Market Recap: June 30, 2008

Following is a great recap of the most recent changes in the mortgage market as originally distributed by Shane Price from Houston Capital Mortgage.

An anemic economy, sinking home values and soaring gas prices pushed consumer confidence to its lowest level since 1992, the U.S. Confidence Board reported last week Many news outlets jumped on the news, spinning it to suggest the economy is spiraling downward like an unimpeded helix.

But maybe things really aren't all that dire.

Gross domestic product – the output of goods and services produced by labor and property – increased at an annual rate of 1.0% in the first quarter of 2008, according to final estimates released by the Bureau of Economic Analysis.

In comparison, GDP increased only 0.6% in the fourth quarter of 2007. The data suggest economic growth is accelerating.

Perhaps consumers would feel more upbeat if they knew that existing home sales are stabilizing, with sales rising 2% in May from April to a seasonally adjusted annual rate of 4.99 million units.

At the same time, inventory of existing homes fell 1.4% to 4.49 million units in May, which represents a 10.8-month supply at the current sales pace, down from a 11.2-month supply in April.

The Federal Reserve appeared upbeat by switching its focus to abating inflation from inflating the economy.

But although the Fed said it expects inflation to moderate "later this year," it admitted that it is concerned over "continued increases in the prices of energy and other commodities.”

Credit markets didn't appear too terribly concerned about inflation; mortgage rates finally held firm for a week, with the prime 30-year fixed-rate mortgage averaging 6.62%, the prime 15-year fixed-rate mortgage averaging 6.19%, and the prime 5/1 adjustable-rate mortgage averaging 6.28%, according to Bankrate.com's weekly survey.

WELCOME, FIRST-TIMERS

Fortune magazine ran a timely and informative article on the housing market last week, affirming a lot of what has appeared in these missives regarding the relationship between price and demand.

In short, Fortune noted that lower prices are enticing more people back to the housing market, especially first-time buyers.

Fortune expounded further on the importance of the first-time buyer to the market, noting that “the housing market operates with a pronounced laddering or ripple effect. When entry-level buyers flood the market, they not only stimulate production of new homes, they purchase existing homes.

Those purchases, in turn, allow the sellers to move up to bigger houses.

The return of first-time buyers is expected to help reduce the overhang of new homes.

Bernard Markstein, senior economist for the National Association of Home Builders, believes that the first-time buyer could push new-home sales to almost 700,000 units by the end of 2009, meaning sales could exceed new production by as much as 250,000 units a year.

Increased demand coupled with dwindling supply means home prices will eventually have to rise.

So, don't overlook the first-time home buyer.

And by all means, don't overlook the new FHA-sponsored loans that enable many of these buyers to participate in the housing market on favorable terms, as long as their credit scores and down payments are large enough.