Home Sales Surge:

Two new reports were released that showed a strong surge in home sales.  Existing Home Sales rose more than expected in March, reversing three months of declines. Kicking off what is expected to be a strong Spring selling session.

The National Association of Realtors reported that sales of previously occupied homes rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million units.  This is the highest level since December.  The nationwide median home price was slightly higher than a year earlier at $170,700.

In a separate report, the Commerce Department said new home sales surged higher by 27%.  They reported that new home sales rose in March to an annualized rate of 411,000 units.  It was the strongest month since last July and the biggest monthly increase in 47 years.

More Economic Growth:

Initial Jobless Claims fell for the first time in three weeks as new filings for state unemployment benefits dropped 24,000.  Many market analysts expect that we will continue to see improvement in the labor market over the coming weeks.

Durable Goods Orders (long-lasting U.S. manufactured goods – for example: an oven) moved upward sharply.  Orders for items (excluding transportation and defense) jumped 2.8% last month.  This is the largest rise since December 2007.  This coincides with the very strong manufacturing data that we have been seeing.  This shows that personal and business consumption is on the rise and is very good news for the economy.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost -40 basis points last week which caused 30 year fixed rates to increase for both government and conventional loans to their highest levels in two weeks.  MBS pricing decreased (which causes mortgage rates to rise) due to strong economic data such as Initial Jobless Claims, very strong housing data, and Durable Goods Orders.  Positive economic news is great for consumers but long term bonds such as mortgage backed securities react negatively due to the increased potential of inflation.

New Housing Index Reaches Best Level in 2 Years:

The National Association of Home Builders announced that their Housing Market Index which measures builder’s sentiment and outlook for the industry jumped 5 points in April to a reading of 19.  This is the highest reading in 24 months.  The survey of 417 residential developers also showed that foot traffic from prospective buyers rose 4 points.

In a separate report, nationwide housing starts rose for the third consecutive month to a seasonally adjusted 626,000 units according to the U.S. Commerce Department. Requests for new housing permits also rose. They increased to an annual rate of 685,000 units.

Federal Reserve Report Shows Economic Strength:

The Federal Reserve released their Beige Book last week.  This report (named for the color of its binder) showed that “economic activity increased somewhat” in 11 out of 12 federal districts.

The results of the Fed’s new survey is consistent with chairman Ben Bernanke’s view that a modest recovery is unfolding, although it won’t be strong enough to materially drive down unemployment rates for some time.

The new survey suggested that consumers, whose spending accounts for 70 percent of national activity, are doing their part to keep the recovery going. Retailers in most parts of the country reported sales increases and merchants were “cautiously optimistic regarding future sales”.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) gained +44 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans.  MBS pricing improved due to a weak Consumer Sentiment report, a jump in Initial Weekly Jobless Claims, continued concern over Greece’s solvency and a massive market shake-up that resulted from the new Goldman-Sachs charges.

Most Americans Say Now Is The Time To Buy:

A new Fannie Mae survey showed that nearly two-thirds of Americans think the time is right to buy a house, with a majority believing prices will be the same or higher over the next year.

The 64 percent that said it is a good time buy is just shy of the 66 percent that said the same thing back in 2003 as the U.S. housing market was racing higher, said the survey.

In a separate report, Pending Home Sales rose sharply in February.  The National Association of Realtors reported that contracts for pending sales of previously owned homes rose 8.2 percent.  First-time home buyers need to sign a contract before the end of April and close the transaction before the end of June to be eligible for the $8,000 tax credit.  Clearly, there is a rush to take advantage of this with many Realtors reporting multiple offers on a single home.  Buyers who are selling a home and purchasing a different one are eligible for a $6,500 tax credit.

Subprime Delinquencies Fall For First Time In 4 Years:
Subprime mortgages are simply loans that did meet Fannie Mae, Freddie Mac, FHA, or VA standards.  The massive onslaught of subprime delinquencies was one of the main culprits in our housing slump.  So it is great news that for the first time in 44 months, delinquencies bucked their trend and actually improved to the best levels in 2 years.

