared to a revised reading of 82.1 in June. Higher mortgage rates and stubbornly high unemployment rates likely contributed to a cooling of consumer enthusiasm.

Wednesday: The Federal Open Market Committee (FOMC) said in its statement that based on its reading of current economic conditions,the committee had not set a date for beginning to reduce the Fed’s monthly asset purchase of $85 billion in Treasury securities and MBS.

The program, known as quantitative easing (QE), is intended to keep long-term interest rates including mortgage rates lower.

ADP reported that job growth for private-sector jobs exceeded expectations for July; the adjusted reading of 200,000 for July beat expectations of 185,000 jobs added and also surpassed June’s reading of 198,000 new jobs added.

The ADP jobs report is viewed by economists as a preview of the Bureau of Labor Statistics’ Non-farm Payrolls and National Unemployment reports, which are collectively known as the “Jobs Report.”

Thursday: Weekly jobless claims came in at 326,000. This was lower than expectations and the previous week’s reading, both of which were reported at 345,000 jobless claims.

Freddie Mac reported that mortgage rates rose, with the average rate for a 30-year fixed rate mortgage coming in at 4.39 percent as compared to last week’s 4.31 percent.

Average rates for a 15-year fixed rate mortgage came in at 3.43 percent over last week’s 3.39 percent. The average rate for a 5/1 adjustable rate mortgage was 3.18 percent and two basis points higher than the previous week’s 3.16 percent.

Friday: The July Non-farm Payrolls report showed that only 162,000 jobs were added as compared to expectations of 180,000 jobs added and June’s reading of 188,000 jobs added. While housing markets are showing strong improvement, high unemployment continues to be a drag on the economy.

The national unemployment rate for July was 7.40 percent and was lower than expectations of 7.50 percent and June’s reading of 7.60 percent.

What’s Coming Up This Week

This week’s economic news includes the Senior Loan Officer Survey set for Monday, the U.S. Trade Deficit and Job Openings reports for June on Tuesday.

On Wednesday, a report on Consumer Credit will be released and the Weekly Jobless Claims will be out Thursday, along with Freddie Mac’s mortgage rates report. No mortgage or related news is scheduled for Friday.

The S&P/Case-Shiller Home Price Index (HPI) released Tuesday presented solid evidence that the housing recovery continued during the month of May.

The Case-Shiller 20-City Index showed increasing home prices for all 20 cities.

Highest Year-Over-Year Gains Included Theses Cities:

• San Francisco, CA 24.50 percent
• Las Vegas, NV 23.30 percent
• Phoenix, AZ 20.60 percent
• Atlanta, GA 20.10 percent
• Los Angeles, CA 19.20 percent

In surprising news, Dallas, TX and Denver, CO posted record year-over-year price gains that surpassed their pre-crisis peaks.

Year-over-year home prices in Dallas increased by 7.60 percent and Denver home prices increased by 9.70 percent year-over-year in May.

Home prices grew by 12.20 percent on a year-over year basis in May; this reading fell short of expectations of 12.40 percent, but moved slightly ahead of April’s reading of a 12.10 percent year-over year increase.

The Case-Shiller HPI is based on a three-month rolling year-over-year average of home prices in the cities surveyed.

Cities Post Month-To- Month Price Gains 

On a seasonally-adjusted month-to-month basis, home prices rose by 1.00 percent in May as compared to April. Expectations were for a 1.40 percent increase over April’s reading, which came in at 1.70 percent.

Top Gains From April To May Were Posted By These Cities:

• San Francisco, CA 4.30 percent
• Chicago, IL 3.70 percent
• Atlanta, GA 3.40 percent
• San Diego, CA 3.10 percent
• Seattle, WA 3.10 percent

Analysts noted that home prices for two metro areas in Florida surpassed year-over-year gains in Washington, D.C.; this illustrates home values shifting geographically.

Miami home prices posted a month-to gain of 2.00 percent and a year-over-year gain of 14.20 percent.

