Real Estate & Market Report: December 3, 2012
By Fred Arnold
FHFA announced that the maximum conforming limits for Fannie Mae and Freddie Mac would remain unchanged in 2013. In most areas of the country, the single-family loan limit will be at $417,000. The loan limits are established under the terms of the Housing and Economic Recovery Act of 2008 (HERA), and are calculated each year
It seems that the only two main news drivers of the market these days are housing and the fiscal cliff debate. The housing news has been getting better and better. Negotiations on the budget are inching forward as well and hope seems to be increasing that a budget deal will be reached in Congress.
Mortgage rates have risen off of their lows and the reaction in mortgage applications reflects this. Home purchase applications rose 3% in the prior week however refinances, which are much more interest rate sensitive, declined by 2%. Refinancing activity remains very strong and this slight decline is not significant. The continued improvement in purchase applications is always welcome.
Earlier in the week, the Case-Shiller Home Value Index continued the positive pricing trend with a report that home prices nationally increased 0.4%. Although this increase is not earth shattering, for a one-month measurement the increase is very respectable. In addition, home prices according to the report are 3% higher than the same time last year.
The Federal Housing Finance Agency, which does its own home valuations analysis, reported that home prices increased 0.2% from the prior month and 4.4% from the same time last year. Whether you look at Case-Shiller or the FHFA report they both have two major aspects in common, housing is improving month by month and year by year.
New home sales, which had been a bright spot in the monthly housing reports, turned slightly negative. The new home sales report came in 19,000 lower than expected on an annualized basis, which are the first signs of new home sale weakness we have seen in quite some time. In addition, September’s numbers were also lowered which is beginning to create a little bit of concern in the new home sector. The one thing to realize is that earlier in the year new homes sales were stronger than expected and that may have something to do with the weakness we are seeing now.
Turning to the markets, no one is complaining about rates. Anyone who is should remember that a dragging economy is something that can push rates lower - and do we really want that? Probably not, and besides the fiscal cliff something to look for in the coming weeks is Federal Reserve officials facing critical decisions at their next policy meeting (December 11-12). Analysts are pointing out that one of the main discussion points is whether or not to continue the bond-buying programs where the Fed has been purchasing mortgages backed securities (MBS) and treasury bonds. In September the Fed committed to buying $40 billion a month in MBS and that looks to continue into 2013 (hence the great rates for home loans). The more pressing issue could be the $45 billion a month program called Operation Twist (Fed buys long term treasuries and sells short term treasuries) which is scheduled to end in December. The Fed is running out of supply of current short term treasuries and in order to continue the program would need to create new bank reserves (i.e. print new money - something it is already doing by buying MBS). Critics think that this could be inflationary while Fed officials believe they can manage the new reserves without inflation.
Lastly, let us not forget about the fiscal cliff debate that just will not go away. Many potential homebuyers have been interviewed and many of them have indicated that they are waiting to see what happens with the government budget before they make the decision to purchase a home. Many homebuyers and employers are concerned about the future of’ the economy, employment, and what will happen if the government fails to come to an agreement before the end of the year.
I have faith that our elected officials will figure out a way to come to an agreement on the budget. It may not be pretty but I would have to think that they all recognize that allowing the country to fall back into a recession is something that just cannot be allowed to occur.
Next week’s economic reports are:
- Monday December 3rd – ISM Manufacturing Index
- Wednesday December 5th - MBA Applications, ADP Employment and Factory Orders
- Thursday December 6th –First Time Jobless Claims
- Friday December 7th – National Unemployment
As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information. I welcome the opportunity to serve you in any way I possibly can. Call me with your questions at 661-284-1150 X109 or go to http://FredArnold.com.