A run of good economic data continued this week, maintaining the upward pressure on long-term interest rates that began in November.
The National Association of Realtors reported a 3.5% increase in pending sales in November, although still 9% below 2009. New claims for unemployment insurance fell to the best level since 2008, a little more than 400,000 weekly. The Chicago purchasing managers’ survey of manufacturing (“ISM”) jumped in December, possibly indicating growing strength in the national numbers due on Monday. On the weak side: the leading measure of consumer confidence slid in December, and the October Case/Shiller report of home prices was weaker than any expected.
Respectable forecasters (notably Goldman Sachs) have upped their GDP forecasts for 2011 from the 2.5%-3.0% range to 3.5%+. If so, and if there is pull-through to job creation, then mortgage rates are in for a rough time. Supply/demand factors are not helpful to us: the Fed’s QE2 seems a bust, and the Fed is allowing its MBS portfolio to run off (not re-buying as loans prepay), and Fannie and Freddie will begin a gradual reduction in their holdings in 2011 (10% per year forward).
However, right there the forecasts by stock-market and business economists diverge from those of us in housing and credit. It is extremely difficult to imagine a strong, general recovery while mortgage rates rise and housing continues to deteriorate, creating new financial-market losses, and credit remains nearly non-existent except for the largest corporate borrowers.
Which group turns out to be correct... that will tell the tale of mortgage rates in 2011.
Friday, December 31, 2010
Thursday, December 30, 2010
Kiss 4% Mortgages Goodbye!!!
NEW YORK (CNNMoney.com) -- The era of near 4% mortgage rates has ended after a quick rate rise since early November. But some industry experts think that may be a good thing for the flagging housing market.
The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac's weekly mortgage market survey. In the Bankrate.com weekly survey, the rate has risen to 5.02% -- crossing the 5% mark for the second time in three weeks -- after being as low as 4.42% as recently as early November.
134Email Print CommentRates haven't been this high since May and forecasters now predict them to remain between 5% and 6% for all of 2011.
"You can kiss those record lows goodbye," said Greg McBride, chief economist for Bankrate.com.
Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.
"I don't think we're going back to a 50-year low anytime soon without an economic collapse," he said. "Rates will probably never revisit those levels."
The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to McBride.
"That's nothing to sneeze at," he said. "But it's still small relative to the steep drop in home prices over the past few years."
Good for the market?
Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms.
"The initial phase of an interest rate increase generally does not hurt markets," said Lawrence Yun, chief economist for the National Association of Realtors. "In fact, it can help."
The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.
The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Yun. If hiring gains momentum, housing markets should revive.
"If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume," said Yun.
Gumbinger said that demand for homes may be tempered somewhat by the increased mortgage costs and so affect home prices a bit but the improving job picture and better consumer confidence matter much more.
"If the other factors are aligned," he said, "interest rates are not a big thing."
The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans.
"The current mortgage market is a unique situation" he said. "It's less about rates than it is about underwriting standards, which are, in my opinion, still too stringent."
"If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy."
The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac's weekly mortgage market survey. In the Bankrate.com weekly survey, the rate has risen to 5.02% -- crossing the 5% mark for the second time in three weeks -- after being as low as 4.42% as recently as early November.
134Email Print CommentRates haven't been this high since May and forecasters now predict them to remain between 5% and 6% for all of 2011.
"You can kiss those record lows goodbye," said Greg McBride, chief economist for Bankrate.com.
Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.
"I don't think we're going back to a 50-year low anytime soon without an economic collapse," he said. "Rates will probably never revisit those levels."
The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to McBride.
"That's nothing to sneeze at," he said. "But it's still small relative to the steep drop in home prices over the past few years."
Good for the market?
Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms.
"The initial phase of an interest rate increase generally does not hurt markets," said Lawrence Yun, chief economist for the National Association of Realtors. "In fact, it can help."
The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.
The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Yun. If hiring gains momentum, housing markets should revive.
"If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume," said Yun.
Gumbinger said that demand for homes may be tempered somewhat by the increased mortgage costs and so affect home prices a bit but the improving job picture and better consumer confidence matter much more.
"If the other factors are aligned," he said, "interest rates are not a big thing."
The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans.
"The current mortgage market is a unique situation" he said. "It's less about rates than it is about underwriting standards, which are, in my opinion, still too stringent."
"If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy."
Friday, December 17, 2010
Weekly Information 12/17
Mortgage interest rates increased again this past week as economic data was mostly better than expected. Reports stronger than expected included November Retail Sales, the December Empire State Manufacturing Index, November Industrial Production and Capacity Utilization, weekly jobless claims, and the Philadelphia Fed Business Index. The November Producer Price Index (PPI), a measure of wholesale prices, increased more than expected, up 0.8% on expectations of an increase of 0.5%. The November Consumer Price Index (CPI) increased 0.1%, slightly less than expected. Housing data, though, did not meet expectations. November Housing Starts were up 3.9%on expectations that starts would be up 4.8%. November Building Permits were down 4.0% on expectations that they would be up 2.5%.
Friday, December 10, 2010
Weekly Information 12/10
Mortgage interest rates increased again this past week as Congress moved closer to extending the Bush Tax cuts, cutting the payroll taxes by 2.0%, and continuing the emergency unemployment payments for another year. It is estimated that this will increase the deficit by $700 billion, adding supply pressure to the bond markets. Also of note, the Treasury auctioned $66 billion in 3 Year Notes, 10 Year Notes, and 30 Year Bonds this past week which was met with mixed demand from the markets. Economic data generally surpassed expectations. October Consumer Credit, weekly jobless claims, the October Trade Deficit, and the University of Michigan Consumer Sentiment Index were all better than expected. Also of note, November Import Prices increased by 1.3% and Export Prices increased by 3.2%.
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