Category Archives: Mortgage Scoop

Homebuyers are stretching

Homebuyers are Stretching the Most in these Cities

Home prices continue to reach new highs, with the most recent data showing prices for existing homes at a median of $276,900 in June; new homes are even more expensive at a median of $302,100. The annual increase in home prices has been outpacing income growth since 2012. As a result, homebuyers have been stretching more and more to purchase their dream homes. Low interest rates have masked this to some extent, as they have subdued the monthly payment, but the recent increase in interest has reduced this mitigating factor.

A well-known rule of thumb says that the home price should not exceed three times the buyer’s annual income. When a mortgage is used to buy a house, the ratio of amount borrowed to income is the extent to which a borrower is leveraged. In this study, we compared leverage ratios across cities to see where borrowers are stretching the most to purchase a home.

They used Home Mortgage Disclosure Act (HMDA) data that includes over 7 million mortgages originated in 2017 to calculate the leverage rate of borrowers in the 50 largest cities in America. The median amount borrowed was divided by the median borrower income for all purchases in the HMDA database for 2017.

Key findings

  • California is known for its high home prices and high incomes. Unfortunately, the tech boom is not enriching everyone with cash, and 6 of the top 10 cities are in the Golden State, including the top four (Los Angeles, San Diego, San Francisco, and San Jose).
  • Los Angeles leads the way for stretched buyers, with the median homebuyer with a mortgage borrowing 3.75 times their annual income.
  • San Diego has similar income to Los Angeles, but cheaper homes give it the second highest leverage ratio of 3.62.
  • Home prices are much higher in the Bay Area cities which rank 3 and 4 for stretched borrowers, but higher incomes provide some relief and leverage ratios are 3.52 and 3.50 for San Francisco and San Jose.
  • The more affordable cities are clustered in the Rust Belt and southern U.S. states. Pittsburgh and Cleveland have the lowest leverage ratios at just 2.00 times annual income.
  • Houston is the largest city in the bottom 10 and has the highest loan amounts of the affordable cities. High incomes driven by the energy and health care sectors helps it to a benign leverage ratio of 2.17.

This means that the time spent commuting is a major consideration on where to relocate and purchase the next  home, the longer the commuting time – potentially, the less desirable a city or neighborhood becomes.Source: LendingTree Study

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -23 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher for the week.  It was the second straight week of higher rates with MBS selling off a total of -39 basis points over the past two weeks.

Overview:  We had very strong economic data all week with big readings in Manufacturing (1/3 of our economy0 and Services (2/3 of our economy) and then ended the week with higher wage growth with the Year-over-year Average Hourly Earnings hitting 2.9%.

Jobs, Jobs, Jobs:
Non Farm Payrolls:
August was better than expected, 201K vs est of 191K.
July was revised lower from 157K down to 147K
June was revised lower from 248K down to 208K
The three month rolling average is now 185K
Wages:
The Average Hourly Earnings YOY rose by 2.9% vs est of 2.7%
Earnings on a MOM basis rose by 0.4% vs est of 0.2%.
Average Hourly Wages are now $27.16
Unemployment:
The Unemployment Rate was unchanged at 3.9%
The Participation Rate dropped from 62.9% down to 62.7%

Services: The ISM Non-Manufacturing (2/3 of our economy) was very strong and beat out forecasts with a 58.5 vs 56.8 estimate.

Manufacturing:
 The August ISM Manufacturing Index jumped to 61.3 vs est of 57.7. Its the best reading since January. Any reading above 60 is rare for this report and very robust. ISM Prices Paid
hit 72.1 vs est of 70.2…a very lofty level and yet another report that shows pricing pressures (inflation).

The Talking Fed: NY Fed Pres John Williams (voting member) said that steady inflation and low unemployment have created an economy that is “as good as it gets” for the U.S. but that “we can continue to be relatively patient and allow this economy to continue to grow.”

What to Watch Out For This Week:


The above 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.

commute

Commuting Time a Consideration in Housing

With the red-hot job market, millions are moving to a new city this year.  The cost of housing is a big consideration in deciding if taking that new job offer is really worth it.  But also, a person’s commuting time is a growing consideration as people are focusing more on their quality of life.

