What’s Ahead For Mortgage Rates This Week-September 30, 2013

What's Ahead For Mortgage Rates This Week-September 30, 2013Last week brought a variety of housing related news. Highlights included the S&P/Case-Shiller Home Price Index for July, which showed a 12.40 percent year-over-year increase in national home prices. This was up from 12.10 percent in June.

The FHFA Housing Price Index reading traces home prices on properties securing mortgages owned or backed by Fannie Mae and Freddie Mac. The year-over-year reading for July showed an increase of 8.80 percent as compared to a year-over-year reading of 7.80 percent in June.

Rising mortgage rates and rising home prices have caused some buyers to leave the market, while others are jumping in before mortgage rates move higher. Pent-up demand for homes and short supplies of homes for sale are expected to sustain buyer interest and home prices.

The Consumer Confidence Index for September fell to 79.70 percent for September as compared to August’s reading of 81.80 percent, but was slightly higher than the expected reading of 79.50 percent.

Sales Of New Homes Surpass Expectactions

Sales of 421,000 new homes in August surpassed expectations of 420,000 sales and the revised number of 390,000 sales of new homes in July. A short supply of existing homes for sale is attracting buyers to new homes.

Freddie Mac’s weekly Primary Mortgage Market Survey provided good news as average mortgage rates fell. The average rate for a 30-year fixed rate mortgage was 4.32 percent as compared to last week’s 4.50 percent.

The average rate for a 15-year fixed rate mortgage was 3.37 percent as compared to last week’s reading of 3.54 percent. Discount points were unchanged at 0.70 percent.  The average rate for a 5/1 adjustable rate mortgage was 3.07 percent, which was four basis points lower than last week. Discount points were unchanged at 0.50 percent.

Pending home sales fell by 1.60 percent in August as compared to July; the National Association of REALTOR cites higher home prices and mortgage rates along with depleted supplies of available homes as reasons for fewer signed contracts in August.

The West reported a drop of 1.60 percent in pending sales and the Midwest reported 1.40 percent fewer pending sales in August. The Northeast came out ahead with 4.00 percent more pending home sales in August.

Weekly jobless claims were reported at 305,000 new jobless claims as compared to expectations of 327,000 new jobless claims and the prior week’s reading of 310.000. The Federal Reserve recently cited the national unemployment rate of over seven percent as a clear indication that employment levels are not recovering quickly.

Next Week’s Economic News

While few housing and mortgage related reports are set for release next week, the calendar should provide indications of overall economic conditions. On Tuesday, Construction Spending for August will be released. Wednesday brings the ADP employment report for September. This report tracks private sector jobs.

Thursday brings Freddie Mac’s PMMS report of average mortgage rates and the weekly jobless claims report.

The federal Non-farm Payrolls and National Unemployment Reports for September are set for release on Friday.

Highest Existing Home Sales Since February 2007

Highest Existing Home Sales Since February 2007Sales of existing homes reached their highest volume in almost six years in August. The National Association of REALTORS reported Thursday that sales of existing homes rose 1.70 percent in August to a seasonally-adjusted annual rate of 5.48 million existing homes sold.

This was the highest number of existing home sales since February of 2007.

August’s results exceeded estimates of 5.20 existing homes sold, which was based on July’s unrevised reading of 5.39 million existing homes sold.

The NAR also reported that the national median home price increased to $212,100 in August. This represents a year-over-year increase of 14.70 percent and was the largest annual increase in the national median home price since October 2005.

Sales concentrated in areas with higher home prices contributed to this significant increase in the national median home price.

Homebuyers Increase Despite Higher Home Rates

The reading for existing home sales in August suggests that homebuyers are not shying away from higher home loan rates; it may also indicate that the recent shortage of existing homes for sale is beginning to ease.

August’s higher number of existing home sales was attributed to home buyers anxious to lock in lower loan rates in an environment of rising mortgage rates. Also, economists had expected the Federal Reserve to begin reducing its monthly securities purchases, which did not happen.

Had the Fed tapered its securities purchases, long-term interest rates including mortgage rates, would likely have continued rising. The Fed may have decided not to reduce its monthly securities purchase in an effort to slow rising mortgage rates.

The average rate for a 30-year fixed rate mortgage has increased by more than one percentage point since May. Home buyers may respond to rising mortgage rates by delaying their home purchase to see if mortgage rates will fall, or they may rush to buy a home before rates go higher.

