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January 23rd, 2012 (Modified on February 14th, 2012)

4 signs housing is on the mend (finally!)

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Rising ratesLow and stable mortgage rates and a modestly improving economy are starting to produce positive effects on the nation’s housing market. While starting from extraordinarily low levels, and though improvement is still of course tenuous, there have been accumulating signs of improvement for months.

If the economy can continue to nudge forward for a while longer without some new or already-known catastrophe to derail it, we just might have ourselves a housing market worth talking about when spring rolls around.

4 signs housing is on the upswing

1. Mortgage rates: Granted, mortgage rates overall did rise modestly last week, but a three-basis-point increase off record lows is nothing to worry about.

According to HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–the overall average rate for 30-year fixed-rate mortgages (conforming, nonconforming and jumbos) rose by three basis points (.03 percent) last week, climbing to an average 4.22 percent, for the week ending Jan. 20.

The FRMI’s 15-year companion also increased by three basis points (.03 percent) to finish the weekly survey at an average of 3.53 percent.

Important to homebuyers and low-equity-stake refinancers, FHA-backed 30-year mortgages retreated by another two hundredths of a percentage point to 3.86 percent, while the overall average for 5/1 Hybrid ARMs gained a single basis point to end at 3.04 percent.

Mortgage rates have moved gently off record lows, which is to be expected given the warmer economic climate.

2. Home sales and starts: Sales of single-family homes, traffic in showrooms and sales offices, and expectations for sales over the next six months are all on the rise. Even if there is a long way to go, the fact that we are moving in the right direction is a welcome sign of recovery.

Starts of new homes were down by 4.1 percent in December, but that minor dip does not derail an almost steady upturn in residential construction which began in March 2011. The 657,000 rate of initiation was off of November’s pace, but permits for future activity were almost level, and starts of single-family homes continue to ratchet higher; at 470,000 annualized, this would be counted among the highest annualized rates seen over the past couple of years.

Sales of existing homes are bouncing higher, too. The National Association of Realtors reported a 5 percent rise in sales in December, with the total landing at a 4.61 million (annualized) rate of sale for the month. It was the strongest annualized figure since early 2011.

3. Builder sentiment: We are by no means at a breakeven level, let alone healthy, but the indicator of builder sentiment from the National Association of Homebuilders continues to rise. The reading of 25 for January was about half the neutral level of 50, but almost double the reading of 13 seen as recently as June. In fact, the overall reading was the highest in four years.

4. Mortgage apps: At least a few headlines were made by the 23 percent increase in mortgage applications reported by the Mortgage Bankers Association of America for the week ending Jan. 13. While of course welcome, our experience is that such a flare is typical for the first full week of January, as some pent-up demand occurs during the busy holiday season. Typically, if interest rates have remained favorable from about Thanksgiving to New Year’s Day (and they are certainly all of that at the moment) borrowers finally get a cleared spot on their calendar to execute a transaction. This is especially true for refinancing (+26.5 percent) but also for purchase transactions (+10.3 percent). Such percentage increases probably won’t persist, but instead may be replaced with more modest but steady gains in the coming weeks.

What’s in store for this week?

Yields on 10-year Treasuries finished the week ending Jan. 13  on a downward note, and mortgage rates were at record lows again through into Wednesday morning (Jan. 18). However, the reverse was true last week, with Treasuries ending on a high note, and nudging mortgage rates off record lows.

While some of this increase in underlying costs will probably be absorbed into still-wide spreads, a bit of it may make its way into rates this week, which would mean another slight increase. No real movement, but probably a couple of basis points upward is to be expected, based on where we are at the moment.

The Fed meets this week to discuss policy and communication strategies. It’s a two-day affair, finishing on Wednesday. Expect no change to policy, perhaps some more frank discussion about where rates are expected to be going, a more upbeat assessment of the economic situation, and a cautiously hopeful tone overall.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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