Daily Gains Letter

mortgage rates


October’s Upbeat Home Sales Good News for Bears?

By for Daily Gains Letter | Dec 6, 2013

Good News for BearsGood news is not always what it seems. On the surface, October’s new U.S. housing market sales numbers came in well above the forecast. But dig a little into the foundation of the report, and you’ll find more than a few reasons to be skeptical.

But before we dig deeper, let’s first take a look at the overall numbers. In October, sales of new single-family houses came in at a seasonally adjusted rate of 444,000, a whopping 25.4% increase month-over-month above the revised September rate of 354,000 and a 21.6% increase year-over-year. (Source: “New Residential Sales in October 2013,” United State Census Bureau web site, December 4, 2013.)

Those are pretty solid numbers—at least, until you factor in the 20% margin of error on the numbers provided by the U.S. Census Bureau and Department of Housing and Urban Development.

On top of that, sales for June, July, August, and September were all revised lower. Sales were revised downward by 0.9% in June, 4.4% in July, 10% in August, and 6.6% in September.

It’s also all about perspective. On one hand, you could champion the U.S. housing market recovery by noting that the 25.4% increase from September was the biggest one-month gain in more than 30 years! On the other hand, October’s new U.S. housing market home starts number is tempered a little when you consider the September 2013 rate of 354,000 was the weakest reading since April 2012.

Still, you can’t ignore the fact that new starts in the U.S. housing market are up month-over-month—but what’s fueling the growth? It can’t be a result of sustained jobs growth, as the … Read More


More Evidence Housing Market Is Turning Cold

By for Daily Gains Letter | Nov 22, 2013

Evidence Housing MarketThe U.S. housing market is in trouble, and it’s foolish to believe that it’s going to show gains like it did earlier this year and in 2012. More and more evidence is lining up in favor of the housing market in the U.S. economy seeing stagnant growth, or maybe even heading for a downturn.

It is not stressed enough that the housing market depends on home buyers; if they don’t buy, robust growth doesn’t occur.

This phenomenon is currently taking place in the U.S. housing market—the home buyers are shying away. According to the National Association of Realtors, sales for existing (already built) homes declined for the second consecutive month in October. For that month, first-time home buyers only accounted for 28% of the existing home sales in the U.S. housing market. This amount is equal to September and lower than October of 2012, when first-time home buyers made up 31% of all existing home sales. (Source: “October Existing-Home Sales Cool but Low Inventory Drives Prices,” National Association of Realtors web site, November 9, 2013.)

The reason this is happening is because the mortgage rates are continuously increasing. In October, the Freddie Mac 30-year fixed mortgage rate was 4.19%, while this rate was 3.38% a year ago—an increase of 24%.

Sadly, rates are expected to increase further. In a statement, the Federal Reserve implied that it might be moving ahead with the tapering of quantitative easing in the upcoming months, though no date was provided; when we heard something similar in May, we saw an increase in bond yields, which mortgage rates are highly correlated upon. This time will be … Read More


Finally, Someone Else Says Housing Market Rebound Suspicious

By for Daily Gains Letter | Nov 8, 2013

Housing Market Rebound SuspiciousIt’s as bad as expected, or should I say so far so good? I have been critical about the housing market in the U.S. economy for some time now; I don’t buy the blind optimism that is heard in the mainstream these days, which states the housing market will continue to increase at the rate we have seen in 2012. I stand in the camp that says we are not going to see a crash like the one we saw not too long ago, but at the same time, the increase in the U.S. housing market won’t be as exuberant as we witnessed last year—in fact, we might even see a correction going forward.

It’s not just me saying this; Fitch Ratings also agrees with this notion. According to its U.S. RMBS Sustainable Home Price and Economic Risk Factor Report, home prices in the U.S. housing market are overvalued by 17% as per Fitch’s Sustainable Home Prices (SHP) model. The rating agency said that the U.S. housing market has increased 20% year-over-year; this is the highest growth rate in any time in the last 10 years. (Source: “Fitch: Several U.S. Cities Nearing Bubble-Year Home Price Peaks,” Fitch Ratings web site, November 6, 2013.)

Here’s why the housing market looks to be facing hardships going forward.

The U.S. economy is still in trouble, as the financial crisis has left deep wounds that haven’t healed. If someone doesn’t have enough income to pay for their expenses and they’re relying heavily on government assistance, such as food stamps, would they actively look to buy a home? I don’t think it would be their … Read More


Why the Real Estate Market Is Still a Guessing Game

By for Daily Gains Letter | Sep 27, 2013

Real Estate MarketTwo housing indicators were released earlier this week, and while the numbers seemed divergent, they both really say the same thing—that the U.S. real estate recovery is chugging along, but the current pace is unsustainable.

