With The Year Half-Over, How Accurately Did Economists Predict 2009
At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.
- Some said housing would rise
- Some said housing would fall
- Some said mortgage rates would rise
- Some said mortgage rates would fall
And nobody predicted just how big the government’s stimulus package would be.
Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future. Economists can make educated guesses about the future, but they’re guesses nonetheless.
It’s like watching the Weather Channel. A meterologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.
So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood. These are not the types of predictions we get from the pundits.
There’s another 6 months until 2010 and there’s no reason to expect the current trends to change.
The world is unpredictable and so is the U.S. economy. Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.
After all, the weatherman’s been wrong before.
What’s Ahead For Mortgage Rates This Week : June 29, 2009
Mortgage markets improved last week on the heels of benign economic data and a non-inspired press release from the Federal Reserve.
Aside from trader momentum, 3 market-moving events helped set the pace last week:
- Housing data hinted at strength
- Jobless data showed softness
- The Fed said growth appears on-track
The combination of the three created volatility that — for just the second time in the last 8 weeks — worked in favor of rate shoppers.
Mortgage rates changed a lot last week, but they trended lower overall.
Already, however, markets are looking ahead to this week’s holiday-shortened trading sessions. There is a ton of data to be released and as the week progresses, the ever-falling market volume could create some wide swings in mortgage rates.
The mystery is whether rates will be getting better or worse.
On Tuesday, markets will get Consumer Confidence and Case-Shiller Index data at 9:00 AM ET. The Case-Shiller Index is a home price measurement and it always gets a lot of press. Strength in either number should lead mortgage rates higher. Weakness should help rates ease.
Then, on Wednesday, Crude Inventories should take the spotlight. Normally, we don’t watch this data point too closely but with gas prices easing last week, rising oil supplies could mean even lower gas prices ahead. This is anti-inflation and a good sign for mortgage rates.
And lastly, on Thursday, the government releases June’s jobs report. This report is always a market-mover — good or bad. And with trading volume low by Thursday, mortgage rates should move more than “normal”.
Be ready to lock at a moment’s notice this week. Mortgage rates continue to be volatile and the holiday-shortened week won’t do anything to counter that. If you’re the nervous type, when you see a rate that fits your budget, consider locking it in.
In Another Good Sign For The Housing Market, Builders Are Clearing Out Their Inventory
If you only saw the headlines this week, you may have missed another positive sign in the housing market.
According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.
Unfortunately, the New Homes Sales story wasn’t positioned as a positively by the press. Instead, the most common headline on the data read “New Home Sales Dip 0.6%” with many journalists referring to the figures as “weak” or “disappointing”.
Only, that’s not completely true.
See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.
And that’s exactly what happened in May.
New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error, The “headline data”, in other words, was just a guess.
The press reported it anyway.
Nonetheless, as it relates to the economy, falling home inventories are a positive. Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.
So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.
3 More Signs Of A Strengthening Housing Market
The housing market got another dose of good news yesterday.
According to the National Association of REALTORS, the number of homes sold in May increased for the third straight month and the national housing supply fell by 5 months.
Furthermore, first-time home buyers are accounting for nearly one-third of the market activity.
But, before we declare a bottom in housing, it’s important that we remember the First Rule of Real Estate:
All Real Estate Is Local
National housing statistics like Existing Home Sales are painted with a very broad brush. They lump disparate locales such as San Francisco and Seattle into one sample set and don’t account for regional differences, let alone neighborhood ones.
Furthermore, getting down to a city-by-city, or even street-by-street basis, we can always find homes that are selling quickly and home that are languishing. Real estate is highly local and subject to countless influences.
That said, the national data isn’t completely useless. From the patterns, we can infer that low mortgage rates, ample home supply and available tax credits are providing a quantifiable boost to the broader real estate market.
And based on recent pending sales data, we can expect June and July’s Existing Home Sales figures to be similarly strong to May.
Therefore, if you’re in the market for a new home right now — or plan to be soon — be conscious of home inventory levels in your target neighborhoods. Fewer homes on the market usually means less ability for buyers to negotiate and that leads to higher sales prices.
Plus, the NAR is reporting buyer activity up 10 percent from last year.
The housing market may not be fully recovered in every housing market just yet, but in studying the data, a lot of the pieces appear to be falling into place.
Like To Play It Cautious? Consider Rate Locking Ahead Of Wednesday’s Federal Reserve Meeting.