Tampa, FL home prices posted a month-to-month gain of 1.80 percent on a year-over-year gain of 10.90 percent.

Washington, D.C. home prices gained 2.00 percent month-to-month in May, but only gained 6.50 percent year-over-year.

Rising Mortgage Rates Could Slow Price Momentum

It’s important to understand that the data in the Case-Shiller HPI lags a couple of months behind current market conditions; the latest numbers were compiled prior to mortgage rates spiking. Economists expect that the impact of higher mortgage rates won’t be seen in home prices until fall.

Higher mortgage rates are expected to slow home sales. If the demand for homes falls due to higher mortgage rates, inventories of available homes would expand, which would create competition among home sellers and potentially lead to lower home prices.

For any questions regarding your mortgage rate and buying a home feel free to contact your trusted real estate professional today.

Last week brought a mixed bag of economic news, but most notably, average mortgage rates fell.

New home sales surpassed expectations and consumer sentiment rose for July; these readings among others suggest that the economy continued to improve and that consumer confidence in the economy improved as well.

Monday: Existing home sales in June were reported at 5.08 million on a seasonally-adjusted annual basis. While this fell short of expectations of 5.25 million existing homes sold, the expectation was based on the original reading of 5.18 million existing homes sold for May; this was later revised to 5.14 million homes existing homes sold in May.

Tuesday: FHFA reported that May prices for homes with mortgages held by Fannie Mae or Freddie Mac remained consistent with April’s reading of a 7.30 percent increase on a seasonally adjusted annual basis. Home prices rose by 0.70 percent in May as compared to April’s revised reading of 0.50 percent. 

Wednesday: The U.S. Census Bureau revealed that June sales of new homes came in at 497,000, which surpassed both expectations of 483,000 new homes sold and May’s reading of 449,000 new homes sold.

Thursday: Freddie Mac reported that mortgage rates fell last week; the average rate for a 30-year fixed rate mortgage fell by six basis points to 3.31 percent with 0.8 percent in discount points.

The average rate for a 15-year mortgage was 3.39 percent with discount points of 0.8 percent as compared to last week’s report of 3.41 percent. Average rates for a 5/1 adjustable rate mortgage dropped by one basis point from 3.17 percent to 3.16 percent; discount points moved from 0.60 percent to 0.70 percent.

In other economic news, June’s report for Durable Goods Orders nearly doubled to 4.20 percent over expectations of 2.30 percent.

Friday: Consumer Sentiment for July rose to 85.1 as compared to expectations of 84.0 and June’s reading of 83.90 percent. That consumers continued gaining confidence in the economy could indicate that more would-be home buyers will become active homebuyers seeking to buy amidst a short inventory of available homes. 

This Week’s Busy Economic Calendar

Readings for several significant economic and housing related indicators will be released this week.

Pending Home Sales are due out today; Tuesday brings the Case-Shiller Home Price Index and the Consumer Confidence Index. Wednesday’s news includes the ADP report (useful for tracking private sector job growth) and an FOMC statement after its meeting ends.

Fed Chairman Ben Bernanke is also scheduled to give a press conference Wednesday. As always, any remarks concerning projected changes to the Fed’s quantitative easing program (QE) could impact financial markets and mortgage rates. 

On Thursday, construction spending data will be released in addition to Freddie Mac’s weekly report on average mortgage rates.

Friday’s news includes several employment-related reports. The monthly Non-Farm Payrolls and Unemployment report will be released; collectively these two reports are frequently called the Jobs Report.

Data on personal income and consumer spending will round out the week’s economic news.

Last week’s economic news was a mixed bag with retail sales and housing starts coming in lower than expected, but home builder confidence in housing markets increased.

Weekly jobless claims fell, and Fed Chair Ben Bernanke testified before the Senate, saying that falling gold prices were an indication of increasing confidence in the economy, but that it was “way too soon” to say when the Fed’s quantitative easing program would be reduced.

