Here is what was at the top of the headlines for the mortgage industry this past week:
1. Mortgage Rates Push Well Into New 2014 Lows
Mortgage rates continued a strong move lower today, benefiting from a global sell-off in risk-related assets. What’s a risk-related asset? In this case, it’s a catch-all term for investments that carry greater risk and greater reward, such as stocks and emerging market currencies. When risk-assets get trounced, bond markets are often one of the safe-haven beneficiaries, and stronger bond markets mean lower mortgage rates.
In the current case, and indeed in most cases where there is a large tidal exchange across the risk spectrum, mortgage rates aren’t able to fall as quickly as more direct beneficiaries like Treasuries. Still, they’re falling. Most of the improvement has been in the form of lower closing costs for the same interest rates quoted yesterday, but some borrowers may be an eighth of a point lower today. 4.5% remains the most prevalently quoted conforming 30yr fixed rate for ideal scenarios , but 4.375% is VERY close at several lenders. When adjusted for day to day changes in closing costs, rates fell an equivalent of 0.03-0.04% today.
While unexpected, the improvement in rates is certainly welcome. The question is whether or not it will carry over into next week. The other question is how much markets will even be concerned with what had been shaping up to be a big FOMC Announcement on Wednesday. If global markets continue in this same vein next week, the momentum could easily overshadow the Fed. The counterpoint and the risk is that such episodes of global risk-aversion and emerging market panic are not uncommon. They happen a few times a year. Sometimes the Eurozone crisis happens and sometimes things blow over. On the occasions where things blow over, rates tend to snap back higher fairly quickly.
2. Existing Home Sales dip Further into One-Year Lows
December existing home sales edged up 1.0 percent to aseasonally adjusted annual rate of 4.87 million from 4.82 million in November and were 0.6 percent below the 4.90 million unit pace in December 2012 according to The National Association of Realtors® (NAR). The November number is a substantial revisionfrom the original estimate of 4.90 million. Last month’s numbers–the worst in a year–already represented a 4.2 percent drop from October. and broke a 29 month streak in which sales outpaced those of the same month the year before.
Despite the fact that the month-over-month numbers can technically be labeled an improvement, December is now the second consecutive month showing deterioration in the year-over-year figures.
NAR is focusing on the positive, saying that existing home sales for 2013 were the strongest in seven years and median prices maintained strong growth through the year. NAR reports that for all of 2013, there were 5.09 million existing home sales, which is 9.1 percent higher than 2012. It was the strongest performance since 2006, the last year of the housing boom, when sales reached 6.48 million.
For the entirety of 2013 the national median existing-home price was $197,100, which is 11.5 percent above the 2012 median of $176,800, and was the strongest gain since 2005 when it rose 12.4 percent.
3. Buyers Flocked to Foreclosures Last Year, and Many Paid Cash
Sales of foreclosed and distressed homes made up 16.2% of all home sales last year, up from 14.5% in 2012, according to RealtyTrac. Overall, U.S. home sales were up 10% year-over-year.
And many deals were done in cold, hard cash. All-cash deals accounted for 29.1% of all home purchases last year, up significantly from 19.4% the year before, RealtyTrac said.
The surge in sales of distressed properties comes despite the fact that far fewer Americans lost their homes to foreclosure last year.
Distressed properties are attractive to buyers because they tend to be significantly cheaper. The median home price of a foreclosed or bank-owned property was $108,500 in December compared with $174,400 for non-distressed properties.
Institutional investors, including hedge funds and private equity groups, were buying up homes of all types last year including foreclosures. During the year, 7.3% of all home sales were to investors, up from 5.1% the year before.
“It may surprise some to see distressed sales rising in 2013 given that foreclosure starts dropped to a seven-year low for the year,” said Daren Blomquist, spokesman for RealtyTrac. “[But] there are still more than 1.2 million properties in the foreclosure process or bank-owned, providing a sizable pool of inventory that the housing market is in the process of absorbing.”