MARKET RECAP
In news that surprised no one, the pending home sales index surged to 102.9 in March. We all expected the months heading into April would produce more home sales, and that's the way it's playing out. What's more, it's likely to continue to play out over the next couple months, given closings usually occur a month or two after the contract has been signed.
Of course, the expiring federal tax credits are the impetus for the spring rush. Most market watchers are expecting a drop once they've worked their way through the system, so we shouldn't be terribly disappointed if sales growth stalls after being artificially stimulated.
That said, we remain optimistic. We think the housing market is sufficiently stable to stand on its own, particularly when considering the latest pricing data released by PMI Mortgage Insurance, which shows the risk of continued price declines is shrinking. Its latest report finds that 93% of the 384 metropolitan statistical areas it follows posted declining risk scores in the fourth quarter of 2009.
In addition to finding a less risky pricing environment, buyers are also finding a more welcoming lending environment. According to the Federal Reserve's latest survey, most banks didn't tighten lending standards during the first quarter of 2010. The survey also showed more banks expressing a greater willingness to lend. We've stated in previous newsletters that an improving economy goes hand-in-hand with less stringent underwriting, because lending is perceived as less risky in a growing economy. We expect further easing as the economy continues to grow, enticing more marginal borrowers into the market.
Consumer spending is another important measure of an economy's health. On that front, personal consumption posted a 0.6 percent gain in March, following a 0.5 percent jump the month before. Economists have been saying for months that the economic recovery would be anemic until the consumer sector became healthier. It appears healthier today.
So, we have a growing economy, stabilizing home prices, and possibly easing underwriting standards. That sounds like a recipe for higher mortgage rates, but that wasn't the case last week. In fact, rates dropped across the board and held near all-time lows. Is it possible we've cried “wolf” once too often and that low rates are now a permanent fixture of the economy?
We don't think so, because the factors that most influence interest rates still point to higher rates. The financial calamity in Greece was given as the primary reason for last week's rate decrease. Money moved out of riskier European investments into safer US Treasury and government-insured mortgage-backed securities, In short, more money was available for mortgage lending; hence the lower rates. But this too shall pass, and likely sooner than most market watchers expect.
Comments