Real Estate Information Archive

Mortgage Rates Take a Breather

You would think mortgage rates would need a breather after experiencing their biggest jump in 26 years. In little more than a month, rates on most lending products have risen at least a full percentage point.

This past week, it was all quiet on the mortgage front. Rates were mostly staid, as concerns over the Federal Reserve “tapering” its purchases of mortgage backed securities (MBS) waned. As we’ve noted frequently in the past, the Fed's demand for these securities keeps yields low, which, in turn, keeps mortgage rates low.

We've also reported over the past few weeks how rising rates have taken the steam out of refinances. Steam continues to escape: Refinances dropped another 16% last week and are at their lowest level since July 2011. The refinance percentage of market activity has dropped to 64%, which is the lowest percentage since May 2011.

Purchase activity remains relatively robust in comparison, falling 3% for the reported week. But when the longer term is considered, we find purchase activity is up 12% year over year. Despite the spike in mortgage rates, home affordability remains high. The good news is that higher financing costs haven't materially dampened enthusiasm to buy and finance a home.

The question is how long will affordability remain high?

Prices have moved considerably higher, to be sure. CoreLogic's latest home price index shows home prices nationally posted a 15 th consecutive monthly increase in May. The latest increase pushes the year-over-year increase to 12.2%, the largest annual increase in over seven years.

What's more, it appears we can look forward to additional price gains. Clear Capital forecasts the housing market could outperform historical average price gains by 4% to 5% for the remainder of 2013.

Prices are obviously an important variable in affordability. Rising prices will make homes less affordable. Indeed, price gains have lowered affordability in many local markets ( San Francisco and New York City come immediately to mind). On the other side of the coin, price gains have pulled many owners with negative equity into positive territory.

Rising prices are also helping to alleviate the supply shortage. Home inventory is up 16.7% year to date, and will likely continue to rise with rising home prices. A basic economic law states supply rises and falls with prices; rising prices induce more supply to come to market. That's exactly what we are seeing today.

But more supply will eventually slow price growth. That's not a bad thing. Today's double-digit price gains are unsustainable, because they far exceed economic growth. Yes, prices are starting from a deep hole in many markets, but eventually price growth must moderate, lest we find ourselves in another housing bubble.

A sustainable price-growth rate is one that matches inflation and economic growth. A rate above that is sustainable for only a limited time, usually no more than two or three years.

For now, keep in mind that higher home prices and higher lending rates will eventually impact affordability. We might sound like a broken record on this point, but it's worth repeating: waiting is the risk in this market.

 Courtesy of Jessica Regan.

Search all Harrisburg PA homes for sale.

When you are buying or selling property in today's Harrisburg PA real estate market, it's important to have confidence in your real estate professional. Don’s commitment as your Harrisburg PA REALTOR® is to provide you with the specialized real estate service you deserve.

When you are an informed buyer or seller, you'll make the best decisions for the most important purchase or sale in your lifetime. That's why Don’s goal is to keep you informed on trends in Harrisburg PA real estate. With property values continuing to rise, real estate is a sound investment for now and for the future.

As a local area expert with knowledge of Harrisburg PA area communities, Don’s objective is to work diligently to assist you in meeting your real estate goals.

If you are considering buying or selling a home or would just like to have additional information about real estate in your area, please don't hesitate to call me at (717) 657-8700, complete my online form, or e-mail me at don@donroth.com.

Sales of new and existing home are gaining momentum: More supply is coming to market and prices continue to rise. On the latter, the S&P/Case-Shiller Home Price Index shows prices up 1.7% in its 20-city index month over month; the year-over-year rate is exceptionally strong, at plus 12%.

But will rising mortgage rates derail the recovery?

We don't think so. Many people have the perception that rising mortgage rates lead to lower (or at least less growth) in home prices. The rationale goes that rising mortgage rates lower affordability, so home prices fall to compensate for higher financing costs.

The perception was recently refuted in the New York Times. Douglas Duncan, chief economist at Fannie Mae was quoted to say, “There’s no strong correlation between interest rates and home prices.”

