There are two primary measures of housing prices that we track at FREEandCLEAR: the Federal Housing Finance Agency (FHFA) House Price Index, which uses certain nationwide mortgage activity to track home prices and the S&P / Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan markets.  Both indices are reported on a monthly basis and include information for the month that is two months prior to the reporting date.

The June reports for the FHFA House Price Index and S&P / Case-Shiller Home Price Index showed that home price appreciation slowed in April.  Before drawing too strong of a conclusion from the reports, it is important to reiterate that although both reports are released in June, they contain data for the month that is two months prior to the release date, so April in this case.  Numerous housing market indicators with more recent data, including the June new and existing home sales reports showed much stronger trends.  That said, the FHFA House Price and S&P / Case-Shiller Home Price indices offer interesting insights into home price performance.  The FHFA House Price Index for June 2015 showed that April housing prices increased 0.3% as compared to March and increased 5.3% on a year-over-year basis (so as compared to April 2014).  The FHFA House Price Index figures came in at the low end the range of analyst estimates and were relatively flat compared to March 2015, which also showed a 0.3% monthly increase and a 5.3% year-over-year increase.  The S&P / Case-Shiller Home Price Index for June 2015 showed very similar results.   The S&P / Case-Shiller Home Price Index showed that April housing prices increased 0.3% as compared to March and increased 4.9% on a year-over-year basis.  The monthly increase came in below analyst expectations and the year-over-year change came in at the bottom of analyst expectations.  Of note in the S&P / Case-Shiller Home Price Index report is that eight of 20 cities included in the index showed price declines while several cities, such as San Francisco, posted double-digit price gains.  Although both reports showed moderate home price growth for April, market dynamics clearly vary by city.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

Because of the two month lag in data and recent reports that show a robust real estate market in May, the FHFA House Price Index and S&P / Case-Shiller Home Price Index reports should be discounted somewhat by borrowers. Despite an increase in interest rates over the past several months, the real estate and mortgage markets are showing significant momentum as we head into the Summer months.  In fact, rising interest rates coupled with higher rents may be pushing more home buyers into the marketplace.  Prospective buyers should use our Mortgage Selector Calculator to determine what size mortgage you can afford and the mortgage program that is right for you.  Additionally, borrowers should use the INTEREST RATES feature on FREEandCLEAR to select the lender offering the lowest mortgage rate and fees in their area.

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The National Association of Realtors pending home sales index tracks the number of existing homes that went into contract to be sold.  When a home seller and buyer agree to the price and terms of a home sale, they sign a contract that outlines the transaction details and the property is said to be “under contract.”  The home sale process is typically completed four-to-six weeks after the property goes under contract so the pending homes sales index is a leading indicator, or predictor, for the real estate market.  An increase in the index reflects an increase in existing home sales while a decrease in the index reflects a decrease in existing home sales.  It is important to point out that the index tracks existing home sales as opposed to new home sales, or homes that are recently constructed that have not been lived in previously.  When people purchase a home they typically get a mortgage so the index also forecasts future activity in the mortgage market. The pending home sales index is released on a monthly basis and provides figures for the prior month.

Pending home sales increased for the fifth consecutive month and hit a nine year high with the pending home sales index for May rising 0.9% on a month-over-month basis (as compared to April 2015).  The increase in the index in May exceeded the high end of analyst expectations and builds upon a 2.7% increase in the index reported for April.  The increase in the pending home sales index was driven by gains in the West and Northeast as improved weather and strong demand boosted activity in those regions.  The South and Midwest regions showed small month-over-month declines but both regions are up significantly on a year-over-year basis in 2015.  Although the rate of growth in the index declined as compared to the April figure, the index reached its highest level since 2006, near the peak of the housing boom.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

The robust pending home sales index report for June follows strong reports for both Existing and New Home Sales to show strength in the housing and mortgage markets across almost all indicators.  The increase in the pending home sales index bodes well for the mortgage market as pending home sales typically require mortgage financing to become closed transactions.  The increase in interest rates over the past couple of months does not appear to be hindering home buyer demand and in fact may actually be pushing buyers into the market before rates move any higher.  Additionally, rising rents across the country are make home ownership financially more attractive on a relative basis.  You can use our Rent Payment Mortgage Affordability Calculator to determine how your monthly rent payment translates into a mortgage amount. Additionally, prospective borrowers should use our INTEREST RATES feature  to compare rates and fees for lenders in your area to select the mortgage that is right for you.

