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May 29th, 2012

Is a summer homebuying season in the works?

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The ringing sound of record low mortgage rates is greeting the unofficial start of summer. Typically a sleepier time of year for the housing market, the incessant clang appears to be serving as a wakeup call to potential homebuyers. Should current trends persist, we may have a summer housing market of note in 2012, rather than only the traditional spring one.

For their part, mortgage rates have not been lower in multiple generations and we reckon them to be at least 60-year lows at the moment.

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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 (conforming, non-conforming and jumbos) rose by a single basis point (0.01 percent) for the week ending May 25 to 4.06 percent, just one basis point above the previous week’s new record low.

The FRMI’s 15-year companion increased by two basis points (0.02 percent), nudging just above record lows to 3.32 percent.

Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages sprinted into new territory, falling by another five basis points to 3.70 percent, while the overall average rate for 5/1 Hybrid ARMs gained by two basis points (0.02 percent), finishing at 2.94 percent for the survey period.

Mortgage rates proving durable

While by no means booming, home sales are starting to improve. Low mortgage rates of course matter in this regard, but perhaps as important is that these low rates have been durable, with a stretch now of six months of conforming 30-year FRMs moving in a range from 4.17 percent as a high to 3.87 percent (recorded two weeks ago) as a low. A long stretch of stable-to-falling rates allows potential homebuyers the time needed to research, plan and execute a transaction to buy a home without concern of a spike in rates, which can upset deals at a moment’s notice.

5.28.12-UnsoldNewHomes

Home sales, prices improving

Sales of existing homes gained by 3.4 percent in April, rising to a 4.62 million annualized rate of sale for the month. The upturn in demand was met with an even larger upturn in supply; it would seem that at least some homes which had been pulled off the market were put back on in hopes of catching some of the increased traffic in local markets. As such, inventory levels moved up to 6.6 months of available stock at the present rate of sale. Higher supplies can add additional pressure to home prices, but that wasn’t the case in April.

Home prices rose by over 10 percent from March, as the composition of sales for the month was said to have included fewer sales of “distressed” homes. With a backlog of homes in foreclosure still to enter the market, home prices are unlikely to see strong gains going forward.

Sales of new homes moved higher in April, too, recovering some of March’s minor decline. The 3.3 percent increase in sales moved the needle up to a 343,000 annualized rate, but supplies of unsold homes remain at a tight 5.1 months. Of note in the report was that after a full five years of declines, builders actually added 2,000 units of inventory during the month. This is a signal that confidence is growing in housing, and that the demand being seen in the market is expected to persist and possibly increase. Although only one month, it is nonetheless an encouraging sign that we may be nearing a corner for the market, if not actually turning it as of yet.

Rates should hold steady

Mortgage and interest rates continue to benefit from financial turmoil overseas, a modestly growing economy here in the U.S. and stable to retreating inflation. Already at or near record lows, how low can interest rates and mortgage rates go?

For now, rates seem likely to hold near these levels for a while. We seem to have flattened out, and would expect a wobble of a couple of basis points in either direction at most by the end of this week.

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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.

Our bloggers:

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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