The U. S. Census Bureau compiled the average daily round-trip commute times for almost 1,000 cities and the data is very alarming.  The average American worker spends 52.2 minutes a day commuting to and from work, or 4.35 hours a week. This translates to an average of 408 days of one’s life commuting – and more in large cities.

This means that the time spent commuting is a major consideration on where to relocate and purchase the next  home, the longer the commuting time – potentially, the less desirable a city or neighborhood becomes.

Educateddriver.org put together a great interactive map that you can checkout to determine your local commute time: Click HERE for the interactive map.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -16 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had strong GDP (4.2%), Inflation at 2.3% (Headline PCE), very strong Consumer data and very strong manufacturing data.  All that positive data means growth and that is always something that will pressure long bonds and increase interest rates.  While, Mexico and the U.S. appear to have a deal, the uncertainty of Canada joining in has provided some support for bonds which has diminished the downward pressure from the strong economic data.

PCE: The Fed’s preferred measure of inflation hit a six year high as the Core PCE number FINALLY hit 2.0% (the Fed’s target rate). The Headline PCE number continues to trend above 2.0% with a 2.3% vs est of 2.2% level. Spending picked up by 0.4% on a MOM basis and Income grew by 0.3%, both matched market expectations.

Manufacturing: The bell-weather Chicago PMI continues to deliver very robust readings. The August reading hit 63.6 vs est of 63.0. Any reading above 50 is good and readings above 60 are extremely positive for the economy.

Consumer Confidence: The August reading was very robust, coming in at 133.4 vs est of 126.5. This is the highest reading since 2000.

Consumer Sentiment: The August University of Michigan’s Index was revised to 96.2 from 95.3, a very strong reading.

GDP: The 2nd QTR GDP was revised upward from the originally reported 4.1% to 4.2%, the market was actually expecting a downward revision from 4.1% down to 4.0%, so this was a fairly nice beat to the upside.

The Talking Fed: The Senate confirmed Trump nominee Richard Clarida by a 69-26 vote as the Vice Chairman of the Federal Reserve. He replaced the void left by William Dudley. Clarida was a big fund manager at PIMCO at the time when PIMCO was the world’s largest bond trader.

What to Watch Out For This Week:


The above 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.

land-use

Strict Land Use = Higher Values

Home values in the most restrictive metropolitan areas grew an average of 23.4 percent, more than double the home value appreciation in the least restrictive metros (9.4 percent) and about one third faster than metros in the middle (17.9 percent).

Most land-use regulations in the U.S. are determined locally. For instance, home builders in Houston face a different and generally easier environment in which to build than builders in San Francisco. Metros can be categorized into three groups: the metros with the most restrictive, moderately restrictive, and least restrictive land-useregulations.

Broadly speaking, the most restrictive metro areas include many large coastal markets such as New York, Los Angeles, Boston, and San Francisco. The moderately restrictive metros include several large markets in the interior and Gulf Coast, including Chicago, Dallas, and Houston. The least restrictive metros are mostly Midwestern or smaller markets, including Indianapolis, St. Louis, and Kansas City.

As the economy recovered and employment grew from 2010, the surplus of homes on the market turned into a shortage and home values began to rise. They tended to rise much more in the most restrictive metro areas, despite those places having only modestly higher job growth.
Source: Zillow Research

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained +11 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week after three straight weeks of slowly rising mortgage rates.

Overview:  The bond market focused primarily on the Fed and Jobs.  Both were solid with the Fed keeping their key interest rate unchanged but having a more “hawkish” or “bullish” tone to their commentary.  Job gains were solid as well.  Generally that type of combination would be something that would pressure bond prices (higher rates) but it was offset by continued uncertainty and concern over tariffs and trade war escalations.