The FREEandCLEAR Mortgage Expert

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At FREEandCLEAR, we follow the Mortgage Bankers’ Association (MBA) mortgage applications index which measures both purchase and refinance applications for mortgage lenders across the country.  An increase in the MBA applications index reflects an increase in mortgage applications while a decrease in the index reflects a decline in mortgage applications.

After several weeks of declining applications in response to rising interest rates, the mortgage applications index posted a modest gain for the week ended June 19th.  Refinance applications led the way, increasing 2.0% on the week as compared to a 7.0% decline for the prior week.  Purchase applications increased a less robust 1.0% although that compared favorably to the 4.0% decline for the prior week.  The composite applications index, which includes both purchase mortgages and refinancings, increased 1.6% after falling 5.5% for the prior week.  Mortgage rates took a small breather with the average interest rate for conforming loans (mortgage amount less than $417,000) falling to 4.19% as compared to 4.22% for the prior week.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

Although interest rates dipped on the week, the increase in rates over the past several months has slowed down mortgage applications.  The small increase in the mortgage applications index on the week should be viewed as a positive in light of the index’s mostly negative trajectory of late.  As a reminder, a slowdown in mortgage activity is not always a negative for borrowers as slowing applications should make lenders hungrier for borrowers’ mortgage business.  Prospective mortgage borrowers should use this time to establish relationships with three-to-four lenders so they can compare proposals and quickly select a lender when it is time to buy a home or refinance their mortgage.  You can use our Mortgage Comparison Calculator to compare interest rates and fees for multiple lenders and check out the INTEREST RATES feature on FREEandCLEAR to find the lender offering the best mortgage terms in your area.

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In our effort to cover important trends that affect the mortgage market, FREEandCLEAR keeps a close eye on new home sales, which is the number of newly constructed housing units that are sold in a month.  The new home sales figure is reported separately from the existing home sales figure, which is the number of previously constructed homes that are sold in a month.  The new home sales market is smaller than the existing home sales market but it is still an important indicator for the real estate and mortgage markets.  In addition to reporting the number of housing units sold, the new home sales report also includes information on the supply of units for sale as wells as the median and average new home sales price.  The new home sales report, issued on a monthly basis, includes statistics for the prior month.

New home sales are on a two month winning streak with the June report showing that new home sales increased 2.2% in May to 546,00 annualized units.  The May new home sales figure exceeded the top half of industry analyst expectations and builds upon a robust report for April.  In a positive sign for buyers, the increase in demand failed to create meaningful price pressure with the May median new home sales price dipping 2.9% on a monthly basis to $282,800.  The number of new homes available for sale remained relatively flat at 206,000, which combined with the uptick in sales to cause supply as compared to monthly sales to drop to 4.5 months in May as compared to 4.6 months in April.  The West led all regions in sales, posting a 13.1% monthly gain in May.  Sales in the South, the largest housing region, dipped 4.3% on the month although sales are up significantly on a year-over year basis.  This is the fifth positive new home sales report in the past six months indicating that market strength continues to build.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

The new and existing home sales reports for June provide a strong one-two punch demonstrating the growing momentum of the housing and mortgage markets.  Additionally, as evidenced by the strong June housing starts report, developers are ramping up new construction to satisfy buyer demand.  The one oddity in the new home sales report is that the median sales price dipped, which is great news for buyers but unlikely to be a long term trend given rising demand for housing.  Prices will not stay down forever so now may be a good time to start the home buying process.  As a first step, use our Mortgage Qualification Calculator to determine what size mortgage you can afford and use our INTEREST RATES feature to monitor mortgage rates and fees for lenders in your area.  Getting organized and prepared for the mortgage process will enable you to move quickly when you find a home that you want to buy.

The FREEandCLEAR Mortgage Expert

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In our effort to cover important trends that affect the mortgage market, FREEandCLEAR keeps a close eye on existing home sales, which is the number of previously constructed housing units that are sold in a month.  The existing home sales figure is reported separately from the new home sales figure, which is the number of newly constructed homes that are sold in a month.  An increase in existing home sales reflects improvement in the housing market while a decrease in existing home sales reflects a weakening of the housing market.  In addition to reporting the number of housing units sold, the existing home sales report also includes information on the supply of units for sale as wells as the median and average existing home sales price.

The existing home sales report, issued on a monthly basis, includes statistics for the prior month.  The report for June 2015 showed that existing home sales in May increased 5.1% on a month-over-month basis to an annualized 5.35 million units (so if you take the home sales figure for May and multiplied it by twelve), which came in at the high end of the range of industry analyst expectations.  On a year-over-year basis, existing home sales increased 9.2% in May up from a 6.1% increase in April.  After relatively disappointing April results, the May existing home sales figure bounced back and posted its second strongest monthly reading in the past two years.  Strength was observed across all regions and sales of both single-family homes (up 5.6%) and condominiums (up 1.6%) increased on a monthly basis.  Perhaps the most positive piece of news in the report is that first-time home buyers comprised 32% of sales as compared to 27% for the same period last year.  First-time home buyers have been slow to enter the market due to increased lender and down payment requirements among other factors.  Driven by the increase in demand, existing homes available for sale increased to 2.29 million in May, up from 2.21 in April million.  The increase in inventory offset the increase in home sales with inventory relative to sales dipping slightly to 5.1 months of available supply, down from 5.2 months of supply in April 2015.  The increase in demand also pushed housing prices up with the median existing home sales price rising to $228,700, representing a 7.9% increase on a year-over-year basis.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

The strong existing home sales figure for May shows that the existing home sales segment is catching up with the new home sales segment to create real momentum in the mortgage and housing markets.  Sales increased despite meaningful price appreciation, reflecting strong buyer demand.  Additionally, the increase in interest rates over the past several months does not appear to be impeding buyer interest.  The increase in home prices should also pull more inventory onto the market giving buyers more choices. Most important, first-time home buyer participation grew significantly and participation by this previously reluctant market segment will determine the strength and duration of the real estate market recovery.  If you are a first-time home buyer thinking about making a move, review our First-Time Buyer Mortgage Cheat Sheet to get up to speed on the mortgage process.  Buyers will also want to use our Mortgage Selector Calculator to determine what size mortgage you can afford and the mortgage program that is right for you.  As always, use our INTEREST RATES function to compare rates and fees for lenders in your area as mortgage rates continue to fluctuate with market conditions.

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The Federal Reserve determines monetary policy in the United States, and monetary policy, in turn, is one of the most important factors in determining mortgage interest rates.  So when the Federal Reserve speaks, FREEandCLEAR listens closely and passes along our insights to the the FREEandCLEAR community.  One of the key tools that the Federal Reserve uses to control monetary policy is the Federal Funds Rate.  The Federal Reserve sets a target for the Federal Funds Rate which influences other interest rates, including mortgage interest rates.  Although there are other factors involved, the lower the Federal Funds Rate, the lower mortgage rates and the higher the Federal Funds Rate, the higher mortgage rates.  The Federal Open Market Committee (FOMC) is responsible for determining the Federal Funds Rate and meets eight times a year to discuss what the target rate should be.  After every meeting, the FOMC releases a policy statement that discusses the target Federal Funds Rate as well as other monetary policy and economic issues.  The FOMC announcement can have a significant impact on mortgage rates depending on if the FOMC changes the target Federal Funds Rate and the language the statement uses to discuss monetary policy and the economy.

In its most recent FOMC announcement released on June 17th, the Federal Reserve left the target Federal Funds Rate unchanged at 0% to .25%.  The FOMC remains focused on inflation, employment and overall economic growth and noted improvements in these areas but room for further improvement going forward.  There were no major surprises coming out of the FOMC announcement and interest rates remained relatively unchanged following its release.  The language used in the announcement is consistent with expectations that the Federal Reserve will raise interest rates later in 2015 although the announcement provided no indication of specific timing.  No members of the FOMC offered their dissent in the statement which indicates that the committee is generally unanimous on its interest rate policy.

What it Means for Borrowers

The FOMC announcement did nothing to change the opinion that the Federal Reserve will increase interest rates some time in 2015 and the gradual increase in mortgage rates over the past two months is in anticipation of an eventual hike in rates.  A sudden change in economic conditions such as jump in the unemployment rate or drop in productivity could cause the FOMC to change course but borrowers should expect mortgage rates to increase by the end of 2015.  It is important to remember that in addition to Federal Reserve policy, there are multiple factors that determine mortgage rates.  It is impossible to predict interest rates but it is more likely than less that mortgage rates will increase in the future so if you are considering buying a home or refinancing, now is likely a good time to start the process.  Use the INTEREST RATES feature on FREEandCLEAR to keep track of mortgage rates for lenders in your area and check-in with FREEandCLEAR for the latest developments in the mortgage market.

The FREEandCLEAR Mortgage Expert

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At FREEandCLEAR, we follow the Mortgage Bankers’ Association (MBA) mortgage applications index which measures both purchase and refinance applications for mortgage lenders across the country.  An increase in the MBA applications index reflects an increase in mortgage applications while a decrease in the index reflects a decline in mortgage applications.

Rising interest rates continue to hamper mortgage applications as the mortgage applications index continued its two month decline.  For the week ended June 12th, the composite applications index, which includes both purchase mortgages and refinancings, dropped 5.5%.  The purchase applications index declined 4.0% while the refinance applications index decreased 7.0%.  The steady climb in interest rates over the past two months is having a negative impact on mortgage activity.  Interest rates continue to climb with the average interest rate for conforming loans (mortgage amount less than $417,000) increasing to 4.22% as compared to 4.17% for the prior week.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

A decline in mortgage application activity is not always a negative for mortgage borrowers.  A drop in applications means that lenders should be more aggressive in competing for borrowers’ mortgage business which may make them more likely to negotiate mortgage terms and offer discounted fees.  Although mortgage rates have increased over the past two months, they remain relatively low on a historical basis.  Borrowers considering buying a home or refinancing in the next six-to-twelve months should use the INTEREST RATES feature on FREEandCLEAR to monitor interest rates and fees for lenders in their area and contact lenders to get pre-approved for their mortgage.  Comparing mortgage offers from three-to-four lenders is the best way to save money when you get a mortgage and getting pre-approved ensures that you can move quickly to buy a home or refinance when interest rates hit your target level.

The FREEandCLEAR Mortgage Expert

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A key report that reflects the strength of the housing market is the monthly housing starts report released jointly by the U.S. Census Bureau, U.S. Department of Commerce and U.S. Department of Housing & Urban Development.  The housing starts report includes two pieces of data: starts and permits.  A housing start is counted when construction begins on a new single or multifamily property.  A permit is counted when a permit is issued by a local government to a property owner or builder to begin construction on a new single or multifamily property. Because construction typically begins soon after a new permit is issued, housing starts and permits are typically highly correlated.  The housing starts report, issued on a monthly basis, includes statistics for the prior month.

The housing starts report for June builds upon the record-setting report for May to show continued strength in the new home market. In a strong sign for future new housing supply, May housing permits jumped 11.8% to 1.275 million annualized units, following a 10.1% increase in April.  The permit figure exceeded the high end of analyst expectations by a whopping 75,000 units and reached its highest level since 2007, before the real estate market collapse.  The report showed strength across all geographies, led by the the Northeast and Midwest.

In contrast to the housing permits figure, housing starts dropped 11.1% to 1.036 million annualized units in May but that is in comparison to a record-breaking April figure in which starts sky-rocketed a revised 22.1%.  The housing starts figure fell below almost impossible to meet expectations created by the huge April figure.  The report showed starts declined across all geographies, led by the the Northeast.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

The surge in housing permits for May is consistent with the strong housing market index report for June with both showing building momentum in the new home market.  Although starts declined on the month, the growth in permits reflects rising home builder confidence as well as anticipated demand for new homes from prospective buyers.  More housing supply means that home seekers will have more options which should also help to offset pressure on house prices.  It takes several months for new permits to translate into new homes on the market so now is a good time for buyers to prepare for the mortgage and home buying processes.  Prospective buyers should use our Mortgage Qualification Calculator to determine what size mortgage they can afford and review our interactive Mortgage Process Guide to master the mortgage process from start to finish.  Buyers should also use our INTEREST RATES feature on FREEandCLEAR to compare mortgage rates and fees for lenders in their area and contact lenders to get pre-approved for their mortgage in advance of the home search process.

The FREEandCLEAR Mortgage Expert

www.freeandclear.com