Americans More Optimistic About Housing, Economy

Article by: Fannie Mae

Americans More Optimistic About Housing, Economy

Americans’ concerns over housing and the economy are subsiding, according to Fannie Mae’s National Housing Survey from February.

An improving job market is a big part of what’s behind Americans feeling more confident about the housing market and the direction of the economy, according to the survey.

“The pickup in the pace of hiring over the past few months has helped soothe consumer concerns, lifting their moods regarding their personal finances, the direction of the economy, and their views on the housing market,” says Doug Duncan, chief economist of Fannie Mae. “As a result, we’ve seen more potential for economic upside, creating a more balanced near-term outlook.”

The survey found that 28 percent of Americans expect home prices to increase over the next 12 months while 53 percent say prices will likely stay the same. Fifteen percent say they expect home prices to decline.

Meanwhile, the majority of those surveyed see rental prices continuing to increase over the next year.

Sixty-five percent of those surveyed say that if they were going to move they’d buy their next home; 29 percent say they would rent.

With low mortgage rates and falling home prices, 70 percent of those surveyed say now is a good time to purchase a home. Also, more Americans surveyed say now is a good time to sell, rising to 13 percent in February, which is the highest level in more than a year but still low by historic standards.

Overall, Americans expressed more confidence about their personal financial situation, with only 12 percent saying they expected their personal financial situation to worsen in the next 12 months — which is the lowest number in more than a year.

Source: Fannie Mae; Daily Real Estate News (March 8, 2012) | Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of December 27, 2010…

MARKET COMMENT   Mortgage bond prices started the week in positive territory. Unfortunately those gains were short-lived as trading was thin and choppy with continued large market swings. Most of the data was neutral. We received some positive news that inflation remained in check as the PCE core came in up 0.1% exactly as expected. As the economy improves inflation will become a focal point for investors. Mortgage bonds ended the week slightly positive by about a 1/8 of a discount point. 

Look for the possibility of volatility amid likely thin trading conditions and a shortened trading week. The bond market will close early Friday afternoon ahead of the New Year’s holiday. 

LOOKING AHEAD 

  • 2-year Treasury Note Auction; Dec. 27; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Confidence; Dec. 28; Consensus Estimate 56; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • 5-year Treasury Note Auction; Dec. 28; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 7-year Treasury Note Auction; Dec. 29; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; Dec. 30; Consensus Estimate 423k; Important. An indication of employment. Higher claims may result in lower rates.

FOREIGN DEMAND   China is the largest foreign holder of US debt and continues to debate future purchases. Recent talk from China indicates a desire to diversify. Many stories hit the wires last week indicating that diversification may take the form of European debt purchases. A Chinese spokesperson told reporters that the EU will “be one of the major markets for our (future) forex investment.” These remarks caused some weakness in the US debt market Thursday. The concerns were eventually calmed but uncertainties remain regarding the future of the entire US debt market. 

Global investors are constantly searching for opportunities that will provide the greatest return with the least amount of acceptable risk. That is one of the major problems with China investing in EU debt. While the higher rates of return are enticing, they are not without considerably higher risk. 

Investment products inherently all possess some sort of risk. As global financial markets struggled, many market participants searched for a safe haven in the US financial markets even with their shortcomings. With the backing of the US Government, investors viewed the US Treasury and mortgage bond markets as less risky investment opportunities amid global economic uncertainty. This resulted in an increased demand for US investments, such as the mortgage-backed securities that affect mortgage interest rates. Increased demand for mortgage bonds moved prices higher and interest rates lower. A reversal of this foreign demand has and may continue to result in future spikes in mortgage interest rates. 

Caution is the key heading into the auctions this week. There is a real possibility of wild market swings with thin trading conditions likely. Mortgage interest rates remain historically favorable. The future remains uncertain. Today’s rates are a given. Lower rates are not a given as is evident from the overall upward trend seen the past few months. 

Source: Todd Kabel, US Bank; blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Home Sales Could Enter ‘Virtuous Cycle’

Consumer confidence and business spending are key to whether the U.S. housing market will move into a virtuous or a vicious cycle in 2011, NAR Chief Economist Lawrence Yun told a packed audience at the Residential Economic Outlook Forum Friday in New Orleans. 

After the downturn, the housing market has clawed its way back to a point of near stability, Yun said, with the pace of new foreclosures easing, sales moving toward historically normal levels and prices on a national basis gaining modestly. 

At the same time, affordability remains strong. He said all of the price excesses from the housing bubble have been squeezed out. In San Diego, for example, buyers today would pay $1,564 a month in mortgage payments for a house that at the height of the boom would have cost them $2,833 a month. 

The broader economy is also showing positive signs, with businesses enjoying strong profits, sitting on huge cash reserves, and even adding jobs. Yun predicts this positive trend to continue into 2011, with existing home sales reaching 5.5 million units, prices rising a modest 1 percent, and the U.S. gross domestic product increasing to about 2.5 percent.

 “We are entering a virtuous cycle,” he said. But for the positive trend to continue, he added, businesses will have to start spending some of their cash to fuel job growth at a far greater pace than they’re doing now. Currently, businesses are adding jobs at a pace of about 100,000 a month. That needs to grow to about 400,000 a month for unemployment to start shrinking. 

