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Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that "the bottom" in house prices is just around the corner - only to be wrong every time.

But now, finally, it looks as though house prices may actually be nearing a bottom.

Pending Home Sales Pop:

Potential home buyers came out of the woodwork in October, signing contracts to buy existing homes at a higher-than expected pace.

Little Change in Mortgage Rates

It was a surprisingly quiet week for mortgage rates with little of the daily volatility seen in recent weeks. Investors continued to watch the situation in Europe, but events there had little impact. The US economic data was roughly neutral for mortgage rates, and rates ended the week with little change.

The economic data released this week was positive for the economy, with stronger than expected economic growth and lower than expected inflation. Retail Sales, Industrial Production, Housing Starts, and Jobless Claims all exceeded their consensus forecasts. Meanwhile, Core CPI inflation was a modest 2.1% higher than one year ago. For mortgage rates, the tame inflation data was positive, while the relatively strong growth data was negative.

New Leadership in Italy and Greece

With little economic data in the US this week, events in Europe were the primary influence on mortgage rates. During the week, shifting sentiment about the risk posed by Italy caused a high degree of volatility. By the end of the week, though, mortgage rates were little changed from last week.

Italy was the center of attention this week. While an important budget vote passed, Prime Minister Berlusconi failed to gain the support of a majority in Parliament. As a result, he agreed to resign. Italy will either hold special elections or will be ruled by a national unity government, a temporary coalition. Investors believe that a national unity government might be better able to implement politically unpopular austerity measures. The rapidly shifting events in Italy have had a significant impact on global financial markets and likely will continue to do so.

In Greece, an agreement was reached to form a coalition government, which is expected to accept the terms of the European Union bailout package. The Greek Prime Minister voluntarily resigned, and a new leader was named.

No Surprises from Bernanke

It was another volatile week for mortgage rates. The primary factors influencing rates roughly offset each other, though, and mortgage rates ended the week just a little higher.

A wide range of economic news caused investors to either add or reduce risk at a rapid pace this week. News which generally encouraged increased exposure to risky assets helped stocks and hurt mortgage rates early in the week, while the opposite took place later in the week. Mixed US economic data, continued concerns about European debt, a highly anticipated speech from Fed Chief Bernanke, and uncertainty about the impact of Hurricane Irene all contributed to the daily volatility.

Fed: Risk of Recession "Quite Low"

According to William Dudley, the president of the Federal Reserve Bank of New York, the risk of a double-dip recession is still quite low.

Dudley said that only some of the the restraints on growth, such as high oil prices and Japan's earthquake in the first half of the year, can be considered temporary.

"The risks have risen a little bit, but I think we very much still expect the economy to recover. We expect ... growth to be significantly firmer than it was during the first half of the year," he said. "But obviously there is some concern.

The central bank's policy-setting Federal Open Market Committee (FOMC) took the unprecedented step last week of promising to keep interest rates near zero for a set period of time—at least until mid-2013. The Fed also said it was weighing other options to help strengthen a weak recovery.

Dudley said that market interest rates fell after the announcement, "which should help provide some additional support for economic activity and jobs." The president of the New York Fed has a permanent voting position on the FOMC and plays a prominent role within the U.S. central bank.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +21 basis points last week which helped to move mortgage rates lower from last Friday to the prior Friday.  We did pull back from our our best levels of 2011 which occurred in the middle of the week.  The gains were primarily due to much weaker than expected economic news as well as continued concern over weakness in Europe.

What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week.  They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.  I will be watching these reports closely for you and let you know if there are any big surprises:

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon. 

  

Retail Sales Improve:

The U. S Bureau of

U.S. retail sales in July posted their biggest gain since March, tempering fears that the world's largest economy might be slipping back into recession.

Sales climbed 0.5 percent, in line with analyst forecasts and following an upwardly revised 0.3 percent gain in June.

Consumer spending accounts for two thirds of U.S. economic activity, and the Commerce Department data released on Friday indicates the third quarter was off to a decent start.

Excluding autos, sales increased 0.5 percent, well above forecasts for a 0.2 percent gain. The figures were bolstered by a 1.6 percent jump in gasoline station sales, in part reflecting the higher cost of fuel.

Stocks Up, Rates Up

This week's economic news was nearly all positive, and the stock market posted a strong rally. Unfortunately, what's good for stocks is generally unfavorable for mortgage rates. Progress on the Greek aid package and stronger than expected US manufacturing data, along with the end of the Fed's bond buying program, combined to push mortgage rates higher this week.

While the Fed made known months ago that its $600 billion quantitative easing program would end on June 30, investors have been uncertain what the impact would be. Since the program started, Fed purchases have accounted for roughly 85% of the total new Treasury issuance. The loss of this significant source of demand makes investors less willing to purchase Treasury securities, and mortgage-backed securities (MBS), at what have been historically low yields. Yields had to rise to attract investors.

Home Sales Better Than Expected:
Average New Home Price Also Increases, Inventory Decreases.

