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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
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
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
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.