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"I Can See Clearly Now." - Existing Homes Sales Prior 6 Month Review

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"I Can See Clearly   Now." Johnny Nash may have hit number one on the charts with this classic tune in 1972, and forty-one years later the markets would sure love a clear sign regarding when the Fed may taper its Bond purchase program known as Quantitative Easing.
 
                                                                           Remember that the Fed   has been purchasing $85 billion in Bonds and Treasuries each month to   stimulate the economy and housing market. This includes Mortgage Bonds, to   which home loan rates are tied. Last week, the minutes from the Fed's October   meeting of the Federal Open Market Committee revealed that members did   discuss tapering these purchases–but there was no clear sign when tapering   would begin. This led to a volatile Wednesday, causing both Stocks and Bonds   to worsen immediately after the minutes were released.
 
  In housing news to note, Existing Home Sales for October fell by 3.2 percent   due to a rise in home loan rates and housing prices. This was the second   month of declines, as there were 5.12 million units sold annualized, below   the 5.20 million expected. In addition, the National Association of Home   Builders reported that its Housing Market Index fell to the lowest level   since June, but the figure does remain in positive territory. Meanwhile,   Retail Sales rose more than expected in October, as the decline in gas prices   gave consumers extra money to spend, while both consumer and wholesale   inflation remain tame.
 
  What does this mean for home loan rates? The housing sector has   been on an improving streak, but as the reports above show, these   improvements could be hindered if home loan rates continue to rise. One thing   is clear: The Fed has said that economic reports will be a key factor   regarding when it begins to taper its Bond purchases. But whether this will   happen before or after the new year remains to be seen.
 
  The bottom line is that home loan rates remain attractive compared to   historical levels, and now remains a great time to consider a home purchase   or refinance. Let me know if I can answer any questions at all for you or   your clients.

Forecast for the Week

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The upcoming week's economic   data is crammed into three trading days, given the Thanksgiving Holiday.

      
  • Housing data is plentiful this week and kicks off on        Monday with Pending Home Sales. Tuesday brings the S&P/Case-Shiller        Home Price Index, as well as September and October data for Housing        Starts and Building Permits. September's Housing Starts and        Building Permits were never reported due to the government shutdown.
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  • Tuesday also brings a read on Consumer Confidence,        with the Consumer Sentiment Index following on Wednesday.
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  • Also on Wednesday, look for Weekly Initial Jobless        Claims, Durable Goods Orders, and news from the manufacturing        sector with Chicago PMI.

All capital markets will   be closed on Thursday in observance of Thanksgiving. The Bond markets will be   open on Friday and will close at 2:00 p.m. ET, while Stocks are also open and   will close at 1:00 p.m. ET.
 
  Remember: Weak economic news normally causes money to flow out of Stocks and   into Bonds, helping Bonds and home loan rates improve, while strong economic   news normally has the opposite result. The chart below shows Mortgage Backed   Securities (MBS), which are the type of Bond that home loan rates are based   on.
 
  When you see these Bond prices moving higher, it means home loan rates   are improving – and when they are moving lower, home loan rates are getting   worse.
 
  To go one step further – a red "candle" means that MBS worsened   during the day, while a green "candle" means MBS improved during   the day. Depending on how dramatic the changes were on any given day, this   can cause rate changes throughout the day, as well as on the rate sheets we   start with each morning.
 
  As you can see in the chart below, it was a volatile week for Bonds as the   Fed minutes renewed talk of tapering the Fed's Bond purchase program. I'll be   watching the markets closely in the coming weeks as more discussion on this   topic is sure to continue.

Chart: Fannie Mae 4.0% Mortgage   Bond (Friday Nov 22, 2013)

 

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