What’s Ahead For Mortgage Rates This Week – January 2, 2017
Last week’s economic reports were in short supply due to the Christmas holiday. Events reported included Case-Shiller home price indices, pending home sales and weekly readings on mortgage rates and new jobless claims. Consumer confidence was also released.
Most businesses, markets, sciences etc. are always seeking correlations by which one event can be leading indicator of another event. Homes for sale in Chandler, especially Power Ranch homes for sale have always been ideal sources of data for these regression analyses due to their homogeneity.
The big “however” now comes along and knocks all of these indicators down because these long standing relationships between the T-Bill rates and mortgage rates, or even the inverse relationship between mortgage rates and housing prices don’t seem to hold anymore. The housing market in analytical terms is an inefficient market opposed to the stock market which is an efficient market. Inefficient markets have heterogeneous products, prices are not broadcast and readily available to consumers; which makes it very difficult for a change in mortgage rates to be reflected in housing prices. Because of these issues real estate investments have always been attractive. Even if two homes are the identical model and next door to one another, one’s upgrades, or lot size or other features can justify price differences. What does it all mean?
Well one thing we may conclude is that a 1% increase in mortgage rates might increase the monthly cost of home ownership of a $400,000 home by $400 but since this home might have the best color scheme, carpet, granite counters, and other upgrades, the seller doesn’t necessarily have to lower her price any time soon after the rate increase. All we can say with real assurance is that some buyers for that home might be bumped out of the market because they no longer can qualify for the home. Eventually this hypothetical situation will feel the effects of the rate increase but it is very unpredictable, and takes at least 60 days for similar comparable sales to appear before appraisers will adjust the prices. So for the seller this is good news in that they have some wiggle room to get their homes sold; and despite a rate increase, supply/demand conditions still might over-ride the correlation between interest rates and prices!
Reports Indicate No Slowdown in Home Price Gains – Especially in in AZ
Case-Shiller’s October readings for its home price indices showed continued growth in home prices. In spite of rising home prices and mortgage rates, high demand for homes and slim supplies of homes for sale continued to fuel higher home prices. This is especially true in Arizona where at least the first half of 2017 is expected to see a 3% to 5% increase in prices.
According to Case-Shiller’s national home price index for October, home prices rose 5.60 percent on an annual basis as compared to September’s reading of 5.40 percent. The 20-city home price index rose to 5.10 percent from September’s reading of 5.00 percent. Case-Shiller’s 10-city index also gained 0.10 percent in October with a reading of 4.30 percent year-over-year.
Seattle, Washington, Portland, Oregon and Denver, Colorado had the highest year-over-year home price gains in October with readings of 10.70, 10.30 and 8.30 percent respectively. David M. Blitzer, Managing Director and Chairman of the S&P Indices Committee, said that “Home prices and the economy are both enjoying robust numbers,” but he also cautioned that rising mortgage rates and home prices growing faster than wages continue to pose obstacles for some home buyers. The Federal Reserve is expected to raise its federal funds rate in 2017, which is expected to prompt rising mortgage rates.
Mortgage Rates Mixed, Pending Home Sales Fall
This is no surprise as we are coming on the holidays, the most contentious presidential election in history took place, and the initial rate hike shock alarmed some buyers. Pending home sales fell 2.50 percent in November. Analysts said that post-election reaction helped to drive mortgage rates higher, which made homes less affordable for first-time and moderate-income buyers; Sellers and buyers may have postponed decisions to sell or buy as they waited for volatile post-election responses to ease.
According to the National Association of Realtors®, pending home sales fell to their lowest level in almost a year with an index reading of 107.30 in November. September’s reading was 110.00. The holiday season and rising mortgage rates were seen as contributing to fewer pending home sales.
Freddie Mac reported the ninth consecutive week that fixed rate mortgages rose. In the final mortgage rates survey for 2016, the average rate for a 30-year mortgage rose two basis points to 4.32 percent; the average rate for a 15-year fixed rate mortgage was three basis points higher at 3.55 percent. 5/1 adjustable rate mortgage rates averaged 3.30 percent, which was two basis points lower than the prior week. Discount points averaged 0.50 percent for all three mortgage types.
New jobless claims were lower last week with a reading of 265,000 new claims filed. Analysts had expected 270,000 new claims filed based on the prior week’s reading of 275,000 new claims filed.
In spite of rising home prices and mortgage rates, consumer sentiment was higher than expected in December with a reading of 113.70 as compared to expectations of 110.00 and November’s reading of 109.40. Are you looking for the Best Chandler Realtor? How about a Power Ranch Realtor who outsells his competition in Power Ranch, Ocotillo, and Fulton Ranch? Give me a call, I’d love to chat with you…