Market Overview

Data Reveals Stunning Housing Sales Decor, Concern over Mortgage Applications Structural Damage

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Over the past week, housing data flooded news terminals. The Federal Housing Finance Agency reported positive housing appreciation in October.

The Commerce Department's data on the purchased of new homes exceeded projections in November to a five-year high. Despite the rise in mortgage interest rates, homebuilders commented that this increase shouldn't effect the housing recovery in 2014.

The Mortgage Bankers Association reported that mortgage applications hit a 13-year low with mortgage applications activity falling 6.3%.

Housing Prices

This morning, the Federal Housing Finance Agency (FHFA) reported on the monthly House Price Index (HPI) in October. The data reported that the U.S. house price appreciation continued in October 2013, noting a 0.5% increase on a seasonally adjusted basis from September. The October House Price Index marked the twenty-first consecutive monthly price increase in the purchase-only, seasonally adjusted index.

The FHFA reported that house prices were up 8.2% from October 2012 to October 2013. The agency noted that the U.S. index is 8.8% below the April 2007 peak and is roughly the same as the April 2005 index level. The new release added, "For the nine census divisions, seasonally adjusted monthly price changes from September to October ranged from -1.0 percent in the East South Central division to +1.2 percent in the Mountain division, while the 12-month changes ranged from +4.7 percent in the East South Central division to +17.5 percent in the Pacific division."

Purchases of New Homes

According to the Commerce Department in Washington, purchases of new U.S. homes exceeded projections in November, holding near a five-year high. The housing recovery continues to gain momentum even with mortgage rates climbing. The Commerce Department reported that sales declined to 464,000 annualized pace, down 2.1%, following the revised October rate of 474,000. Bloomberg noted that builders are responding to "pent-up demand unleashed by employment gains and record-high stock prices." According to Bloomberg data, the market is on pace to reach 435,100 new homes sold this year.

Last week, the Commerce Department showed that building permits fell 3.1% in November from October to a 1.01 million rate. October's 1.04 million level was the highest since June 2008. The supply of homes fell to 4.3 months from 4.5 months in October. Data shows that there were 167,000 new houses on the market at the end of November, from 179,000 last month.

Purchases of Existing Homes

The National Association of Realtors reported that purchases of existing homes dropped 4.3% to a 4.9 million annual rate. In the week ending on December 19th, the average rate on a 30-year mortgage was 4.47%, according to Virginia-based Freddie Mac McLean. The rate hit a record low a year ago at 3.31% and was at 3.35% in May.

KB Home (NYSE: KBH) commented that homebuilders see this rise in interest rates as a short-term "pause" for buyer demand that won't crimp an acceleration in the housing recovery next year." In a December 19th earnings call, Chief Executive Officer of KB Home Jeffrey Mezger noted, "Higher mortgage rates, higher home prices and lower consumer confidence due to uncertainty in Washington triggered a pause among homebuyers who are now being more cautious. Affordability is at attractive levels, demographics remain strong and there's pent-up demand due to delayed household formation” that will support the market in 2014.

U.S. Mortgage Applications

This morning, Mortgage Bankers Association (MBA) reported that applications for U.S. home mortgages fell for the second week, hitting a 13-year low. An industry group noted that mortgage rates "rose due to a bond market sell-off following the Federal Reserve's decision to pare its bond purchase stimulus in January."

According to the MBA, the seasonally adjusted index of mortgage application activity of both refinancing and home purchasing fell 6.3%, hitting the lowest level since December 2000. Applications fell sharply from this summer as benchmark Treasuries yields rose to a two year high.

On Wednesday, Federal policy-makers chose to taper, which will commence in January with a $10 billion monthly reduction split between Treasuries and mortgage-backed securities to $75 billion. Reuters reported that the rate on a fixed 30-year mortgages averaged 4.64% last week, up 2 basis points from the prior week.

The benchmark of loan requests for home purchases dell 3.5%, reaching the lowest level since February 2012. The refinance sector of total mortgage activity dropped one percent over the past week to 65%.

Shares of SPDR S&P Homebuilders ETF traded as high as 1.065% at $33.22, hitting a 52-week high. KB Home is up 0.77% and shares of Toll Brothers Inc. (NYSE: TOL) is up 0.24%. Shares of Lennar Corp. (NYSE: LEN) are currently up 1.28% at $39.25.

Posted-In: Commerce Department Federal Housing Finance Agency Mortgage Bankers Association ReutersNews Econ #s


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