Monday: Retail sales for June came in lower than expected at 0.4 percent. Economists estimated a reading of 0.9 percent based on May’s reading of 0.5 percent.

Tuesday: June’s Consumer Price Index (CPI) came in as expected at 0.5 percent against May’s reading of 0.1 percent. The NAHB/Wells Fargo Housing Market Index (HMI) for July gained five points for a reading of 57, which exceeded expectations of a reading of 52. Builders cited a short supply of existing homes and falling materials prices as factors contributing to June’s stronger reading.

Wednesday: Housing starts in June fell to a seasonally-adjusted annual rate of 836,000 against expectations of 950,000 and May’s revised reading of 928,000. Regional weather and a surplus of unused building permits were seen as contributing to fewer housing starts in June; analysts did not see the dip in housing starts as a sign of softening housing markets.

Thursday: Fed Chair Ben Bernanke testified before the Senate as noted above and was careful to emphasize that economic data received after the last FOMC meeting indicated that it is “way too soon” for the Fed to change its monthly volume of Treasury bonds and MBS purchases. This is good news for mortgage markets, and possibly for mortgage rates, which fell this week.

Freddie Mac reported that average rates for a 30-year fixed rate mortgage fell by 14 basis points to 4.37 percent; average rates for a 15-year fixed rate mortgage fell by 12 basis points to 3.41 percent; these rates include average discount points of 0.7 percent. The average rate for a 5/1 ARM was 3.17 percent with discount points of 0.6 percent. The 5/1 ARM provides an affordable alternative to rising fixed mortgage rates.

Friday: No significant economic news noted.

What’s Coming Up

This week’s schedule includes Existing Home Sales on Monday; on Tuesday, the FHFA releases its Home Prices report. New Home Sales will be released on Wednesday; Thursday brings weekly jobless claims and the Durable Goods report. The week will finish with the Consumer Sentiment report on Friday.

The National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index (HMI) rose in July.

Home builder confidence in the market for newly constructed single-family homes rose six points to a reading of 57. NAHB reports that this was the third consecutive rise in the HMI and its highest reading since January 2006.

Three components used in compiling the HMI reading include current sales, which gained five points for a reading of 60.  Confidence in prospective buyer traffic rose from 40 to 45, and sales expectations for the next six months rose from a reading of 60 to 67.

HMI: All Regions Post Gains

Regional data reflected gains in builder confidence for all U.S. geographic regions. Regional data is based on a three-month rolling average of builder confidence in each region.

The Northeast gained four points for a reading of 40; the Midwest gained eight points for a reading of 54. The South gained five points for a reading of 50, and the West gained three points for a reading of 51.

Readings of more than 50 indicate that more builders view conditions as good than poor. NAHB Economist David Crowe indicated that growing confidence is driven by factors including lower prices for building materials and more buyers vying for fewer available homes. A shortage of building space and available existing homes is improving markets for new homes.

Housing Starts Decline In June

In spite of growing home builder confidence, housing starts for June fell to their lowest level in nearly a year. Regional weather conditions contributed to the dip in housing starts, which surpassed June 2012 housing starts by 10.40 percent.

June’s housing starts fell to 836,000 on a seasonally-adjusted annual rate, and fell shy of economist’s expectation of 950,000 housing starts. Expectations were based on May’s original tally of 914,000 housing starts, which was revised upward to 928,000 on Wednesday.

Building permits for single family homes moved up by 0.60 percent to a rate of 624,000; this is the highest rate since May, 2008. A significant backlog of unused permits contributed to June’s lower number of building permits issued.

Economists are confident that the housing market continues its recovery, but may face obstacles if the government changes the mortgage interest tax deduction.

Another concern involves the pending “tapering” of the Fed’s quantitative easing program (QE). The QE program, which involves the Fed’s purchase of Treasury securities and mortgage-backed securities (MBS) was designed to support mortgage markets and also helps to keep mortgage rates low.

