The Home Buyer's Korner

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August 4th, 2014

What Home Buyers Need to Know for the Week of Aug 4, 2014

The Home Buyer's Korner LogoLast week we got a number of housing related reports. The National Association of REALTORS®, reported pending home sales dropped by 1.10 percent in June. The S&P Case-Shiller Home Price Index reported that May home prices grow at a slower rate of 9.30 percent year-over-year, as compared to April’s year-over-year growth rate of 10.80 percent. And, the Commerce Department provided data that demand for new housing slumped sharply in the first half of the year.

The Federal Open Market Committee (FOMC) of the Federal Reserve issued its customary post-meeting statement on Wednesday and plans to continue reducing asset purchase under it quantitative easing program (QE3) through October when they plan to cease future purchasing.  The current target federal funds rate is however expected to stay in place after asset purchases concludes.  The FOMC noted its concern over housing markets and based on slower home price growth and market activity.

Pending Home Sales dropped 1.10 percent nationwide in June and the first decrease in four months. The index showed home sales:

  • Rose by 1.10 percent in the Midwest;
  • Rose a modest 0.20 percent in the West;
  • Dropped by 2.90 percent in the Northeast;
  • Dropped 2.40 percent in the South.

Pending sales are measured by signed purchase contracts and provide an indicator of future completed sales and mortgage activity.

The 20-City Case-Shiller Home Price Index for May fell by 1.50 percent to a year-over-year reading of 9.30 percent from April’s 10.80 percent, however no cities in the 20-city index reported declining home prices.

My eye remains on Construction Spending.  With its fall by 1.80 percent in June against projections of an 0.30 percent increase and May’s reading of just 0.80 percent increase, it could leads to further housing shortages. Reasons given for lower construction spending included builder are focused on high-demand areas, rising mortgage rates and tight mortgage loan requirements that impact the numbers of home buyers that can qualify for home loans.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, rates saw little change last week. The average rate for a 30-year fixed rate mortgage was 4.12 percent as compared to 4.13 percent the prior week. Discount points were unchanged at an average of 0.60 percent. The average rate for a 15-year fixed rate mortgage fell by three basis points to 3.23 percent with discount points higher by 10 basis points at 0.70 percent. The average rate for a 5/1 adjustable rate mortgage fell by one basis point to 2.38 percent with average discount points of 0.40 percent unchanged.

The Department of Commerce’s Bureau of Labor Statistics posted a national unemployment rate of 6.20 percent for July, which was higher than expectations of 6.00 percent and June’s reading of 6.10 percent. The Non-Farm Payroll Report gave us 209,000 jobs added in July against projections of 235,000 and June’s reading of 298,000 added. While July’s reading was lower, analysts said that job growth points to an ongoing recovery for our labor markets. It’s worth noting that labor markets have been cited in recent months as reasons for slower demand for homes and home builder pessimism.

What’s Ahead for the Week?

Economic news related to housing this week include:

ISM Non-Manufacturing Index for July. The consensus is for a reading of 56.5, up from 56.0 in June, Note: Above 50 indicates expansion;

Manufacturers’ Shipments, Inventories and Orders (Factory Orders) for June. The consensus is for a 0.6% increase in June orders;

Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index;

Initial Weekly Unemployment Claims Report will be released. The consensus is for claims to increase to 305,000 from 302,000.