Market Weakness Threatens All-Time Low Mortgage Rates

Mortgage Rates worsened at a reasonably brisk pace today when compared with recent relative stability.  Still, the movement remains confined to costs associated with as yet, unchanged Best-Execution Rates.  That means that 3.875% is still the average “best-case-scenario and best bang-for-the-buck” rate among most lenders rounded to the nearest eighth.  3.75% had been increasingly attractive last week, but has all but faded from view after lenders released rates weaker this morning.  Several lenders recalled those rates, raising costs as bond markets suffered.

Over the past few days, we’ve included the following in our analysis:

Rates are as low as they’ve ever been.  How long will
this continue?  There’s no way to know for sure, but we generally
advocate a conservative approach with rates at all time lows. 
“Conservative” in this sense simply means that history has shown us how
quickly record-low rates can disappear.  While we certainly wouldn’t
rule out the possibility that rates can improve, we’ve already been
experiencing the fact that further gains are hard-fought and take more
time than gains seen in the middle of the range. 

If you happened to read that, taken in conjunction with several days of weakness, you may be wondering if these are the days that mark the turning point away from all time low rates.  The great thing about such a concern is this: rates are still at all time lows!  If you’re worried that current weakness could mark the turning point, the sacrifice of slightly higher closing costs vs yesterday seems minimal compared to the loss of the opportunity altogether. 

If losing the opportunity doesn’t bother you much, just be sure to clearly define an acceptable level of loss from current rates.  Set yourself a “stop,” of sorts, by deciding on a rate slightly
higher than what you’re currently being quoted, at which you’d lock at a
loss if the market moves against you.  Locking in such a scenario can
prove exceedingly frustrating more often than not as the higher
probability eventuality has been for rates to return lower, but this
pales in comparison to the potential frustration of rates NOT returning
lower.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875%, 3.75% as close as it’s been
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375% / 3.25%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operate near all-time levels, and as 2011 showed us, it doesn’t always
    mean they’re done improving.

…(read more)

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Housing Inventory Ends Year Down 22%

There were fewer homes listed for sale at the end of 2011 than in any of the previous four years, a positive sign for the housing sector.

But appearances can be deceiving, and it remains to be seen whether the drop is the beginning of a real recovery or if inventory is being held down by sellers waiting for prices to pick up and banks moving slowly on foreclosures.

The 1.89 million homes on the market at the end of December represented a 6% decline from November and a 22.3% decline from one year ago, according to data compiled by Realtor.com.

Low inventories are an important ingredient for any housing recovery because prices could firm up in markets that have worked through their inventory.

Still, some real-estate agents aren’t celebrating because there’s a large backlog of potential foreclosures that haven’t yet been taken back and listed by banks. The inventory declines are particularly pronounced in certain states where banks have sharply slowed down foreclosures to correct document-handling abuses.

Moreover, some sellers have pulled their homes off the market to wait for a turn in prices, and that “pent up” demand from sellers could keep inventories higher once prices do rise.

Inventories were down for the year in all but one of the 145 markets tracked by Realtor.com, with Springfield, Ill., posting the only year-over-year inventory gain. The largest declines were recorded in Miami (-49.7%), Phoenix (-49.1%), and Bakersfield, Calif. (-46.6%).

The Realtor.com figures include sale listings from more than 900 multiple-listing services across the country. They don’t cover all homes for sale, including those that are “for sale by owner” and newly constructed homes that aren’t always listed by the services.

Nationally, median prices were down by 1% from November but up 5% from one year ago. Asking prices rose by 32.5% in Miami last year, with big increases in other Florida markets that include Naples (21.7%), Fort Myers-Cape Coral (21.5%), and Punta Gorda (19.4%).

Median asking prices fell from year-earlier levels in Detroit (-11%), Chicago (-10%), Las Vegas (-7.6%) and Sacramento, Calif. (-7%).

Inventories traditionally decline in December as sales slow during the holiday season. Listings have declined by 11% in December over the past 29 years, according to research firm Zelman & Associates.

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December Housing Starts and Permits Figures Sag

Building permits and housing starts in
December were both below levels reported in November ‘according to data
released this morning by the Department of Housing and Urban Development (HUD)
and the Census Bureau.  Both statistics
were, however, well above the levels one year earlier.

Building permits for privately owned
housing units were at a seasonally adjusted annual rate of 679,000, 0.1 percent
below the revised November rate of 680,000. 
Permitting activity was 7.8 percent higher than in December 2010 when
the pace of permits was 630,000.  The
November figure was revised downward from the 681,000 originally reported.

Permits were issued for single-family
houses at the rate of 444,000, up 1.8 percent from the 436,000 reported in
November.  Multi-family authorizations
(permits in buildings with five or more units) were at a rate of 209,000
compared to 223,000 in November.

The report estimates that there were 611,900
housing units issued during the whole of 2011, a 1.2 percent increase over the
604,600 issued in 2010.

On a regional basis, permitting
increased month-over-month in the Midwest by 5.8 percent and was up 13.4
percent on an annual basis.  Permits in
the West were unchanged from November and down 1.2 percent year-over-year.   Permitting fell 6.5 percent in the Northeast
and was 36.8 percent below that of one year ago while the South had a
fractional -0.6 percent change since November but permitting was still up 31.1
percent for the year.

Building Permits

Click Here to View the Housing Permits Chart

Privately-owned housing starts in
December were at a seasonally adjusted rate of 657,000, 4.1 percent below the
revised November estimate of 685,000 but a 24.9 percent increase from the
December 2010 rate of 526,000.  
Single-family starts were at a rate of 470,000, up 4.4 percent from the
previous month’s pace of 450,000 and 11.6 percent higher than in December 2010. 

There were an estimated 606,900 housing
units for which construction was started in 2011 compared to 586,900 in
2010.  This is an increase of 3.4
percent.

There were strong regional differences
in housing starts.  The Midwest saw a
jump of 54.8 percent in housing starts since November and a year-over-year
increase of 121.5 percent.  The other
regions did not fare nearly as well.  The
Northeast was down 41.2 percent for the month and 1.7 percent since December
2010.  The change in the South was -3.0
percent for the month and 19.0 percent for the year, and the West was down
-17.6 percent since November but up 1.5 percent annually.

Housing Starts

Click Here to View the Housing Starts Chart

Housing completions in December were at
a seasonally adjusted annual rate of 605,000, up 9.2 percent from the upwardly revised
(from 542,000) November figure of 554,000. 
Single family completions were at a rate of 448,000, a -0.9 percent monthly
change.

An estimated 583,900 housing units were
completed during 2011, 10.4 percent below the 2010 figure of 651,700.  At year’s end there were an estimated 78,800
permits that had been issued but for which work had not yet been started.  More than half of these permits (43,100) were
in the South.

…(read more)

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New home construction gathers momentum

New home construction slowed slightly in December after a strong November showing, but was still much more active than a year earlier.

Federal Registers

FR-5609-N-01 Notice
of Proposed Information Collection for Public Comment: Choice Neighborhoods
Evaluation, Phase I
FR-5415-FA-35 Announcement
of Funding Awards for the Rural Innovation Fund Program for Fiscal Year
2010