Monthly Archives: February 2015
Even though sales of existing homes dropped by 4.9 percent in January buyers were apparently out shopping and seriously so. The National Association of Realtors® said that its Pending Home Sales Index (PHSI) climbed to 104.2 in January, a 1.7 percent increase from December and the highest level for the index since August 2013.
The January PHSI was 8.4 percent higher than the one for January 2014. It was the fifth consecutive month of year-over-year gains and NAR said that each month has accelerated the annual gain from the prior month. In addition the December number was revised upward from 100.7 to 102.5, erasing about half of the previously reported 3.7 percent November to December loss.
PHSI is a forward-looking indicated based on contract signings for home purchases. These contracts generally close as sales within 60 days to 90 days.
Lawrence Yun, NAR chief economist, said that the elevated number of pending sales despite continuing tight supplies of available homes highlights the underlying demand that exists in today’s market. “Contract activity is convincingly up compared to a year ago despite comparable inventory levels,” he said. “The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth.”
Yun also points to more favorable conditions for traditional buyers entering the market. All-cash sales and sales to investors are both down from a year ago, creating less competition and some relief for buyers who still face the challenge of limited homes available for sale.
“All indications point to modest sales gains as we head into the spring buying season,” says Yun. “However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices. Appreciation anywhere near double-digits isn’t healthy or sustainable in the current economic environment.”
All major regions except for the Midwest saw gains in activity in January. In the Northeast pending sales inched up 0.1 percent to 84.9 in January, and are now 6.9 percent above a year ago. In the Midwest the index decreased 0.7 percent to 99.3 in January, but is 4.2 percent above January 2014.
The South saw the largest increase, up 3.2 percent to an index of 121.9 in January and the highest level since April 2010. The index was 9.7 percent higher than in January 2014. The index in the West rose 2.2 percent in January to 96.4 and is 11.4 percent above a year ago.
Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.4 percent from 2014. The national median existing-home price for all of this year is expected to increase near 5 percent. In 2014, existing-home sales declined 2.9 percent and prices rose 5.7 percent.
Today brought modest improvement, but taken together with yesterday, it was the strongest 2-day stretch of the month. More importantly, holding ground today helps to solidify yesterday’s bigger move as something other than an anomaly. It begins building a case for February’s negative trend to be meaningfully threatened. As is always the case, there’s no way to be sure that this push back continues, but the point is that it leaves the door open for a push back to continue at all!
As for the nuts and bolts of the day, nothing much happened. Economic data was generally ignored and Yellen’s 2nd round of congressional testimony offered no surprises. Rates inched lower for most lenders due to stronger market levels at the open (there weren’t many reprices during the day). At current levels, 3.75% is a more prevalent quote for top tier conventional 30yr fixed scenarios than 3.875%.
Sales of newly constructed single-family homes dipped only slightly in January from December levels. The U.S. Census Bureau and Department of Housing and Urban Developing said today that January sales were at a seasonally adjusted annual rate of 481,000. That rate was 0.2 percent below the slightly revised December estimate of 482,000 units. The original December number, also 481,000, had represented an 11.6 percent surge from November.
January’s rate of new home sales was 5.3 percent above those in the same month in 2014 which were estimated at 457,000 units. On a non-seasonally adjusted basis there were an estimated 36,000 new homes sold in January compared to 34,000 in December and 33,000 a year earlier.
The report estimates that at the end of January there were 218,000 new homes for sale nationwide, an approximate 5.4 month supply at the current rate of sales. The inventory was 3,000 units larger than a month earlier but the absorption rate was unchanged. Of the homes currently available for sale, 116,000 are under construction and construction has not yet started on 40,000.
The median price of a home sold in January was $294,300 compared to $269,800 in January 2014. The average price in the recent period was $348,300, up from $337,300 a year earlier. Thirty percent of homes sold were in the $200-299,000 price range and 18 percent were sold for $300-$399,000. Homes sold during the month were on the market a median of 3.3 months.
Sales in the Northeast, which was hit with a series of severe snowstorms throughout the month, were down 51.6 percent from December and 50.0 percent from January 2014. In the Midwest sales increased by 19.2 percent month-over-month and 21.6 percent from a year earlier.
The South saw an increase in sales from the prior month of 2.2 percent and an increase of 8.6 percent year-over-year. Sales for the month dipped in the West 0.8 percent but remained 5.0 percent above the pace a year earlier.
There are a lot of moving parts to today’s movement, and most of them working in synergy to benefit bond markets. The day began with Greece getting their list of reforms submitted to the Eurogroup overnight. This made for a moderate amount of weakness as markets assumed it would be approved (because the fact that Greece was getting a sneak peak at how the document would be received is the only good explanation for their delay in submitting it yesterday). The most important part of the market reaction was the fact that European bond markets continued to hold their supportive ceiling.
