The data flow usually slows to a trickle during a holiday-shortened work week. That was case this past week, thanks to the extended Memorial Day weekend.

That said, the flow didn't completely dry up; there were still some notable releases worth mentioning. The pending home sales index was one, and not for particularly encouraging reasons. The index posted a surprising 5.5-percent decline in April after stringing together three months of strong gains. 

There were a couple extenuating factors at work in the index. It's possible that the jump in signed contracts we had seen in the first quarter was a reaction to the FHA's February announcement that it was increasing up-front and annual mortgage insurance premiums. Changes in government lending rules will always influence consumer behavior. In this instance, activity was likely brought forward more than it otherwise would have been without the FHA's lending-premium increases.

Inventory was also mentioned as a contributing factor for fewer homes being taken under contract. Lawrence Yun, chief economist for the NAR, mentioned that a dearth of inventory is limiting the number of transactions. In other words, demand is there, but supply isn't.

Lack-of-inventory is an interesting theme, and one we've been seeing with increasing frequency. It's paradoxical when you you think about it: Over the past year, there has been no shortage of stories detailing the dire consequences of excessive distressed property inventory. Now, we find that this inventory isn't hitting the market quickly enough. It appears demand has surged, but supply has lagged.

Interestingly, it's not just investors seeking distressed properties as potential rentals that's driving demand. Owner-occupied interest is also growing. reports that home-buyer interest in foreclosures has more than doubled over the past two-and-a-half years. Today, more than 64 percent of home buyers say they are interested in foreclosed property.

This unexpected increase in distressed-property demand begs the question: What should we worry about going forward – too many foreclosed properties or too few? Neither, might be the most rational answer.

We apparently don't have to worry about mortgage rates rising in the near future. The yield on the 10-year U.S. Treasury note is down to a remarkably low 1.6 percent – its lowest yield ever. Mortgage-backed bonds and mortgage lending rates take their cue from the 10-year Treasury note, so it was no surprise to see mortgage lending rates hit another all-time low (albeit by only a few basis points) this past week.

So why do interest rates continue to hit record lows?

Investors have become more risk averse because of concerns of slowing U.S. economic growth and the potential fallout of a collapse of EU members Greece and Spain; therefore, many investors are moving money out of stocks and into high-quality bonds. Over the past month alone, the Dow Jones Industrial Average has dropped nearly a thousand points; that itself is evidence money is leaving the stock market. Much of that money has moved into bonds.

Record low lending rates will likely stick with us through the summer selling season, but we don't think that's necessarily good. At this point, the prospect of rising rates would likely motivate more people to buy or refinance than the prospect of falling rates.

Courtesy of Jessica Regan.

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