Wednesday, July 21, 2010

Weekly Market Commentary

Weekly Commentary
by Eddie Knoell

As numerous economists have argued, the $8,000 and $6,500 tax credits for home-buyers motivated people to accelerate their purchase decisions. Thus, home sales that would have shown up in the relatively near future have already occurred.

By this logic, it is easy to understand why sales volume dropped off precipitously as soon as the availability of the tax credits ceased—and, by extension, why sales figures haven’t been increasing in recent weeks. Further, it is easy to understand why the number of people applying for new purchase money mortgages has not begun once again to grow.

We are in a very difficult stretch of time economically. At this point, the recovery continues to move forward in its rather weak and stumbling fashion, and every stumble leads many analysts to worry aloud that we are actually slipping into a second stage of the recession.

It is very impressive that the annualized level of core inflation as measured by the Consumer Price Index is a mere 1% (that is, once you remove the volatile food and energy prices from the mathematics). It is even arguable that such a low rate of price appreciation is a good thing for most of us, particularly those on fixed incomes. But it isn't a harbinger of deflation; instead, it’s a reflection of how slow the economic growth is currently. Slow, but growth nonetheless.

It does raise concern that several economists have lowered their forecasts for Gross Domestic Product growth—that is, overall economic growth—in this quarter from the early 3% range to the mid-2% range. But again, that simply restates the fact that the economy is slower than expected, not falling off a cliff.

The sturdy Moody’s view is that employment growth will become evident in early 2011 and retail sales will increase and, further, that 2011 will be a year of gradual recovery among real estate sales and values. It can’t come soon enough…but it will indeed come.

Monday, July 12, 2010

30-Year Fixed Rate Mortgage Drops Slightly to Create Another New Low

McLean, VA – Freddie Mac (OTC:FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.57 percent with an average 0.7 point for the week ending July 8, 2010, down from last week when it averaged 4.58 percent. Last year at this time, the 30-year FRM averaged 5.20 percent. This rate is yet another all-time low in Freddie Mac’s 39-year survey.
The 15-year FRM this week averaged 4.07 percent with an average 0.7 point, up from last week when it averaged 4.04 percent. A year ago at this time, the 15-year FRM averaged 4.69 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.75 percent this week, with an average 0.7 point, down from last week when it averaged 3.79 percent. A year ago, the 5-year ARM averaged 4.82 percent. This rate is also an all-time low since Freddie Mac began tracking it in 2005.
The 1-year Treasury-indexed ARM averaged 3.75 percent this week with an average 0.7 point, down from last week when it averaged 3.80 percent. At this time last year, the 1-year ARM averaged 4.82 percent.
"With mortgage rates falling to historic lows, refinance activity has been strong over the past three months," said Frank Nothaft, Freddie Mac vice president and chief economist. "The Bureau of Economic Analysis reported that the effective mortgage rate of all loans outstanding was just below six percent in the first quarter of 2010, the lowest since the series began in 1977. Since the start of the second quarter, two out of three mortgage applications on average were for refinancing, according the Mortgage Bankers Association."

"Household balance sheets also improved in other ways over the first three months of the year. The Federal Reserve (Fed) reported household net worth rose by almost $1.1 trillion in the first quarter of 2010. The share of credit card loans that were 30-days or more past due fell to the lowest since first quarter of 2002, according to the American Bankers Association . Finally, the aggregate household debt burdens were at a level not seen since the third quarter of 2000, based on the Fed’s debt service ratio ."
Mortgage Rates

30 Year Fixed: 4.57%

15 Year Fixed: 4.07%

1 Year Adj: 3.75%