The scenario will be far more negative if businesses continue to sit on their cash. In that case, sales will fall, inventories will rise, the high rate of foreclosures will resume, and the cost to the federal government of bailing out Fannie Mae and Freddie Mac will surge. 

Federal Reserve Governor Thomas Koenig, who shared the data with Yun, said the Fed’s continued effort to spur the economy, most recently through a $600 billion bond buying program, is understandable given concerns over the slow pace of growth. But the continued subsidization of the market could unleash inflationary forces. 

Yun said he sees possible evidence of inflation building, but it’s not visible now because the housing-cost portion of inflation measurements is holding down prices. 

Source:  Rob Freedman, REALTOR® Magazine; 110810

Market Comment for Week of November 8, 2010…

MARKET COMMENT   Mortgage bond prices were slightly positive for the week amid very choppy trading conditions. We started on a positive note for bonds with lower than expected PCE inflation data. Unfortunately a steep sell off emerged Monday afternoon as we headed into the elections and the Fed meeting. The Fed kept rates in check Wednesday as expected and announced continued quantitative easing. Unfortunately the payrolls figure of the employment report was stronger than expected Friday morning, which erased a lot of the gains seen earlier in the week. For the week interest rates finished better by about 1/8 to 1/4. 

The Treasury will auction $72 billion of securities this week. Strong foreign demand remains necessary for interest rates to stay low. The Veterans holiday Thursday splits the trading week. 

LOOKING AHEAD 

  • 3-year Treasury Note Auction; Nov. 8; Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 10-year Treasury Note Auction; Nov. 9; Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly jobless claims; Nov. 10; Consensus Estimate 460k; Important. An indication of unemployment. Higher figure may lead to lower mortgage rates.
  • Trade Data; Nov. 10; Consensus Estimate $46b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 30-year Treasury Bond Auction; Nov. 10; Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • U of Michigan Consumer Sentiment; Nov. 12; Consensus Estimate 67; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

TRADING THIS WEEK   Market conditions that often lead to mortgage interest rate volatility are thin trading and shortened trading weeks. If very few market participants are buying and selling bonds, the potential for short-term volatility is escalated. A large buyer or seller can execute trading orders that, without additional traders to buffer out the extreme buying or selling, can lead to swift market movements. In addition, shortened trading weeks have the potential to compress a week’s worth of trading into fewer days. Bond traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage-backed securities and hold cash positions, mortgage interest rates will rise. 

Holidays can often result in volatility as trading resumes following the extended close. The Fed continues to state the goal of low interest rates for some time. It is hard to argue they have not been effective with that goal. That doesn’t mean we haven’t and won’t see any interest rate volatility. The Fed also noted recently that inflation is below their preferred levels. Recent history attests to spikes and drops in rates throughout the year. 

This week could result in market swings that are favorable or negative in nature. A cautious approach to interest rate exposure is prudent considering the heightened possibility for mortgage interest rate volatility. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee

Market Comment for Week of October 4, 2010…

MARKET COMMENT   Mortgage bond prices ended the week higher pushing mortgage interest rates slightly lower. Rates improved the first portion of the week tied to weaker stocks and a lower than expected consumer confidence reading. Unfortunately a bounce back in stocks mid week erased the earlier positive movements. Income, outlays, and ISM data Friday morning all came in near expectations helping post some overall improvements for the week. Rates finished the week better by about 1/8 of a discount point. 

The employment report Friday will be the most important release. Factory orders data the beginning of the week will set the initial tone for trading. The ADP employment report Wednesday could also result in some mortgage interest rate volatility. 

LOOKING AHEAD 

  • Factory Orders; Oct. 4; Consensus Estimate Down 0.5%; Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.
  • ADP Employment; Oct. 6; Consensus Estimate 17k; Important. An indication of employment. Weakness may bring lower rates.
  • Consumer Credit; Oct. 7; Consensus Estimate Down $1.1 billion; Low importance. A significantly large increase may lead to lower mortgage interest rates.
  • Employment; Oct. 8; Consensus Estimate 9.7%, Payrolls -15k; Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.

MORTGAGE PROFESSIONALS   Obtaining a mortgage is often a confusing task that can also lead to frustration. The reason for the confusion is due to the fact that mortgage financing is complex. The good news is that this complexity provides consumers with options and choices best suited to fit their needs. 

Everyone’s financial position is unique. Some people have large cash reserves that can be used for down payments while others want to get into a home with little or no money down. Credit ratings vary from person to person. In addition, future plans vary. Some people plan on staying in their home for the rest of their lives while others only plan on staying for a few years. 

These facts alone make comparing your mortgage to your neighbor’s based on rate alone a flawed endeavor, yet many people attempt to do so. Admittedly, everyone wants a good deal. Keep in mind that comparing rates is just one component of the entire mortgage. Other variables include the term, down payment requirements, income qualifications, credit ratings, reserve requirements, current debt, prepaid points, and many more. 