Central Bankpaloza: As widely expected the FOMC (Federal Open Market Committee) kept their key Fed Fund rate unchanged in the 1.75% to 2.00% range. Their policy statement had a little more of a “hawkish” tone than their previous statement (when they met and increased rates in June).
Here are some of the more “hawkish” changes in language from their prior statement:
• Economic activity is “rising at a strong rate,” an upgrade from prior wording of “solid rate”
• Most of the minor wording changes are mark-to-market in the first paragraph’s economic assessment
• Job gains “have been strong,” and household spending and business fixed investment “have grown strongly”
• Unemployment has “stayed low” rather than “declined”
• Both headline and core inflation remained “near 2 percent”
• Household spending has “grown strongly” rather than “picked up”
• “Further gradual increases” repeated as expected policy path
• Risks to the outlook still “appear roughly balanced”

Jobs, Jobs, Jobs: Its Big Jobs Friday, and here is the tale of the tape:
Jobs:
Non-Farm Payrolls for July 157K vs est of 190K
Non-Farm Payrolls for June revised from 213K to 248K
Non-Farm Payrolls for May revised from 244K to 268K
The more closely watched rolling three month average is now a very robust 224K
Wages:
Average Hourly Earnings YOY 2.7% vs est of 2.7%
Average Hourly Earnings MOM 0.3% vs est of 0.3%
Unemployment:
The Unemployment Rate 3.9% vs est of 3.9%
The Participation Rate 62.9% vs est of 63.0%

ISM Services: The July Non-Manufacturing data which makes up over 2/3 of our economic engine hit 55.7 est of 58.6. This is a bit of a miss at about 3 points but any reading above 55 is still very strong.

What to Watch Out For This Week:


The above 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.

Millennials have different views on Home Ownership

Millennial’s have different views on Home Ownership

Here’s a look at what Millennial’s want in a new home and why:

Contrary to reports that the recession left Millennials disillusioned about owning a home, 75 percent believe homeownership is an important long-term goal and 73 percent see real estate as a good investment. About a quarter already own a home and 60 percent plan to purchase in the future. According to estimates, Millennials aged 25-plus account for 15 percent of new home shoppers. Lending constraints, student debt and down payments are still hurdles, but as the economy and jobs continue to improve, substantially larger numbers of these buyers will shop for homes. Over the next five years, Millennials are expected to account for about two-thirds of new households.

Millennials have long been touted as the generation that prefers city over suburbs, but multiple recent studies show that city living only appeals to a small portion, from 5 to 16 percent (depending on the study), while 55 to 66 percent say they prefer the suburbs. On the other hand, younger Millennials who are renting definitely favor urban settings.

Three-quarters want a single-family home. When asked about home size, 2,475 square feet is what a majority would like to have. Two-story homes (52 percent) and open concept floor plans (78 percent) were also preferences in recent NAHB’s research. For bedrooms, 81 percent said they wanted either three or four and two or two and a half baths would be fine.

“Home design is one of the top motivating factors,” says Mollie Carmichael, a principal in John Burns Consulting. Design emerged as the No. 1 trend for Millennials. Also topping the list was a focus on function over size.

The most desired feature? It’s a laundry room, with 55 percent of Millennials saying they just wouldn’t buy a new home without one. Surprisingly, exterior lighting came in second, with 88 percent saying it was essential or desirable. Storage is also important, with linen closets, a walk-in pantry and garage storage making the top 10 most desired features.

About half of those under 35 report that their current use for outdoor space is limited to grilling, yet a majority want their space to feel like a relaxing retreat for entertaining. And they were more likely than older generations to use their outdoor space for meals and to decorate as they would their living and dining rooms.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -17 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  MBS dropped for the third straight week which has caused fixed mortgage rates to slowly rise during that period.  GDP and Trade Talk were the main focus of the markets, with the European Central Bank also receiving some attention.

Gross Domestic Product: The 1st QTR GDP had its final revision and it moved up from 2.0% to 2.2%. We got our first look ( we will see this number revised several times) the 2nd QTR GDP, and it basically matched expectations with a 4.1% reading, which is very strong. The surprise came in the Price Index which jumped 3.2% vs estimates of 2.3%. Consumer Spending “popped” with a huge surge of 4.0% vs est of 2.9%.

