Signs point to ’spring housing market’by Keith Gumbinger
The economic climate continues to show signs of growth while mortgage rates continue to hold near record lows. This is a bit of an unusual happenstance, but one which might prove to be the linchpin for the formation of a “spring housing market” for 2012.
In “normal” times, one would expect to see solid economic news accompanied by a corresponding rise in mortgage rates. Although underlying interest rates are a little firmer than just a few weeks ago, mortgage rates aren’t following them to any real degree.
Mortgage rates holding strong
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages was held unchanged last week and again stands at an average 4.22 percent.
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The FRMI’s 15-year companion shed just one basis point (.01 percent) to finish the weekly survey at an average 3.49 percent.
Important to homebuyers and low-equity-stake refinancers, FHA-backed 30-year mortgages remained steady at 3.85 percent, while the overall average for 5/1 Hybrid ARMs eased by two hundredth of a percentage point, again slipping under the 3 percent mark to 2.99 percent.
Home sales and mortgage rates
An upsurge in home sales will of course require a continuation of low mortgage rates, but also will need to be joined by off-market inventory coming on line. According to the National Association of Realtors, inventory levels for existing homes last month were at a near-normal 6.1 months of supply, and inventories of new homes were even thinner than that. With the servicing-abuse settlement behind us, the expectation is that a fair bit of foreclosed properties will make it to market, and also that some discouraged sellers might come back, too.
Employment on an upward trend
Any upsurge will also require the strengthening of labor markets. That component appears to be coming along at a much more reliable pace of late. The Labor Department reported that some 227,000 new hires took place in February, and that January and December’s figures were revised upward. The last three months have been the most solid for hiring since the effects of the Japan disaster squashed activity last May. For the first time in a while, the nation’s labor force actually expanded, rising by 0.2 percent, but despite more folks looking for work, the nation’s rate of unemployment remained at 8.3 percent for the month.
FHA refinances get a lot cheaper
That being the case, and literally just a week after the FHA announced changes which will make it more expensive (and thus harder) to obtain an FHA-backed mortgage, the FHA announced that it would be easier and cheaper for those already in the program to refinance their mortgages. The FHA streamline program for mortgages originated prior to July 1, 2009 will now feature an up-front mortgage insurance (MI) premium of just 0.01 percent (it was a full percentage point prior) and that annual MI premiums to remain in the pool would be set at just 0.55 percent of the loan amount, about half that of new borrowers coming into the system. According to the release which accompanied the changes, it would seem that many potential borrowers holding higher-rate FHA loans were deterred by the costs of refinancing. Provided estimates indicate that perhaps several million potential homeowners would be able to refinance and save money, but how many will do so remains to be seen.
Are we finally back on track?
Are we finally getting the supports in place to make the housing markets actually work? Will a combination of HARP 2.0 for underwater borrowers, low-cost streamlined refinances for others, an unclogged foreclosure system, more jobs and improving confidence do the trick? They should, at least enough to nudge the needle forward a few notches. Still, we’ve a long way to go and some uncertain waters to yet navigate.
The Federal Reserve meets this week to ponder these and other things economic. They should be encouraged by what they see happening around them, and that will no doubt be reflected in the statement which closes the meeting on Tuesday. If things keep moving in the direction they have been, they will probably come to regret before long their forecast to keep rates at rock-bottom levels until late 2014.
Fed Chairman Bernanke is of the mind that price increases for gasoline isn’t much to worry about, but if we hope to move from recovery to expansion, they should be considered a threat. Mortgage rates wander around again this week, possibly adding a couple of basis points to this week’s average.