Market Conditions & Homebuyer Affordability

Homebuyer Affordability Gradually Improving August 01, 2014 Prospective homebuyers received promising news regarding affordability with the latest Primary Mortgage Market Survey, released July 17. The average 30-year fixed-rate mortgage dipped to 4.13 percent through mid-July, a decline of 0.6 percent from the week before and 4.37 percent a year earlier. Fifteen-year FRMs, meanwhile, dropped from 3.24 percent to 3.23 percent on a week-over-week basis, compared with 3.41 percent in mid-July 2013. Five-year Treasury-indexed adjustable-rate mortgages were also down, dropping from 2.99 percent to 2.97 percent week over week, and from 3.17 percent a year earlier. Frank Nothaft, vice president and chief economist for Freddie Mac, attributed the latest dips to economic data that revealed some weakness after a strong June jobs report. Federal Reserve Chair Janet Yellen also made statements earlier in the week alluding to the need to keep monetary policy accommodative, reiterating that the central bank won't move to raise interest rates until further signs of economic stability have presented themselves. "Mortgage rates were little changed amid a week of light economic reports," Nothaft explained. "Of the few releases, industrial production rose by 0.2 percent in June, below the market consensus forecast. Also, the producer price index for final demand rose 0.4 percent in June, rebounding from a 0.2 percent decline this prior month." From a consumer perspective, these rates constitute a welcome sign in a market where inventory is still rather tight and lending standards have remained rather stringent. Mortgage interest levels continue to hover near historical lows, and a separate report - the CoreLogic Home Price Index - noted that a slowdown in price appreciation has occurred not only for the high end of the market, but across all buying classes. Market Conditions Improving for Builders and Buyers August 01, 2014 Confidence among homebuilders improved substantially from June to July, offering an indication that the housing market could possess some underlying strength. Builder confidence sagged earlier this year, thanks primarily to winter weather conditions that hindered construction projects and hurt sales across the Midwest and Northeast. Even with purchase rates slumping again to begin the third quarter, the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) eclipsed a rather noteworthy benchmark by climbing to a reading of 53 for July. Scores greater than 50 signal that there are more industry members expressing optimism about the current conditions than there are who are down on the market. July represented the first month since January that the HMI registered a score of better than 50, and given the index's traditional reliability as a barometer for near-future market activity, the latest returns are promising. For much of 2014, inflated costs for building materials and permits, along with tight inventory in many areas of the U.S., have dampened the outlooks of builders regarding the housing industry as a whole. But the late spring and early summer have seen the job market continue to make progress, with the latest Employment Situation Summary for June revealing that the national unemployment rate fell to 6.1 percent - the lowest level in nearly six years. "An improving job market goes hand in hand with a rise in builder confidence," said David Crowe, chief economist for the NAHB. "As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home." Improving market conditions mean opportunities abound Americans applied for fewer mortgages to begin July, according to a survey from the Mortgage Bankers Association, but prospective shoppers may be pleased to find that every component of the HMI was improved for July. Builders responded that sales conditions were better, while the index for future sales expectations was up, as well. The gauge of prospective buyer traffic was the only index component lagging behind, but there's a hope that with the labor market improvements, consumer sentiment will also be improved. "This is the first time that builder confidence has been above 50 since January and an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace," said Kevin Kelly, chairman of the NAHB. The next step, of course, is for that demand to manifest itself in the form of more buying activity.