The unemployment picture however, will not heal with growth below 3.0%. Existing Home Sales were also on tap, up 7.4% to 6.54 million units annualized. 33% of the sales were distressed units and 51% of the borrowers were first time home buyers. Just think where we’d be without the 8K program.
Overall, we feel that the housing market is stabilizing but will need to content with another wave of foreclosures as homeowners remain underwater and the loan modification programs to date have been a bust.
Positive economic reports on housing continue, with October Pending Home Sales UP 3.7%. This was the ninth month in a row Pending Home Sales rose and the index is now 31.8% over October last year. Since this tracks the level of contracts on existing homes, Existing Homes Sales should continue their impressive rise for the next couple of months.
Big news for the housing market came Friday when the President signed a bill extending and broadening tax credits for homebuyers. Major points were first reported in an Inside Lending Bulletin last Thursday. The tax credits apply to contracts signed by April 30, 2010, that close by June 30. Income limits for eligibility have been increased to $125,000 per year for individuals and up to $225,000 per year for couples. Credits up to $8,000 continue for first-time buyers but there is now a $6,500 tax credit for buyers who've owned their current home at least five of the last eight years. However, homes selling for more than $800,000 are not eligible.
The week ended with the terrific news that Existing Home Sales shot UP 9.4% in September to a 5.57 million annual rate. This was almost twice the increase the consensus expected and a nice boost coming off the slight drop we saw in August. Best of all, the inventory is now down to a 7.8 month supply, getting us closer and closer to the 6-month level of a normal housing market.
While a number of Fed Governors are pounding the rate rising drum, the policy statement continues to favor low rate, easy money well into 2010. What they would like to do is communicate an upcoming transition period. One that would produce a soft landing instead of going cold turkey. With their focus on employment and inflation, it would seem that rates will remain low until the unemployment picture stabilizes and then starts to improve.
With most chart time frames in harmony, the future of interest rates will most likely follow the stock market’s lead. We’ll stick with our neutral call, keeping one eye on a stock chart and the other on MBS.
For the third week in a row, rates on 30-year fixed-rate mortgages remained below 5% in Freddie Mac's Primary Mortgage Market Survey. The average for conforming mortgages was 4.92% with an average of 0.7 point (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit.
With the FOMC dust settled, a couple of points are worth mentioning. First up, the FOMC made no mention of an exit strategy, instead talking about keeping Austin mortgage rates low for an extended period of time. Number two was the statement about continuing the purchase of Treasuries and MBS and extending the period until the end of Q1, allowing for a wind down period. Seems obvious that they are more concerned about housing and the economy versus inflation and deficits. One reason for the accommodative policy may be the building inventory due to future delinquency and foreclosures, estimated to be 7 million units. This is what we call “shadow inventory”, not yet on the books but in the pipeline nonetheless. That number is huge, representing an entire year of sales. We shall see.
Monday is shaping up to be a good days for [...]
