Mortgage Market Trends for week ending April 22, 2011



We stated previously that an upturn in sales would mark the start of the spring buying season. We are happy to report that signs are appearing to support our premonition. RE/MAX reported that home sales increased by double-digits in March from February in all but one of the 54 U.S. metropolitan areas it covers. This represents a complete reversal from January, when none of the 54 cities saw even single-digit monthly sales increases.

The National Association of Realtors corroborated Re/Max’s bullish report with one of its own. The NAR’s data show that March was a decent month for existing home sales, with sales up 3.7 percent to an annualized rate of 5.1 million units. Prices also firmed slightly, up 2.2 percent, to a median reading of $159,600. More homes were on the market, 3.55 million, but the solid rise in sales dropped the supply to 8.4 months.

The beleaguered homebuilders could also see an improved selling market as we head into the late spring/early summer months. Housing starts in March rebounded 7.2 percent following a monthly 18.5-percent drop in February. The March annualized pace of 549,000 units came in significantly higher than analysts’ estimate for 510,000 units. The improvement was led by a monthly 7.7 percent boost in single-family starts. More encouraging, housing permits gained 11.2 percent after decreasing 5.2 percent in February.

Over the past six months, the monthly housing data have shown improvements, or at least stabilization, in pricing and sales. Of course, real estate is seasonal and year-over-year comparisons are usually the focus. On that front, the data are generally lower. However, it is not an apples-to-apples comparison. This time last year, we were still operating in a more subsided market, thanks to the federal tax credits, so it’s really meaningless to compare the normalized market of today to the tax-credit-supported market of yesterday.

We could also argue that we are still not operating in a normalized mortgage market. Mortgage rates remain low, and have remained low longer than we had thought. The Federal Reserve has added unprecedented liquidity and held rates low through its open-market operations of buying Treasury and government agency securities. That said, we still believe that mortgage rates will play catch up with rising prices in the coming months.

Credit standards, which we see as the biggest impediment in the housing recovery at this point, are also not normalized. March posted a record all-cash sales rate of 35 percent. That tells us that too many people are being excluded from the market. Our biggest wish for the coming months is for more lenient standards and more private mortgage investors. Right now, the mortgage market is having a sale on size-10 shoes only, which is great if that’s your size, but not so great if it isn’t.

The Great American Downgrade

It seems unfathomable, but it happened nonetheless: Standard & Poor’s changed its outlook on U.S. Treasury bonds from “stable” to “negative” and warned it might downgrade the U.S. debt from its top AAA rating if government officials don’t get the country’s budget deficit under control.

Does that mean that we are on the road to Zimbabwe? No, but a potential downgrade does have some implications for credit markets. It could pull nervous money from the bond market and place it in the stock or commodities markets. (Gold is above $1,500/ounce for a reason.) More than anything, the downgrade threat is a wake-up call to start getting the United States’ fiscal and monetary house in order. That means ending our low-interest rate and easy-money ways.

The world is focused on us to see if our government can take this deficit seriously and address it coherently. In short, seriousness and coherence are precursors to rising interest rates, and that includes mortgage rates.

Graph Courtesy from NY Times in an article by Maryann Haggerty April 21, 2011.  Data and Commentary provided by Fred Ashe, from DE Capital Mortgage.

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