September 9th, 2019 12:11 PM by Richard Sardella MLO.100007700/NMLS 233568
Low rates may spur further home price growth as we move into 2020
If you’ve been waiting around to buy a home thinking prices would start stabilizing or getting reduced, think again. A new CoreLogic report is saying annual home-price growth will increase by 5.4% by July of 2020, representing a shift in the market.
What might cause this shift? Low interest rates. The S&P CoreLogic Case-Shiller index for home prices, a widely-cited barometer for the national housing market, evidently registered the slowest pace of home price growth since 2012 in June. A year earlier, home prices were rising at an annual rate of 6.3%. To boot, some major housing markets, such as New York, Miami, and Seattle, actually experienced a decline in home prices either on a monthly or annual basis. But home-price growth had become weaker as would-be buyers were priced out of these and other markets.
Now the index is registering a 3.6% uptick year-over-year in July, noting some parts of the country where prices had fallen, namely Connecticut and South Dakota. But that’s pretty much it, according to an article by Realtor’s Jacob Passy.
Recent home sales data now says sales activity has modestly picked up as consumers seek to grab on to low mortgage rates, which have fallen throughout much of 2019. Technically speaking, loan rates generally track the path of the 10-year Treasury note, so whenever you want to check trends, go there. Treasury yields have fallen in recent months amid compounding concerns related to trade tensions and the state of the global economy.
Passy quotes CoreLogic’s chief economist Frank Nothaft, who says, “With the for-sale inventory remaining low in many markets, the pick-up in buying has nudged price growth up. If low interest rates and rising income continue, then we expect home-price growth will strengthen over the coming year.”
As for how much growth in home prices may occur, this is no exact science. Passy says CoreLogic estimated that the real-estate markets in nearly one in four metropolitan areas were undervalued (at least 10% below what it determines to be the sustainable level where supply and demand are balanced).
Meanwhile, another 40% of markets were correctly predicted, meaning that roughly a third of markets nationwide are overvalued — and that could mean that price growth could slow or prices could fall if enough buyers are priced out of the market again.
Source: Realtor, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market worsened by -5bps. This caused rates to move sides once again. Rates continue to trend sideways at historically low levels.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Central Bank, 2) Geopolitical/trade and 3) Domestic.
1) Central Bank: The European Central Bank will give us their latest interest rate decision and policy statement on Thursday. Of note is that it is ECB Chair Mario's Draghi's Swan Song as this is his last press conference as head of the ECB. The markets are expecting a small (10BPS) rate cut, maybe more which would push the EU into Japan's world of negative interest rates (which has never worked out for Japan). Plus, there's the real possibility of an additional round of QE in the $30B per month range as Draghi sets the table for the next ECB Chair. Germany is also in focus as there is growing speculation that they will inject some stimulus into their economy via government spending.
2) Geopolitical/Trade: Brexit - A vote in the House of Commons to hold an election will likely get defeated on Monday, with the opposition parties trying to force Johnson into asking the EU for an extension. Parliament is also expected to be "suspended" later in the day until October 15th. After some news reports out of China last week that appeared to show both sides coming back to the table, the market will be paying keen attention to see if that narrative moves forward or if we go back to the "see-saw" pattern than has played out so many times in this saga.
3) Domestic: Overall, the economic data since the last FOMC meeting has continued to show growth. This week is the final round of data before next week's meeting. If the data continues to be strong, it will cause some bond traders to hedge towards no rate decrease at the worst and at best, a 1/4 point decrease. If this last round of data is soft though, it will give some ammunition to the 1/2 point rate cut camp. The big reports this week are Core CPI YOY which is expected to increase to 2.3% (not rate friendly) and Retail Sales which has surprised to the upside in the last two releases.
Treasury Auctions this Week:
This Week's Potential Volatility: High
Rates are likely to move sideways for the day and until Thursday while markets wait for the ECB action. That could inject some volatility into the markets. Once again, markets will also be paying close attention to the China trade war. Any new developments there could certainly move markets.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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