Blog - Jeff Cost

Pending Home Sales Index Hits A 2-Year High

July 3, 2012 by Jeff Cost

Pending Home Sales Index Homes are going under contract at a quickening pace.

In May, for the second time in 3 months, the Pending Home Sales Index crossed the 100 barrier, stretching to 101.1. A “pending home sale” is a home under contract to sell, but not yet sold.

Statistically, the Pending Home Sales Index reading is significant for two reasons.

First, the index’s reading is at its highest since April 2010. From this, we infer that today’s pace of home buying in Kentucky and nationwide is approaching the “stimulated” levels of two years ago — but without the federal stimulus.

This is a positive signal for the housing market.

Second, because the Pending Home Sales Index is a relative index; and, because it was assigned a value of 100 upon its inception in 2001, readings higher than 100 imply that the housing market is performing better than it did during the index’s first year.

2001 happened to be a strong year for housing. 2012, it seems, is shaping up to be a better one.

And, there’s another reason why the Pending Home Sales Index matters so much to buyer and sellers of Cincinnati — the Pending Home Sales Index is among the few “forward-looking” housing market indicators.

Rather than report on how the housing market looked 30-60 days in the past, as the Case-Shiller Index does; or the Existing Home Sales report, the Pending Home Sales Index looks 30-60 days to the future.

80% of homes under contract sell within 2 months so, as the Pending Home Sales Index goes, so goes housing. Based on May’s data, therefore, we can assume that home sale figures will rise through the summer.

If you’re shopping for homes right now, consider going under contract while the market remains somewhat soft. Mortgage rates are low and so are home prices. It makes for good home-buying conditions.

What’s Ahead For Mortgage Rates This Week : July 2, 2012

July 2, 2012 by Jeff Cost

EU affecting U.S. mortgage rates Mortgage markets improved only slightly last week despite a large 2-day rally that lasted through Wednesday and Thursday.

Unfortunately for mortgage rate shoppers in Cincinnati , markets were worse throughout the other 3 days of the week, which kept mortgage rates from dropping to new all-time lows.

As with many weeks since the start of the year, political and economic action within the Eurozone dictated the direction of domestic mortgage rates. Last week’s 2-day EU Summit was the major driver of markets.

In the days leading up to the summit, mortgage rates worsened as optimism in the summit’s outcome grew. This is because a stable Europe is good for the world’s economy which, in turn, encourages Wall Street investors to move money from “safe investments” such as U.S. mortgage bonds into more risky ones such as equities.

This creates an excess supply of mortgage bonds which causes mortgage rates to move higher.

On the day prior to the summit, though, optimism faded. Several Eurozone leaders expressed an unwillingness to compromise with each other and the rhetoric drove investors back into “safe” asset classes, which explains the mid-week drop in mortgage rates.

However, Friday, in a surprise move, EU officials announced a plan to recapitalize Europe’s banks, and to reduce borrowing costs for Spain and Italy. Once again, this puts investors in a risk-taking mood, and mortgage rates rose in response.

The news in Europe overshadowed strong housing reports here in the United States.

New Home Sales and the Pending Home Sales Index both gave strong results and inflationary pressures were shown to be in check. The housing market continues its slow, steady recovery.

This week, mortgage rates are expected to remain volatile. The markets have had the weekend to pick through the EU agreement and, later this week, the Bureau of Labor Statistics will release the June 2012 Non-Farm Payrolls report. In addition, this is a holiday week so trading volume is expected to be lighter-than-usual.

Mortgage markets will be closed Wednesday.

FHFA : Home Values Up 3% Since Last Year

June 29, 2012 by Jeff Cost

HPI from April 2007 peak

The Federal Home Finance Agency’s Home Price Index shows home values up 0.8% in April on a monthly, seasonally-adjusted basis.

April marks the third consecutive month during which home values increased and the index is now up 3 percent from last year at this time.

As a home buyer in Cincinnati , it’s easy to look at the Home Price Index and believe that its recent, sustained climb is proof of a broader housing market recovery. Ultimately, that may prove true. However, we cannot base our buy-or-sell decisions on the HPI because, like the private-sector Case-Shiller Index, the Home Price Index is flawed.

There are three main flaws in the FHFA’s Home Price Index. They cannot be ignored.

First, the FHFA Home Price Index’s sample set is limited to homes with mortgages backed by Fannie Mae or Freddie Mac. By definition, therefore, the index excludes homes with mortgages insured by the FHA.

5 years ago, this wasn’t such an issue because the FHA insured just 4 percent of mortgage. Today, however, the FHA’s market share is estimated to exceed 30 percent. This means this the HPI excludes more than 30% of U.S. homes from its calculations right from the start.

The index also excludes homes backed by the VA; jumbo mortgages not securitized through the government; and, portfolio loans held by individual banks.

Second, the FHFA Home Price Index is based on the change in price of a home on consecutive home sales. Therefore, it’s sample set cannot include sales of new home sales, nor can it account for purchases made with cash because cash purchases require no mortgage.

Cash purchases were 29% of the home resale market in April.

Third, the Home Price Index is on a 60-day delay.

The report that home values are up 0.8% accounts for homes that closed two months ago, and with contracts from 30-75 days prior to that. In other words, the Home Price Index is measuring housing market activity from as far back as January.

Reports such as the Home Price Index are helpful in spotting long-term trends in housing but data from January is of little help to today’s OH home buyers and sellers. It’s real-time data that matters most and the best place to get real-time housing market data isn’t from a national home valuation report — it’s from a local real estate agent.

Pending Home Sales Index Hits A 2-Year High

What’s Ahead For Mortgage Rates This Week : July 2, 2012

FHFA : Home Values Up 3% Since Last Year

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