Our thoughts and prayers go out to those affected by the tragedy that occurred in Boston.
Mortgage Markets
We are recommending Locking into Mortgage Rates for the Short Term and Floating for longer term transactions. Not much movement in Mortgage Rates & Bond markets this week, as the benchmark 3% coupon closed near where it closed last Friday – down 6bp to 104.16. The S&P 500 finished up 13.64 points to 1,555.25, the Nasdaq gained 39.69 points while the Dow closed up 10.37 points to end at 3,206.06.
Stocks did suffer their worst week of the year. IBM ($190.00, -$17.15) fell 8% and had its worst trading day in 8 years.
A helpful indicator for the direction of Mortgage Rates is the direction of the Stock market. While this does not always hold true, a down day for stocks can result in a down day for Mortgage Rates, as more investors flock to Bonds, hence the term “Flight to Quality” pushing Bond Prices higher and Mortgage Rates lower.
Mortgage Applications Rise
Mortgage applications increased 4.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 12, 2013.
The Market Composite Index, a measure of mortgage loan application volume, increased 4.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 5 percent compared with the previous week. The Refinance Index increased 5 percent from the previous week and is at its highest level since mid-January of 2013. The seasonally adjusted Purchase Index increased 4 percent from one week earlier is at its highest level since May of 2010 and the adjusted Conventional Purchase Index increased 3 percent to the highest level since October 2009. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 20 percent higher than the same week one year ago.
The refinance share of mortgage activity was unchanged at 75 percent of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 5 percent of total applications.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.67 percent from 3.68 percent, with points increasing to 0.50 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.77 percent from 3.79 percent, with points decreasing to 0.27 from 0.36 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.37 percent from 3.43 percent, with points increasing to 0.55 from 0.52 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.91 percent from 2.92 percent, with points remaining constant at 0.34 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 5/1 ARMs decreased to 2.57 percent from 2.58 percent, with points decreasing to 0.29 from 0.37 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
Housing News
Housing Inventory, Buyer Demand are Market Drivers
JPMorgan Chase expects home prices to rise 7% in 2013. That level of continued confidence is driven by tighter-than-normal inventory, robust demand, high affordability levels, and a stronger economy. As a result, housing net demand is expected to be slightly higher than 3 million in 2013. Two technical factors supporting such demand include the downward trend in distressed sales and the continuous use of short sales, JPMorgan ($49.01 0%) said in its April report. “However, unemployment is still elevated and we see no signs that lending standards will ease significantly in the near term,” analysts of JPMorgan Chase explained.
With a historically lean inventory, the current housing market is more likely to be a seller’s market compared to a buyer’s market. However, previously discouraged sellers could return to take advantage of rising home price thanks to the Federal Housing Finance Agency announcing a new initiative to help streamline modifications for eligible borrowers. “Although the size of the eligible universe is relatively small and there is a risk for borrowers who are 30-60 days delinquent to go 90 days delinquent, the new initiative offers servicers of GSE loans another path to handle delinquencies earlier and to avoid foreclosure,” the report noted. Meanwhile, economists remain bullish on home prices.
The latest Zillow housing survey shows that home prices are expected to increase 4.6% in 2013 and another 4.2% in 2014 before moderating somewhat to annual increases between 3.6% and 3.8% for 2015 through 2017.
Nonetheless, recent housing and economic indicators have posted mixed results. For instance, housing inventory rose after falling the previous eight months, putting increased pressure on net housing demand. “While February sales were at the highest level since the payroll tax credit was adopted in November 2009, the reversed trend in inventory kept net demand from gaining further, remaining flat from last month at a 1.7-million level,” the analysts stated.
While housing transaction traffic remained strong, there was an upward bump in the distressed and investor share of sales. The median time on the market for all homes was 74 days in February, 24% below 97 days in the same month last year. For example, one out of three homes sold in February were on market for less than a month, according to JPMorgan.
Housing Starts Shoot Up In March
Housing starts in the U.S. climbed 7% from February to March and rose a dramatic 46.7% from year ago levels, the U.S. Census Bureau said Tuesday. Starts last month rose to an annual rate of 1.03 million units, up from 968,000 starts in February and above the 706,000 units recorded a year ago. However, single-family starts alone declined reaching a rate of 619,000 in March, down 4.8% from the 650,000 units recorded in February.
Building permits also fell 3.9% from February to March, with only 902,000 permits filed last month. That compares to 939,000 units in February, but is still 17.3% above the 769,000 permits filed in March 2012. Home completions, on the other hand, rose to a rate of 800,000 units in March, 11% above February’s level of 721,000 units and 36.3% above last year’s estimate. “This morning’s housing starts report showed a 7% rise in new home construction in March, the highest level in nearly five years,” said Quicken Loans Chief Economist Bob Walters. “Pent up demand is spurring growth in building as housing starts rose 7% in March. Homebuyers are itching for their dream home, and since the current inventory can’t keep up, consumers are opting to build. This is yet another sign of a strengthening economy along with last week’s boost in mortgage applications and ever growing home prices.”
Economic News
The Labor Department reported that Weekly Initial Jobless Claims rose by 4K to 352K, versus the 355K expected, with no clear signs of any significant move lower as the labor market continues to slog along with no meaningful growth.
Influential Vice Chairman Fed Member William Dudley from New York said today that the weak March jobs report has made him more cautious on the speed of the economic recovery, which underscores the need for continued Bond buying and support for the Mortgage Bond market.
The Labor Department reported that the Consumer Price Index (CPI) declined by 0.2% in March versus the -0.1% expected. When stripping out volatile food and energy, prices rose by 0.1%, below the 0.2% anticipated. The Fed continues to tell us that inflation remains in check and will continue to do so for some time. The recent inflation and jobs data gives the Fed cover to keep on printing money.
Nonfinancial companies are sitting on a record pile of cash…$1.8 trillion. But don’t look for them to spend it quickly to expand or to create jobs. Most businesses, especially smalls, remain concerned about the business climate and how the ongoing political battles in Washington will affect the tepid U.S. economy. They’re especially wary of on-and-off talk of tax reform. Lowering corporate tax rates, which has much support from both parties in Congress, would be a welcome step. But those who make spending decisions want to see details of offsetting measures such as scaled-back or eliminated deductions. Also a factor: The recession in Europe. There will be much rejoicing when the purse strings are eventually loosened. Putting the cash in play could add about a percentage point to GDP growth.
One reason consumer spending growth isn’t more robust: Lower incomes. Median household income will dip again this year, deepening the $5,000 drop (after adjusting for inflation) since 2000. At about $49,750…the lowest since 1994. And wages are stagnant, with little or no increase in real compensation likely this year. Workers in seven of the 10 largest occupations…retail salespeople, cashiers, food prep workers, office clerks, waiters, laborers and janitors/cleaners… nearly 20 million people, earned an average of less than $30,000 last year.
Consumer Sentiment Disappoints, Falls to 72.3 in April from 78.6 in March. Analysts polled by Reuters had expected the University of Michigan Consumer Sentiment survey to edge slightly lower to 78.5 in April from 78.6 in March.
The Labor Department reported that the Consumer Price Index (CPI) declined by 0.2% in March versus the -0.1% expected. When stripping out volatile food and energy, prices rose by 0.1%, below the 0.2% anticipated.
Source: CNBC, MMG, Kiplingers, Housingwire, Bloomberg