Market Recap

The expiration of the $8,000 federal first-time homebuyer’s tax credit looms large – November 30 being the cut-off date. It is little wonder that, with only five weeks left, debate over the fate of the impending expiration is intensifying.

We feel safe in saying that homebuilders would like to see the credit extended. The National Association of Home Builders/Wells Fargo Housing Market Index dipped to 18 from 19 in September after three-straight months of gains, falling below market expectations for a reading of 20. Media outlets are reporting that more homebuilders are fretting that failure to extend the credit will result in a contraction of new-home sales.

Homebuilders were also disappointed that starts only increased 0.5% in September to a seasonally-adjusted annual rate of 590,000 units. An increase, to be sure, but the consensus expectation was for starts to increase to 610,000 units. The homebuilders should not be too disappointed, though; new construction of single-family homes, the key sector of the housing market, increased 3.9% to an annual rate of 501,000 units.

We, on the other hand, were a little disappointed when Housingwire.com reported that Altos Research's data showed national home prices weakening. Altos's 10-city composite index of home prices declined 0.5% in September and 1.1% during the third quarter. Our sense of disappointment was assuaged, though, when we pondered the big picture: After bottoming at $470,017 in January, Altos's index increased to $509,030 in July before easing over the subsequent two months to September's $503,401, which means the index is still up 7% for the year, and that's a good thing.

However, mortgage rates rising are not such a good thing, and that has been the case over the past two weeks. Fortunately, the increase has been modest, with increases generally falling within a two-to-nine basis-point range. Nevertheless, we feel compelled to say, once again, if you do not have that loan, now is the time to get it.

At least now is the time to be pre-approved for that loan, and not just because we think mortgage rates are about as low as they are going to get but also because it is worth being pre-approved if immediate action is required. We have been speculating over the past weeks that congress will extend the first-time homebuyer’s credit. We still think that is the case...but we cannot be certain. After all, we are talking politics here, so now is not the time to procrastinate.

Pressure Will Grow

Over the past two months, we have been beating the drum loud and hard on the probabilities of rising mortgage rates. We think it is worthwhile to keep doing so, not because we are pushing for higher rates but because of human nature and current economic data.