Consumer Sentiment:
 The final July University of Michigan reading came in at 97.9 vs est of 97.1

Durable Goods: The very volatile report showed that the June data increased and had major upward revisions to May’s data. The Headline reading showed a 1.0% MOM gain vs est of 3.%. But the reason for the miss was the large revision from -0.6% to -0.3% in May. When you strip out the transportation sector, orders rose by 0.4% which was close to expectations of 0.5%. May was revised upward from -0.3% all the way up to +0.3%. So actually that ex-transport number was a beat.

Central Bankpaloza: The European Central Bank and its President Mario Draghi kept their rates unchanged and basically used the exact same policy statement as their last one. They continued to pledge that their QE bond buying program would end this year (unless they needed it to go longer) and that they would keep rates as-is until next Summer. In his live comments, Draghi said that there is still uncertainty over trade issues but that the direct effects of implemented tariffs is limited.

Trade Wars: On the other trade front, President Trump met with Jean-Claud Junker, the EU Commission President face-to-face to talk trade. During their joint press conference Junker said that the only reason that he traveled to the White House was to make a trade deal.  Here are some of the highlights:

  • Europeans agreed to work on more U.S. LNG exports
  • Europeans agree on lowering industrial tariffs
  • EU agrees to align regulator standards on medical products
  • EU agrees to import more U.S. soybeans

China announced a fiscal stimulus plan that is designed to front-run an excepted economic slowdown due to the trade war with the U.S. The fiscal package contains measures that included giving an additional tax cut of 65 billion yuan ($9.6 billion) to companies with R&D expenditure, expediting non-budgeted special bond sales to assist local government infrastructure financing and easing restrictions on banks’ issuance of financial bonds for small firms.

In what seems like a direct response to China’s stimulus plan, the White House announced a $12 billion “short-term” stimulus plan to help US farmers hurt by China’s retaliatory tariffs. The package will consist of direct payments, food purchases and trade development – under a program already authorized under the Commodity Credit Corp act, which means Congressional approval is not required. Further details on the program will come by Labor Day.

What to Watch Out For This Week:


The above 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.

housing market

Home Prices Rise/Time on Market Falls

The most recent Existing Home Sales data was just released by the National Association of Realtors and it showed a housing market that is still very strong.

Homes are being snapped up and at higher prices as properties typically stayed on the market for 26 days in June which is down from 28 days a year ago. Fifty-eight percent of homes sold in June were on the market for less than a month.

The median existing-home price for all housing types in June was $276,900, surpassing last month as the new all-time high and up 5.2 percent from June 2017 ($263,300). June’s price increase marks the 76th straight month of year-over-year gains.

Inventory is still very tight with the total housing inventory at the end of June hit 1.95 million existing homes available for sale, and is 0.5 percent above a year ago (1.94 million) – the first year-over-year increase since June 2015. Unsold inventory is at a 4.3-month supply at the current sales pace (4.2 months a year ago) which is well-below the 6 month supply level which is considered optimal.

Lawrence Yun, Chief Economist at NAR, said “It’s important to note that despite the modest year-over-year rise in inventory, the current level is far from what’s needed to satisfy demand levels,” added Yun. “Furthermore, it remains to be seen if this modest increase will stick, given the fact that the robust economy is bringing more interested buyers into the market, and new home construction is failing to keep up.”

“Realtors® throughout the country continue to stress that there’s considerable pent-up demand for buying a home among the millennial households in their market,” said Yun. “Unfortunately, they’re just not making meaningful ground, and continue to be held back by too few choices in their price range, and thereby missing out on homeownership and wealth gains.”
Source: NAR

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -10 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had a very light week for economic data but we did get one major release (Retail Sales) which showed some real strength.  The Federal Reserve got a lot of attention this week with two days of testimony by Fed Chair Powell and the Release of their Beige Book.   The take-a-ways from the Fed and President Trump’s remarks are that the Fed is on track for potentially two more hikes this year.

Retail Sales: The June data matched expectations with the headline reading hitting 0.5% vs est of 0.5%. The May reading was revised upward significantly from 0.8% to 1.3%. Same story when you strip out Autos. June was 0.4% vs est of 0.4% and May was revised upward from 0.9% to 1.4%.

