Home price increases continued to exceed CoreLogic's own projections in July. The company's Home Price Index (HPI) indicates that home prices nationwide, including distressed sales, rose 1.1 percent from June and were 6 percent higher than in July 2015. The month-over-month gain was identical to the rate of appreciation from May to June, but the year-over-year increase marked an acceleration from the 5.7 percent reported in June. In the last HPI, CoreLogic noted a deceleration in price gains.
Oregon and Washington continue to top the charts with double digit annual increases of 11.2 and 10.2 percent respectively. They were followed by Colorado at 9.3 percent, West Virginia (8.6 percent) and Utah (7.9 percent.) Only one state failed to post an annual gain; Connecticut, where prices fell by 1.2 percent. Other states had negligible changes; New Jersey saw appreciation of only 0.2 percent and in Vermont the gain was 0.8 percent.
"The strongest home price gains continue to be in the western region," said Anand Nallathambi, president and CEO of CoreLogic. "As evidence, the Denver, Portland and Seattle metropolitan areas all recorded double-digit appreciation over the past year."
CoreLogic is forecasting an increase in its HPI of 5.4 percent over the next 12 months (to July 2017) and a 0.4 percent uptick from July to August. The company's forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state. In the first six months of 2016 CoreLogic has projected monthly gains averaging 0.68 percent while reporting actual increases with a mean of 1.46 percent. CoreLogic had projected a June to July gain of 0.6 percent.
"If mortgage rates continue to remain relatively low and job growth continues, as most forecasters expect, then home purchases are likely to rise in the coming year," said Dr. Frank Nothaft, chief economist for CoreLogic. "The increased sales will support further price appreciation, and according to the CoreLogic Home Price Index, home prices are projected to rise about 5 percent over the next year."
Despite some predictions that pending home sales would fall in July, they actually rose modestly to reach their third highest level in nearly a decade. The National Association of Realtors® reported that its Pending Home Sales Index (PHSI) was up 1.3 percent to 111.3 from a downwardly revised (from 111.0) 109.9 in June and was up 1.4 percent compared to July 2015.
The index had reached its highest level since February 2006 this past April when it hit 115.0. The July index was second only to that number. NAR pronounced the increase in purchase contracts as broad-based; only the Midwest failed to improve on its June numbers.
Analysts surveyed by Econoday had projected the index could be in the range of a 1.8 percent decline to a 1.4 percent gain. The consensus was a positive move of 0.6 percent.
NAR's index is a forward-looking indicator based on contract signings for the purchase of homes. Those transactions are generally expected to close within two months.
Lawrence Yun, NAR chief economist, says a sizable jump in the West lifted pending home sales higher in July. "Amidst tight inventory conditions that have lingered the entire summer, contract activity last month was able to pick up at least modestly in a majority of areas," he said. "More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale. There's little doubt there'd be more sales activity right now if there were more affordable listings on the market."
Adds Yun, "The index in the West last month was the highest in over three years, largely because of stronger labor market conditions. If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales."
As Yun noted, the PHSI in the West surged 7.3 percent in July to 108.7, and is now 6.2 percent above a year ago. The index in the Northeast rose 0.8 percent to 96.8, putting it 1.1 percent higher than a year ago. It also rose 0.8 percent in the South to 123.9, up 0.4 percent year-over-year. The Midwest was an outlier, falling 2.9 percent to 105.8, leaving it down 1.1 percent from a year earlier.
Yun noted there has been a downward trend in the size and cost of new homes over the last year and says this could be an early indication that builders are starting to focus more on properties for buyers in the middle and lower price tiers rather than on the larger and more expensive homes they have been building.
"Realtors® in several high-cost areas have been saying for quite a while that there is robust demand for single-family starter homes and townhomes at an affordable price point for young buyers," adds Yun. "The homeownership rate won't move up from its over 50-year low without a meaningful boost from first-time buyers, whose participation has yet to noticeably increase so far this year despite mortgage rates near all-time lows."
NAR forecasts that existing-home sales will finish the year at around 5.38 million units, a 2.8 percent increase from 2015 and the highest annual pace since 6.48 million homes sold in 2006. After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to slightly moderate to around 4 percent.
Mortgage rates enjoyed another strong day, falling to the best levels in exactly 2 weeks. Rates were actually set to move higher early this morning, but a much weaker-than-expected reading on Q2 GDP helped drive demand for bonds. Better buying pushes bond prices higher and rates lower. The strength in bond markets gave lenders the peace of mind needed in order to offer even better terms than yesterday. The most prevalent conventional 30yr fixed rate is quickly returning to 3.375% on top tier scenarios.
Next week brings important economic data, including the big jobs report on Friday. The overall tone of that data should help determine whether rates will continue building on the past 2 days of positive momentum. The conservative approach would be to lock in the gains with rates at 2-week lows. The aggressive approach would be to wait until we have clear evidence AGAINST the possibility that a new trend toward lower rates has begun. As of today, there is no such evidence, but it could come at any time.
WASHINGTON — Long-term U.S. mortgage rates fell this week to the lowest level since May 2013, driven down by financial tumult in Europe.
Mortgage giant Freddie Mac says the average 30-year fixed rate mortgage fell to 3.41 percent from 3.48 percent a week ago. A year ago, the 30-year rate stood at 4.04 percent. The 15-year mortgage rate dropped to 2.74 percent, down from 2.78 percent last week and 3.20 percent a year ago.
After Britain's recent vote to leave the European Union, worried investors fled to the safety of U.S. Treasury bonds. Long-term mortgage rates tend to track the yield on 10-year Treasury notes, which fell to 1.37 percent Wednesday from 1.75 percent before the Brexit vote.
The 30-year fixed rate is now close to its all-time low of 3.31 percent in November 2012.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for a 30-year mortgage remained at 0.5 point this week. The fee for a 15-year loan was unchanged at 0.4 point.
Rates on adjustable five-year mortgages averaged 2.68 percent this week, down from 2.70 percent last week. The fee remained at 0.5 percent.
Mortgage rates fell moderately today, adding a 6th day to a winning streak that began with last week's Brexit news and bringing rates right to the brink of all-time lows. Mortgage rate movement can be measured in large and small chunks. The large chunks would be the changes in the actual interest rates being quoted and the small chunks would be the changes in the points associated with any given rate. "Points" have a historically negative connotation to some, but they're very objective, simply referring to the upfront costs or credit on a rate quote.
For instance, if you were quoted a rate of 3.5% with no origination fee, you might also have the option to get a rate of 3.375% with an origination fee of 0.7% of the loan amount. Moving the other direction, a rate of 3.625% could result in the lender being able to pay 0.7% of your closing costs. For what it's worth, the cost to move up and down in rate isn't always 0.7%, and it can also vary based on which 2 rates you're comparing. In other words, it may not cost much in terms of upfront cost to move down from 3.75% to 3.625% at a certain lender, but it could cost quite a bit more to move to 3.5%.
All of that background sets the stage for an understanding of how rates usually move each day. More often than not, markets don't move enough for the RATE itself to change. Rather, it's the "points" piece of the equation that changes. The past week has been an exception. And the actual "rate" piece of the equation has moved down 0.25% in some cases, bringing some lenders from 3.625% to 3.375%, which is now the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios.
Why is 3.375% important? Simply put, the next time rates move a notch lower, they'll be back to official all-time lows. In fact, 3.375% is the lowest rate that markets were able to maintain for more than a day or two back in 2012.
Mortgage rates moved lower today, largely because they needed to get caught up with yesterday afternoon's movement in bond markets. As a reminder, mortgage rates are most directly affected by mortgage-backed-securities (MBS), which tend to move in the same direction as US Treasuries. Both MBS and Treasuries improved significantly after yesterday's Fed announcement, but lenders have been cautious in adjusting rate sheets to match market movements for a variety of reasons. When they saw markets were still in good shape when it came time to send out this morning's rate sheets, lenders had a bit more love to share.
As such, we find ourselves well into the lowest rates in more than three years, even if the pace of improvement is lagging the drop in US Treasury rates. For what it's worth, 2016's mortgage rate improvements have kept up with Treasuries much better than in 2012--the last time markets were moving abruptly for somewhat similar reasons. The average lender is now down to 3.5% in terms of conventional 30yr fixed quotes for top tier scenarios. Further improvements from here will be hard fought, so it makes good sense to consider locking to avoid a temporary pull-back ahead of next week's vote on the British referendum on remaining in the European Union.
Mortgage rates barely budged, yet again today. But that's not such a bad thing considering they are very close to 3-year lows. On top of that, among the lenders with detectable changes today, most were in a friendly direction. Bottom line, the most prevalent conventional 30yr fixed quote remains 3.625% on top tier scenarios. Several of the best-priced lenders are down at 3.5% and a few are still stuck at 3.75%.
It should be noted that bond markets have been moving more than lenders' rate sheets these days. Today was another good example. Normally, the amount of improvement seen in today's bond markets would have resulted in a more noticeable improvement in mortgage rates. The takeaway is that when rates are this low, lenders have little incentive to keep up with the pace suggested by bond markets. While this does help insulate us against volatility, to some extent, it also means it will take a very big move in markets to push rates much lower from here.
This morning's strong pending home sales report was the third upbeat April housing indicator. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI) a forward looking indicator based on home purchase contract signings, was up 5.1 percent in April to 116.3 while the March PHSI was revised up from 110.5 to 110.7. It was the third consecutive month that the Index had gained ground and it brought pending sales to their highest level in a decade. The index gained 4.6 percent from April 2015 and was the 20th consecutive year-over-year increase.
The month over month change blew analysts' expectations out of the water. Econoday's poll put the high end of expectations at 1.2 percent with a consensus of 0.8%.
The strong report follows a solid existing home sales report of a 1.7 percent monthly increase and a stunning report in which new home sales posted a 16.6 percent gain.
Lawrence Yun, NAR chief economist, says vast gains in the South and West propelled pending sales in April to their highest level since February 2006 (117.4). "The ability to sign a contract on a home is slightly exceeding expectations this spring even with the affordability stresses and inventory squeezes affecting buyers in a number of markets," he said. "The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market."
Yun says it remains to be seen how long mortgage rates will stay as low as they have fallen in recent months. They, along with rent growth, rising gas prices - and the fading effects of last year's cheap oil on consumer prices - could edge up inflation and push rates higher. For now, he foresees mortgage rates continuing to hover around 4 percent in coming months, but surprises, he said, are always possible.
Adds Yun, "Even if rates rise soon, sales have legs for further expansion this summer if housing supply increases enough to give buyers an adequate number of affordable choices during their search."
Yun now expects sales this year to climb above earlier estimates and be around 5.41 million, a 3.0 percent boost from 2015. After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to slightly moderate to between 4 and 5 percent.
Pending sales increased in all four regions on an annual basis. In the Northeast the index climbed 1.2 percent to 98.2 and is now 10.1 percent above a year ago. In the Midwest the index declined slightly (0.6 percent) to 112.9 in April, but is still 2.0 percent above April 2015.
April pending sales jumped 6.8 percent in the South to an index of 133.9 and are 5.1 percent higher than last April. The index in the West soared 11.4 percent to 106.2, and is now 2.8 percent above a year ago.
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
Mortgage rates didn't move any lower today, but they earned an important distinction nonetheless. As of today, you'd have to go back 3 full years to see rate sheets any lower, on average. May 10th, 2013 was a very bumpy day for rates, and it capped a week that served as the starting point for the 'taper tantrum' (several months of rapidly increasing rates as markets adjusted to the idea that the Fed would be ending its bond buying program). With a range of 3.5 to 3.625%, today's top tier conventional 30yr fixed quotes are right in line with those seen on May 9th.
There was no meaningful inspiration for bond markets today, but it is somewhat reassuring that they've continued to hold ground even as stocks have moved much higher in recent days. While it's never a 1:1 relationship, higher stock prices often accompany a move toward higher rates as investors sell bonds (bond prices and rates have an inverse relationship).
Given that rates are at 3-year lows and that we've had a tough time breaking any lower from here, there's certainly no reason to second guess locking. Conversely, given that we've managed to stay low in spite of some headwinds, risk-takers are justified in floating, but should always set a limit as to how much higher rates could go before they lock at a loss.
Loan Originator Perspective
"I am optimistic that rates could test new lows in the near future, but I still went ahead and lock loans that are closing in May. I think short term, you should take the recent gains, lock in and move on. Longer term closings, those in June or after, I think floating is the way to go. " -Victor Burek, Churchill Mortgage
"Rates hovered near unchanged today, despite large corporate bond offerings and a treasury auction. While "not losing" is a positive, both treasury and MBS prices are well above their 25, 50, and 100 moving day averages. This typically results in a selloff at some point, the only question is when. My May pipeline, and most of June's is locked, borrowers sleeping well at night. Floating may return some additional gains, but borrowers need to realize rates move both ways!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
Ongoing Lock/Float Considerations
Housing remains the bright spot in a darkening economic outlook according to Freddie Mac's economists. Though they have revised their forecast for economic growth downward in the latest edition of the company's Outlook they are still forecasting housing will retain its momentum in 2016.
First quarter data painted "a bleak picture" of economic growth the report says. Information on consumer spending, manufacturing, auto and retail sales have led to successive downward revisions in real GDP growth estimates for the first quarter from others and Freddie Mac is revising its forecast from 1.8 percent to 1.1 percent. The company is looking for consumer spending, wage growth, and residential and business investment to pick up in the following quarters and for the GDP growth to be 2 percent for the entire year and 2.3 percent in 2017.
Even though job growth has been solid, Freddie Mac says wage growth has yet to materialize because of remaining slack in the labor market. However, labor participation did rise slightly in March as discouraged workers, seeing hope, again sought employment. The 0.6 percentage point increase since September 2015 means 1.5 million more workers. This more than offset the job gains over the same period so the unemployment rate ticked up 0.1 point to 5.0 percent in March.
This increase in participation suggests there is remaining slack in the labor force but perhaps not much; both the median weeks of unemployment and the share of those unemployed for 27 weeks or more have been declining, and unemployment should drop back below 5 percent for the rest of 2016 and 2017. "Stronger economic growth for the remainder of 2016 and reduced slack in the labor market will drive wage gains above inflation, though the gains are likely to be modest."
Freddie's economists maintain their positive view on housing and expect that the declines in long-term interest rates that accompanies much of the recent gloomier news should increase mortgage market activity, particularly refinancing, and housing will be an engine of growth. Construction activity will pick up as we enter the spring and summer and rising home values will help support renewed confidence in the remaining months of the year.
As of April 14, 2016, the national average for Freddie's 30-year fixed mortgage rate was 3.58 percent, the lowest since May of 2013. Mortgage rates have followed U.S. Treasuries closely, with the mortgage rate decline almost entirely a function of declining Treasury yields spurred by a flight to quality. As goes the 10-year Treasury, so too shall go the 30-year fixed mortgage rate which has fallen more than 40 basis points since the beginning of the year.
Freddie Mac has lowered its forecast for the 30-year rate for the second through fourth quarters by a tenth of a percent and expects that rate to average 4 percent for the year while still anticipating that the Federal Open Market Committee (FOMC) will raise short-term rates twice in 2016.
Both low rates and strong job growth should push home sales to the best year since 2006 even though they started the year slow. Chronically low inventories remain a challenge both for new and existing home sales and the report says, "At the current rate of construction, people should get used to seeing headlines about low inventory of for-sale homes in many markets for years to come. Demographics and demand are only going to increase the pressure on housing stocks."
Housing and Urban Development (HUD) estimates that between 2009 and 2011 there were over 800,000 1-unit housing units lost to conversion, demolition, disaster, condemnation, or other reasons. With approximately 90 million 1-units housing units in the country, about 414,000 must be replaced each year just to keep the stock constant. While single-family housing starts have been accelerating recently and are running above replacement rates, the difference is only about 400,000 units per year which is constraining growth in the single family market. Freddie Mac expects this to increase by another 200,000 over the next two years gradually alleviating tight inventories.
Tight supply along with demand driven by low rates and solid job gains will keep prices rising above historic average rates - an estimated 4.8 percent this year and 3.5 percent next year. This will also drive up homeowner equity from an estimated $12.4 trillion at the end of 2015, slightly below the not-inflation-adjusted peak of $13.3 trillion in 2006. The current surge in equity has not, like the earlier figure, been accompanied by a surge in mortgage debt but has gone almost exclusively to bolstering household balance sheets.
Mortgage debt will increase 3.5 percent this year and 4.0 percent in 2017, higher than in recent years but still well below the historic average of an annual 10 percentage point increase. There is also opportunity, given the low rates, for increased refinancing and since the recent drop Freddie Mac has refigured its February estimate that rates dipping below 4 percent would increase refinance potential by $122 billion.
They say the contract rate on most loans clusters around every eighth of a percentage point. For example, there are clusters of loans around 3 percent, 3.125 percent, 3.25 percent, and 3.5 percent, but not many loans with contract rates in between. If borrowers react to specific rate incentives, e.g., refinance if market rates drop 1 full percentage point below the borrower's contract rate, then refinance activity will tend to ratchet higher with each eighth point rate reduction. In the week of April 7, 2016, mortgage rates had their biggest one-week decline in over a year of 0.12 percentage points (nearly one eighth). Replicating its February analysis, the company says that one-week decline increased in-the-money refinance potential by $66 billion.
They also ran a macro simulation of the U.S. economy, housing, and mortgage market. That showed the decline relative to the February analysis increased refinance activity by about $50 billion. Based on these calculations, Freddie Mac revised its 1-4 family mortgage originations estimate for 2016 up by $50 billion to $1.70 trillion.