The Federal Reserve begins its scheduled two-day meeting this morning.
It’s one of 8 scheduled meetings for the Federal Open Market Committee this year.
When the FOMC meets, it discusses the financial and economic conditions around the country and, when appropriate, the group makes new policy meant to speed up or slow down the economy.
The main tool for reaching this goal is the Fed Funds Rate and, earlier this year, the FOMC lowered it to “near-zero” percent in an attempt to stimulate growth.
But the Fed has other tools at its disposal, too, not the least of which is its $1.25 trillion pledge to the mortgage markets.
Now, if you’ll remember, the Fed made that pledge in two parts:
- Part 1 came in November 2008 for $500 billion
- Part 2 came in March 2008 for $750 billion
After each announcement, mortgage rates reflexively dropped and stayed low for a period of a day or two. Then, fears of inflation set in on Wall Street, causing mortgage rates to pop back up because inflation is a mortgage-rate killer.
The Fed isn’t expected to increase its mortgage market commitment this week, but because mortgage rates are above the government’s “target zone”, it’s possible that the FOMC uses its post-meeting press release to give markets some guidance and its plan for the next several months.
A statement like this could alternately raise mortgage rates or lower them, depending on what the Fed says.
It’s for this reason that floating a mortgage rate through tomorrow afternoon is extremely risky. The Fed could say nothing about mortgages, or it could say a lot. Either way, a small, quarter-percent change in mortgage rates can add tens of thousands of dollars to the lifetime cost of a person’s pending home loan.
What Consumer Sentiment Surveys Mean To Housing Markets
Americans are feeling better about their budgets right now, raising the possibility of a full economic recovery.
According to a University of Michigan and Reuters, Consumer Sentiment rose for the fifth straight month in June.
Consumer Sentiment is now at its highest levels since September 2008, the month in which Lehman Brothers failed, Fannie Mae and Freddie Mac were nationalized, and the global financial crisis is believed to have peaked.
Rising confidence levels are important to the economy — and to housing –because a confident consumer is more likely to make the big-ticket purchases that propel the economy forward.
This includes buying new homes.
That said, the Consumer Sentiment Survey has its flaws.
For one, the survey’s sample set includes just 500 families. This is hardly a cross-section of America. Secondly, when people feel better about their finances, it doesn’t always lead to additional consumer spending — it could lead to more saving.
What people say they’ll do and what they actually do can be two very different things, but if consumer spending does increase in the months ahead, expect home sales to benefit on the willingness of families to “take more chances” and expect mortgage rates to suffer on concerns for inflation.
What’s Ahead For Mortgage Rates This Week : June 15, 2009
The mortgage market roller coaster continues. Markets worsened badly in the early part of last week, before rallying into Friday’s close.
Overall, mortgage rates were slightly higher for the week even though — briefly — they rose to levels not seen since November 2008.
Last week marks the third week in a row and the sixth out of the last seven that mortgage rates increased.
It’s not all bad news for mortgage rate shoppers, however. The market’s surge higher appears to be slowing and its momentum may start to reverse.
See, mortgage rates don’t come from thin air. They’re based on the price of mortgage-backed bonds and, over the last few weeks, it seems as if nobody on Wall Street wanted anything to do with them. A massive sell-off that caused bond prices to plummet and mortgage rates to soar.
Freddie Mac says rates are up 3/4 percent in the last 3 weeks but loan officers will tell you that’s undercutting it. Conforming mortgage rates are up more than 1 percent since Memorial Day.
The biggest reason for the sell-off was that markets feared a runaway inflation scenario. The U.S. Treasury has assumed an unprecedented debt load this year and to repay it, markets expect the government to print more cash — an inflation-inducing scenario.
However, when a number of high-profile investors and a country said last week that their faith in the U.S. economy remains strong, markets viewed it as an endorsement of government-issued debt. It served as Thursday and Friday’s rate-dropping catalyst.
This week, mortgage rates will move on three points:
- Data, including key inflation and housing reports
- Rhetoric, including 5 Federal Reserve member speeches
- Momentum, including technical trading patterns
It’s unclear whether these factors will lead rates higher or lower, but one thing has been clear lately — when mortgage rates change, they change quickly.
Therefore, if you’re shopping for a rate and find one that fits your budget, consider locking in right away. With rates changing every few hours, it’s likely that if you wait too long, the rate will be gone.