A mortgage professional is able to take all of these variables that are unique to each individual and help a person obtain the mortgage loan that works best for their situation. The service they provide is time consuming and complex. However, the rewards of dealing with a professional carry forward throughout a borrower’s life. Making wise financial decisions today helps to pave the way for a safe and secure future. 

Mortgage interest rates currently remain historically favorable. There is much uncertainty about the future of the economy. If the economy recovers and inflation emerges mortgage interest rates may head higher. Taking advantage of mortgage interest rates at these levels is a sure thing. A cautious approach to lock decisions is necessary to protect against the possibility of a future increase in mortgage interest rates. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee

Market Comment for Week of September 27, 2010…

MARKET COMMENT   Mortgage bond prices ended near unchanged last week keeping mortgage interest rates historically low. The Fed meeting Tuesday went as expected. The Fed kept interest rates unchanged and noted they will keep rates low for an extended period of time. Mortgage rates were positive through the middle portion of the week. Unfortunately stronger than expected data and surging stock prices the latter portion of the week eroded the earlier positive movements. Despite those negative movements rates finished near unchanged overall for the week. 

The Treasury auctions will be important this week. If foreign demand for US debt remains strong mortgage interest rates may remain lower. Consumer confidence will set the tone for trading the beginning of the week. 

LOOKING AHEAD 

  • 2-year Treasury Note Auction; Sept. 27; Important. $36 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Confidence; Sept. 28; Consensus Estimate 53.9; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • 5-year Treasury Note Auction; Sept. 28; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 7-year Treasury Note Auction; Sept. 29; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Q2 GDP 3rd revision; Sept 30; Consensus Estimate Up 1.7%; Important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • Personal Income and Outlays; Oct. 1; Consensus Estimate Up 0.2%, Up 0.3%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Oct. 1; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may lead to lower rates.
  • U of Michigan Consumer Sentiment; Oct. 1; Consensus Estimate 67; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • ISM Index; Oct. 1; Consensus Estimate 55.0; Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.

MARKET CONDITIONS   There is a Chinese proverb that states, “May you live in interesting times.” It is often argued that the word interesting is meant to be a synonym for turbulent or dangerous. This phrase hits the bull’s-eye given the current state of the financial markets. While stocks and bonds are swinging around wildly there is some good news. Interest rates for conforming and FHA/VA loans are historically low. 

Remember, low rates are not a given considering the uncertainty in the financial markets. Inflation, real or perceived, erodes the value of bonds causing bond prices to fall and rates to rise. The last thing the economy needs now is higher mortgage interest rates. If inflation emerges that very well may happen despite the continued Fed efforts to keep rates low. With so much uncertainty, a cautious approach to float lock decisions, especially heading into the inflation data this week, would be wise. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee

Market Comment for Week of August 30, 2010…

MARKET COMMENT   Mortgage bond prices fell slightly last week pushing interest rates higher. Unfortunately the seesaw trading pattern continued with rates rising and falling throughout the week. We started the week with stronger than expected Industrial Production and Capacity Use data pressuring mortgage interest rates higher. Stocks fell mid-week following a shocking 27.2% decline in existing home sales and weaker than expected durable goods orders. This helped us recover some of the earlier losses. Friday was choppy with 1/4 point up and down swings occurring throughout most of the morning. Despite all the volatility we were able to stay relatively flat overall for the week as rates rose by about 1/8 of a discount point.              

The employment report Friday will be the most important release this week. Expect more volatility. 

LOOKING AHEAD 

  • Personal Income and Outlays; Aug. 30; Consensus Estimate Up 0.3%, Up 0.3%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Aug. 30; Consensus Estimate Up 0.1%; Important. A measure of price increases for all personal consumption. Weaker figure may help rates improve.
  • Consumer Confidence; Aug. 30; Consensus Estimate 51.3; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • ADP Employment; Aug. 31; Consensus Estimate -20k; Important. An indication of employment. A large decrease in payrolls may bring lower rates.
  • ISM Index; Aug. 31; Consensus Estimate 53.3; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
  • Construction Spending; Aug. 31; Consensus Estimate Down 0.4%; Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
  • Revised Q2 Productivity; Sept. 1; Consensus Estimate Down 1.5%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • Factory Orders; Sept. 1; Consensus Estimate Up 0.5%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Employment; Sept. 3; Consensus Estimate 9.6% – Payrolls; Consensus Estimate 120k; Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.

PRODUCTIVITY   Productivity is the rate at which goods or services are produced. It is most commonly defined in terms of labor, which is the contribution of people to the process. Labor costs represent about two thirds of the value of the output produced. The Bureau of Labor Statistics of the US Department of Labor releases the most widely cited productivity statistics quarterly and annually. Increased productivity is often credited for economic growth with little signs of inflation. 

Productivity is significant in that as it increases, businesses can produce more with the same or less input. This wealth building effect is vital to the US economy. As productivity increases, the US economy generally performs better. As productivity decreases, the economy generally suffers. While the bond market generally favors signs of weakness in the economy, bonds tolerate growth as long as the economic environment shows little or no inflationary pressures. Keep in mind that rates remain very favorable. Now is a great time to avoid the uncertainty surrounding continued market volatility. 

Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee