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| 30 Yr Fix |
6.52% |
0.00% |
| 15 Yr Fix |
6.07% |
-0.03% |
| 1 Yr ARM |
5.18% |
-0.04% |
| 5/1 ARM |
6.02% |
-0.03% |
| 30 Yr Tres |
4.44% |
-0.03% |
| Fed Prime |
5.00% |
-0.25% |
|
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Freddie Mac: Three Trends Will Impact Home Market and Financing
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The January 2007 Economic Outlook which is published last week by the Office
of the Chief Economist at Freddie Mac was headlined "The Remodeled Housing
Market" and was focused on economic trends.
But first it recapped the current housing market: an 11 percent November 2005
to November 2006 drop in home sales; mortgage applications for home purchases
at the lowest level since mid-2003, a sudden switch from a sellers' to
a buyers' market with a 7 month inventory and a drop in the pace of house-price
growth.
Pretty grim, but we mustn't forget the trends which, the forecast said,
come and go; however, in the last five years there have been three trends that
have "remodeled housing finance and become fixtures of the housing market."
The first trend is a higher level of refinance activity. The
housing boom and the general obsession with real estate have made homeowners
more aware of refinancing options and savvier in utilizing them while at the
same time technology has reduced the cost of originating mortgages. This has,
over the last 15 years, led to three refinancing booms when the number of homeowners
refinancing has constituted over 50 percent of all mortgage origination activity.
Each time, as the refinancing frenzy ebbed, the bottom was higher than the time
before: in late 1993 refinancing accounted for 64 percent of all mortgage applications
but by early 1995 that share had declined to 11 percent. In 1998 refinancing
represented a 59 percent mortgage share and then bottomed out at 15 percent
a year and a half later. In the latest boom refinancing hit 77 percent in early
2003 then settled to 39 percent five quarters later and now, even as rates inched
up last year the share has stayed between 45 and 50 percent.
The second trend is the diversification of the refinancing
market. With so many more mortgage products homeownership is available to a
growing number of families. Borrowers with low credit ratings have found shelter
through the sub-prime market while non-traditional or "exotic"
mortgages with lower introductory rates have made it possible for buyers
to afford homes in more expensive areas. Freddie Mac speculates that the huge
numbers of adjustable
rate mortgages, estimated at $500 billion, which are due to adjust during
2007, will create mounting delinquencies and increase public scrutiny of non-traditional
products.
The third trend is the lack of affordable housing. Even though
housing prices have stopped increasing exponentially, the resulting high prices
from the "bubble" are serving to preclude homeownership by many and housing
affordability is now at its lowest level since the late 1980s when double-digit
interest rates were the culprit. The forecast states that there is little hope
that new construction will ameliorate the affordability problem as little new
construction comes in at under $150,000 per unit.
These three trends, the forecast projects, will, in the wake of the housing
boom and subsequent slowdown, have a lasting impact on the nation's housing
market and the way people finance their home purchases.
More specific projections from the forecast:
- Inflationary pressures are expected to remain low in the face of falling
energy prices. Any energy price shocks could of course, impact this prediction.
- Low inflation is likely to keep long term interest rates below 6.5 percent
this year and the yield curve, i.e. the difference between short and long-term
rates is likely to remain inverted throughout the coming year. 1-year Treasury
ARMS are forecast to average 5.5 percent each quarter of 2007. But see the
energy-price caveat above.
- The market share of ARMs will probably drop to14 percent, the lowest level
since 2001. This will happen because of the inverted yield curve but also
because regulators worried about rate shock, are likely to pressure lenders
to be more conservative in their lending practices.
- Housing starts will bottom out in the first half of 2007 and then begin
to rise slowly over the remainder of the year. The final total will probably
be about 11 percent below the 2006 pace.
- Housing sales will follow a similar pattern but low mortgage rates will
help to pull buyers back into the market. Single family home sales will be
about 6 percent lower in 2007 than in 2006.
- It is hard to measure falling house prices as these become confounded with
sales as sellers refuse to lower prices and thus incentives such as seller-paid
closing costs and other inducements do not register in the statistics as price
declines. Freddie Mac expects prices nationwide to be up 2.9 percent this
year but also expects the numbers to vary widely based on location and to
also be quite volatile.
- Mortgage activity will decline about 6 percent from 2006 figures but the
pending readjustment of interest rates will drive a lot of homeowners to refinance
to avoid an increased payment. Mortgage debt will grow at about 7 percent
which would be the slowest rate since 1997.
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Comments (6)
| Oil prices are not the only concern by the Fed, the Fed is concerned with the over all econmic speed of our Nation, which at this point is still uncertian. I believe 2007 has the potential to be a great year for mortgage lenders and that there will be plenty of Refinance's to be had. It will be a harder year, Loan-to-Values will be an issue with many homeowners having tapped out the equity in there homes via refi's and HELOC's. |
|
| Above Posted By:
Barry
| Tue, 23 Jan 2007 09:42:28 EST |
| The sub-prime market ( adjusting up) and coming due this year and in subsequent years is a serious concern, but there seems to be a good deal of "vulture money" ready to snap up any foreclosed properties, that the impact of these (possibly numerous) foreclosures on the housing market may be negligible.
|
|
| Above Posted By:
paul
| Mon, 22 Jan 2007 06:56:40 EST |
| Longstanding maxim:
Interest rates go up. Stock market goes down.
Fed raised interest rates because rapid hikes in oil prices created inflationary pressures. Oil is basic commodity used in transportation, fertilizers & chemicals. Higher oil prices means higher costs getting goods to market & for food & plastics.
Inflationary pressures eased. Collateral affect is soft economy.
Oil prices have moderated or are falling. Fed can ease rates - perhaps by May 07.
Fed is the key. |
|
| Above Posted By:
Don
| Thu, 18 Jan 2007 14:20:52 EST |
| It's impossible to forecast whether the worst is behind us with regards to the real estate bust but, if you look at the situation developing in the sub-prime lending market, you could easily conclude that the worst is yet to come. |
|
| Above Posted By:
Dale
| Wed, 17 Jan 2007 10:17:15 EST |
| It looks like the housing market will sustain itself, which is positive and promising. Dropping oil prices definately add to that. |
|
| Above Posted By:
Anonymous
| Tue, 16 Jan 2007 22:37:51 EST |
| I agree there is absolutely no reason out there that rates should rise given the political and economic environment.
Falling oil prices are a positive for the housing market, rates are low.
Our experience is the market is getting better in S Florida and buyers/investors are looking again. This is the best time to buy in next 5 years as rates are low, prices are down and incentives abound.
Our Orlando project has sold over 200 units in the past 3 months.
|
|
| Above Posted By:
Sunil
| Tue, 16 Jan 2007 17:14:31 EST |
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