The Talking Fed: We had the Semi-Annual Monetary Policy Report testimony on Tuesday and Wednesday.
Fed Chair Jerome Powell’s prepared statements and live comments were much aligned with the FOMC’s last policy statement as they cited strong economic and job growth and were willing to let the economy run at a higher than 2.0% inflationary pace in the near term. But the following quote from Powell sums it up pretty well: “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that – for now – the best way forward is to keep gradually raising the federal funds rate.”

The Beige Book, which is prepared specifically to be used at the next Fed meeting, was released -here are some highlights:
– Used the word “tariff(s)” 31 times in July. That compares to 22 in May, 36 in April and 0 in March’s Beige Book.
– Labor shortages and wages were a big theme across all districts. The S.F. Fed reported that “shortages of plumbers, electricians, and other specialized workers drove wage pressures for these positions and led to construction project delays in some cases.” The Kansas City Fed noting that contacts noted difficulty “finding retail sales staff, skilled IT workers, commercial drivers, and restaurant workers.” And the NY Fed said that one business contact “observed that almost all job-seekers are already employed.”

2 more rate hikes? President Trump is concerned that we will have two more rate hikes this year. And while the Fed has in fact indicated in their famous “dot plot” chart that two more hikes are to be expected, the markets have NOT been pricing in the second one yet. The third rate hike has been all but priced in but the 4th is not. So, does this mean that there is MORE of a chance of that 4th rate hike?

What to Watch Out For This Week:


The above 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.

construction

Home Builders Confidence Remains Very High

The National Association of Home Builders Sentiment Index was released today and it came in at 68. Anything above 50 is considered positive sentiment. The survey was at 64 in July of 2017.

U.S. homebuilders are heartened by the strong demand and tight supply in today’s housing market, but they still can’t meet that demand as much as they might like.

“Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.

Challenges to homebuilders include rising costs for land, labor and materials. The price of lumber spiked to a record high a few months ago and is still up over 50 percent in the past year.

“Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market,” said NAHB Chief Economist Robert Dietz.

Source: NAHB

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -8 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview:  We had some very strong inflationary data (CPI and PPI) which is normally very negative for mortgage rates (makes them move higher) and while bonds did feel some of the pressure, it was largely offset by the global uncertainty of the scale and length of the Trade War that started on July 5th.  These opposing forces “squeezed” bonds into a very narrow range which pushed mortgage rates sideways.

Inflation Nation: The June Consumer Price Index (CPI) matched market expectations but hit the highest level since 2012. The headline YOY number hit 2.9% vs est of 2.9% and the Core (ex food and energy) came in at 2.3% vs est of 2.2%. Both were higher than the previous YOY pace in May. The CPI would have been even hotter if it wasn’t for a -3.7% drop in hotel prices. The June Producer Price Index (PPI) was much hotter than expected with the YOY Headline number coming in at 3.4% vs est of 3.2% and it is the highest level since 2011. The Core (ex food and energy) was also a beat to the upside (2.8% vs est of 2.6%). The Atlanta Fed Business Inflation Expectations hit 2.1% in July which matched June’s pace.

Small Business Optimism: The NFIB Index was stronger than expected (107.2 vs est of 105.6). Overall, it was a good report. But small business are still reporting that they are unable to fill open positions with skilled workers.

Jobs, Jobs, Jobs:
 The May Job Openings and Labor Turnover Survey (JOLTS) was hotter than expected (6.638M vs est of 6.583M) and still shows more open positions available than there are people looking for work.

What to Watch Out For This Week:


The above 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.

 

Millennial’s Define Wealth Differently

Owning a Home still is a big factor in Millennial’s feeling “wealthy”, but it is not the number one factor.

Schwab asked people to think about personal definitions of wealth in their lives, and the survey revealed a wide range of perspectives. When asked for their personal definition of wealth, two of the top three most popular descriptors aren’t even about money at all.

Their definition of “wealthy” is not the same as your grandparents’ definition.  A new survey called the 2018 Modern Wealth Index compiled by Charles Schwab showed that owning a home was rated just above “eating out”.  Here are the top 5 things that make them “feel” more wealthy:

  • Spending time with family (62 percent)
  • Having time to myself (55 percent)
  • Owning a home (49 percent)
  • Eating out or having meals delivered (41 percent)
  • Subscription services like movie/TV and music streaming (33 percent)

Other things that make people feel wealthy in their daily lives include owning the latest tech gadgets (27 percent), having a gym membership or personal trainer (17 percent), and using a home cleaning service (12 percent).