What’s Ahead For Mortgage Rates This Week : May 26, 2009
Mortgage markets reacted poorly to not-as-strong-as-expected housing data and employment data last week causing mortgage rates to rise on the week overall.
It was the third time in 4 weeks that mortgage rates were up.
To the detriment of rate shoppers, mortgage rates were especially volatile Thursday and Friday.
As an increasing number of traders punched out ahead of the 3-day weekend, the mortgage pricing swings grew wider and wider. Rates were at their lowest last week on Wednesday morning. By Friday, some mortgage rates were higher by as much as 3/8 percent.
This week, with traders coming back to work, the pace of change should slow a bit, if not for the volume of closely-watched data expected to be released.
The data with the largest potential impact on mortgage rates this week is related to the housing market. There will be 3 separate reports — each expected to show that housing is still weak, but not as weak as it was.
- Tuesday: Case-Shiller Price Index
- Wednesday: Existing Home Sales
- Thursday: New Home Sales
However, because real estate is local in nature and these reports are broadly national, it’s important to not read into them too much. They’re good for an overview but shouldn’t be used as the basis for an offering price.
In addition, there will be two consumer confidence surveys released — one on Tuesday and one on Friday.
Consumer surveys can be important in a recovering economy because as confidence rises, spending often does, too, and consumer spending represents two-thirds of the U.S. economic engine. If confidence is rising, expect the stock market to benefit and the mortgage bond market to suffer.
This would lead mortgage rates higher.
It’s unlikely that mortgage markets will display the same volatility this week as compared to last week, but that doesn’t mean that mortgage rates won’t change. With so much data crossing the wires in the next 4 days, it’s likely that Friday’s rates will be different from today’s.
Therefore, if you’ve found a rate and payment with which you can be comfortable, consider locking it in. It’s unlikely to last long.
Over 24 Hours, Mortgage Rates Shoot Higher
Rates go up, rates go down. Catch them while you can.
After Wednesday’s mortgage market rally drove rates down by a bunch, Thursday’s sell-off pushed them right back up.
This has been a common pattern in the skittish world of mortgage rates this year.
With the U.S. economy still teetering between recession and growth, markets are looking for signals anywhere it can find them. Thursday’s clue came from a government report showing that more Americans are collecting unemployment benefits than at any point in history.
Strangely, mortgage rates rose on the news.
We call it “strange” because weak economic data has tended to draw mortgage rates lower lately to the benefit of prospective home buyers and would-be refinancers. Lower rates make homes more affordable.
Thursday, though, the pattern broke.
The main reason why mortgage rates rose Thursday isn’t because of the employment report or any other piece of data. Rates rose Thursday for the same reason that they had dropped the day prior — the Federal Reserve.
On Wednesday, the released minutes from the Fed’s last meeting suggested that the group might make a larger mortgage market intervention. On Thursday, in the face of worsening jobs data, markets bet the Fed wouldn’t.
Mortgage rate shoppers, unfortunately, got caught in the crosshairs.
Rates can — and do — change quickly, without warning. And, thus far this year, the changes have been extra sudden. This is one reason why it’s often prudent to lock a mortgage rate as soon as you find one that’s agreeable. Wait too long, and it could be gone.
Expect more volatility today with traders leaving early for Memorial Day Weekend. Less volume means more chances for rates to change.
Housing Starts Are No Longer Falling, Another Positive Signal In Housing
A “housing start” is a new home on which construction has started and, for the fourth straight month, single-family home construction remained flat in April.
For the battered housing market, this is the latest in a series of signals that a long-awaited turnaround is coming.
- The number of homes under contract to sell are rising
- The national housing inventory is down by nearly 1 million from March 2009
- Home values are rising, according to a government report
The current plateau in Housing Starts may indicate that builders are more confident in the economy, and that Americans are, too. Especially in light of the freefall over the past few years.
Single-Family Housing Starts have hugged the 360,000 mark since January 2009.
However, there is a footnote to the story.
As noted by the Commerce Department in its official report, the April Housing Starts conclusion is suspect because of the data’s large Margin of Error. Had the government’s sample set included a different series of data, in other words, it may have concluded that housing starts had fallen instead of staying flat. Or risen.
We won’t know the final results of the report until 3 months from now but if the initial figures hold, it will fortify the argument that the housing market has, indeed, found its bottom.
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