I am confused about housing...and if I am confused, then I can't even imagine as to how many others are confused.
One week the reports in the media talk about how foreclosures are increasing, rates are rising, new construction is stalling and potential home buyers are scared to make a purchase decision. Then this past week we see that purchase applications for mortgage loans are up for the 3rd consecutive week by another 1.8%. In addition, since last week's reported 10% jump in pending home sales, words like growth and recovery in housing are abound in the media. As a 25 year veteran of the real estate and mortgage business I am confused.
As an eternal optimist I truly want to believe that housing is improving. Unfortunately I just don't see it, especially when CNNMoney.com posted a front page article about how 1.7 Trillion dollars in home equity was lost in 2010 due to home values decreasing.
Do I believe the worst is over...absolutely! However I do have my concerns about the rapid increase in mortgage rates experienced this week. Since Monday we have seen a rise in rates of .375% - .50% and the odds on the increasing trend reversing itself is slim. Overall mortgage rates are up almost ¾% in the last month.
The government has pledged to purchase 600 billion dollars in treasuries to keep interest rates low and stimulate the economy. What is happening is the increase of government debt has many investors concerned about the value of the U.S. Dollar and therefore investors are weary of purchasing government debt. Bottom line is the government's plan is not working the way it is supposed to work - what a shocker!
The lackluster demand for 10 year treasuries at this week's auction is proof that investors are looking elsewhere to put their money. Although the stock market as of this report is basically flat from where it started the week, overall we are hearing about improving corporate profits. These positive profit reports will bring investors back into the stock market causing bond yields to continue to rise, which ultimately will mean even higher mortgage rates.
Although by historic measurements mortgage rates are still incredibly low, rising interest rates can certainly derail any potential housing recovery very quickly. Next week when the MBA reports on the purchase applications, we will get a sense of how homebuyers are reacting to the rising rates. We know refinances are dropping however let us wait to see about home purchasing.
First time jobless claims came in slightly lower than the previous week. Coming off the heels of the jump in national unemployment reported last week, the slight decline was met with little reaction in the markets.
There were not many economic reports this week which is one of the reasons for lackluster performance in the stock markets. In addition, as we come closer to the end of the year, trading volume declines which leaves the door open for more market volatility in the coming weeks simply because a few large trades can have a significant impact on the indices when trading volume is low.
As quiet as this current week was for economic news, next week could be one of the most volatile weeks we have seen in a while due to the extensive economic reports due out:
• Tuesday December 14th - Producer Price Index, Retail Sales and FOMC Announcement
• Wednesday December 15th - MBA Mortgage Applications, Consumer Price Index, Housing Market Index and Industrial Production
• Thursday December 16th - First Time Jobless Claims and Housing Starts
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