The Mortgage Corner

Lots of news today. New-home sales are surging, while mortgage delinquencies and foreclosures continue to drop. Consumer sentiment is also up sharply, maybe because housing prices are soaring according to both the S&P Case-Shiller and FHFA (for conforming loans) housing price indices.

This is even though mortgage rates have risen almost 1 percent in 3 weeks—or maybe housing is booming because buyers are rushing to buy before rates go up any higher!  In fact, homes are being purchased faster than they can be built.

Anyway, the Census Bureau just reported new-home sales in May were at a seasonally adjusted annual rate (SAAR) of 476 thousand. This was up from 466 thousand SAAR in April (April sales were revised up from 454 thousand). February sales were also revised up from 429 thousand to 445 thousand, and March sales were revised up from 444 thousand to 451 thousand, which are very strong upward revisions, needless to say.

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Graph: Calculated Risk

This is while inventories shrank to a 4.1 month supply—why prices are rising so fast, and the reason for the surge in housing construction as builders strain to fill the demand for new homes. The U.S. Census Bureau had already reported privately-owned housing starts in May were at a seasonally adjusted annual rate of 914,000. This is 28.6 percent above the May 2012 rate of 711,000, as we said last week.

Also thanks to Calculated Risk, the First Look report for May released today by Lender Processing Services (LPS) reported the percent of loans delinquent for loans 30 or more days past due, but not in foreclosure, decreased to 6.08 percent from 6.21 percent in April. Note: the historical rate for delinquencies of all loans has been in the 4 percent range.

It has to be why consumer confidence is in effect soaring. Consumer confidence is at a recovery best, reports Conference Board, at 81.4 in June and up nearly 7 points from a revised 74.3 in May for the third straight strong gain. The assessment of the present situation is also up at a recovery best 69.2 which hints at general strength for the June economic indicators.

Director of Research Lynn Franco said, “Consumer Confidence increased for the third consecutive month and is now at its highest level since January 2008 (Index 87.3). Consumers are considerably more positive about current business and labor market conditions than they were at the beginning of the year. Expectations have also improved considerably over the past several months, suggesting that the pace of growth is unlikely to slow in the short-term, and may even moderately pick up.”

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Graph: Econoday

Expectations are also at a recovery best, up nearly 9 points to 89.5 and reflecting rising confidence in the long-term outlook for the jobs market. The outlook for income is likewise climbing with more now seeing an increase ahead vs. those seeing a decrease. This is an important indication that hints at gains for consumer spending including discretionary spending.

And the S&P Case-Shiller 10 and 20-city Home Price Indexes, boosted by lack of supply and perhaps a sense of urgency if not panic among buyers, are shooting straight up. Case-Shiller’s adjusted month-to-month gain for its 20-city index is up 1.7 percent in April alone and follows a 1.9 percent jump in March. The year-on-year rate is exceptionally strong, at plus 12.0 percent.

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Graph: Econoday

Gains are sweeping across all cities without exception with strength centered out West where monthly gains are nearing 3 percent with year-on-year gains reaching 20 percent.

But what happens if mortgage rates continue to rise? The 30-year conforming fixed rate is now up to 4.0 percent with a 1 point origination fee in California, 4.25 percent with no origination fee. The so-called High Balance Conforming rate is one quarter percent higher. That might slow the price increases, as borrowers find it harder to qualify for larger loan amounts. And the Fed is now saying they will slow bond purchases by the end of this year; one more reason that buyers are flocking to the housing market.

Harlan Green © 2013

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