Market Trends Category
As Unemployment Rises, Homes Get More Affordable
December 5th, 2008 categories: Buyers, Market Trends
According to the government, American businesses are cutting staff at an accelerated pace, most recently paring 533,000 jobs this past November.
It’s the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.
However, there is a silver lining in the data for all Americans — both employed and unemployed.
With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.
On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed’s two-day meeting starting December 15. Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead ”floating” interest rates lower on home equity credit lines and other revolving debt.
And this talk from the Fed also comes on the heels of its $500 billion pledge to buy mortgage-backed bonds. That demand-shifting move was announced last week and drove mortgage rates lower. It also marked the official start of the refinancing boom.
And, lastly, Capitol Hill is already responding to the jobs data with calls for “urgent” action. It’s a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide.
The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.
The end result is that today’s job data is a non-event of sorts for active home buyers. Mortgage markets expected a poor reading and they got it. Normally, data like this would cause mortgage rates to spike but this is not a normal market.
Now, with markets expecting additional stimulus, mortgage rates are edging lower today with hopes of an economic rebound.
Source
Employers cut 533,000 jobs in Nov., most since 1974
Barbara Hagenbaugh
December 5, 2008, USA Today
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The Truth About Those “4.500 Percent Mortgage Rates” You Keep Hearing About This Morning
December 4th, 2008 categories: Buyers, Market Trends
Business television is abuzz this morning with talk of “four-point-five percent mortgage rates”; the clip above ran on NBC Today. The news stems from a leaked story that the U.S. Treasury will intervene in the mortgage market, lowering rates a full percentage point below their current levels.
As cited by every journalist in every publication, however, the story is 100% speculation. Naturally, that doesn’t stop the press from covering it. When hope for homeowners gets spread in this manner, it’s important to remember some facts:
- The Treasury doesn’t set mortgage rates — Wall Street traders do. Historically, rates are based on the Supply and Demand for mortgage-backed bonds.
- Treasury intervention doesn’t guarantee low rates. That mortgage rates are up by a half-percent since last week proves it.
- Zero details about the plan have been confirmed, quoting CNBC. Everything you’ve heard about 4.5 percent rates is a guess at this point.
But, perhaps most importantly, nearly every analyst interviewed has expressed a belief that a Treasury-sponsored stimulus would apply to home buyers only. Homeowners wanting a refinance, in other words, would be ineligible.
Mortgage rates are very low today compared to where they’ve been in 2006, 2007 and 2008. If you think your mortgage rate is too high for this market, reach out to your loan officer to review all of your options. If rates really do reach 4.500 percent, you can always refinance again later.
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How 78 Consecutive Days Of Falling Gas Prices Helps Sell Real Estate
December 3rd, 2008 categories: Market Trends, Sellers
For the 78th consecutive day, gas prices fell nationwide yesterday. At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.
And although gas prices vary by locale, the cost of a fill-up is worthy of national news.
The main reason why national gas prices matter is because of something called the Wealth Effect — people’s tendency to spend more money when they have a perceived feeling of being worth more.
Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide — the primary driver of the U.S. economy.
But more important than the Wealth Effect is the reverse Wealth Effect. That’s when consumers have a perceived feeling of being worth less and their spending reflects it. This past summer is a terrific example of it.
Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy. It follows, therefore, that retail sales figures plunged in September and October. Once the election passed, however, and gas prices fell, a gentle optimism returned.
Not surprisingly, consumer confidence rose in November.
All of this matters to real estate because as Americans regain their confidence and feel more “wealthy”, they will be more likely to make “move up” purchase, buy new home appliances, and take other actions that propel the economy forward.
Oh, and mortgage rates trolling at 3-year lows certainly helps, too.
(Image courtesy: GasBuddy.com)
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Now That You’ve Joined The Refinance Boom, You’ve Got To Worry About Closing In 30 Days
December 2nd, 2008 categories: Market Trends, Sellers
Each Wednesday, the Mortgage Bankers Association releases its Weekly Applications Survey, a detailed look at new mortgage applications submitted over the previous 7 days.
This week’s report will reveal what most of us already know — plunging mortgage rates created a flood of mortgage activity.
If you’re among the many Americans taking advantage of today’s low rates, don’t forget that when your rate was “locked”, it was locked with an expiration date.
Most likely, that rate lock is for 30 days.
And, while 30 days may seem like a long time, it’s not. Especially because rate locks made prior to Thanksgiving lose a combined 14 days to weekends and holidays, plus another 4 days to the Right To Cancel clause.
A 30-day rate lock, therefore, yields just 12 “working” days in which to underwrite and approve the mortgage and that’s not a lot of time at all.
Making matters more difficult, many lenders are ill-equipped for boom.
Not only has staff been pared down in expectation of a slowing economy, but December a prime vacationing month, too. Lenders are short-staffed at a very inopportune time.
So, for active refinancing homeowners, the best way to preserve a 30-day rate lock is to be as responsive as possible to the process:
- If paystubs are requested, return them on the same day
- If a home appraisal is needed, schedule the appraisal immediately
- If a closing date is scheduled, don’t postpone it by a day
As mortgage rates hang near 3-year lows, the number of refinancing homeowners nationwide will grow, further taxing lenders and their staff. If you already have a loan in process, be pro-active about it to prevent your 30-day rate lock from expiring.