Mortgage rates rose sharply in the late 1970s, but home prices continued to rise too. In the 1990s, rates were relatively flat and home prices continued to move higher. In 2007 and 2008, both mortgages rates and home prices fell. In 2013, rates have increased and so, too, have home prices. In other words, there really isn't much of a correlation.

To be sure, mortgage rates matter, but they're less important than many people believe. Job and economic growth are by far the more important variables, and both have been improving in recent months.

Courtesy of Jessica Regan.

Search all Harrisburg PA homes for sale.

When you are buying or selling property in today's Harrisburg PA real estate market, it's important to have confidence in your real estate professional. Don’s commitment as your Harrisburg PA REALTOR® is to provide you with the specialized real estate service you deserve.

When you are an informed buyer or seller, you'll make the best decisions for the most important purchase or sale in your lifetime. That's why Don’s goal is to keep you informed on trends in Harrisburg PA real estate. With property values continuing to rise, real estate is a sound investment for now and for the future.

As a local area expert with knowledge of Harrisburg PA area communities, Don’s objective is to work diligently to assist you in meeting your real estate goals.

If you are considering buying or selling a home or would just like to have additional information about real estate in your area, please don't hesitate to call me at (717) 657-8700, complete my online form, or e-mail me at don@donroth.com.

The Power of Expectation

Mortgage rates continue to be the lead story in the financial press, and for good reason – rates are up a full-percentage point over the past month and are now at July 2011 levels.

It's understandable that the spike in mortgage rates would slow refinance activity. Indeed ,that's been the case: Refinances have dropped considerably over the past month, and the latest weekly data show yet another drop, with activity falling 5%. Refinances are now at a two-year low, and their percentage of overall lending has dropped to 67%.

Purchase activity is a different story: Purchases were up, rising 2% from the previous week. Total purchase applications are actually up 16% year over year, indicating homebuyers have yet to be put off by rising mortgage rates.

We've written frequently about expectations. If buyers expect lower prices, they'll frequently (but not always) wait for lower prices. We saw a lot of that behavior when mortgage rates were trending lower. Many borrowers, especially on the purchase end, would wait and wait and wait. (Refinancers were more willing to act, knowing if rates continued to drop they could refinance again.)

On the other side of the coin, people tend to be spurred into action by rising prices. They don't want to pay more tomorrow for what they can get cheaper today. We've seen that in the purchase market over the past month. Home prices have been rising steadily over the past 18 months, but now mortgage rates are rising too. More borrowers (and most lenders, for that matter) don't expect to see a return to the ultra-low rates of a couple months ago. Many believe the trend has shifted and rising rates are the new norm.

We think rising rates are the new norm too. We say that because credit markets are much more sensitive to the Federal Reserve and the prospect of it curtailing its mortgage-backed securities (MBS) purchases.

When the Fed curtails (or even hints at curtailing) its purchases, interest rates will rise, which means today's bond investors will suffer losses. (When interest rates rise, the price of fixed-income investments like bonds fall.) Obviously, these investors don't want to suffer losses, so they'll sell if they think demand for bonds and fixed-income securities will fall.

Of course, we can't predict with certainty whether mortgage rates will move higher in the near future. After all, a significant macro event – a major terrorist attack, a large bankruptcy, a European bank run – could spur money to flow back into haven investments, like U.S. Treasuries and MBS.

That said, we see higher rates and more volatile rates as the likely scenario. For this reason, we continue to say that waiting is the real risk in this market.

 Courtesy of Jessica Regan.

Search all Harrisburg PA homes for sale.

When you are buying or selling property in today's Harrisburg PA real estate market, it's important to have confidence in your real estate professional. Don’s commitment as your Harrisburg PA REALTOR® is to provide you with the specialized real estate service you deserve.

When you are an informed buyer or seller, you'll make the best decisions for the most important purchase or sale in your lifetime. That's why Don’s goal is to keep you informed on trends in Harrisburg PA real estate. With property values continuing to rise, real estate is a sound investment for now and for the future.

As a local area expert with knowledge of Harrisburg PA area communities, Don’s objective is to work diligently to assist you in meeting your real estate goals.

If you are considering buying or selling a home or would just like to have additional information about real estate in your area, please don't hesitate to call me at (717) 657-8700, complete my online form, or e-mail me at don@donroth.com.