What’s Ahead For Mortgage Rates This Week : February 27, 2012

Mortgage markets improved in a holiday-shortened week last week, drawing mortgage rates lower throughout Tucson and nationwide.

Few new economic releases reached the markets, but those that did suggested recovery — especially with respect to housing and employment, two key drivers of the U.S. economy overall.

Mortgage rates tend to rise when on strong data. That’s not what happened last week, however.

First, in housing, the New Home Sales and Existing Home Sales reports each showed strength for December and January. Separate reports show that sales volume is rising nationwide even as the number of available homes for sale fall.

Home Supply is reaching bull market levels, which pressures home prices higher.

And then, in employment, the government’s Initial Jobless Claims report turned up good news, too. The report’s 4-week moving average is now down to its lowest level since 2008, a figure that suggests that U.S. households are getting back to work and staying there.

As rate shoppers in California , don’t expect rates to fall forever.

Last week’s rate improvements were partly because the Greece bailout has yet to be finalized, and partly because concerns about Iran have sparked a mortgage bond flight-to-safety. International demand for U.S.-auctioned bonds was especially high last week and mortgage bonds benefited.

As the situations in Greece and Iran stabilize, therefore, all things equal, mortgage rates should rise.

There are just two key data points set for release this week — the Pending Home Sales Index (Monday) and Personal Income and Outlays (Thursday) — plus two key European votes on the Greece bailout. The Case-Shiller Index will also be released and the FHA is expected to announce new mortgage insurance premiums.

Mortgage rates remain near all-time lows. If you’re still floating a rate, or waiting to refinance, consider moving up your timeframe. It’s a good time to lock your mortgage rate for the long-term.

Fewer Jobless Claims Suggests Higher Home Prices Ahead

Economists believe the strength of the 2012 housing market will be closely tied to jobs. If they’re right, the housing market is ripe for a boost. It spells good news for Tucson home sellers and may mean the end of bargain-basement prices for buyers.

Since peaking in mid-2009, the number of U.S. workers filing for first-time unemployment benefits has dropped 44 percent. Over the same period of time, the U.S. economy has added more than 2 million jobs and the national Unemployment Rate is down more than 1 percentage point to 8.3%.

Employment’s link to the housing market is both economic and psychological.

To make the economic link is straight-forward. A person with a job earns verifiable income and such income is required in order to be mortgage-eligible. For conventional and FHA purchase loans, for example, mortgage lenders want a home buyer’s monthly income be more than double his monthly debts. 

For the formerly unemployed that have since returned to work, having a full-time income makes buying homes possible. It also supports higher home valuations nationwide because home prices are based on supply-and-demand. All things equal, when the number of buyers in a market goes up, prices do, too.

The psychological connection between housing and employment is a tad more complicated, but every bit as important. It’s not just out-of-work Americans that don’t look for homes — it’s fearful Americans, too. People with concerns about losing a job are just as unlikely to shop for homes as people actually without a job. The same is true for people unsure of their prospects for a better-paying job, or their own upward mobility.

A recovering job market can lessen those fears and draw out buyers — especially those who face a loss on the sale of an “underwater” home.

The Initial Jobless Claims rolling 4-week average is at its lowest level since 2008. Fewer Americans are losing jobs, and more are finding permanent placement.

It’s one more reason to be optimistic for this year’s housing market.