The Mortgage Minute Blog - Peter Grimm

Mortgage markets improved last week to the delight of rate shoppers.

Against a sparse economic calendar, Wall Street turned its attention to geopolitics in Greece and the Euro-zone.  It didn’t like what it saw. Safe haven buying buoyed mortgage bond markets last week as pricing recaptured two-thirds of its monumental losses from the week prior.

Despite last week’s surge, conforming and FHA mortgage rates remain near their worst levels of the year and appear poised to increase throughout the summer months.

The U.S. economy seems to be improving.

• Pending Home Sales posted a strong monthly improvement
• Wholesale Trade data pointed to higher consumer spending ahead
• Inflationary threats on the economy are receding, according to the Fed

Furthermore, continuing jobless claims were down again.

Good news for the economy is generally bad news for mortgage rates. Last week, that wasn’t the case because of Wall Street’s want for “safe” assets right now.  This includes mortgage bonds and is helping to keep consumer rates low. When the safe haven buying eases, rates will most likely climb.

Meanwhile, this week the calendar is back-heavy. 

There’s no real data until Wednesday’s Consumer Price Index, and then there’s a flurry of new releases through Friday’s market close including Retail Sales, Consumer Confidence and Housing Starts. 

Strength in these issues should push mortgage rates back up.

If you’re floating or shopping a loan right now, be wary of market volatility. Rates have been jumpy since April 1 and mortgage rates are changing quickly. This week, locking in before Wednesday may be your safest, near-term rate locking strategy.

Fewer homes went under contract in January as the housing market continues to limp through the winter months.

According to the National Association of Realtors®, the Pending Home Sales Index fell to its lowest level in 3 quarters this January. By contrast, in October 2009, the index had touched a 3-year high.

The Pending Home Sales Index measures the number of homes that have gone under contract to sell, but have yet to close nationwide. It’s compiled using data from more than 100 regional listing services and 60-plus brokerages; the sample set encompasses 20 percent of all home re-sales in a given month.

Economists have come to rely on the Pending Home Sales Index because of its high correlation to actual home sales. 80% of all home marked “pending” close within 60 days. Many of the rest close within 120.

Therefore, when we see Pending Home Sales show weakness like it did in January, we can infer that home re-sales will remain weak through the spring.

But will they really?

1. Fewer sales should drag down home prices, bringing more buyers into the market
2. Mortgage rates are still very low, but are poised to rise.
3. The home buyer tax credit requires buyers to be in contract by April 30, 2010

In other words, there’s a confluence of factors that could lead to a rush of sales in Connecticut and around the country over the next two months, reversing the housing market’s recent momentum.

The Pending Home Sales Index rose slightly in December, climbing 1 percent from November.

A Pending Home Sale is a home that is under contract to sell, but not yet sold. It’s a figure compiled by the National Association of Realtors® using sales data from over 100 regional listing services and more than 60 large brokerages around the country.

Because each pending sale is a true measure of sales activity, the Pending Home Sales Index is the most reliable forward-looking indicator for housing. 

Recent data supports this hypothesis.

After Pending Home Sales plunged 16 percent in November, Existing Home Sales fell by 17 percent in December. Based on the most recent Pending Sales Index, we can expect January’s closed sales to be similarly level.

For home buyers this is all a bit of good news. Home prices are based on the supply-and-demand balance that exists between buyers and sellers. When buyers outnumber sellers, like they did through most of 2009, home supplies dip and, in fact, the national home inventory nearly halved during the 12 months ending November 2009.

With fewer homes for sale, multiple-offer situations were almost commonplace and home values rose as result.

Activity has since slowed, and fewer buyers are in today’s market. The supply-and-demand equation has shifted back some. In December, home supplies rose for the first time in 7 months and January will likely show the same.

The net result: Home buyers have more homes from which to choose and that can create negotiation leverage for better prices and better concessions.

With mortgage rates still low and a looming deadline on the homebuyer’s tax credit, market activity should be strong between now and April. Take your time and bid right.

December’s Existing Home Sales hit the skids, shedding nearly 17 percent and falling to a four month low.

Don’t be alarmed, the plunge was expected. And not just because Pending Home Sales cratered last month.

When November’s Existing Home Sales surged, it was clear to observers that an expiring $8,000 federal tax credit was the catalyst. At the time, the tax program was slated to expire November 30 and the looming deadline pushed a lot of would-be buyers in Connecticut and across the country from a December time frame closing into November.

The expiration date had a cannibalizing effect on December’s sales figures. It was only later that Congress extended the tax credit to June 30, 2010.

So, with home sales plunging in December, it’s no surprise that home supplies rose for the first time in 9 months.  Home Supply is calculated by dividing the number of homes for sale by the current sales pace. The national housing supply now rests at 7.2 months.

Despite December’s Existing Home Sales report appearing shaky, it’s actually terrific new for home buyers.

For the past few months, as housing has been improving, sellers nationwide have been bombarded by messages of “hot markets” and rising home prices by the media.  Psychologically, a seller is more likely to hold firm on price if they believe the housing market is improving and now December’s data is deflating that argument.

There are always two sides to a housing story, the buyers’ side and the sellers’ side, and, usually, what’s good for one party is bad for the other. It’s what we’re seeing now.

Because of soft data like December’s Existing Home Sales, buyers may retake some negotiation leverage that’s been lost since spring 2009, helping to improve home affordability and, perhaps, spur more sales.