Home Equity Continues to Improve

4495CoreLogic reported US homeowners with mortgages saw their equity increase by $227 Billion in Q3 of 2016, up 3.1% annually.  This growth is associated with the improvement of the average loan-to-value ratio.  The average LTV ratio was 55.4%, down from 56% in mid-2016 and 57.3% in 2015.

Home equity for all homeowners (with and without mortgages) grew by $726 Billion, a year-over-year increase of 10.8%.  Additionally, 384,000 borrowers moved out of negative equity.  To date, 93.7% of all mortgaged properties are homes with positive equity, approximately 48 Million homes.

President and CEO of CoreLogic, Anand Nallathambi attributed the equity increase to price appreciation, listing “paydown of principal is the second key component of equity building.  Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, they have significantly fewer mortgage payments and are able to build equity wealth faster.”

On a national average, homeowner equity increased by $13,000 for mortgaged properties.  The Pacific Northwest including California, Oregon, and Washington saw equity increases of about $25,000 to $30,000 while outliers Alaska, Connecticut, and North Dakota declined slightly.

Equity is the amount of the home actually owned, or the subtraction of the loan balance from the value of the home.   Homeowners build equity as the property value increases and the amount of the debt decreases.

Sources: The Balance, CoreLogic, MBA, Mortgage Daily

Rates Up, Pending Home Sales Down..

Weekly Review

The major stock market indexes posted moderate losses for the week and the psychological milestone of 20,000 for the Dow Jones Industrial Average remained elusive.  The indexes recorded the majority of their losses on Wednesday with the S&P 500 Index charting its largest drop since last October.  The selling in stocks was likely due to large institutional investors such as pension funds rebalancing their portfolios and locking in equity gains realized since the election.

Meanwhile, bond prices rose and yields fell following a surprisingly strong and robust $34 billion 5-year Treasury note auction that saw a high yield of 2.057% with a strong bid-to-cover ratio 2.72.  Indirect bidders (primarily foreign central banks) snapped up 71.4% of this supply while direct bidders (bond dealers, hedge funds, pension funds, mutual funds, insurers, banks, and individuals) bought 4.1% of the issue.  Bond prices also improved on news of an unexpected decline in Pending Home Sales.

Wednesday, the National Association of Realtors reported their Pending Home Sales Index fell to a 10-month low during November, falling 2.5% to 107.3.  Analysts had forecast the Index to increase 0.5% for the month.  The Index was also 0.4% lower than in November 2015.  This might be a sign that rising mortgage rates coupled with a shortage of home inventory available for sale could be weighing on the housing market.

phs-november12-28-2016However, home prices continue to remain strong.  According to the latest report from S&P CoreLogic Case-Shiller, home prices reached a new high, rising 5.6% in October.  The S&P/Case-Shiller U.S. National Home Price Index was also 5.6% higher in October from the prior year.  The Case-Shiller 20-City Composite Home Price Index increased 5.1% in October from the same time a year ago.

For the week, the FNMA 3.5% coupon bond gained 89.1 basis points to end at $102.42 while the 10-year Treasury yield fell 9.66 basis points to end at 2.446%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 171.21 points to end at 19,762.60.  The NASDAQ Composite Index dropped 79.57 points to close at 5,383.12, and the S&P 500 Index lost 24.96 points to close at 2,238.83.

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average (DJIA) has gained 11.83%, the NASDAQ Composite Index has added 6.98%, and the S&P 500 Index has advanced 8.70%.  When including dividends, the DJIA gained 13.4%, the NASDAQ Composite gained 7.5% and the S&P 500 gained 9.5% for the year.

This past week, the national average 30-year mortgage rate decreased to 4.21% from 4.33% while the 15-year mortgage rate decreased to 3.40% from 3.51%.  The 5/1 ARM mortgage rate fell to 3.05% from 3.15%.  FHA 30-year rates decreased to 3.75% from 3.85% and Jumbo 30-year rates decreased to 4.23% from 4.35%.

 Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

rate-forecast-chartBond prices shot higher and broke above two levels of resistance during the week.  The FNMA 30-year 3.5% coupon bond ($102.42, +89.1 basis points) traded within a wider 120 basis point range between a weekly intraday low of $101.30 on Tuesday and a weekly intraday high of $102.50 on Friday before closing the week at $102.42.  Trading volumes will get back toward normal levels during this coming week, and coupled with major economic news headlined by December’s Employment Situation Summary, we could see an increase in market volatility.  The chart is showing the bond is not yet “overbought” while in a favorable upward trend, so we could see a continuation higher toward the next resistance level at the 61.8% Fibonacci retracement level at $102.79.  As a result, we should see slightly lower mortgage rates in the coming week.