The Case For Recovery

            We Have One, But It Wont Feel Like it
 

Case-Shiller released their index of home prices in 20 cities and it rose 0.6 percent in February over last year. Existing home prices advanced 0.4%, as sales climbed for the first time in four months.

We’ve turned a corner with housing," said economist Karl Case, who with Robert Shiller created the index. "As long as mortgage rates don’t jump and employment continues to improve, we should see housing play a key role in preventing a double-dip recession. Via Seeking Alpha

Monetary Policy;  The Fed kept monetary placed a hold stating that conditions requiring low rates were likely to remain for an extended period.

Inflation: The economy is in a sweet spot with solid growth and inflation is low. Why the Fed is keeping rates low, to put behind us several quarters of growth and stimulate job growth and consumer confidence.

Counter Trends

Jobs: The economy will still have to expand at a decent rate for several more quarters before we get decent job growth

Defaults: 13.6 million homeowners have no equity or negative equity and therefore have little incentive to continue to pay high monthly mortgage debt.

Steep Losses It will take quite a while to dig out. Note: The chart above compares this very steep decline with the last  bust in the 1990's. See chart courtesy of papereconomy.com 

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Freddie Mac Weekly Update: 30-Year Mortgage Rates at Highest Level in Eight Months

30-year fixed-rate mortgage: Averaged 5.21 percent with an average 0.6 point for the week ending April 8, 2010, up from last week when it averaged 5.08 percent. Last year at this time, the 30-year FRM averaged 4.87 percent. This is the highest the 30-year FRM has been since the week ending August 13, 2009 when it averaged 5.29 percent.

The 15-year fixed-rate mortgage: Averaged 4.52 percent with an average 0.6 point, up from last week when it averaged 4.39 percent. A year ago at this time, the 15-year FRM averaged 4.54 percent. This is the highest the 15-year FRM has been since the week ending December 31, 2009, when it averaged 4.54 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.25 percent this week, with an average 0.6 point, up from last week when it averaged 4.10 percent. A year ago, the 5-year ARM averaged 4.93 percent.

One-year Treasury-indexed ARMs: Averaged 4.14 percent this week with an average 0.5 point, up from last week when it averaged 4.05 percent. At this time last year, the 1-year ARM averaged 4.83 percent.

Freddie Sayz

Once again, mortgage rates followed bond yields higher amid a positive March employment report, said Frank Nothaft, Freddie Mac vice president and chief economist. The economy added 162,000 jobs, which was the largest monthly gain over the past three years. In addition, revisions raised the January and February figures by a combined 61,000 workers. Excluding government employees, private payrolls rose for the third consecutive month and were the strongest increase since May 2007

Following its extension in early November of last year, the homebuyer tax credit is showing some impact on housing market activity, mostly through the use of government insured mortgages, which tend to be a favorite among first-time homebuyers. Compared to the week ending December 4, 2009, which was the first week after the original expiration date, mortgage applications for home purchases are up 17 percent for the first week in April of this year for government-insured loans, compared to an 11 percent decline in conventional loans, according to the Mortgage Bankers Association .

Also, pending existing home sales jumped 8.2 percent in February, well above the market consensus and represented the second largest increase since records began in 2001, the National Association of Realtors reported. Homebuyers must enter a housing contract by April 30th and close by June 30th in order to receive the tax credit.

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Mortgage Bankers Weekly Update :

Mortgage Bankers Association for the week of 4/7/2010

Market Composite Index: (loan application volume) decreased 11.0 percent on a seasonally adjusted basis from one week earlier

Refinance Index: decreased 16.9 percent from the previous week and the seasonally adjusted Purchase Index increased 0.2 percent from one week earlier.

Purchase Index: increased 0.5 percent compared with the previous week and was 18.1 percent lower than the same week one year ago. The government purchase index increased significantly for the third straight week and as a result, the government share of purchase applications increased to 49.9 percent, its highest level since February 1990 and the third highest level in the history of the data.

Refinance Share of Mortgage Activity: decreased to 58.7 percent of total applications from 63.2 percent the previous week, marking the lowest share observed in the survey since the week ending August 28, 2009.

Arm Share: increased to 6.2 percent from 5.2 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org)

The Federal Reserves mortgage purchase programs continued to taper off, with average weekly purchases falling to about $10 billion. Federal Reserve officials have reaffirmed their plans to complete this purchase program by the end of March.

We predict that mortgage originations will fall to $1.3 trillion in 2010 from an estimated $2.1 trillion in 2009. Purchase originations will decline by 1.6 percent to $726 billion, as home prices stabilize, and home sales increase. Refinance originations will fall by about 56 percent to $604 billion in 2010 as mortgage rates are expected to rise through the year. Refinance volumes in the first quarter have been somewhat higher than anticipated as rates have remained low despite the reductions in MBS purchases by the Fed, and we have adjusted our refinance forecast upwards in response.
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Case Shiller In Context

Prices are now up almost 4 percent from the bottom in May 2009, but off 30 percent from May 2006, largely considered the peak of the housing boom. The 20-city index was off just 0.7 percent from this time last year. The smallest decline in almost three years.

