Hunter Palmer

Mortgage rates continue to hover near record lows with the rate on the benchmark thirty year flirting with 4.875% this week. The rate on the fifteen year fixed rate has dipped below 4.50% coming in at 4.375%. Thirty year rates on most government loan programs including FHA. VA and Rural Development have eased to 5%. Rates were helped this week after Federal Reserve Chairman Ben Bernanke gave a speech on Monday in which he cited “economic headwinds” as rationale for keeping rates low for the foreseeable future. Low interest rates helped keep the value of the dollar low against other major currencies and driven the price of gold to record highs in recent weeks as investors look for a safe alternative to the U.S. currency.

On Wednesday the Commerce Department reported that permits for new home construction tumbled 10.7% in October to their lowest level in six months to an annual rate of 529,000. The October housing starts were also 30.7% below the October 2008 figures. The numbers were also well below economist’s forecast that had expected housing starts to com in at 600,000 for the month. This was the second month in a row where housing starts did not meet analysts’ expectations.

On a brighter note, the National Association of Realtors reported last Friday that nearly half of all homes now being sold are to first-time homebuyers. NAR said that 47% of all new homes being sold are to first-timers. This is up from 41% in 2008 and up a whopping 11% since 2006. Most industry experts credit low home prices, low interest rates and the first-time homebuyer tax credit. That credit was extended last week through June 2010.

The National Association of Realtors reported on Monday that the September Pending Home Sales Index jumped 6.1% t0 110.1 after a 6.4% rise in August. The big rise far surpassed analysts’ expectations who anticipated a more modest rise of 1.2%. Most economists contributed the large increase to the estimated 200,000 to 400,000 first-time homebuyers rushing to take advantage of the $8,000 tax credit set to expire on November 30^th. To that end, many analysts are anticipating a drop in pending home sales after November 30^th. The NAR report helped offset a Commerce Department report last Thursday that showed new home sales fell unexpectedly on September after rising for five straight months. Commerce said new home sales fell 3.6% in September to a seasonally adjusted annual rate of 402,000. It was the first decline since March. Ironically, the drop was also attributed in part to the expiring first-time buyer credit. Go figure.

Mortgage rates for thirty year conventional loans have remained defiantly in the 5.125% to 5.25% range for several weeks now despite increased volatility in the bond and stock markets. Bond traders are betting that rates will remain low for some time to come while stock traders are increasingly unsure about the sustainability of the 2009 rally. Mixed economic reports coupled with the possibility of a jobless recovery have helped keep investor optimism in check to an extent. We could get some direction on interest rates this week when the Federal Reserve’s Open Market Committee concludes their two day meeting on monetary policy. Most expect the Fed will leave rates unchanged but they could signal future increases in their adjournment remarks on Wednesday.

The Federal Reserve is now nearing the end of its $1.25 trillion buyback of mortgage-backed securities having already purchased $977 billion since the program began earlier this year. As I have stated in past articles, this program has been largely responsible for keeping mortgage rates so low for so long. With only twenty two weeks and $273 billion to go, we may begin to see long term rates begin to edge up in the coming months as the huge demand created by the program tapers off. Stay tuned.

Mortgage rates remain low again this week helped out by reemerging doubts about the stock rally and economy as a whole. The benchmark thirty-year, fixed-rate stands just above 5% with no points and the fifteen year is just below 4.50%. While paying a point was buying a full ½% discount to the rate in the first quarter of the year, that premium has narrowed significantly and a point today is only buying a 1/4% rate improvement. There has been renewed volatility in rates over the past couple of weeks but the day to day ups and downs have always offset leaving rates virtually unchanged. I am still somewhat surprised that twelve month highs in the equity markets would have not dampened demand for bonds but so far we are not seeing it. As long as there is robust demand for bonds rates will remain in their current range.

Some disappointing news on the housing-front this week as the Commerce Department reported on Tuesday that housing starts for October missed economists’ expectations. Though still up .5% from the previous month, the seasonally adjusted annual rate of 590,000 starts was significantly less than the 610,000 most economists had expected. Housing starts are down 28.2% from September 2009. In another, perhaps more worrying, report, Fiserv, the financial and information analysis firm, said that home prices would continue to fall through 2010. They expect the median home price to drop an additional 11.3% by June, 2010 but expect an increase of 3.6% in the following year. There was a silver lining in the report, however, that showed while prices in some markets such as Miami, Orlando and Phoenix could see additional declines in excess of 20%, home prices in some markets are predicted to actually rise in 2010.

I had a lot of response to last week’s article regarding the new HVCC appraisal guidelines and Truth in Lending requirements. I thought, in fairness, I should point out that Freddie Mac released figures today in support of the HVCC. Freddie Mac said that overall appraisal quality had gone up since the implementation of HVCC May 1^st and said it had cut lender repurchase risk substantially. Freddie reported an additional 15% of the appraisals it has reviewed since HVCC took effect are in line with the values produced by their automated valuation models. I felt I should give the other side of the story but I still don’t have to agree with it.

We have had some good news on the housing front over the past week as the National Association of Homebuilders reported that builder confidence rose in September for the third consecutive month to its highest level since May of 2008. The Census Bureau also released a report on August home starts that showed builders broke ground on 598,000 new homes, up 1.5% from July. The good news was tempered, however, by a surprising drop in the number of single family home starts. While overall starts were up, thanks to a resurgence in multi-family property starts, single-family starts actually fell 3% in August. Some analysts suggested the drop in single-family home starts could simply be an anomaly and point to the overall report as yet another sign that the housing market has bottomed. Late this week many analysts were surprised when the National Association of Realtors reported that existing home sales actually fell unexpectedly in August after four consecutive months of increases. But just a day later, the Commerce Department reported that sales of new homes in August rose for the fifth straight month.

Mortgage rates have continued to defy the rally in the stock market with the benchmark conforming thirty-year, fixed-rate settling in at 5.125% with no points. The fifteen year fixed also improved to just under 4.50% as the bond market continues to bet that the Federal Reserve will keep rates low for the foreseeable future. Fed Chairman, Ben Bernanke, has helped reaffirm this belief by stating that while the economy may be approaching the end of the recession the overall economy, and particularly job growth, are likely to remain weak for some time. Indeed, at the adjournment of their Open Market Committee meeting this week the Fed left rates unchanged at 0% - .25%. With the apparent lack of any inflationary pressures on the horizon, the Fed is determined to keep monetary policy very accommodating to insure the economy does not slip back into recession. Over the short-run, I expect mortgage rates to remain in their current narrow range or possibly could ease even further.

One late report out this week from the IRS said that, so far, 1.4 million first-time homebuyers have taken advantage of the $8,000 tax credit. I, personally, have dealt with at least ten customers who are eligible and still have several in the pipeline yet to close. The credit is due to expire on November 30^th though there are already some calls from Congress that it should be extended. I’ll keep you posted.