The Mortgage Minute Blog - Peter Grimm

The housing recovery showed particular weakness in the New Homes Sales category last month, good news for homebuyers in Connecticut and around the country.

New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963, the year the government first started tracking New Home Sales data.

Right now, there are roughly 234,000 new homes for sale nationwide, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009’s pace.

The reasons for the spike in supply are varied:

• The original home buyer tax credit expired in November
• Weather conditions were awful in most of the country in January
• Weak employment and consumer confidence continue to hinder big ticket sales

These might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it’s a welcome turn of events. Home prices are based on supply and demand.

As a result, this season’s home buyers may be treated to free upgrades or other perks from home builders, plus seller concessions and lower sales prices overall.

It’s all a matter of timing, the New Home Sales reports on a 1-month lag so it’s not necessarily reflective of the current, post-Super Bowl home buying season.  And from market to market, sales activity varies.

That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It’s a favorable time to buy a new home. 

Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday.  The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.

According to Case-Shiller representatives, the housing market is “in better shape than it was this time last year”, but some of the summer’s momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.

Meanwhile, it’s interesting to note the 5 markets that didn’t decline — Detroit, Los Angeles, Las Vegas, Phoenix and San Diego.  Each of these metro regions were among the hardest hit nationwide when home prices first broke.  Now, they’re leading the pack in price recovery. 

For some real estate investors, that’s a positive signal.  But we also have to consider the Case-Shiller Index’s flaws because they’re big ones.

As examples: 

1. Case-Shiller data is reported on a 2-month lag
2. The Case-Shiller sample set includes just 20 U.S. cities
3. There’s no “national real estate market” — real estate is local

That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.

If the markets that led the housing decline will lead the housing resurgence, December’s data shows that full recovery maybe right around the corner. 

You can’t get your mortgage rates from the newspaper. Last week proved it yet again.

Friday morning, headlines in Connecticut and around the country read that mortgage rates were down 0.04 percent, on average, since the week prior.

A sampling of said headlines includes:

• US Mortgage Rates Drop For 2nd Straight Week (Reuters)
• Mortgage Rates On 30-year US Loans Fall To 4.93% (Business Week)
• 30-Year Fixed Mortgage Rate Falls Farther Below 5% (Marketwatch)

The story behind the headline was sourced from the Freddie Mac Primary Mortgage Market Survey, an industry-wide mortgage rate poll of more than 100 lenders.  The PMMS has reported mortgage rate data to markets since 1971 and is the largest of its kind.

Unfortunately, rate shoppers can’t rely on it.

Unlike governments and private-sector firms, when consumers are in need of mortgage rate information, they need the information delivered in real-time; for making decisions on-the-spot.  Consumers need to know what rates are doing right now.

The Freddie Mac survey can’t offer that.

According to Freddie Mac, the survey’s methodology is to collect mortgage rates from lenders between Monday and Wednesday and to publish that data Thursday morning.  The survey results are an average of all reported mortgage rates. The problem is that mortgage rates change all day, every day.  The PMMS results are skewed, therefore, by methodology.

And, meanwhile, the issue was compounded last week because mortgage rates shot higher Wednesday afternoon after the survey had “closed”.  The market deterioration ran into Thursday too, again, unable to be captured by Freddie Mac’s PMMS.

Although the newspapers reported mortgage rates down last week, they weren’t.  Conforming mortgage rates were higher by at least 1/8 percent, or roughly $11 per $100,000 borrowed per month.  In some cases, rates were up by even more.

Newspapers and websites can give a lot of good information, but pricing is far too fluid to rely on a reporter. When you need to know what mortgage rates are doing in real-time, make sure you’re talking to a loan officer.  Otherwise, you may just be getting yesterday’s news.

Mortgage markets had a terrible, holiday-shortened week last week as Wall Street responded to worse than expected inflation data and action from the Federal Reserve.  Mortgage bonds sold off with force, causing mortgage rates to rise for the second week in a row.

Last week was a bad week to float a mortgage, to say the least. Rates across the country rose by the largest margin in any week since late 2009.

The two biggest stories from last week both came from the Federal Reserve.  The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed’s surprise announcement to raise the nation’s Discount Rate to 0.75%. Both sparked risk taking on Wall Street and bonds sold off as a result. 

Now, the Fed Funds Rate won’t climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets, the era of loose monetary policy is over.

This week, there’s a lot of economic data set for release.

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

With markets already on edge, any better-than-expected results should be bad for mortgage rates.

After last week’s performance, conforming mortgage rates have now unwound most their January gains.  If you’re waiting for the right time to lock, it may have been 2 weeks ago.

Consider locking in this week to protect against any further deterioration in price.

Sometimes, headlines for housing can be misleading and this week gave us a terrific example.

On Wednesday, the Commerce Department released its Housing Starts data for January 2010. The data showed starts at a 6-month high.

A “Housing Start” is a privately-owned home on which construction has started.

Headlines on the Housing Starts story included:

• U.S. Housing Starts Hit 6-Month High (Reuters)
• U.S. Economy Receives Home Building Boost (Shepparton)
• Housing Starts Post Sharp Rebound (ABC)

Based to the headlines, the housing market looks poised for rapid growth through the Spring Market.

The real story, though, is that although Housing Starts increased by close to 3 percent last month, the growth is mostly attributed to buildings with 5 or more units.  This includes apartments and condominiums, a sector of the housing market that’s notoriously volatile.

If we isolate Housing Starts for single family homes only, we see that starts grew by just 7,000 units last month and have failed to break a range since June 2009.  January’s tally is slightly below the 8-month average.

Perhaps more interesting than the Housing Starts, is the Commerce Department’s accompanying data for Housing Permits. After a 5-month plateau that ended in November, Housing Permits posted multi-year highs for the second straight month.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

One reason permits are up is that home builders want to capitalize on the federal homebuyer tax credit’s dwindling time frame.  Sales are expected to spike in March and April and more homes will come online to deal with that demand.  Home buyers in Connecticut should shop carefully, but with an eye on the clock.

As the tax credit’s April 30, 2010 deadline approaches, competition for homes may be fierce.