Market Matters

Adjustable-rate mortgages regain popularity as prices, rates rise Source: LA Times   Adjustable-rate mortgages are again gaining in popularity despite practically vanishing during the housing bust. Since home prices and interest rates rose last year, more people have turned to adjustable mortgages to keep their monthly payments affordable, with such mortgages offering a lower initial rate. However, the rate can rise over time with market changes. Read the full story  Housing Market 2014: What Buyers, Sellers Should Brace for Now Source: AOL   Experts contend that higher mortgage rates and increased inventory in 2014 along with looser mortgage lending standards will be key factors to prepare for in the new year. Some expect higher prices to lead investors out of the market. Read the full story

Mortgage Rate Swings May Mean “Bumpy” 2014 Housing Market Source: Wall Street Journal Experts posit that an important trend could continue in 2014 due to the inversely proportional relationship between the average of mortgage interest rates and new-home sales. Simply put, as interest rates go up, demand from would-be homeowners drops, and if rates change significantly, then the 2014 housing market will feel the effects. Making sense of the story During 2013, increases in mortgage rates corresponded with declines in home buying, and in light of shifts in the Federal Reserve’s monetary stimulus effort, the trend is expected to continue. When the Fed first announced it would consider scaling back its bond-buying program, mortgage interest rates spiked in May. As a result, the seasonally adjusted annual rate of new home sales dropped by 4 percent from the prior month. In contrast, mortgage rates dropped by three-tenths of a percentage point during October just as new home sales surged 18 percent. In mid-December, the Fed announced that it will begin tapering its asset purchase program, but the Fed is only reducing its monthly buys of mortgage securities and Treasuries by just $10 billion. If mortgage interest rates increase a little, some analysts have stressed that further rate increases will see the recovery slow rather than reverse. The interest rate on U.S. Treasury notes is also increasing, which could signal higher interest rates ahead because it is used as a reference point for the cost of borrowed money for U.S. consumers and businesses. Read the full story

Talking Points … According to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.), seasonal factors, combined with shrinking housing affordability, cooled California pending home sales from both the previous month and year in November. C.A.R.’s Pending Home Sales Index (PHSI) indicates that pending home sales dropped 13.6 percent in November to 93.8, down from a revised 108.6 in October, based on signed contracts. Pending sales were down 9.4 percent from the 103.5 index recorded in November 2012. Distressed sales were down by nearly two-thirds from a year ago, when the share was 35.4 percent.  Twenty-one of the 38 reported counties showed a month-to-month decrease in the share of distressed sales, with Santa Clara County having the lowest share at 4 percent.