For specific details on local home building activity in and around Bloomfield Hills , please contact your trusted real estate professional today.

The Fed’s release of the minutes for the June FOMC meeting was the most noteworthy economic event last week; the minutes repeated the Fed’s recent statement concerning the wind-down of its current monetary easing policy.

The minutes indicated that about half of meeting participants wanted to end the quantitative easing (QE) policy by year end, while “many others” preferred to end the program in 2014.

This split suggests that days are numbered for the Fed’s monthly purchase of $85 billion in Treasury securities and mortgage-backed securities (MBS). The minutes also revealed that the Fed would not be selling off MBS as QE is ended. This would likely prevent additional potential for mortgage rates to increase as demand for bonds would decline when the Fed stops its monthly purchases.

Mortgage Rates Typically Rise When Bond And MBS Prices Fall

U.S. financial markets showed little reaction to the Fed minutes. The Dow Jones Industrial Average saw a quick gain of about 40 points that quickly retreated. The Wall Street Journal interprets the lackluster response to the Fed minutes as investors growing accustomed to the eventual end of the QE program; it’s also possible that the markets interpreted the FOMC minutes as “old news,” as the minutes contained information included in the Fed statement given after June’s FOMC meeting.

The FOMC minutes reported that details of tapering the QE program will be given by Chairman Ben Bernanke during his customary press conference after the Fed presents the FOMC meeting statement. The minutes also asserted that the Fed will closely monitor economic and financial developments as part of their decision-making for ending QE.

The minutes stated that the current Federal Funds rate of 0.00 to 0.25 percent will remain in place for some time after QE is ended.

Mortgage rates rose last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage moved to 4.51 percent from last week’s 4.29 percent. The average rate for a 15-year fixed rate mortgage rose to 3.53 percent from 3.39 percent. Discount points for both types of loans rose from 0.70 percent to 0.80 percent.

Rising mortgage rates suggest that borrowers may soon return to adjustable rate mortgages or hybrids such as the 5/1 adjustable rate mortgage, which was reported at an average rate of 3.26 percent with discount points of 0.70 percent.

What’s Coming Up

On Monday, retail sales for June will be released. This is an important indicator for the general economy. Tuesday’s news includes NAHB/Wells Fargo Housing Market Index for July.

On Wednesday, Housing Starts for June will be released. Thursday’s news includes weekly Jobless Claims and Leading Economic Indicators. No economic news is scheduled for Friday.

Last week saw a relatively quiet week due to the 4th of July holiday, but there were some housing-related developments:

Monday: The Department of Commerce reported that overall construction spending increased by 0.50 percent in May to a seasonally adjusted annual rate of $874.9 billion. Residential construction grew by 1.20 percent, and May 2012 construction spending was 5.40 percent higher than in May 2012.

More spending in residential construction can indicate builder confidence in housing markets; added construction could help ease low inventories of available homes.

Tuesday: CoreLogic reported that May national home prices increased by 12.20 percent over May 2012, and grew by 2.60 percent in May including sales of distressed properties. Excluding distressed properties, home sales rose by 2.30 percent in May for a year-over-year increase of 11.60 percent.

States hardest hit in the economic downturn are showing good recovery; Nevada home prices rose by 26 percent year-over-year. While double-digit increases in home prices are good news, economists note that home prices remain approximately 20 percent below their peak in 2006.

Employment Data: More Jobs, Less Unemployment

Employment data are important for housing markets; employment is closely tied to home buyers’ ability to qualify for mortgage loans. Last week ended with several important jobs related reports:

Wednesday: ADP reported that 188,000 private-sector jobs were added in June for the highest increase in four months. This number surpassed expectations of 160,000 new jobs and May’s revised figure of 134,000 jobs added.

