Dustin McAlister

A forward-looking index of housing demand surged well beyond expectations in April, leading markets to shoot up half an hour into the open.

The Pending Home Sales Index - which looks at contracts that have been signed, but not finalized - shot up 6.7% in April, far above the +0.5% consensus expectation, and following a 3.2% gain in March.

"Record low mortgage interest rates boosted pending home sales for the third consecutive month, with some benefit now from the first-time buyer tax credit," said the press release from the National Association of Realtors.

Since April 2008, the index has improved 3.2%, indicating that claims of housing market stabilization could be justified. In addition to housing, the index is valuable in measuring general momentum in the economy.

"This is yet another positive indication that the bottoming process is forming," said Jennifer Lee from BMO Capital Markets. "Now if only prices would stabilize."

Looking ahead, NAR chief economist Lawrence Yun said signings should increase over the summer and into the fall.


"Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market," he said. "Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers."

Regionally, results were mixed, led by a whopping 32.6% monthly advance in signings in the Northeast. The Midwest saw a 9.8% gain, and the West saw a rise of 1.8%. In the South, signings edged down 0.2%.

On another positive note, the report said the Housing Affordability Index rose to its second highest monthly reading on record.

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Typical Conditions of an IRRRL streamline VA refinance

You must be current on your existing VA home loan
You can't receive any cash back at the closing table

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Trading activity in the mortgage market is slow in this morning's early going. Stronger-than-expected readings on prices paid to factories, farmers, and other producers together with a surge in the number of workers seeking jobless benefits during the week ended May 9^th did not cause much of a stir among mortgage investors.

The Labor Department reported a 0.3% increase in the headline April producer price index and a 0.2% jump in the core rate of the index (a value that excludes the more volatile food and energy components).

In a separate report the Labor Department said the number of workers filing first-time claims for unemployment benefits climbed by 32,000 last week. A Labor Department spokesman said, ". a good part of the increase is due to automotive states and claims" related to the bankruptcy of Chrysler. The four-week moving average of claims, considered to be a better gauge of underlying jobless trends because it smoothes out week-to-week volatility, rose by 6,000 - the first such increase in four weeks.

These two reports essentially cancelled each other out with respect to their impact on the mortgage market. Rising price pressure at the producer level (a generally mortgage market unfriendly event) was offset by notable jump in unemployment claims (a generally mortgage market friendly event).

The Fed continues to be a formidable presence in the mortgage market - aggressively buying mortgage-backed securities and Treasury debt obligations in support of steady to fractionally lower mortgage interest rates. The Fed has set a goal to buy up to $1.25 trillion of agency-eligible mortgage-backed securities, $300 billion of Treasuries and $200 billion of the agency debt instruments of Fannie Mae and Freddie Mac. As of last Friday, the Fed's direct purchase of mortgage-backed securities and agency debt totaled $429.7 billion. The central bank has spent $72 billion in direct purchases of Treasury debt obligations. As long as this financial firepower is sustained - mortgage interest rates are unlikely to move sharply higher from current levels. That is not to say mortgage interest rates won't move higher - it simply means the slope of increase will likely remain, at worst, nothing but a gentle upward gradient for several more months.

Retail sales fell 0.4% in April, baffling the significant number of economist who had been expecting April retail sales to make a much better showing. The 0.4% drop in the headline number followed a revised 1.3% drop in March that was also weaker-than-expected. Stripping out the volatile auto sales component did not help the numbers look any better. Even reduced to this base level, retail sales fell 0.5% last month. The "so what" factor attached to this morning's April retail sales report is that all investors were given a big reminder that the economy is staggering along a rocky, uneven road to recovery. In a separate report the Mortgage Bankers of America said application demand slipped to its lowest level since mid-March during the week-ended April 9th, driven by a drop in requests to refinance loans. The MBA's overall application index dropped by 8.6% compared to the previous week level. Refinance applications fell 11.2% -- while the component of the index that measures purchase loan requests posted a modest 0.5% improvement. Last but certainly not lest, selling pressure in the stock market is contributing to solid improvements in the mortgage market in today's early going. An increasing number of analysts are warning the rally in stock prices that began in early March is overdue for a correction to the downside. Should these forecasts prove accurate; a meaningful sell-off in the stock markets will almost certainly support the prospects for steady to perhaps fractionally lower mortgage interest rates.

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The Fed is definitely making their presence felt in the Treasury market this morning.

The Fed is actively buying Treasury obligations maturing in 15- to 30-years. Today's Fed operation is part of its ongoing $300 billion plan to purchase government debt to help keep borrowing cost artificially low, giving the economy the opportunity to fight its way out of a major recession. That is good news. The even better news is that Mr. Bernanke has plans for an encore performance in the Treasury market tomorrow. For the time begin, expect these Fed buying sprees to limit any significant upside pressure on mortgage interest rates.

Selling pressure in the stock market is contributing to solid improvements in the mortgage market in today's early going. An increasing number of analysts are warning the rally in stock prices that began in early March is overdue for a correction to the downside. Should these forecasts prove accurate; a meaningful sell-off in the stock markets will almost certainly support the prospects for steady to perhaps fractionally lower mortgage interest rates.

http://myvarefinance.net/index.html