May 1 Home Finance Update

Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151

Weekly Commentary

Thumbnail Sketch: The FOMC [Federal Open Market Committee] reduced the fed funds rate another quarter of a percent, making it clear that this will probably be the last rate cut for a long while. Worries about inflation are in the air.

We can see the effects of those worries, of course, in the higher Treasury security yields (see at right), but what seems to be happening among rates is a realignment with reality. The opening rate on the 1-year adjustable rate mortgage, for example, slid an amazing 136 basis points to a level that is relatively customary in comparison with the 15- and 30-year fixed-rates. (It had been held artificially high by the intense reluctance to make ARMs, on the part of lenders, and to take them, on the part of borrowers.)

In other words, interest rates appear to be shuffling back into a more recognizably normal distance from one another.

The number of new mortgages being applied for continues to slide. The number of purchase money loan applications has descended into a weak territory—11.5% lower than four weeks ago, and 13.1% lower than a year ago. Applications for refis, meanwhile, fell a stunning 46.3% from four weeks ago, though a gentler 9.8% from a year ago.

The data on new home sales, meanwhile, showed home sales sinking 9% from last year’s level, itself nothing to write home about, and the median price falling 13%—and the number of homes on the market rising by 11%.

How to read all of this? In truth, we get to choose.

This could be the harbinger of a long, slow season for real estate, with prices continuing to drop to lower-than-expected levels. Such a condition can be self-fueling, as falling prices cause people to wait for prices to fall still further before they consider buying a home.

On the other hand, what we are seeing could be the final crunch—as the majority of buyers and sellers see the worst and act on it—before the market improves. With so many signs that the market is just beginning to turn, the latter view may seem preferable.

KEY INDICATORS 

Gold $895.60/ounce [down]Crude Oil (Brent) $116.90/brl [slightly up]U.S. Dollar to…    Euro .6392 [up]    Japanese Yen 104.39 [up]6-mo Treasury Bill Yield 1.72%10-yr Treasury Note Yield 3.84% [6-mo up 9 bps, 10-yr up 12 bps]11^th Dist Cost of Funds: 3.560%30-yr Fixed-rate Mortgage 6.51%15-yr Fixed-rate Mortgage 5.98%1-yr ARM 5.50% [HSH averages rates: 30-yr down 17 bps, 15-yr down 15 bps; 1-yr ARM down 136 bps] 

Mortgage Bankers Association Mortgage Applications Index week ending 4/18  Overall    637.6 (down 14.2%; up 2.5% the week prior)  Purchase Money Loans     357.3 (down 6.4%; down 0.8% the week prior)  Refinancing Loans    2286.3 (down 20.2%; up 5.2% the week prior) 

Weekly Jobless Claims 4/19    342,000 first computation – 375,000 prior week (with upward revision of 3,000) 

Durable Goods Orders March    Down 0.3%New Home Sales March    Down 9% - median price down 13% - 11% larger supply of homes on the market