Housing Affordability at Highest in 20 Years

Housing affordability continued to be near record highs in the second quarter, hovering near its highest level in the 20-plus years it has been recorded, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

About 72 percent of all new and existing-homes sold in the second quarter of the year were affordable to families earning the national median income of $64,200, according to the index. The record high remains 74.6 percent, which was reached last quarter.

“At a time when home ownership is within reach of more households than it has been for more than two decades and interest rates are at historically low levels, the sluggish economy and the extremely tight credit conditions confronting home buyers and builders remain significant obstacles to many potential home sales,” says Bob Nielsen, chairman of the National Association of Home Builders. “That said, however, some housing markets across the country have stabilized and are beginning to show signs of a budding recovery.”

Most Affordable Housing Markets

According to the index, Youngstown-Warren-Boardman, Ohio-Pa., was the most affordable major housing market during the second quarter with 93.7 percent of all homes sold found to be affordable to households earning the area’s median family income of $54,900. Other cities ranking near the top for affordability is: Syracuse, N.Y.; Indianapolis-Carmel, Ind.; Dayton, Ohio; and Lakeland-Winter Haven, Fla.

Least Affordable Markets

The index found the least affordable market in the country–for the 13th consecutive quarter–is New York-White Plains-Wayne, N.Y.-N.J., in which 25.2 percent of all homes sold during the quarter were affordable to those earning the area’s median income of $67,400. The other least affordable major metro areas includes San Francisco-San Mateo-Redwood City, Calif.; Santa Ana-Anaheim-Irvine, Calif.; Los Angeles-Long Beach-Glendale, Calif.; and Honolulu.

Source: REALTOR® Magazine Daily News; National Association of Home Builders; 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 August 22, 2011…

MARKET COMMENT  Mortgage bond prices finished near unchanged last week but whipsawed up and down throughout the middle of the week. Rates started off on a bad note Monday in reaction to stronger than expected data. Housing starts, industrial production, and capacity use data all surprised to the upside. European debt worries resulted in flight to quality buying Wednesday and rates improved considerably that morning. Unfortunately those gains were erased Thursday afternoon following higher than expected headline consumer inflation data and selling pressure tied to the recent run up in prices. Despite the extreme volatility, mortgage bonds ended the week near unchanged.

Foreign demand for the Treasury auctions will be carefully monitored this week.

LOOKING AHEAD

• New Home Sales; Aug. 23; Consensus Estimate Up 1.9%; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
• 2-year Treasury Note Auction; Aug. 23; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Durable Goods Orders; Aug. 24; Consensus Estimate Down 0.8%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
• 5-year Treasury Note Auction; Aug. 24; None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Aug. 25; Consensus Estimate 415k; Important. An indication of employment. Higher claims may result in lower rates.
• 7-year Treasury Note Auction; Aug. 25; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Q2 GDP Second Estimate; Aug. 26; Consensus Estimate Up 1.2%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
• U of Michigan Consumer Sentiment; Aug. 26; Consensus Estimate 54.9; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

DURABLE GOODS ORDERS  Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.

Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories.

Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections. Be cautious heading into data.

Source: Todd Kabel, F&M Mortgage; 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 August 15, 2011…

MARKET COMMENT  Mortgage bond prices rose last week, which pushed mortgage interest rates lower. Rates started off on a bad note Monday in reaction to the US debt rating downgrade, the first in history. Stocks took a roller coaster ride surging and falling hundreds of points throughout the week. The Fed kept rates unchanged and indicated the intent to keep rates low through mid 2013. Mortgage bonds pushed higher in reaction to post some solid gains Tuesday afternoon and Wednesday morning. Unfortunately some of those gains were erased Thursday afternoon following weak foreign demand for the 30Y Treasury bond auction. Despite the extreme volatility, mortgage bonds ended the week better by about 7/8 of a discount point.

The inflation reports will be the most important events this week.

LOOKING AHEAD

• Housing Starts; Aug. 16; Consensus Estimate Down 8.2%; Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.
• Industrial Production; Aug. 16; Consensus Estimate Up 0.3%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
• Capacity Utilization; Aug. 16; Consensus Estimate 76.9%; Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower rates.
• Producer Price Index; Aug. 17; Consensus Estimate Unchanged, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.
• Weekly Jobless Claims; Aug. 18; Consensus Estimate 400k; Important. An indication of employment. Higher claims may result in lower rates.
• Consumer Price Index; Aug.19; Consensus Estimate Up 0.1%, Core up 0.2%; Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
• Existing Home Sales; Aug.19; Consensus Estimate 4.78m; Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.
• Philadelphia Fed Survey; Aug.19; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
• Leading Economic Indicators; Aug.19; Consensus Estimate Up 0.3%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.