Sales of new U.S. single family homes fell for the first time in three months in May, but inventories of new homes for sale reached record lows and the median sales price rose slightly, a government report showed on Thursday.

The Commerce Department said May new home sales fell 2.1 percent to a seasonally adjusted annual rate of 319,000. Analysts polled by Reuters were expecting a slightly slower pace of 310,000 for the month.

May's new home sales were 13.5 percent above the May 2010 level.

The Commerce Department report showed that the median new home sales price rose to $222,600 in May from $217,000 in April, marking the first increase since December last year.

U.S. housing starts rose more than expected and permits for future construction touched a five month high in May, a government report showed on Thursday.

The Commerce Department said housing starts rose 3.5 percent to a seasonally adjusted annual rate of 560,000 units, retracing almost half of April's steep decline. April's starts were revised up to a 541,000 unit pace, which was previously reported as a 523,000 unit rate.

At May's sales pace, the supply of homes on the market dropped to 6.2 months' worth, the lowest since April 2010.

New Construction On The Move:
Housing Starts increase in May and Building Permits hit a five month high.

U.S. housing starts rose more than expected and permits for future construction touched a five month high in May, a government report showed on Thursday.

The Commerce Department said housing starts rose 3.5 percent to a seasonally adjusted annual rate of 560,000 units, retracing almost half of April's steep decline. April's starts were revised up to a 541,000 unit pace, which was previously reported as a 523,000 unit rate.

Single-family home construction, which accounts for a large portion of the market, rose 3.7 percent.

New building permits unexpectedly rebounded 8.7 percent to a 612,000-unit pace last month, the highest level since December. Economists had expected overall building permits in May to fall to a 558,000-unit pace.

Permits were boosted by a 23.2 percent surge in the multi-family segment. Permits to build single-family homes rose 2.5 percent. New home completions climbed 0.4 percent to 544,000 units in May.

Will Mortgage Rates Rise in August?
Every week it seems mortgage rates inch down - but is the ride nearing the end?

One of the main reasons why mortgage rates have been so low is due to the Quantitative Easing II program.  This is where the Federal Reserve Bank of New York purchases U.S. Treasury debt each business day.  This massive program will end at the end of June and has kept the demand for U.S. treasuries higher than it would normally be and as a result has kept all interest rates lower than normal.  So what will happen to demand for treasuries once the largest single buyer of our debt leaves the market? 

U.S. banks have also been a very large purchaser of treasuries but some of Wall Street’s biggest banks are preparing to cut their use of U.S. treasuries in August as a precaution against any turbulence that could follow if warring Republicans and Democrats fail to increase the U.S. debt ceiling, a senior bank chief said.

One strategy, which bank executives only agreed to discuss without attribution due to the political sensitivities related to discussing Treasury debt, is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system’s reliance on treasuries.

“We’re planning to lower our reliance on the use of treasuries in early August and have more cash on hand as a contingency measure,” said a U.S. bank chief.

Investors worldwide own large amounts of the $9.7 trillion of debt that has been sold by the US government as part of their portfolios. But nearly 40 per cent of the existing U.S. Treasury debt – about $4 trillion – is used to back deals in the repurchase, futures and swaps markets, say JPMorgan Chase estimates.

It is this key role that treasuries play as collateral for the wider financial system where turmoil could follow any missed payment resulting from the debt ceiling fight. The top quality and liquidity of Treasury debt means it can be used to back transactions relatively cheaply, with banks or clearing houses only requiring a small “haircut” or discount on the value of the debt to reflect credit risks.

Without the Federal Reserve buying treasuries and with banks curbing their purchases as well - it could lead to higher rates.

New Home Sales Rise To Four Month High:
New U.S. single-family home sales rose unexpectedly in April to notch their second straight month of gains and prices increased, according to a government report on Tuesday that offered some hope for the stagnant housing market.

The Commerce Department said sales increased 7.3 percent to a seasonally adjusted 323,000 unit annual rate, the highest level since December, from a slightly upwardly revised 301,000-unit pace in March.

Economists polled by Reuters had forecast new home sales unchanged at a previously reported 300,000-unit rate. All four regions recorded gains in sales, with the West reporting a 15.1 percent rise.

The Commerce Department reported the median sales price for a new home rose 1.6 percent last month to $217,900. Compared with April last year, the median price increased 4.6 percent.

At April's sales pace, the supply of new homes on the market dropped to 6.5 months' worth, the lowest since April last year, from 7.2 months' worth in March.

Consumer Sentiment Picks Up:

 
Consumer Sentiment climbed more than forecast in May as Americans turned more hopeful that employment gains will be sustained, helping them cope with higher fuel and food costs.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 72.4, a three-month high, from a final reading of 69.8 in April, the group reported today.

 
Nonfarm payrolls surged in April as firms added 244,000 new jobs during the month. The consensus expected payrolls to increase by only 200,000 jobs.

