Weekly Mortgage Matters for Doctors: Prices Still Up

Mortgage Matters – Doctor Mortgage Alliance

 

 

Keeping you updated on the market!

For the week of

January 9, 2017


MARKET RECAP

­­Prices Still Up

The major housing-data providers’ data continue to show rising home prices. CoreLogic is the latest data provider to confirm what most of us already know: Home prices around the country show few signs of backsliding.

CoreLogic’s Home Price Index showed that home prices increased 7.1% year over year in November.  Month over month, prices were up 1.1%.  This is an impressive advance when you consider that mortgage rates were up as much as 50 basis points in November. The housing market continues to show resiliency, and perhaps under-appreciated resiliency.

As for the future, CoreLogic’s chief economist expects the rate of home-price appreciation to abate.  His logic is similar to the logic we’ve offered since mortgage rates took flight in November: Higher interest rates will lead to slower price appreciation.

Because interest rates are a discounting mechanism, they tend to correlate negatively with asset prices. When interest rates rise, asset prices tend to fall, and vice versa. Of course, this is a tendency; it’s no guarantee for any particular market. A home, unlike a stock or a bond, is heterogeneous —  no two homes are alike. In any particular market, home prices could continue to rise with rising mortgage rates.  That said, when the numbers from around the country are aggregated, chances are good that the average rate of home-price appreciation will fall if mortgage rates continue to rise.

Then, of course, we have the obvious logic for home-price appreciation slowing with higher mortgages: Higher mortgage rates raise the cost of buying a home, which leads to lower demand.

As for mortgage rates today, they continue to hold near recent highs, but they’re not holding quite as high as they had for most of December. Rates have actually eased a bit over the past week. A 4.25% quote on a top-tier 30-year loan has been the most prevalent quote lately, but we’re seeing 4.125% turn up more often.

Last week, we said that we wouldn’t be surprised to see a 4.125%-to-4.25% range develop for quotes on a 30-year loan and for that range to hold through the Jan. 20  presidential inauguration. This appears to be the case.

So, we’re unlikely to see a sub-4% quote on a 30-year loan in the near feature. That’s not necessarily bad news.

Another aspect of higher mortgage rates — one we’ve in past missives — is also occurring. Higher mortgage rates have led to higher credit availability. The Mortgage Bankers Association’s Mortgage Credit Availability Index (MCAI) was up for the fourth-consecutive month in December. We’re not surprised. Higher lending rates tend to correlate with easing credit standards. Higher lending rates enable lenders to bring more lower-credit borrowers into the fold. The higher rates compensate lenders for the higher risk.

Yes, mortgage rates are higher than they were this time last year, and they are likely to remain higher, but we see no need to worry.

 

Economic

Event

Release

Date and Time

Consensus Analysis
Consumer Credit

(November)

Tues., Jan. 10,

3:00 pm, ET

$17 Billion (Increase) Moderately Important.  The positive trend in revolving-credit use points to rising consumer confidence.
Producer Price Index

(December)

Fri., Jan. 13,

8:30 am, ET

0.4% (Increase) Important. Signs of rising inflation will embolden Federal Reserve officials to implement more interest-rate increases.
Consumer Sentiment

(January)

Fri., Jan. 13,

10:00 am, ET

98.5% Index Moderately Important. Consumers cite expectations of new economic policies to bolster growth as a positive of the November election.
Is the Outlook Only Partly Sunny?

This past week, the Wall Street Journal ran an article teased with the titled “Partly Sunny Outlook for 2017 Home Sales.” The tease worked and we read the article, though we do have a quibble. The article, as we read it, should have been teased “mostly” sunny.”  Most of what we read jibed with what we’ve been saying for the past few months.

For one, the Journal article highlighted that higher interest rates correlate with higher economic growth. Higher mortgage rates might raise the expense of buying a home, but if the expense can be serviced by improved job prospects brought on by higher economic growth, no harm, no foul.

The Journal article also touched on motivation. Rising interest rates can motive fence-sitters to abandon their uncomfortable seats and get in the game. The prospect of even higher mortgage rates could do more to spur home sales than many people think.

Finally, people just might be less worried about rising mortgage rates than we’ve been led to believe. The Journal article mentioned a survey by Trulia that found that despite rising interest rates only 18% of renters who wish to buy a home were concerned about rising mortgage rates stifling their ability to do so.

Many commentators like to point to 2013 when mortgage rates rose and home sales and lending slowed. But we like to point to 2004-to-2006, when interest rates rose (and rose significantly), and so, too, did housing and lending activity.

 

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