With Unemployment decreasing, delinquencies falling and home prices increasing, this could shape up to be a much better Spring/Summer housing market than last year.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +88 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans, but rates are still higher than two weeks ago which is a level that we are unlikely to see again this year.

We benefited from a strong 10 year Treasury auction, weaker Initial Jobless Claims, and global concern over Greece.

Rates Lower After Strong Auction Demand

Although this week’s economic data was generally stronger than expected, it was overshadowed by solid demand for the Treasury auctions and intensified concerns about the economic situation in Greece, which helped mortgage markets. After reaching the highest levels since August, mortgage rates ended a little lower than where they ended last week.

Recent increases in yields on long-term fixed-rate securities such as 10-yr Treasuries and mortgage-backed securities (MBS) appeared to have been sufficient to attract investors. Very strong demand from both foreign and domestic investors for Wednesday’s 10-yr auction pushed Treasury yields lower, and mortgage rates followed. Increasing the appeal, renewed worries about the fiscal situation in Greece caused investors to seek the safety of US securities. Comforting statements from Fed officials that they expect inflation to remain low for a long time also added to the demand.

In the housing sector, February Pending Home Sales jumped 8% from January, far exceeding the consensus forecast. Pending Home Sales are a leading indicator of housing market activity. The chief economist of the National Association of Realtors (NAR) considered the data to be a potential sign of a “second surge of home sales this spring”. To receive the homebuyer tax credit, contracts must be signed by the end of April, which likely boosted the results for February. As buyers seek to take advantage of the program, March and April pending sales may show strength as well.

Also Notable:

• Continuing Jobless Claims fell to the lowest level since December 2008
• The Fed lowered its forecasts for inflation in 2010 and 2011
• As expected, the European Central Bank (ECB) made no change in rates
• The Dow stock index reached an 18-month high

Week Ahead

The most significant economic data next week will be Wednesday’s Consumer Price Index (CPI), the most closely watched monthly inflation report. CPI looks at the price change for those finished goods which are sold to consumers. The Retail Sales report will also come out on Wednesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic activity, will be released on Thursday. Housing Starts are scheduled for Friday. The Beige Book, Import Prices, the Trade Balance, Consumer Sentiment, and Philly Fed will round out a busy week.

Vacation Home Sales Rebound

When the housing market started to head in the wrong direction, vacation homes led the way.  Since they were not the borrower’s primary residence, these properties were dumped on to the market first.  So, it is great news that we can now see a reversal in that trend.

The National Association of Realtors reported that vacation home sales jumped 7.9 percent from 2008 to 2009 in their 2010 Investment and Vacation Home Buyers Survey. The big news is that 90% of the vacation home purchasers were buying the property as a true vacation home and not for investment purchases.  Previously, wild speculative buying of vacation properties for the purpose of selling it again in the future was a large reason for the collaspe in that market segment.

Additionally, 70% of the purchases were for single-unit non-attached structures.  The median transaction price increased from $150,000 a year ago to $169,000.

Positive Job Growth

Friday’s Unemployment Rate was unchanged at 9.7% for the third month in a row.  But we did have some very exciting news within that report: For the first time since the financial crisis began, we experienced Job Creation!

Yes, Non-Farm Payrolls increased for the first time as we added 164,000 new net jobs.  This shows that private sector job creation is underway which is what will continue to lead us into stronger demand for housing.  As people return to work, consumer confidence naturally rises and helps to stimulate demand for housing.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) lost -103 basis points last week which caused 30 year fixed rates to increase for both government and conventional loans.  Our worst mortgage rates were on Friday after the release of the Unemployment Report which showed positive job creation for the first time and pressured mortgage rates.  We also felt the sting of the Federal Reserve ending their $1.25 trillion mortgage backed securities purchase program.  This removed the single largest purchaser of MBS from the market place.