A Prophet on Interest Rates, But What Does This Mean for Housing?
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Interest rates are like the weather: They change frequently. More important, if you can get it right predicting them, you can look like a genius. But if you get it wrong? Well, you look like something else. So far, we've got it right on interest rates. At the beginning of the year, we proffered that the 30-year fixed-rate loan would likely vibrate between 4.25% and 4.5%. Leaving points aside, that's pretty much been the case, at least based on the national average-rate data compiled by Bankrate.com and Freddie Mac . Of course, we want to keep our chest pounding to a mild thump: We also said 5% on the 30-year loan was in the cards by the end of 2014. The 30-year loan hasn't exactly shown signs of bolting north. To the contrary, the rate has been steadily declining over the past month and is about where it was in November. That said, we're sticking with our 5% prediction, even if we are almost half way through 2014. We like how the job numbers are trending, which is higher. We suspect when we get a first glimpse of second-quarter economic data, the numbers will be significantly improved from the first quarter. Job growth, after all, is reflective of economic growth. But what about housing? We like the outlook for housing – a lot. We expect sales and prices to trend higher. What's more, we would not be put off by rising interest rates as long as the economy is grinding forward to support higher job and wage growth. (Wage growth, by the way, is indicative of rising labor productivity, and that, too, has been rising.) To restate the obvious, we are unconcerned with rising interest rates. Indeed, we welcome them when they come accompanied with rising economic activity. The lower rates that have bubbled to the surface in recent weeks are something of an anomaly, in our opinion. When signs of sustained growth become more evident, you can be assured interest rates will rise. But housing will rise too. When we look back to the early 2000s, and a little beyond, we find that mortgage rates were a percentage point or two higher. But it was no big deal. The economy was humming along, and so was housing. In the meantime, we are still struggling a bit. Last week, we were pleasantly surprised to see purchase applications soar 9% and take the lead over refinances in total mortgage activity. Unfortunately, momentum petered out. On Wednesday, the Mortgage Bankers Association reported purchase activity had dipped 1% for the seek of May 9; this despite mortgage rates falling to a six-month low. Then again, one week does not a trend make. We're already looking forward to early June, when the employment situation for May will be released. If we get another month of 200,000-plus gains in payrolls (which we expect), we'll feel much more assured everything will work out fine this year for both the housing and mortgage markets. |
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Economic |
Release |
Consensus |
Analysis |
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Mortgage Applications |
Wed., May 21, |
None |
Important. We expect purchase activity to gain on lower rates and an improving job outlook. |
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Federal Reserve FOMC Meeting Minutes |
Wed., May 21, |
None |
Important. The Fed is expected to affirm its commitment to QE tapering and to hold short-term rates low. |
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Existing Home Sales |
Thurs., May 22, |
4.7 Million (Annualized) |
Important. Sales are finally showing positive momentum on improved inventory and a strengthening economy. |
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New Home Sales |
Fri., May 23, |
430,000 (Annualized) |
Important. Sales are gaining pace on builder incentives and improving consumer confidence. |
Courtesy of Jessica Regan.
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