When asked to focus just on numbers, survey respondents believe it takes $1.4 million to be considered financially comfortable. To be considered truly “wealthy,” that number increases to $2.4 million.

Source: 2018 Modern Wealth Index

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +12 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.  Over the past 4 weeks, the rolling average has seen a slight decline in mortgage rates.

Overview:  We had a holiday-shortened trading session which was really only 3 full days of trading in the bond market.  We had very strong domestic economic data (ISM Services, Jobs, Manufacturing) that would have normally caused mortgage rates to increase.  But offsetting our strong data was concern over the start of the trade wars with China and to a lessor effect, Canada, Mexico and Russia.  The uncertainty over the path of the trade war has kept money into long term bonds where normally, it would flow out.

Jobs, Jobs, Jobs:  Big Jobs Friday showed us that the job market continues to be very strong.
Jobs:
June Non Farm Payrolls (NFP) 213K vs est of 195K.
May NFP revised upward from 233K to 244K.
April NFP revised up[ward from 159K to 175K.
The rolling three month average increased to 211K
Wages:
The MOM change in Average Hourly Earnings increased by 0.2% vs estimates of 0.3% and is now $26.98.
The YOY change is 2.7% which matched market expectations and last month’s pace.
Unemployment Rate:
The Unemployment Rate increased from 3.8% to 4.0% but that is only because more people are actually looking for work. This is reflected in an increase in the Participation Rate from 62.7% to 62.9%

Services: The June ISM Non-Manufacturing Index (2/3 of our economy) had a very robust reading of 59.1 vs est of 58.3. This is the third highest reading since 2005.

Manufacturing:
 The national ISM Manufacturing report was very robust and beat expectations with a 60.2 vs estimates of 58.4. Input costs (ISM Prices Paid) were very lofty at 76.8 but were smidge lower than in May.

The Talking Fed: We got the Minutes from the last FOMC meeting. There were no real surprises in the minutes. They clearly are wiling to let inflation run hotter in the near term and do have some concern over the impact of tariffs but overall feel that the economic risks to a trade war as being “balanced”.

Trade Wars: Friday started the official kickoff of 25% tariffs on $34B worth of items from China and vice-versa. President Trump has said that the U.S. is ready with another $500B in tariffs on China if they don’t come to terms with a more equitable agreement and protect intellectual property rights.

What to Watch Out For This Week:


The above 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.

 

millennial homebuyers

Top Concerns for Millennial Buyers

According to a recent survey, the top concern among first-time millennial homebuyers was having enough money for a down payment, with 50 percent citing that response, followed by affording a home in their preferred location (45%) and rising home prices (41%).
top concerns for millenials Redfin commissioned a survey of 2,000 U.S. residents who planned to buy or sell a primary residence in the next 12 months. The purpose of the survey was to better understand the objectives, perspectives and concerns of those about to enter the real estate market.Aside from the 69 percent who saved directly from paychecks, millennials used several tactics and sources to accumulate the money needed for a down payment on their first home. Thirty-six percent used earnings from a second job, 13 percent pulled money out of retirement funds early and 10 percent sold cryptocurrency. Some were lucky enough to have received a cash gift from their family (24%) or an inheritance (12%).

When broken down by household income levels, there were some notable differences in how millennials achieved a down payment. Millennials in households earning more than $100,000 per year were less likely than those earning less to have saved directly from paychecks, with 60 percent of high-earners having done so, compared with 75 percent of those who earn less than $100,000. Millennial households earning more than $100,000 were more than three times more likely than their less-well-off peers to have sold cryptocurrency investments and twice as likely to have sold stock investments. They were also more likely to have received an inheritance or cash gift from family or to have dipped into their retirement savings.

