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Mortgage Market in Review – May 19, 2014

Market Comment

Mortgage bond prices finished the week only slightly higher which pushed rates lower. Retail sales rose 0.1% versus the expected 0.3% increase. Weaker than expected sales data put a dent in the narrative that the economy is on solid footing and helped rates improve. The Producer Price Index rose 0.6% versus the expected 0.2% increase. The core, which excludes volatile food and energy prices, rose 0.5% versus the expected 0.2% increase. We got a big boost from the weaker than expected manufacturing data. Industrial production fell 0.6% versus the expected 0.1% decline and rates improved Thursday morning. Unfortunately most of the gains seen earlier in the week were erased Friday morning following stronger than expected housing data. Housing starts came in at 1072k versus the expected 975k. Mortgage interest rates fell by about 1/8 a discount point for the trading week despite the continued volatility.


Date & Time

Fed Minutes Wednesday, May 21,
2:00 pm, et
None Important. Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, May 22,
8:30 am, et
305k Important. An indication of employment. Higher claims may result in lower rates.
Existing Home Sales Thursday, May 22,
10:00 am, et
4.62m Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Leading Economic Indicators Thursday, May 22,
10:00 am, et
Up 0.4% Important. An indication of future economic activity. A smaller increase may lead to lower rates.
10-year Treasury TIPS Auction Thursday, May 22,
1:15 pm, et
None Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates.
New Home Sales Friday, May 23,
10:00 am, et
392k Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

Housing Affordability

Each month the National Association of Realtors (NAR) releases their Housing Affordability Index. The index measures the affordability of a home based on what a typical family earns. It assumes the borrower has a 20% down payment (80% loan to value) and a “front ratio” or housing ratio not to exceed 25% of gross income. It is based on a typical home at the national and regional levels based on the most recent monthly price and income data.

An index of 100 is defined as the point where a median-income household has enough income to qualify for the purchase of a median-priced existing single-family home. Housing prices and mortgage rates influence the index. Generational low mortgage rates coupled with lower home prices following the housing collapse left the index at an all time high in 2012. That changed over the past year and a half.

According to NAR, the housing affordability index hit 196.5 in 2012. That means that the typicalfamily earned 196% of the income necessary to purchase the typical house. Put another way, the same family could afford almost twice as much house. Unfortunately rising home prices and slightly higher mortgage interest rates in 2013 caused that number to fall to 175.8.

Rising housing prices coupled with rising interest rates could continue to dent affordability. Recent data on housing indicates the market is wobbly despite some pockets of strength. Buyers who take advantage of the current situation of low rates and affordable housing are set to secure their financial futures. The future is always uncertain but there is no uncertainty in these historically favorable rates. Now is a great time to take advantage of them.

Copyright 2014. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.