Mortgage Market Update

On first blush, last week's economic news seemed dire. But what you should keep in mind is that economic statistics such as confidence numbers, home prices, and unemployment rates are lagging indicators. They tell us where we have been, not where we are going. The stock market, in contrast, is a leading indicator. People invest based on where they think the economy is going. The good news is, they think the economy is improving. The Dow Jones Industrial Average tacked on another 400 points last week, and is up 2,000 points in the past month alone. More encouraging, the dour employment numbers released on Friday barely caused a ripple among investors.
Many media types cited the change in accounting rules, which will allow banks to record certain securities (like lower-rated mortgage-backed securities) on their balance sheets at market value but not necessarily fire-sale value, for the most recent surge in stock prices. The new rule helps, to be sure, but it's really more cosmetic than economic, so it's unlikely to have been much of a catalyst. The real catalyst, the one under-reported in the press, is that more investors see an improving business, housing and lending environment.

Still a Buyer's Market....
The National Association of Realtors’ pending home sales index (PHSI) rose to 82.1, in February, beating consensus expectations for a 78.1 index reading. What's more, the PHSI's affordability index rose 0.9% to a new record high level of 173.5, which is 36.3% higher than it was a year ago.
Lower home prices obviously contributed to the record-high affordability index posting, and so did record-low mortgage rates, which are now regularly being quoted below 5% on the prime 30-year fixed-rate loan and near 4.5% on the prime 15-year fixed-rate loan. But good things don't last forever. We've been saying over the past few weeks that it's unlikely these rates will go much lower. Our opinion is supported by John Koskinen, interim CEO of Freddie Mac, who stated last week that home loan rates are near their bottom and that any further decreases will be small.
Some pundits have been speculating that deals are driving the housing market more than mortgage rates these days, and perhaps they are right. They also speculate that even better deals lie ahead because consumers are overly cautious. Buyers are certainly cautious, but they should probably be taking their cue from the stock market, which is hinting that the best deals might not be around much longer, instead of unreliable punditry.