Last week we saw the recent NSDCC sales history – how does it compare to previous years?
Here are the sales stats from the first four months of each year, going back to the beginning of the 2-out-of-5-year capital-gains tax exclusion – which helped trigger the ensuing bubble:
||# of Sales
||April 30-Yr Mortgage Rate
In spite of all the excuses – low supply, high prices, tough credit, etc. – this year’s sales count is the second highest of the last ten years.
Want to know the direction of the market? Watch the sales count – it reflects the changing combination of low supply, prices, tough credit, and mortgage rates. We have it good here!
Click for more local history: http://www.utsandiego.com/news/2005/dec/25/housing-boomed-in-north-county/
We have significant turbulence in the bond market this week, and most think it can’t get any worse. The jobs report tomorrow will probably dictate the next movement, but for now the 30-year mortgage rates are around 4%.
If rates go above 4%, is it nervous time?
Not really – rates were in the fours virtually all of last year. We’ve been spoiled the last few months!
Finding a worthy house to buy is the problem.
Mortgage rates are known to rise without much notice – if any! From MND:
Mortgage rates are having a rough couple of weeks. Yesterday saw rates approach the previous 2015 highs set on March 6th. Today’s rates moved slightly higher still, setting a new 2015 high.
The average lender is now quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, though 3.875% is still available in some cases. This is a substantial increase from the 3.625% rates seen just a few short weeks ago.
The last time rates spiked (June 2013), it spurred the market as buyers grabbed what they could while rates were still under 4%. But now that prices are more than 10% higher, the impact might go the other way.
The NSDCC sales count for April exceeded last year’s number, and prices were slightly higher too. But the rate of price change has slowed considerably, and if rates bump significantly higher, we should see the market stall out.
NSDCC Sales for April
||# of Sales
In the short-term, there is virtually no chance of prices coming down, because sellers won’t believe it. Their motivation is already suspect, and when confronted with the choice of lowering their price or waiting longer, virtually all NSDCC sellers will opt for the latter. It will only be after months and months of trying that they might consider that price is the problem.
This guy doesn’t think the Fed will raise rates in September, and he has been very accurate with his recent predictions. If rates stay around 4% or lower, we should see more soft landing/shambling along, with occasional bidding wars to keep everyone’s interest.
Yesterday some Wells Fargo guys urged the Fed to raise rates:
Today Wells reported they made $49 billion in home loans in 1Q15, which is 36% higher than last year:
They may be goosing the Fed to raise rates so the WFB profit margin increases a tad, but they seem to be doing fine. But the mortgage-rate environment sure looks competitive, with jumbo rates staying UNDER the conforming rates:
Once the Fed gets around to raising their rate, the ensuing hysteria through the bond market may increase mortgage rates by 1/4% to 1/2%. But the competition between WFB, Chase, and BofA that has caused the jumbo rates to be this ultra-low should bring rates back within a couple of months.
The Fed move is still at least three months away – and probably longer.
Don’t worry, be happy!
A big difference between today and the bubble years is the type of financing being used. Back when the Tan Man was pushing exploding ARMs, more than 70% of the buyers took him up on it – today, more than 80% are choosing a fixed rate mortgage:
Plus, those who get stuck not being able to pay when their ARM increases can always loan mod out of it!
Maybe prices are softer than we thought? By John Burns:
In the last 15 years, home prices have grown 29% faster than incomes, primarily due to falling mortgage rates. Since the monthly payment determines what most buyers can afford to pay for a house, we thought we would show you the powerful stimulus that lower interest rates have on home price appreciation.
A typical family earning $60,000 per year can afford a mortgage payment of $1,800 per month, which qualified them for a $245,000 mortgage in the year 2000 when mortgage rates were 8%—– and qualifies them for $377,000 when rates are 4.0%. In other words, each 1.0% drop in interest rates in the last 15 years has allowed home sellers to raise price 12%+/-.
Since last March, rates have fallen 0.7%, a 9% stimulus to home prices. For all but the most affluent home buyers, payment trumps price, and sellers now have the ability to raise prices again.
Price drives profit, which is why the industry always talks about price. However, payment drives price. In addition to talking about price, please always calculate the payment. It will help you stay in touch with the consumer.
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A sigh of relief as we back down from the dreaded 4%. From yesterday’s MND:
Mortgage rates had their best day of the month today following Fed Chair Yellen’s testimony before the Senate Banking Committee. That’s part of a 2-day semi-annual update that the Fed gives to congress. In this modern electronic age, it’s a wholly unnecessary relic from a bygone era when everything that every member of the Fed has said on the record wasn’t instantly available on the web. And so it has devolved into a painful display of American bureaucracy where congress-people can vent their frustrations or display their ignorance for a quick sound-byte. All that having been said, markets still treat this as the Fed Chair’s twice-a-year chance to set the record straight in a Q&A format, less constrained by the formalities of official FOMC communications.
This time around, market participants were anxious about the possibility that Yellen would say something to confirm an accelerated rate hike time frame. Last week’s Fed Minutes suggested patience in that regard, but the meeting where those minutes were recorded took place before the most recent jobs report. The risk was that the super strong employment data would somehow accelerate the Fed’s timeline, resulting in a rate hike within the next few meetings. After hearing from Yellen today, trading levels went back to suggesting a September rate hike.
Rates have risen 0.25% in less than three weeks, and 4% is upon us (and the Fed hasn’t done anything yet). From MND:
Mortgage rates got hit hard today, rising at the fastest day-over-day pace since November 8th 2013. As of today, this also makes February the worst month for rates since May 2013, and the most abrupt month-over-month reversal since January 2009. That all could change by the end of the month, of course, but then again, it could also get even worse.
Either way, the strategy is and has been the same recently: we’re in the midst of a strong negative trend that must be taken seriously unless/until it’s convincingly defeated. Naturally, that assessment favors locking over floating, and naturally, it implies a ton of potential frustration for those who lock right before the bounce.
As for today’s damage, it’s meant an even eighth of a point in interest for most lenders. In other words, if you had been quoted 3.75% on Friday, today’s quote would likely be 3.875%. Either way, costs are significantly higher.
Mortgage rates are skittish and move like gas prices – slow on the way down, and fast on the way up. From this afternoon’s MND:
Mortgage rates remain under significant pressure, having now moved higher almost every day in February. So far, this is the worst month for rates since Nov 2013. While that sounds pretty bad, in this case, 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 (i.e. there’s more room for rates to move higher without violating the longer-term trend).
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%.