Houston's Rate Sheet

Mortgage rates rise sharply

After a strong job report and growing inflation fears, interest rates rose sharply. According to Bankrate.com's weekly survey of America's largest mortgage lenders, the 30-year fixed rose 11 basis points to an average of 6.28 percent. A basis point is one-hundredth of 1 percentage point. These are the highest rates that we've seen since the last days of 2005.

The combination of high economic growth and potentially higher inflation served to push rates higher. The strong Employment report showed an economy charging ahead, and most analysts are predicting the Fed will again hike rates another 1/4 of a point at their next meeting on March 28th. The Consensus on Wall Street was for an employment report showing 250k new jobs. The report showed a gain of only 193K in January, but there were large revisions from December and January, which pushed the total new jobs announced to 274K. The Unemployment Rate was expected to remain flat at 4.9%, but instead fell to 4.7%.

As a real estate professional, I have mixed emotions about these developments. Obviously, it is a good thing that job growth is strong and employment is low: the stronger the economy, the more people who can afford to buy a new home. However, higher rates increase the affordability of a home, which is not good. There are reports this week that home prices are coming down, which could help with this affordability issue. However, these reports don't say much for the Texas market, which will probably remain strong and steady throughout 2006. According to an article by CNNMoney.com, Fiserv Lending Solutions, a provider of mortgage and consumer lending services, agrees:

Fiserv forecasts a significant stagnation in housing prices for the United
States in 2006 -- median home prices overall will inch up only 1.5 percent this year. And many metro areas will experience drops, including some of the largest, and most expensive, ones such as New York (down 2.43 percent), Los Angeles (down 3 percent) and Washington (down 1.9 percent).

Phoenix, one of the fastest-growing areas the past couple of years, is
another town too hot not to cool down. Fiserv predicts an increase of just
3.3 percent.

Some of the metro areas that have lagged over the past few years, however, may play a bit of catch-up. Fiserv forecasts Houston, where the median home price stands at a modest $145,000, to grow by 6.1 percent. San Antonio (median price is $138,000) should do even better, rising 8.3 percent. Memphis, where prices average $129,000, should see a rise of 7.8 percent.

Even though I think these growth numbers for Houston are strong, I think we're going to have a good year. Let's hope oil prices remain high, and the economy continues to expand.

posted by Vincent Biondillo @ 9:42 AM