Freddie Mac’s mortgage rates survey had some good news as average rates for a 30-year fixed rate mortgage fell from 4.46 percent to 4.29 percent with discount points also falling from 0.80 to 0.70 percent. Average rates for a 15-year mortgage fell from 3.50 percent to 3.39 percent, with discount points moving from 0.80 percent to 0.70percent.

Friday: The Labor Department released Non-farm Payrolls and the national Unemployment Rate for June. Non-farm matched May’s level of 195,000 jobs added, which surpassed expectations of 155,000 jobs added. The unemployment rate remains at 7.60 percent, just over expectations of 7.50 percent.

The Federal Reserve has cited a benchmark unemployment rate of 6.50 percent as a criterion for raising the federal funds rate and reducing its current quantitative easing policy; this news may help slow mortgage rates as the Fed isn’t likely to modify its programs based on the current unemployment rate.

Looking Ahead

This week’s economic news includes today’s report on consumer credit. Tuesday brings Job Openings for May, and Wednesday brings the minutes from the recent FOMC meeting. The minutes should clarify exactly what the committee discussed concerning quantitative easing and their plans for modifying it.

Thursday, Freddie Mac will release weekly mortgage rates. The federal government will release weekly jobless claims and will update the federal budget. The week’s economic news will conclude with release of the Producer Price Index (PPI) and Core PPI for June, along with Consumer Sentiment for July.

The past week was active for economic news and mortgage rates. The aftermath of the Fed’s indication that it may start dialing back its multi-billion dollar monthly purchases of Treasury and mortgage backed securities has sent mortgage rates to record highs.

If you’re thinking of buying a home, this may be the last chance for finding the best deal on mortgage rates; meanwhile, home prices continue trending up as well.

Here’s the scoop on last week’s activity affecting real estate markets:

Tuesday’s Case-Shiller Composite Indices for April demonstrate the momentum of recovery in many housing markets. As of April, national home prices had increased by 12.10 percent as compared to April 2012. April’s reading also exceeded March’s reading of 10.10 percent year-over-year.

FHFA released its home prices report for April and noted that the average price for homes with mortgages owned by Fannie Mae or Freddie Mac increased by 7.40 percent, which slightly surpassed the March reading of 7.20 percent.

The Department of Commerce released New Home Sales for May and reported 476,000 new homes sold on a seasonally-adjusted annual basis. This exceeded expectations of 453,000 new home sales and also surpassed April’s reading of 454,000 new homes sold.

Wednesday brought the Gross Domestic Product (GDP) report for the first quarter of 2013. The GDP grew by 1.80 percent against expectations of 2.40 percent and the previous quarter’s growth, also 2.40 percent.

Freddie Mac’s Primary Mortgage Market Survey (PMMS) brought the days of bargain basement mortgage rates to a halt as average mortgage rates for a 30-year fixed rate mortgage moved from last week’s 3.93 percent to 4.46 percent. Average rates for a 15-year fixed rate mortgage rose from 3.04 percent 3.50 percent. This was the largest weekly jump in mortgage rates in 26 years. 

Home buyers may also consider a 5/1 adjustable rate mortgage, which provides an average 5 year fixed rate of 2.74 percent.  The fixed mortgage rate converts to an adjustable rate after five years.

The National Association of REALTORS ® reported that Pending Home Sales in May rose by +6.70 percent to their highest level in 6 years.

Last week ended on a positive note with the Consumer Sentiment Index for June beating expectations of 83.0 and coming in at 84.1. May’s reading was 82.1; higher consumer confidence is likely driving demand for available homes.

What‘s Ahead This Week

Next week’s scheduled economic news includes Construction Spending due on Monday and the ADP private sector jobs report is set for Wednesday.

Thursday the financial markets are closed as we celebrate the July 4th holiday.

Friday brings the Department of Labor’s Non-farm Payrolls Report and the National Unemployment Rate. If the unemployment rate stays steady at 7.60 percent, this may reduce fears that the Fed will start reducing its monetary easing program any time soon, which should help to slow the recent increases in mortgage rates.