Mortgage Rates Affect Home Buyers In Three Ways:

1. As rates increase, monthly house payments also rise, which can impact affordability for first-time and moderate income buyers.

2. National unemployment rates remain higher than the Federal Reserve’s target rate of 6.50 percent. While home prices are increasing and other facets of the economy are showing improvement, jobless claims remain higher than average.

3. Mortgage credit requirements are strict; this keeps some would-be buyers from qualifying for a home loan.

These factors are offset by high demand for homes and short supplies of available homes and developed lots in some areas.

What’s Ahead For Mortgage Rates This Week — September 23, 2013

What's Ahead For Mortgage Rates This Week – September 23, 2013Last week’s economic news was dominated by the Federal Reserve’s decision not to taper its $85 billion in monthly securities purchases.

Fed Chairman Ben Bernanke noted in a scheduled statement after the Federal Open Market Committee meeting that economic conditions were not yet adequately improved to withstand any decrease in the federal quantitative easing program.

The Fed also reaffirmed that the target federal funds rate would remain at 0.00 to 0.25 percent until the national unemployment rate reached 6.50 percent and inflation reaches 2.00 percent.

The national unemployment rate was 7.30 percent and the Fed projects that inflation will remain under 2.00 percent through 2015.

In both the FOMC statement and his press conference, Chairman Bernanke repeatedly emphasized that the Fed would take no action to reduce QE until the economy strengthens. No automatic reduction of QE purchases would take place without full consideration of the nation’s economy.

The QE program is intended to keep long-term interest rates low, and the announcement that QE would not be tapered brought mortgage rates down after they had increased by more than one percent since May.

Builder Confidence High, Mortgage Rates Lower

The National Association of Home Builders/Wells Fargo Housing Market Index for September revealed that home builder confidence in housing market conditions remained stable at 58; a reading of 59 was expected. Readings over 50 indicate that more builders are confident about market conditions than not.

Housing starts for August did not reflect the high level of builder confidence and fell short of expectations at 891,000. Expected housing starts were estimated at 921,000. There was good news in that August’s reading surpassed the July reading of 883 housing starts. Building permits for August also dropped to 918,000 against expectations of 955,000 and July’s reading of 954,000 building permits.

Higher labor and materials costs and concerns over tight mortgage credit and rising mortgage rates likely contributed to the lower than expected readings for housing starts and building permits.

Freddie Mac’s Primary Mortgage Market Survey reported that average mortgage rates dropped across the board on Thursday. The average rate for a 30-year fixed rate mortgage fell by seven basis points to 4.50 percent with discount points moving from 0.80 percent to 0.70 percent.

The average rate for a 15-year fixed rate mortgage fell by five basis points from 3.59 percent to 3.54 percent with discount points unchanged at 0.70 percent.

The average rate for 5/1 adjustable rate mortgage was lower by 11 basis points to 3.11 percent. Discount points were unchanged at 0.50 percent. This provides a break for home buyers who’ve been faced with rising mortgage rates and home prices amidst a shortage of available homes in many areas.

This Week

Economic news scheduled for this week includes the Case/Shiller Home Price Index for July, the FHFA Home Price Index also for July. New home sales and the pending home sales index will be released.

Freddie Mac will release its weekly summary of average mortgage rates and weekly jobless claims will also be released Thursday. The week will end with consumer related data including personal income and consumer spending for August along with the University of Michigan’s consumer sentiment index for September.

Home Builder Confidence Has Far Outpaced Actual Home Construction

Home Builder Confidence Has Far Outpaced Actual Home ConstructionHome builder confidence was unchanged for September according to the National Association of Home Builders/Wells Fargo Housing Market Index HMI released Tuesday. After four months of rising confidence, September’s HMI reading came in at 58, which was not far from expectations of a reading of 59.

August’s reading of 58 was revised from 59. Readings over 50 indicate that more builders view housing market conditions as being positive than negative.

Housing Market Index Readings Rise

Components of September’s HMI include readings for home builder views of current market conditions, which maintained August’s reading of 62. The September reading for buyer foot-traffic rose to 47 from 46 in August.

Builder expectations for housing market conditions within the next six months slipped from a reading of 48 in August to 45 for September. Lower expectations for market conditions within the next six months likely take into consideration the coming winter months when weather conditions slow construction and home sales.

Home builder confidence has far outpaced actual home construction on a year-over-year basis; the HMI increased by 45 percent since September 2012.  Investors expect a seasonally-adjusted reading of 921,000 housing starts for August on Wednesday. This figure represents a year-over-year increase of 23 percent for housing starts.

Rising mortgage rates affected September’s reading. In addition, David Crowe, chief economist for NAHB also cited consumer credit restrictions, a low inventory of lots available for development and rising labor costs as factors contributing to a plateau in builder confidence. 

Fed Decision On Quantitative Easing Tapering Expected

Wednesday’s highly anticipated statement from the Federal Reserve’s Federal Open Market Committee (FOMC) has created a “wait-and-see” mood among home buyers, home builders and investors. The Fed is expected to announce whether or not it will begin tapering its $85 billion monthly purchases of securities.

This program, which is called quantitative easing, was designed to keep long-term interest rates low. Speculation on the Fed’s upcoming decision about reducing its securities purchases has caused mortgage rates to rise since May.

Economists are expecting the Fed to announce moderate tapering of QE to $75 billion in monthly purchases. Reducing or not reducing the fed’s securities purchases has become an elephant in the room to those concerned with mortgage rates; in recent months, the Fed has hinted at its intention to taper QE purchases before year-end.

If the Fed reduces its securities purchases, the demand for securities (bonds) is expected to fall, along with bond prices. When bond prices fall, mortgage rates typically rise. The good news is that once the Fed announces a decision on QE, the guesswork will be done for a while.

What’s Ahead For Mortgage Rates This Week – September 16, 2013

What's Ahead For Mortgage Rates This Week - September 16, 2013Last week didn’t feature any housing-related news other than Freddie Mac’s weekly survey of mortgage interest rates.

Reports on consumer credit, job openings and weekly jobless claims suggest that without some relief in the jobs market, Americans may be taking a “wait-and-see” stance toward buying homes.

Consumer Credit Rose By $10.40 Billion In July

The Federal Reserve reported Tuesday that revolving credit fell by an annual rate of 2.60 percent as compared to an annual decrease of 5.20 percent in June. Non-revolving consumer credit such as vehicle and education loans rose at an annual rate of 7.40 percent.

Freddie Mac’s Primary Mortgage Market Survey indicated that mortgage rates were unchanged for both 30-year and 15-year fixed rate mortgage loans. The average rate for a 30-year FRM was 4.57 percent with discount points of 0.80 percent; this was higher than last week’s 0.70 percent.

Average rates for a 15-year fixed rate mortgage were unchanged at 3.57 percent with 0.70 percent in discount points. The average rate for a 5/1 adjustable rate mortgage fell by six basis points from 3.28 to 3.22 percent with discount points unchanged at 0.50 percent.

Mortgage rates are likely to change next week in response to any announcement by the Federal Reserve regarding its plan for reducing the amount of monthly bond purchases in its current quantitative easing program.

Mortgage rates would likely rise if the Fed begins tapering its $85 billion monthly purchase of securities, but if the Fed maintains its current rate of purchases, mortgage rates could remain steady or fall in response to the news.

Retail sales fell short of expectations on Friday. The Department of Commerce reported a seasonally-adjusted growth rate of 0.20 percent in August against an expected reading of 0.50 percent and July’s revised reading of 0.40 percent, which was initially reported at 0.20 percent.

The University of Michigan/Thompson Reuters Consumer Sentiment Index for September fell to its lowest reading since April. The September reading was 76.80 percent as compared to expectations of 81.50 percent and August’s reading of 82.10 percent.

What’s Coming, Will The Fed Taper Its Securities Purchases?

This week’s economic news is highlighted by the Fed’s FOMC statement scheduled on Wednesday after its two-day meeting. The announcement is expected to include an indication of the Fed’s intention concerning its QE program and whether or not monthly securities purchases will be reduced. Fed chairman Ben Bernanke is scheduled to give a press conference after the FOMC statement.

Other scheduled economic news for this week includes the Consumer Price Index and Home Builders Housing Market Index on Tuesday; Wednesday brings reports on Housing Starts and Building Permits in addition to the FOMC statement and press conference. Thursday’s economic reports include Weekly Jobless Claims and the Freddie Mac PMMS along with Existing Home Sales and Leading Indicators.