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Investing Newsletter

Freddie Mac: Real Estate Economic Outlook

The housing sector crested during the autumn of last year, with the gradual slowing ongoing this spring. New structure eased in April to 1.85 million homes (seasonally adjusted, annual rate), the least in nearly a year and a half. House and condominium sales also stay below third-quarter 2005 levels, and the inventory of un-sold homes has increased to near a six-month supply in April, about 20 to 25 percent above fall's levels. The soften buyer interest in homes also resulted in a marked slowing in home-value approval, from 13.7 percent (annualized) during the third quarter to 8.7 percent during the first quarter -- although still well above general consumer price inflation. Anecdotal reports from home markets around the U.S. refer to a shift from a "seller's" market to a "buyer's."

A turn down from the records set in 2005 -- records set for single-family starts, home sales, and real home-value expansion (that is, adjusted for general inflation) -- was inevitable. High levels of home prices and increasing mortgage rates for both adjustable-rate and fixed-rate loans have haggard potential buyers' budgets and reduced the in general affordability of homeownership. Indeed, during the first quarter of 2006 the home-ownership rate dipped to 68.6 percent, the lower in about two years.

In reviewing a variety of measures of housing market performance, Federal Reserve Chairman Bernanke practical at the annual Conference on Bank Structure and Competition previous month that the sector was experiencing "a very orderly and moderate kind of cooling." We expect that gradually rising interest rates would loosen overall demand further, consequential in construction and home sales off about seven percent from 2005's record pace. Even with that, the sector would enjoy its third best year ever, surpassed only by the stellar volumes of each of the past two years.

The housing sector is not only the industry that might be experiencing a moderation in activity. May’s labor market report exposed lackluster job growth of only 75,000 nationwide; taken with the 37,000 descending revision to March and April’s jobs data revealed very humble employment growth over the past two months. Manufacturing lost 14,000 jobs. Construction that has experienced a housing driven spurt in employment levels over the past few years, added only 1,000 jobs in May, consistent with other events of moderation in the residential market.

The disappointing labor market report coupled with proof of a moderating housing sector did have a brilliant lining: Long-term interest rates eased fairly in early June, shiny some careful optimism in the market that core inflation would remain contained and within the Fed’s targeted range. Overall price inflation, as precise by the Consumer or Producer Price Index (CPI or PPI), has go faster over the past year chiefly due to the record levels of energy prices. The core of these indexes (which prohibit food and energy prices) has remained comparatively low and stable, up only 2.3 percent for the CPI and 1.5 percent for the PPI on an April-over-April basis.

The augment in mortgage rates over the past several months would decrease refinance levels and overall origination volumes. Compared with the third quarter of last year, the coming July-to-September period might see dollar volumes lower by about 25 percent. Lower home sales would be mainly offset by home-value gains of about the same in proportion magnitude, resulting in purchase-money volume that is basically unchanged from the prior year. But a 50 percent drop in refinance originations (in dollars) would explain to lower overall single-family lending during the third quarter, contrasted with a year earlier. The persistence of a relatively flat yield arc with low long-term rates also means that the ARM share of lending would remain under pressure, with lenders continuing to offer sizable initial-period rate discounts to cheer ARM borrowing.

An increase of 7 Percent in Mortgage loan - Survey

WASHINGTON, D.C. - The Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey for the week end June 9. The Market Composite Index, a gauge of mortgage loan application volume, was 571.9, an increase of 7 percent on a seasonally accustomed basis from 534.4 one week earlier. On an unadjusted source, the Index increased 17.9 percent compared with the last week but was down 34.3 percent compared with the same week one year earlier.

The seasonally adjusted purchase Index augmented by 4.8 percent to 414.6 from 395.6 the prior week and the Refinance Index increased by 10.6 percent to 1499.4 from 1356.0 one week earlier. Other seasonally adjusted index activity comprises the Conventional Index, which improved 7.3 percent to 845.3 from 788.1 the previous week, and the Government Index, which augmented 4.0 percent to 116.0 from 111.5 the previous week.

The four week moving average for the seasonally-adjusted Market Index is losing 0.7 percent to 550.2 from 554.2. The four week touching average is down 0.7 percent to 400.5 from 403.6 for the Purchase Index, while this average standard is down 0.8 percent to 1436.2 from 1448.1 for the Refinance Index.

The refinance share of mortgage movement increased to 35.7 percent of total applications from 34.2 percent the prior week. The adjustable-rate mortgage (ARM) share of activity augmented to 30.7 percent of total applications from 29.4 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages augmented to 6.61 percent from 6.60 percent, with points lessening to 1.13 from 1.19 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract rate of interest for 15-year fixed-rate mortgages rose to 6.27 percent from 6.23 percent, with points declining to 1.13 from 1.16 (including the origination fee) for 80 percent LTV loans. This is the maximum that the 15-year rate has been since April 2002.