May 7 Home Finance Update
May 7th, 2008Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
It’s interesting that, with little to no movement among interest rates, the number of applications for mortgages declined so much. That tells us where we are in this market cycle–dragging along the bottom. But there is reason for some optimism. Prices seem to be hitting the bottom, too.
Weekly Commentary
Thumbnail Sketch: There seem to be several surprises here, most of them suggesting a milder recession than has been predicted until now.
For one thing, the dollar’s value has been improving relative to that of many foreign currencies…gradually rising each week, making our Treasury securities somewhat more attractive to foreign investors. Further, as you can see to the left, Treasury security and mortgage interest rates are moving very little. (The exception is rates for jumbos, subprimes and ARMs, all of which have been extremely volatile as the markets enforce occasional steep risk premiums over other interest rates.)
Intriguingly, you probably noticed that the 11th District Cost of Funds index being used in May for ARM rate adjustments is definitely lower than it was last month. This tells us, as the name suggests, that banks are finding it a bit less expensive to raise money for lending.
Even more significant, though many economists expected a negative figure for this past quarter’s Gross Domestic Product growth, the figure came in at a positive 0.6% of growth—nothing to write home about, but surprisingly higher than many people expected.
What all of these indicators and a few others seem to be predicting is a milder than expected recession. They are not, however, telling us that we won’t experience a recession. Indeed, many economists—probably wisely—are asserting that when we look back at this time period it will be seen as part of a relatively brief and mild recession. (How mild? Compare it to the short downturn of 1991.)
What does all of this mean about the real estate market? It’s hard to say. The good news, in the view of Aaron Smith of Moody’s Economy.com, is that we may likely be nearing the bottom for home price declines in many parts of the nation. But home sales aren’t likely to pick up significantly for quite some time.
The Mortgage Applications Index has fallen to a low range despite attractive interest rates. The applications for refinancing loans have fallen back to rather standard levels. The applications for purchase money mortgages have edged down to very ordinary, slow levels, indicating that the market is in no hurry to hurry up.
This, it seems, is what we get to live with for much or most of this year. There is, though, a forecast currently making the rounds that an improvement in real estate financing will burst a logjam of pent-up demand. Let’s hope for it.
KEY INDICATORS
Gold $880.60/ounce [down]Crude Oil (Brent) $120.42/brl [slightly up]U.S. Dollar to… Euro .6438 [up] Japanese Yen 104.68 [up]6-mo Treasury Bill Yield 1.76%10-yr Treasury Note Yield 3.88%[6-mo up 4 bps, 10-yr up 4 bps]11th Dist Cost of Funds: 3.280%30-yr Fixed-rate Mortgage 6.53%15-yr Fixed-rate Mortgage 5.99%1-yr ARM 7.04%[HSH averages rates: 30-yr up 2 bps, 15-yr up 1 bp; 1-yr ARM up 154 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 4/25 Overall 567.0 (down 11.1%; down 14.2% the week prior) Purchase Money Loans 340.1 (down 4.8%; down 6.4% the week prior) Refinancing Loans 1905.2 (down 16.7%; down 20.2% the week prior)
Weekly Jobless Claims 4/26 380,000 first computation – 345,000 prior week (with upward revision of 3,000)
Construction Spending March Down 1.1% - res. construction down 4.6%
Personal Income March
Up 0.3% - savings rate fell to 0.2% - spending up 0.4%