On top of the April gains, payrolls in February and March were revised up from 194,000 and 216,000, respectively, to 235,000 and 221,000. This marks the seventh straight monthly increase in Nonfarm payrolls.  Most view this report as much more valuable than the Unemployment Rate. 

It is no coincidence that we have seen some stronger than expected monthly gains in Existing Home Sales because demand for housing is, of course, directly tied to jobs.

Pending Home Sales Rise More Than Expected:

More Americans signed contracts to buy homes in March.

Sales of previously owned U.S. homes rose more than expected in March, as sales agreements for homes rose 5.1 percent last month to a reading of 94.1, according to the National Association of Realtors' pending home sales index. Sales rose in every region but the Northeast.

Signings are more than 20 percent above June's index reading, the low point since the housing bust. Still, the index is below 100, which is considered a healthy level.

Existing Home Sales Rise More Than Expected:

Sales of previously owned U.S. homes rose more than expected in March, suggesting the housing market's downward trend may be close to hitting a bottom.

The National Association of Realtors said sales rose 3.7 percent month over month to an annual rate of 5.10 million units after an upwardly revised 4.92 million unit pace in February.

Economists polled by Reuters had expected sales to rise 2.5 percent to a 5.0 million-unit pace from the previously reported 4.88 million unit rate. Sales have now risen in six of the past eight months.

Foreclosures Filings Hit 3-Year Low:

U.S. foreclosure filings fell in the first quarter to the lowest level since early 2008 amid an ongoing backlog following last year's halt in activity, according to a RealtyTrac report on Thursday.

Default notices, scheduled auctions and bank repossessions were reported on 681,153 properties, down 14.8 percent from the previous quarter and a drop of 26.9 percent from the first quarter of 2010.

It was the lowest level of foreclosures since the first quarter of 2008.

Nevada maintained the highest U.S. state foreclosure rate as one in every 35 homes had a foreclosure filing. California alone accounted for nearly a quarter of overall foreclosure activity.

Mortgage Rates Improve on Inflation Data

On target inflation data and strong demand for the longer-term Treasury auctions were favorable for mortgage rates this week. The other major economic reports contained few surprises. As a result, mortgage rates ended the week lower.

In recent weeks, the primary influence for mortgage rates has shifted from global events in Japan and the Middle East to the outlook for inflation. Last week's rate hikes in Europe and China to fight inflation raised concerns that the Federal Reserve was falling behind with its lack of tightening, and mortgage rates moved higher. This week's tame inflation data eased those concerns, however, and mortgage rates improved. The March Consumer Price Index (CPI) rose 0.5% from February, matching the consensus forecast, and was 2.7% higher than one year ago. Core CPI, which excludes food and energy, increased at a low 1.2% annual rate, which was a little lower than expected.

Pending Home Sales Surprise to the Upside:

Pending sales of previously owned U.S. homes unexpectedly rose in February, a trade group said Monday, pointing to a modest pick-up in home sales.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in February, increased 2.1 percent to 90.8. Economists had expected the index, which leads existing home sales by a month or two, to fall 1.0 percent after a previously reported 2.8 percent decline.

Survey: U.S. Economy Over the Worst

In another sign the American economy is on the comeback trail, a new survey from KPMG shows optimism is improving among U.S. manufacturing and service industry executives. Executives in both key sectors say the worst is behind us.

The survey shows 68 percent of manufacturing executives believe business activity will be higher in the next 12 months. That's up from 57 percent in October.

Forty-one percent of those same executives say they plan to hire more in the weeks and months ahead. That number was just 28 percent five months ago.

As far as revenue is concerned, 65 percent of manufacturers surveyed by KPMG expect revenues to rise in the next year.

Vast Majority of Americans Favor Home Ownership:

Despite a historic real-estate market upheaval that sent foreclosure rates skyrocketing and home values plummeting, Americans still have a deep attachment to homeownership. Furthermore, they consider homeownership an integral part of an American Dream in which they still believe, according to poll results announced today by The Allstate Corporation (NYSE: ALL) and National Journal.

The eighth quarterly Allstate-National Journal Heartland Monitor Poll revealed that nearly nine out of 10 homeowners say they would buy their homes again. That percentage held true even among homeowners who said their home values had declined. Seven of 10 Americans say they would advise a friend or family member to buy a home as a long-term asset. However, while homeownership is perceived as a good personal decision, there is much greater uncertainty about whether expanding homeownership should be a government priority.

Existing Home Sales continued their upward climb in January.  This is the fourth month in a row where we have seen month-over-month gains in the number of units sold.  The National Association of Realtors reported that sales rose 2.7% from December.  Also, the inventory levels decreased again:
 
The number one reason that the housing market tanked was due to over supply.  So, with home sales increasing and inventory levels decreasing, this is certainly a trend with some momentum.  All cash sales and distressed sales did increase last period.  But any way that the excess inventory is gobbled up is good.  It certainly shows that the demand is there and that investors are snapping up properties before prices rise.  Maybe you should too?