1/20 Weekly Mortgage Update- Steve Peterson
January 20th, 2010Steve Peterson, Sierra Pacific Mortgage
Conforming 30 year fixed rates are currently 5% with no points (primary residence with 20% down on a single family dwelling, excellent credit, etc.).
The best jumbo rates are 4.00% with no points for 5/1 ARMS for loan amounts up to $850,000 (Primary residence, SFD, 70% loan to value, Nevada, etc.).
It’s pleasant to be a little more optimistic this week than last. Perhaps someday we’ll have a trend that lasts more than, say, 24 hours. I actually do suspect that real estate will emerge as a source of growing strength for the rest of the market, but the rest of the market is still plagued by odd problems–as discussed last time–caused largely by the way the Fed and Treasury have pushed interest rates so low (relative to where they would have been if left alone). We could see a stock market correction that strikes fear into the heart of Wall Street. I doubt it will last long, though.
At this point, much seems to turn on how gentle the Fed’s withdrawal from purchasing gigantic amounts of mortgage-backed securities will be. It’s a worrisome balancing act–pitting the need to get out of “artificially” supporting low rates (which could ultimately prove to be highly inflationary) and, nonetheless, to support the markets so that an interest rate spike doesn’t cut off the recovery.
January 20, 2010
KEY INDICATORS
Gold $1138.60/ounce [up]Crude Oil (Brent) $76.59/brl [down]U.S. Dollar to… Euro .7007 [up] Japanese Yen 91.14 [up]6-mo Treasury Bill Yield 0.13%10-yr Treasury Note Yield 3.70% [6-mo up 1 bp, 10-yr down 12 bps]11th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.39%15-yr Fixed-rate Mortgage 4.77%1-yr ARM 3.95% [HSH averages rates: 30-yr down 9 bps,15-yr down 17 bps; 1-yr ARM down 55 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 1/8 Overall 528.1 (up 14.3%; up 0.5% the week prior) Purchase Money Loans 213.7 (up 0.8%; up 3.6% the week prior) Refinancing Loans 2407.2 (up 21.8%; down 1.6% the week prior)
Jobless Claims 1/9 444,000 – prior week 434,000 – continuing claims fell to 4.596 m
Consumer Price Index (CPI) Dec Up 0.1% – core CPI (without food or energy data) up 0.1% – annual core inflation now 1.8%
Retail Sales Dec Down 0.3% – weak holiday sales data
Weekly Commentary
“Positive momentum continues to be generated in the housing market. For example, credit markets are beginning to thaw. Several big banks have lowered their down payment requirements. Looser credit will reinforce market stability by fostering demand. Further, house prices have posted quarter-to-quarter gains for two consecutive quarters, according to the Case-Shiller home price index, through the third quarter of 2009. Finally, a steadying labor market combined with near record-high affordability will begin to draw potential homebuyers back to the market through 2010. These factors all suggest that home sales have long ago bottomed and will continue to trend upward over the next year, albeit at a very moderated pace.” [Michael Zoller, Moody’s Economy.com]
Mr. Zoller, though optimistic overall, remains very concerned about the fragility of the real estate recovery. Surely we all feel concern. But it is good to step back from the incessant fluctuations of the credit markets and the pronouncements of analysts—positive one day, down in the mouth the next—and seek the underlying trends in the market.
Intriguingly, Zoller even forgets to mention the $8,000 and $6,500 tax credits now available to so many buyers. These are likely to raise sales volume noticeably for a couple of months. Very few people have any expectation that the tax credit programs will be renewed once again, so we can expect another last-minute rush to sign purchase contracts by April 30, and a rush to close those deals before June 30.
Meanwhile, low rates are currently being supported by the enthusiasm among international investors for U.S.Treasury securities and corporate bonds. This enthusiasm is motivated in part by the widespread concerns about the fiscal viability of many European countries, notably Greece and Spain (and the very deep financial woes of Iceland and Dubai). The U.S. simply looks like a safer place to store wealth and watch it grow a bit—in spite of the stunning growth of our national debt.
Worrisome, though, are the on-going indications that American consumers are still reticent about opening their wallets, and employers are still waiting to do much hiring again. The unemployment insurance claims (to the left) are fewer, but they are shuffling their feet, and retail sales also remain uninspiring. But the gathering strength in the real estate market is likely to help.