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Mortgage Rates Fell Tuesday But Watch Out For History Repeating Itself
November 26th, 2008 categories: Buyers, Market Trends
Like everything else on Wall Street, mortgage markets are based on supply and demand. When demand outweighs supply, mortgage rates fall.
So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned.
The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008. 30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.
Not coincidentally, January 22, 2008, was the date of another unexpected government intervention – a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward.
Interventions like these are a big reason why predicting mortgage rates is tough business — just when you discover the market’s balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.
Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility. Look at the trading pattern from Market Open to Market Close yesterday:
- 8:30 AM ET: Markets open with rates falling on the news
- 10:00 AM ET : Rates fall more on momentum trading
- 12:00 PM ET : Rates level at their lowest levels of the day
- 2:00 PM ET : Rates rise as profit-taking begins
- 3:30 PM ET : Rates rise more on momentum trading
- 4:00 PM ET : Markets close with rates down by half
Again, not coincidentally, this is the exact trading pattern from January 22, 2008. On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close — just like we saw Tuesday.
Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high. And, it’s not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.
Mortgage markets seek balance and when there’s a dramatic shift, chaos can creates opportunity. Tuesday’s $500 billion pledge added new demand and shocked the mortgage market system. Before long, it recovered to find balance.
As of today, mortgage rates are still hovering near their 3-year lows so if you haven’t spoken to your loan officer about a refinance, consider calling today.
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Existing Home Sales Have Been Remarkably Steady For More Than A Year
November 25th, 2008 categories: Buyers, Market Trends, Sellers
In real estate, the term existing home refers to a “used” property; one that can’t be classified as new construction.
The number of existing homes sold each month is tracked by the National Association of REALTORS. The report is often used as a gauge for the health of the real estate market nationwide.
In October, nearly 5 million existing homes sold across the U.S. This figure represents a slight drop from September’s reading, and a equally slight drop from the October 2007 data.
But, October’s Existing Home Sales figures marked the 14th straight month in which Existing Home Sales straddled 5-million units. This is a remarkable statistic because 14 months of anything is a pattern, not a blip. Despite what the news tells us, Americans are buying and selling real estate at a somewhat steady clip.
As we head into the Holiday Season, buyer activity should slow, reducing demand for homes. At the same time, however, widespread foreclosure moratoriums should reduce the number of homes available to buy. These forces should counter-act to help keep the market (and prices) in balance.
(Image courtesy: USA Today)
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Deflation And What It Means To Americans
November 21st, 2008 categories: Buyers, Market Trends, Sellers
Business television and newspapers have made deflation a hot topic this week and, since Monday, Google has tracked 13,000 mentions of it.
Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition.
For example, when DVD players were first introduced, they were tagged at $800.
Today, you can buy them for less than $20
Across many industries, however, and happening at the same time, falling prices can shut down the economy. Rather than buy things on the cheap, people stop buying anything at all. And why would they? The same items will cost less tomorrow.
And this is the problem with deflation — it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy. When it stops, the economic result is dwindling corporate revenues which leads to:
- Layoffs of the workforce, which leads to…
- Less consumer spending, which leads to…
- Dwindling corporate revenues, which leads to…
And the spiral continues.
Deflation can be much more insidious that its expansionary counterpart — inflation. Inflation is when the prices generally rise over time and it’s an economic condition through which governments can comfortably navigate. Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.
Whether the U.S. economy will slip into deflation is a matter of debate.
The Fed has cut the Fed Funds Rate to promote economic growth and those changes can take up to 12 months to work their way through the economy. Deflationary pressures we’re seeing today, in other words, may have already been addressed and corrected by Ben Bernanke’s 10 rate cuts in the last 14 months.
Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market — including the mortgage-backed variety. This should help lower mortgage rates and make homes more affordable.
(Image courtesy: The Wall Street Journal)
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Plunging Housing Starts Is Bad News For Home Buyers
November 20th, 2008 categories: Buyers, Market Trends, Sellers
When it comes to housing data, there are always two questions to consider:
- How does this impact buyers?
- How does this impact sellers?
This is why housing data is rarely positive or negative on a universal level — one group of Americans is going to see benefit.
Today, it’s home sellers.
From the government, we learn that Housing Starts fell to their lowest levels since 1947 last month. A “Housing Start” is a new housing unit on which construction has started. Building permits are down, too.
This is all good news for people selling their homes in the coming months. As fewer homes are built nationwide, there is less inventory from which home buyers can choose. With fewer homes for sale shifts the supply-and-demand curve, adding a stronger support floor to home prices.
For home buyers, though, the Housing Starts data may not be as welcome.
With fewer new homes coming on the market, owners of “used” homes may feel less pressure to lower asking prices or to make other concessions. Home buyers often pay more when home supply is falling, or find that sellers are less willing to add “throw-ins” to a contract.
For all of the analysis that surrounds real estate data, in the end, home prices are based on the supply of homes versus the demand for homes. When supply outpaces demand, home prices fall, and vice verse.
Homebuilders know this and October’s Housing Starts data reflects it.
(Image courtesy: The Wall Street Journal)
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