Case Shiller index tells us we are in a bottoming process, where prices will continue to stabilize and attract buyers. However the paper economy chart, comparing the 1990s housing bust to the present makes two points vividly. First, the size of this decline and second, the 1990s bust took eight years to return to normalcy, measured from peak to peak

Fed says goodby to MBS
Interest Rates Going Up
The Fed has been the lender of last resort, buying up paper nobody wanted, providing liquidity to mortgage-backed securities and keeping the whole thing afloat. However, the Fed declares this a self sustaining recovery and financial markets stable and profitable. Private investors, willing to purchase government backed mortgages will requrie higher rates. Its not clear to anyone how much of this mortgage backed debt is viable. Investors will require higher rates for mortgage backed securities to look attractive. Mortgage Bankers association predicts  6% rate  years and NAR looks to 6.5% in 2011

Fed says Goodby To Tax Credit
Sales Driver
The homebuyer tax credit that gives first time home buyers up to an $8000 tax credit and repeat buyers up to $6500 is set to expire the end of April.  You must be under contract by April 30th and close by June 30th to qualify. In the short term the homebuyer tax credit and spring markets are bringing buyers to the table. MBA Purchase Applications index rose 6.8% for the week, confirming solid activity.

Fed Says Hello Sustainable Recovery
The economy remains in a transitional phase from a period that depended on support of public sector programs to a period of resumed growth based on private spending, aqccording to Dennis Lockhart President of the Atlanta Fed President. Read we are off the lifeline and looking to the markets to gradually act more normally.

We created jobs! First time in two years, True a total of 160,000 jobs (including temp jobs) is a far cry from the 8 million we have lost, but its solid proof that we are on the right road.

Rising home prices also could boost consumer optimism. with the tax credit program ending we will likley see lower home prices and higher sales volumn. Prices are reaching equilibrium in some parts of the country, according to moodys.com. Looking at the 1990s-era comparison, even after prices stabilized, housing had a long slog ahead. Our economy is driven by consumer spending, so high unemployment means less consumer spending. 

Home prices and sales volume will be held hostage to the economic recovery and will begin in earnest when job creation does so. On a positive note, with big headwinds in front, we are at the beginning of a long term healing process.

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You may republish this article, as long as you do not edit and you agree to preserve all links to the author and www.yourpropertypath.com 
 
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Freddie Mac Weekly Mortgage Update: Rates Up Again

Rates at Second Highest Level This Year

 

30-year fixed-rate mortgage: Averaged 5.08 percent with an average 0.7 point for the week ending April 1, 2010, up from last week when it averaged 4.99 percent.  Last year at this time, the 30-year FRM averaged 4.78 percent.

The 15-year fixed-rate mortgage: Averaged 4.39 percent with an average 0.6 point, up slightly from last week when it averaged 4.34 percent.  A year ago at this time, the 15-year FRM averaged 4.52 percent. 

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.10 percent this week, with an average 0.6 point, down from last week when it averaged 4.14 percent.  A year ago, the 5-year ARM averaged 4.92 percent. 

One-year Treasury-indexed ARMs: Averaged 4.05 percent this week with an average 0.6 point, down from last week when it averaged 4.20 percent.  At this time last year, the 1-year ARM averaged 4.75 percent. 

Freddie Sayz

Interest rates for fixed mortgages rose this week following a run up in long-term bond yields, while ARM rates eased slightly, said Frank Nothaft, Freddie Mac vice president and chief economist.  Rates on 30-year fixed loans were the highest since the starting week of this year.  Home-price declines continue to moderate with more metropolitan areas showing stabilizing or rising values. 

Compared with one year ago, house prices were down 0.7 percent in January 2010 in the S&P/Case-Shiller 20-City Composite Index, which was the smallest 12-month decrease since January 2007.  Nine of the cities experienced positive growth, led by San Franciscos 9.1 percent annual gain. Recently, the Mortgage Insurance Companies of America reported that homeowners who moved out of default outnumbered those who became newly delinquent in February, which was the first such occurrence since March 2006.

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Mortgage Bankers Association: Purchases Up!

Mortgage Bankers Association for the week of  3/31/2010

Market Composite Index: (loan application volume)   increased 1.3 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 1.5 percent compared with the previous week.
Refinance Index: decreased 1.3 percent from the previous week and the seasonally adjusted Purchase Index increased 6.8 percent from one week earlier.  This is the highest Purchase Index since the week ending October 30, 2009.
Purchase Index:  increased 6.8 percent compared with the previous week and was 9.3 percent lower than the same week one year ago.
Refinance Share of Mortgage Activity:  decreased to 63.2 percent of total applications from 65.0 percent the previous week. This is the lowest refinance share recorded in the survey since the week ending October 23, 2009.
Arm Share: increased to 5.2 percent from 4.8 percent of total applications from the previous week.
MBA outlook: (Excerpted from mbaa.org)

Purchase applications have increased over the past month, and are now at their highest level since last October when many homebuyers were rushing to get loans closed before the expected expiration of the homebuyer tax credit, said Michael Fratantoni, MBAs Vice President of Research and Economics.  We may be seeing a similar pattern now, as the extended version of the tax credit ends next month.
The housing industry faces another challenge during the spring building season stemming from the end on March 31 of the Federal Reserves program of buying mortgage-backed securities. The impact on mortgage interest rates that follows is not expected to be dramatic, but it will certainly act as a damper on home buying. The inventory of unsold homes has declined but remains well above normal levels, and will likely remain relatively high given pending foreclosures

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