November 23, 2009
|
MARKET RECAP Last week wasn't one of housing's better weeks. Delinquencies dominated the news, and not in a good way. For the quarter ended September 30, 6.25% of U.S. mortgage loans were 60 or more days past due, a 58% increase from the same year-ago period, according to TransUnion. Meanwhile, LPS Applied Analytics reported that more Americans who bought homes during the housing boom are falling into mortgage purgatory. About 3.4% of households - or about 1.9 million homeowners - are 120 days or more overdue on their payments, but not yet in foreclosure, compared to 1.5% last year. It wasn't all dark clouds and gloom, though. If we vet the data a little closer, we find that the rate of delinquencies is slowing when measured sequentially (quarter to quarter). It is also worth noting that mortgage delinquencies are most concentrated in the four states hit hardest by the crises - Nevada , Florida , Arizona and California . In other words, we are not looking at a countrywide pandemic. We're also not looking at a pandemic in the new-housing market, though some were thinking otherwise last week. The Commerce Department reported that housing starts decreased 10.6% to a seasonally adjusted 529,000 annual rate in October compared to September. The news was a major disappointment to many market watchers, who expected starts to increase to post at a 600,000 annual rate. Anxiety over impending expiration of the $8,000 first-time homebuyer's credit was the most repeated reason for the decline in starts. However, that reason hints at intellectual laziness. The impending expiration had been known for some time, so it should have been more heavily factored into initial estimates. The pundits should have known a drop in starts was possible, if not probable. That said, we think the market's reaction to the housing-starts data was overdone. The extension and expansion of the federal homebuyer tax credit should help re-stimulate the housing market (and not just the lower-end market) in coming months. Looking at the mortgage market, we continue to marvel at the decline in mortgage rates. As we marvel, rates declined again last week to post another all-time low, despite a higher-than-expected increase in consumer prices. The 15-year fix-rate loan is looking particularly enticing, with rates increasingly quoted in the 4.25% vicinity for borrowers with good credit. |
| Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
|
Existing Home Sales |
Mon, Nov. 23, |
5.65 Million (Annualized) |
Important. The consensus estimate shows a slight increase, though a decrease on tax-credit concerns is the likelier outcome. |
|
Gross Domestic Product |
Tues, Nov. 24, |
3.3% |
Moderately Important. This updated estimate is expected to mirror previous estimates. |
|
Case-Shiller Home Price Index |
Tues, Nov. 24, |
None | Important. Other studies hint at lower home prices in this closely watched index. |
|
FHFA House Price Index |
Tues, Nov. 24, |
None | Moderately Important. The data will likely show strength in lower-priced homes. |
|
Mortgage Applications |
Wed, Nov. 25, |
None | Important. Continued low rates have tempered borrower urgency. |
|
Durable Goods Orders |
Wed, Nov. 25, |
0.4% |
Important. Strength in orders is an encouraging sign for the economy. |
|
Personal Income & Outlays |
Wed, Nov. 25, |
Income: 0.1% (Increase) |
Important. Consumers are demonstrating a greater willingness to spend despite rising unemployment. |
|
New Home Sales |
Wed, Nov. 25, |
410,000| |
Important. Given recent data on starts, actual sales could lag the consensus estimate. |
| An Argument for Higher Rates
Our reasons for expecting mortgage rates to rise have been well documented: soaring gold prices, rising commodity prices, a weak dollar on the international stage, record federal deficits and a record low federal funds rate. To that, we will add the Federal Reserve's acknowledgement that household spending "appears to be expanding" and economic activity "has continued to pick up." At this point, we would welcome rising interest rates. Rising interest rates are a byproduct of rising economic activity, and rising economic activity necessitates rising employment. If there is one thing our economy needs more than anything, it is rising employment. Low interest rates, low housing prices and tax credits are all well and good, but their impacts are dwarfed by employment. If you don't have a job, low interest rates, low housing prices and tax credits are meaningless. What's more, rising interest rates would stimulate activity. Potential borrowers have grown languid over the past few weeks; there is no urgency to get out and buy or even refinance a home because of expectations for a prolonged low-rate environment. Rising rates would change those expectations and prompt many potential borrowers to act. In the meantime, we still think prompting them to act before rates start rising is not such a bad idea. |
A thank you to Kitty for the update.
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