To afford a mortgage, 65 percent of millennials who intend to buy their first home this year plan to take some action, aside from just paying from their regular paychecks:

32% plan to pursue additional employment
19% intend to rent out a room to someone they know
15% say they will drive for a ride-sharing service
14% plan to split ownership of the home with friends or roommates

Source: RedFin

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +7 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview:  We had a net change of just 7 basis points.  Generally, it takes around a 21 basis point movement for rates to be impacted.  We had a big week for economic data with high inflation (PCE) and strong manufacturing data as well as very positive readings on the consumer.  Usually, that type of economic data is very negative for mortgage rates.  However, last week’s data took a back seat to the swirling changes in trade talks and escalating tariffs which more than offset the downward pressure from the economic data.

Inflation Nation: The Fed’s “official” measure of inflation, PCE (personal consumption expenditures) was hotter than expected with the headline YOY number hitting 2.3% vs est of 2.2%. It was at 2.0% when the Fed’s raised rates at their last meeting. The Core YOY number hit 2.0% for the first time since 2012! Personal Income matched market expectations with a 0.4% MOM change and Personal Spending improved by 0.2% but that short of the estimates of 0.4%.

Manufacturing: The Bell-Weather Chicago PMI posted a block-buster reading of 64.1 vs est of 60.1. This is the second highest reading this year and one of the highest readings on record. Some internals show problems filling vacant job openings, rising costs and increased new orders and backlogs. Just about everything that points to growth in the manufacturing sector.

Consumer Sentiment Index: The final reading for June was 98.2 vs May’s reading of 98.0, so MOM it did improve. Inflation Expectations for the next 12 months moved up to 3.00%. Consumer Confidence: The June data was below expectations (126.4 vs est of 128) but ANY reading above 120 is an extremely high level and points to strong consumer spending.

GDP: We got the final and third look at the 1st QTR GDP. The final revision dropped to 2.0% which is down from the last revision of 2.2%. The surprise came in the form of the Price Index which jumped up to 2.2% from the last revision of 1.9%.

What to Watch Out For This Week:


The above 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.

New Home Sales Jump

New Home Sales Jump

MBSauthority
New Home Sales Jump:
Sales of new single-family houses in May 2018 were at a seasonally adjusted annual rate of 689,000, according to estimates released jointly today by the U.S.Census Bureau and the Department of Housing and Urban Development.This is 6.7 percent above the revised April rate of 646,000 and is 14.1 percent above the May 2017 estimate of 604,000.

The median sales price of new houses sold in May 2018 was $313,000. The average sales price was $368,500.

Supply still remains very tight with The seasonally-adjusted estimate of new houses for sale at the end of May was 299,000. This represents a supply of 5.2 months at the current sales rate.

Sales in the South appeared to drive last month’s growth. New-home purchases in the region rose 17.9%, the largest gain since the end of 2014. Meanwhile, sales in the Northeast and West declined and purchases were flat in the Midwest in May.

Source: U.S. Census Bureau

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +4 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview:  We had a net change of just 4 basis points.  Generally, it takes around a 21 basis point movement for rates to be impacted.  We traded in a very narrow range with significant resistance at our 50 day moving average.

Taking it to the House: Weekly Mortgage Applications jumped by 5.1%. Refinances led the way with a 6.0% increase. Purchase applications increased by 4.0%.  Existing Home Sales were close to expectations (5.43M vs est of 5.52M) in May. As usual, tight inventory and rising prices are restricting sales at higher levels. May Housing Starts were stronger than expected with a seasonally adjusted annualized pace of 1.350M Units. When you strip out the multi-family sector, SFR saw a 3.9% increase with a 936K pace. Building Permits were lighter than expected with a pace of 1.301M units. SFR Permits decreased by 2.2% with a 844K pace.

The Talking Fed:
Fed Chair Jerome Powell said that there is robust growth and a generational low in unemployment. In his prepared remarks the said “Earlier in the expansion, as the economy recovered, the need for highly accommodative monetary policy was clear, but with unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong.”

Trade Wars: After last week’s $50B in tariffs, President Trump directed the U.S. Commerce Department to identify $200 billion worth of China goods for an additional 10% of tariffs. China said that it would respond “in-kind” but they cant as they purchase less than $200B worth of goods from the U.S. Actually, when you back out the $50B that they have already announced, that would leave only $150B that they could issue tariffs on but they don’t buy that much from us…so it is unclear as to how they could match the U.S. tit-for-tat.

What to Watch Out For This Week:


The above 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.

Home builder confidence

Home Builder Confidence High

The June National Association of Home Builders/Wells Fargo Housing Market Index came in at a very strong reading of 66. The index stood at 66 last year in June 2017. A reading above 50 is considered positive sentiment.

All three the index’s components were very solid. Current sales conditions hit 75, the component gauging sales expectations in the next six months was 76 and buyer traffic fell came in at 50.

Housing starts have been climbing slowly but not as much as the market needs. There is a severe shortage of existing homes for sale, and that is pushing home prices higher at a very fast pace, weakening affordability, especially at the entry level. Homebuilders, faced with higher costs for land, labor and materials, are focused mostly on move-up and luxury home construction, as margins are squeezed at the entry level.

“Improved economic growth, continued job creation and solid housing demand should spur additional single-family construction in the months ahead,” said NAHB chief economist Robert Dietz. “However, builders do need access to lumber and other construction materials at reasonable costs in order to provide homes at competitive price points, particularly for the entry-level market where inventory is most needed.”

Source: NAHB.org

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +3 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview:  While a net change of just 3 basis points looks like a boring week, it was anything but.  We had a lot of volatility last week with a 50 BPS swing from our best pricing of the week to our worst pricing of the week.  The main focus of the markets was the Central Bank meetings and the Trade War.  Of the three main Central Banks that had policy statements (The Fed, European Central Bank and Bank of Japan) only our Fed had any real action.

Trade War: The U.S. announced $50B of tariffs on Chinese products. This is a 25% tariff rate on 1,102 product lines. The tariffs will be implemented in two tiers, the first one on July 6, and will cover $34B in imports, and a second wave, which will cover the remaining $16B, or 284 product lines, and will undergo further review in a public notice and comment process, including a hearing.

China’s response: They unveiled $50 billion in tariffs against U.S. goods including soybeans, light aircraft, orange juice, whiskey and beef, starting on July 6th which mirrored the U.S. tariffs schedule and tier system, China’s Ministry of Finance is setting a two-tier system with $34B on July 6th and $16B more to follow.

The Talking Fed:  As widely expected, the Fed raised their Fed Fund Rate by a 1/4 point to a range of 1.75% to 2.00%.  However, there was much that went on.
You can read the official FOMC statement here
You can read their Economic Projections here.

Here are some Key Points from the Fed Action:
– Raised Fed Fund rate by 1/4 point to a range of 1.75% to 2.00%
– Raised the Primary Credit Rate (not the same as the headline Fed Fund Rate) to 2.50%
– Raised the Interest Rate on Reserve Balances by 20 BPS to 1.9%
– The vote was 8-0
– FOMC statement says economy growing at “solid rate,” job gains have been “strong,” consumer spending has picked up and investment continued to grow “strongly”.
– The Fed removed the low inflation line: “Market-based measures of inflation compensation remain low”.
– Language about the economy upgraded, line about rates remaining below long-run levels “for some time” was removed.
– The median ‘dot’ for the end of 2018 has been 2.125% since Dec 2016 and this time around, it shifted higher to 2.375% confirming The Fed’s expectation for two more rate hikes this year, while the 2019 dot rose from 2.9% to 3.1%, suggesting the hiking carries through.
– 2018 is 2.375% vs 2.125% in March
– 2019 is 3.125% vs 2.875% in March
– 2020 and longer-run medians are unchanged at 3.375% and 2.875% respectively
– Starting in January ALL FED MEETINGS WILL INCLUDE A LIVE PRESS CONFERENCE WITH POWELL.

Retail Sales: The May data showed the biggest surge in spending in 8 months. The Headline reading increased by 0.8% which was double the market expectations of 0.4%. Plus April was revised higher. When you strip out Autos, Retail Sales increased by 0.9% vs est of 0.5%. April was also revised higher. Across the board it looked very good with discretionary spending (restaurants,etc), building materials, department stores you name it. Just about every category saw strong growth with the exception of furniture.

What to Watch Out For This Week:


The above 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.