On Tuesday, a report from S&P/Case-Shiller showed property values in 20 U.S. cities had increased 12.4% year-over-year in July. This marked the largest annual gain since February 2006, when the market was nearing the height of the U.S. housing bubble. (Source: “Home Prices Steadily Rise in July 2013 According to the S&P/Case-Shiller Home Price Indices,” Spice-Indices.com, September 24 2013.)

On top of that, July marked the fourth consecutive month that all 20 cities in the index recorded monthly gains. However, 15 of those cities experienced slower month-over-month gains, suggesting the rate of home price growth may have peaked.

That said, it’s pretty hard to argue we’re in a housing bubble. Since bottoming in March 2012, home prices have rebounded by 21%—but they’re still 22% below their July 2006 pre-Great Recession peak.

Not so coincidentally, mortgage rates have been running in step with the U.S. real estate market and are up more than a full percentage point since May; today, a 30-year fixed mortgage rate averages around 4.5%. Erring on the side of caution, investors sent rates higher as they speculated about whether or not the Federal Reserve would begin to taper its $85.0-billion-per-month quantitative easing program.

Not only has this made borrowing more expensive, but it has also made home ownership less affordable. Those on the cusp have been rushing in from the sidelines to beat the banks’ higher mortgage rates, and in an excited … Read More


Why There’s Trouble Ahead for the Housing Market

By for Daily Gains Letter | Sep 17, 2013

Housing MarketThe housing market is one of the biggest challenges currently faced by the U.S. economy. When it improves, or when we see an increase in activity, then it can be assumed that there will be some economic growth.

For example, if there’s activity in the housing market, meaning that home buyers are buying homes, those home buyers are going to need things that are necessary to run households. This phenomenon has long-lasting effects: it increases consumer spending in the U.S. economy and creates jobs.

When the housing market in the U.S. economy improved in 2012, we saw the gains; but going forward, we are seeing a significant amount of trouble.

First of all, the U.S. economy is in jeopardy, on the brink of a monetary policy shift—the primary concern being quantitative easing. We are hearing the Federal Reserve will start to slow its asset purchases in September and end the quantitative easing by next year. This monetary policy by the Federal Reserve kept the mortgage rates in the U.S. economy low. This was great, as it gave Americans incentive to buy homes; as a result, we saw the housing market improve. Now, with the speculations on quantitative easing ending, the mortgage rates in the U.S. economy are increasing.

Consider the 30-year conventional mortgage rate tracked by Freddie Mac. In August, this rate stood at 4.46%; in the same period a year ago, it was at 3.60%, meaning it has increased almost 24% in the matter of a year. (Source: “30-Year Fixed-Rate Mortgages Since 1971,” Freddie Mac web site, last accessed September 11, 2013.)

While some will argue that these mortgage … Read More


Recent Data Screams Trouble Ahead for Housing “Recovery”

By for Daily Gains Letter | Aug 30, 2013

Recent Data Screams Trouble Ahead for Housing “Recovery”The U.S. housing market is starting to show signs of stress, something I have been expecting for some time. Will the housing market see negative growth? Time will tell, but as we are marching ahead, one thing is becoming very clear: if it grows, the rate won’t be as robust as we saw during 2012.

In 2012, the S&P Case-Shiller 20-City Home Price Index—an indicator of the U.S. housing market that tracks home prices in 20 major cities—increased 7.08%. The index stood at 136.88 in January, and in December, it settled at 146.88. (Source: “S&P Case-Shiller 20-City Home Price Index,” Federal Reserve Bank of St. Louis web site, August 27, 2013.)

The issues at hand are the problems facing the housing market—namely, home buyers’ willingness to buy and the increasing inventory.

Home buyers had a good incentive to get into the housing market in 2012 because of low mortgage rates. Consider the standard 30-year fixed mortgage reported by Freddie Mac: in July of 2012, it was 3.55%, and in December, the rate went as low as 3.35%. (Source: “30-Year Fixed-Rate Mortgages Since 1971,” Freddie Mac web site, last accessed August 28, 2013.)

Fast-forward to July of this year: rates have increased more than 23%, standing at 4.37%. Those who are looking for a home are driven away from the housing market by rising mortgage rates, making homes less affordable.

That said, I agree the rates are nowhere close to what they were back in the 1980s, but they have shot up really quickly in a very short period of time. You also have to consider that home buyers in the … Read More