INDUSTRIAL PRODUCTION  The Federal Reserve releases the Industrial Production report each month. It is a real measure of output from manufacturing, mining, electric, and gas utilities. The data is significant in that it provides an indicator of the state of the economy. Analysts use the data to attempt to determine market direction. The Fed uses the data to help set the course for monetary policy. Generally the Fed likes to see steady growth in the economy with little price pressures.

Mortgage interest rates generally react favorably to weaker than expected industrial production data. In times of economic weakness investors often move out of stocks and into mortgage bonds. When things look good investors often move out of bonds and back into stocks. We have seen these patterns frequently in recent months.

Floating into significant economic data always has some risk involved. Now is a great time to take advantage of mortgage interest rates at these historically low levels.

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Nashville is Among Top Cities That Boast the ‘Best Value’

Which cities offer the best value? Kiplinger’s Personal Finance magazine recently ranked metro areas by best “value,” factoring in low cost of living, strong economies, and personal amenities.

The following are the six metro areas that topped its list, including each city’s unemployment rate, median household income, and cost-of-living index (the index is based on the national average of 100; cities with a score below 100 have a lower cost-of-living). To see the other factors that weighed Kiplinger’s decisions for the top 6 and to view the full list, visit the Kiplinger Web site.

1. Omaha, Nebraska
Unemployment rate: 4.6%
Cost-of-living index: 90.3
Median household income: $53,457

2. Charlotte, North Carolina
Unemployment rate: 10.4%
Cost of living index: 93
Median household income: $53,168

3. Nashville, Tennessee
Unemployment rate: 8.5%
Cost of living index: 90.7
Median household income: $51,352

4. Colorado Springs, Colorado
Unemployment rate: 9.3%
Cost-of-living index: 92.0
Median household income: $56,576

5. Knoxville, Tennessee
Unemployment rate: 7.7%
Cost-of-living index: 89.7
Median household income: $45,727

6. Lexington, Kentucky
Unemployment rate: 7.8%
Cost-of-living index: 89.1
Median household income: $48,158

Source: “10 Best Value Cities for 2011,” Kiplinger’s Personal Finance (July 2011); Daily Real Estate News (July 26, 2011); 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 July 25, 2011…

MARKET COMMENT  Mortgage bond prices fell last week, which pushed mortgage interest rates slightly higher. Rates started off on a bad note Tuesday following stock strength and higher than expected housing starts data. Things rebounded a bit Wednesday as European debt concerns dominated the headlines. News that France and Germany reached an agreement Thursday on Greece sent the financial mortgage bond market downward. We saw some negative movements the end of the week tied to significantly stronger stocks. Mortgage bonds ended the week worse by about 1/4 of a discount point.

The Treasury will auction 2Y notes on Tuesday, 5Y notes on Wednesday, and 7Y notes on Thursday. Traders will focus on foreign demand.

LOOKING AHEAD

• Consumer Confidence; July 26; Consensus Estimate 58.1; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• New Home Sales; July 26; Consensus Estimate 288k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
• Durable Goods Orders; July 27; Consensus Estimate Up 1.2%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
• Fed “Beige Book”; July 27; This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
• Weekly Jobless Claims; July 28; Consensus Estimate 415k; Important. An indication of employment. Higher claims may result in lower rates.
• Q2 Advance GDP; July 29; Consensus Estimate Up 1.8%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
• Q2 Employment Cost Index; July 29; Consensus Estimate Up 0.7%; Very important. A measure of wage inflation. Weakness may lead to lower rates.
• U of Michigan Consumer Sentiment; July 29; Consensus Estimate 63.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

NEW HOME SALES  New Home Sales data is compiled monthly by the Department of Commerce’s Census Bureau and is gathered from builders throughout the country. The data represents new home sales for the nation as well as four areas of the country: the Northeast, the Midwest, the South, and the West. Information on the average price of a home, the number of homes for sale, and the supply of unsold homes are also provided. The data is an important indicator because it shows any strength or weakness in the housing sector. The housing sector data is valuable because when consumer spending changes, it appears in this sector first. Consequently, a chain reaction typically occurs. A slowdown in new home sales tends to lead to a slowdown in housing starts, which will continue to affect other indicators possibly continuing the recession, as has been the recent concern of most everyone.

