Economic Update August 8
Economic Update for the week ending August 8, 2014
Mortgage rates continue to hover near yearly lows. Mortgage rates showed little movement once again this week, continuing to hover near yearly lows, according to the latest data released Thursday by Freddie Mac. The 30-year fixed-rate average bumped up to 4.14 percent with an average 0.7 point. It hit its yearly low of 4.12 percent a week ago and was 4.4 percent a year ago. For nearly two months now, the 30-year fixed-rate average has floated around 4.13 percent, ticking up or down a basis point or two but never straying far. The 15-year fixed-rate average climbed to 3.27 percent with an average 0.6 point, its highest level since June 19. It was 3.23 percent a week ago and 3.43 percent a year ago. Hybrid adjustable rate mortgages wandered downward. The five-year ARM average slid to 2.98 percent with an average 0.5 point. It was 3.01 a week ago and 3.19 percent a year ago. After jumping above 3 percent last week, the five-year ARM returned below that level for the six time in the past seven weeks. The one-year ARM averagedropped to 2.35 percent with an average 0.5 point. It was 2.38 percent a week ago. Mortgage rates were little changed amid a week of light economic reports. We are seeing 30 year fixed jumbo rates at 4.25%.
Rates on 10 year treasury bonds fell this week to 2.44% .They were 2.52% last Friday. The 10 year rate is considered a benchmark rate. Mortgage rates generally follow the trend of the 10 year.
Fannie Mae and Freddie Mac posted profits and pay dividends to Government for the April-June period as the housing market continued to recover. Gains in recent years have enabled them to fully repay their government aid after being rescued during the financial crisis in 2008. Fannie Mae reported Thursday that it earned $3.7 billion in the second quarter; it will pay a dividend of $3.7 billion to the Treasury next month. Freddie Mac posted net income of $1.4 billion for the latest quarter and will pay a dividend of $1.9 billion. Together the companies received taxpayer aid totaling $187 billion. The gradual recovery of the housing market has made Fannie and Freddie profitable again. Their repayments of the government loans helped make last year's federal budget deficit the smallest in five years. Fannie's $3.7-billion profit was down 63% from $10.1 billion in the second quarter last year. Increases in home prices slowed sharply in the April-June period from a year earlier, reducing Fannie's income, the company said Freddie's $1.4-billion net income declined 72% from $5 billion in the second quarter of 2013. Freddie noted that itsearnings can fluctuate because of changes in the value of its holdings of derivatives, or investments used to hedge against swings in interest rates. That can create gaps in quarterly earnings that may not reflect the economics of its business. Much of this lower profits are because Fannie and Freddy are making less loans than they have over the past few years. As private investment for loans increases a much lower, more traditional percentage of GSE, government sponsored loans are being originated. This has also allowed for lower maximum loan amounts on these government sponsored mortgages.
Applications for U.S. home mortgages rose last week as refinancing applications increased, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1.6 percent in the week ended Aug. 1. The MBA's seasonally adjusted index of refinancing applications rose 3.8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 1.3 percent. The refinance share of mortgage activity accounted for 55 percent of all applications.
The Mortgage Bankers Association is currently predicting that rates on a 30-year fixed rate mortgage will rise to 5.1% by mid-2015. If that happens, then mortgage rate lock will become a pronounced headwind for the housing market, reducing home sales by about 4 percent from current levels even after accounting for positive factors like modestly higher incomes and more households.
Prices will go up, but not as fast as in 2013. In 2013, the housing market clocked double-digit, year-over-year price gains each month. Now that pace is slowing. Prices across the 20 metro areas tracked by the S&P Case-Shiller Indices rose by 10.8% year-over-year in April, a significantly slower rate than the prior month, when prices rose 12.6% for the 10-City Composite and 12.4% for the 20-City Composite. Expect the slowdown to continue right through December. The median price of an existing home gained 11.5% in 2013, the highest annual gain since the median priced rose by 12% in 2005, according to the National Association of Realtors. It will be another three years before we hit the peak levels we last saw in 2007. Obviously, that is a national statistic. We are well beyond the highs of 2007 on the West Side and slightly below the 2007 highs in the Valley.
Supply will continue to increase. Throughout the recovery, the stock of available homes for sale has been well below the 6-month supply that economists consider the hallmark of a healthy market. In January, available, for-sale resale’s stood only at a 4.9-month supply, according to NAR. By June, inventory had increased to a 5.5-month level.
US Stocks climb, Global Stocks fall and S&P 500 hits above 1900. Stocks rebound from losses overnight. Stocks moved higher today as investors weighed productivity gains in the U.S. against escalating geopolitical troubles in Ukraine, Gaza and Iraq. However,emerging stocks headed for a second weekly loss on concern the worsening crisis in Iraq will hold off the global recovery. Yesterday, the S&P 500 fell 0.6 percent, coming within 60 points away from wiping out its gains for 2014. It closed below its average price for the past 100 days for the first time since April. The index has dropped 3.1 percent from a record on July 24. Today, U.S. stocks bounced back today amid speculation that recent declines have been excessive. Almost 80 percent of stocks in the S&P 500 are below their average price of the past 50 days, the most since 2012, according to Bloomberg. The U.S. 10-year yieldtouched 2.35 percent, the lowest since June 2013, before erasing losses to 2.41 percent.
Market Closed today with increases across the board, amidst an international crisis in Russia, Ukraine, Gaza and Iraq.
The Dow increased 1.13 percent (+185.66), 16,553.93. NASDAQ increased .83 percent (+35.93), 4,370.90 and S&P increased 1.15 percent (+22.02), 1,931.59. The markets are well below levels of just 2 weeks ago. Next week corporate profits of retail companies will be reported. That will move the market depending on how good they are. It's been a rough couple of weeks for investors, as the market has dropped about 700 points from its all time highs! Fortunately, that money has moved to the safety of bonds and mortgages which has lowered rates over that period.
We are seeing an uptick in escrow openings for the second straight week! That is a good sign after the market seemed to slow a little in July. I would still caution that prices seem to have stalled. We are seeing homes below the high comps of just 60 days ago sit and not sell. Prices are getting reduced, and that is probably contributing to more sales. I have no doubt that prices will increase again next spring! Right now it may appear that prices have dropped, especially when you compare sales to higher ones just a couple of months ago. I would not be surprised to see CAR month over month drop in price in the coming months. The year over year will still be a healthy increase, as we had rapid price increases in the spring. Unfortunately, some of those sales may have been a little high due to some over excitement!