That paved the way for US bond markets to continue tightening back up to German Bunds–a process that began last Wednesday, but that got a healthy dose of confirmation yesterday. All that remained was to rule out any negative surprises from Yellen’s congressional testimony.
As the testimony Q&A progressed, bonds inched into stronger territory, staging right on the important technical level at 2.04. Milliseconds after Shelby began bringing the testimony to a close, bonds were off to the races, making today the strongest since late January. 10’s are down to 1.99 and Fannie 3.0s are up nearly half a point to 101-27.
today’s testimony was an important short-term motivation that played out against the more important backdrop of global bond markets. If German Bunds had been freaking out this morning, we may well not be seeing this much positivity in US bonds markets.
- 30-year fixed-rate mortgage (FRM) averaged 3.76 percent with an average 0.6 point for the week ending February 19, 2015, up from last week when it averaged 3.69 percent. A year ago at this time, the 30-year FRM averaged 4.33 percent.
- 15-year FRM this week averaged 3.05 percent with an average 0.6 point, up from last week when it averaged 2.99 percent. A year ago at this time, the 15-year FRM averaged 3.35 percent.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.97 percent this week with an average 0.5 point, unchanged from last week. A year ago, the 5-year ARM averaged 3.08 percent.
- 1-year Treasury-indexed ARM averaged 2.45 percent this week with an average 0.4 point, up from last week when it averaged 2.42 percent. At this time last year, the 1-year ARM averaged 2.57 percent.
Mortgage rates caught a bit of break today, logging the first meaningful improvements in the entire month of February. The gains weren’t much better than those seen at the end of last week, but after yesterday’s absolute rout, they were a much-needed reprieve. Yesterday saw rates move higher at the fastest pace in more than a year, and any additional weakness today would have threatened to reintroduce 4.0% as a viable 30yr fixed rate quote for top tier scenarios. That figure instead remains at 3.875% with an aggressive lender or two closer to 3.75%.
So is that it? Is that the end of February’s relentless weakness? Unfortunately, it’s too soon for such conclusions. Way back on February 3rd, I wrote that we were in the midst of a “fairly strong move higher” and that it “should be taken seriously.” That continues to be the case, and will only stop being the case when the strong move higher is conclusively defeated. It could turn out to be the case that today is a turning point in that regard, but we’ll need more confirmation before considering February’s uptrend to be defeated.
On a final note, the source of today’s movement also suggests patience in assigning significance to it. Today’s strength followed the release of the Minutes from the most recent FOMC meeting. That meeting produced a statement that markets read as a bit harsh when it came to the level of accommodation the Fed was targeting. Part of yesterday’s rotten rate move was fear that today’s Minutes would reinforce the Fed’s disinterest in an accommodative stance. Instead, the Minutes showed a Fed that was thinking more in line with what markets were expecting back at the end of January.
That’s all well and good, but this sort of news is a course correction in the bigger picture unless accompanied by a separate move driven by the “stuff” that’s primarily motivating markets. Almost all that “stuff” is European. As February ticks down, there will be more for markets to digest with respect to the situation between Greece and it’s EU creditors. That’s why we need to be patient in assuming today’s Fed news will turn rate momentum around, because Europe has the biggest vote right now, and it’s yet to be definitively cast.
Mortgage rates remain under significant pressure, having now moved higher almost every day in February. While that sounds pretty bad, the weakness has more to do with a reaction to previous strength. The trend toward lower rates in 2014 had been very slow and steady. January saw an acceleration of that trend and now February is simply bringing us back in line. Even the strongest long term trends undergo these sorts of corrections.
On such occasions, the question will always be: is this just a correction in a longer term trend or are rates done heading lower? Based on where we are today, it would be far too soon to say that the long term trend toward lower rates is defeated. Fortunately, the strategy is the same either way. At times like these, the lock/float outlook is more defensive. For those of you who are intensely interested in catching the falling knife (i.e. deciding not to lock despite recent moves higher in rates), there’s still some room for that provided the risks are understood and that a ‘stop-loss’ level is understood. One of those risks is that things could still get worse before they get better
3.75% is still the most prevalent conforming 30yr fixed quote for top tier scenarios, but 3.875% is now not far behind. A week and a half ago, it was 3.5 and 3.625%.
Mortgage activity showed no signs of settling down from its rather wild behavior since the first of the year. Data from the Mortgage Bankers Association (MBA) was all over the place during the week ended January 30, likely because of the new lower annual rates for FHA loans that went into effect during the week. Shares of applications shifted toward FHA loans and the outliers were in the non-adjusted data.
The MBA’s seasonally adjusted Market Composite Index, a measure of mortgage application volume, increased a slight 1.3 percent during the week ended January 30. However, on an unadjusted basis that index was 15 percent higher than the week before.
Refinancing, which had been the primary driver of earlier index swings rose 3 percent compared to the week ended January 23.