New Home Sales data is often volatile and difficult to predict. Most analysts look at a three-month average in order to see any trends in the growth rate. Surges in the release are often greeted with little more than an average reaction in the bond market. However, the data remains significant in showing the condition of the housing sector of the economy. The housing sector as of late has been a major disappointment but the Fed hopes the low interest rate environment will help.

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Buyers Rejected for Loans Can Now Find Out Why

A provision in the Dodd-Frank financial reform law, which took effect this week, is requiring lenders to provide consumers with a free credit score, which will help provide new insights into why they may have been rejected for a loan or did not qualify for the best, lowest rate.

While borrowers can access their credit scores from the credit bureaus, the credit score that a lender uses isn’t always the same one that the credit bureau provides you. According to a report by the Consumer Financial Protection Bureau, some credit bureaus sell consumers “educational” scores that aren’t the same ones used by lenders, or these bureaus may base the score on a different model than the one lenders use.

Now, borrowers for the first time will get a more accurate view of what credit score lenders are using to base their mortgage on.

Under the new provision, lenders will be required to provide potential borrowers with a free credit score whenever they reject an application for a loan. Lenders must provide borrowers with an “adverse action” notice, which will include their credit scores as well as an explanation of why they were rejected for a loan.

Lenders will also be required to provide a free credit score and an explanation whenever they approve a loan but at a higher rate than what is given to their best customers.

Mark Greene, CEO of FICO, says that many borrowers may be surprised to learn that they didn’t qualify for a lender’s lowest rate when applying for a loan.

Source: “Turned Down for a Loan? Now You Can Find Out Why; Consumers Can Also Get Free Credit Scores if Loan Rate Isn’t Best Available,” USA Today (July 21, 2011); Daily Real Estate News; 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 July 18, 2011…

MARKET COMMENT  Mortgage bond prices rose last week, which helped mortgage interest rates improve. Rates started off on a good note Monday as European debt worries reignited. Italy made headlines as the next country mired in debt concerns. The Treasury auctions showed decent foreign demand. The financial markets experienced some volatility mid week following comments by Fed Chairman Bernanke, which indicated additional stimulus might be needed to boost the economy. We saw some negative movements Friday morning following higher than expected core inflation on the consumer side. Mortgage bonds ended the week better by about 5/8 of a discount point.

The Treasury will auction 10Y TIPS on Thursday. If foreign demand falters rates may come under pressure.

LOOKING AHEAD

• Housing Starts; July 19; Consensus Estimate 510k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
• Existing Home Sales; July 20; Consensus Estimate 4.8m; Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.
• Weekly Jobless Claims; July 21; Consensus Estimate 403k; Important. An indication of employment. Higher claims may result in lower rates.
• Philadelphia Fed Survey; July 21; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
• Leading Economic Indicators; July 21; Consensus Estimate Up 0.4%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.
• 10-year TIPS Auction; July 21; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

HOUSING STARTS  Housing starts data is a leading indicator of the state of our economy. This report, provided by the Bureau of the Census, takes into account data from both single-family homes and multi-family dwellings. Building permits are also released with the housing starts data. By knowing the number of permits issued monthly, analysts can attempt to estimate for the upcoming months. Normally, starts are 10% higher than permits since all locations are not required to have a building permit.

Housing starts and permits give a warning of future economic activity. In effect, a rise in housing starts can lead to a fall in the bond market and vice versa. Consumers tend to hold off on the purchase of new homes, new cars, and other big-ticket items if they are worried about the future of the economy. Housing is an important part of our economy. Continued declines in housing starts can lead to continued economic slowdown and essentially a deeper recession. On the other hand, increases in housing starts could signal a possible reversal.

From the opposite perspective, changes in interest rates often lead to changes in housing starts. High interest rates can cause a significant decline in home sales, which can lead to a drop in housing starts. Just the opposite happens when rates drop and is one of the additional reasons the Fed is trying to keep rates low. Low mortgage rates affect both home sales and housing starts.

The housing market is a vital component in sustaining the economy. The continued weakness of the housing market has many worried. Many economists believe housing will continue to suffer.

There is still uncertainty regarding the future state of the economy. Interest rates are historically low. A cautious approach is wise to protect against future volatility.

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee