Tag Archives: Fannie Mae

Fannie Mae Upgrades Economic Outlook

Fannie Mae Upgrades Economic Outlook

The Fannie Mae Economic and Strategic Research Group revised upward its full-year 2018 economic growth forecast to 3.0 percent – from 2.8 percent in the prior forecast – on expectations that third and fourth quarter inventory restocking will outweigh slowing consumer spending growth and a decline in net exports, according to its August 2018 Economic and Housing Outlook.

“Breakneck headline growth in the second quarter disguised a detail largely responsible for the latest upward revision to our full-year growth forecast: a need to restock declining business inventories, which we expect will support greater growth amid weakness elsewhere,” said Fannie Mae Chief Economist Doug Duncan.

Duncan went on to say, “While meaningful wage growth remains elusive, the labor market is strong and inflation appears to be gaining additional steam, making a Fed rate hike in September highly likely. Assuming consumer and business confidence can steer clear of escalating trade tensions, we expect the Fed to raise rates two more times in 2018, including next month.”

Source: Fannie Mae 2018 Growth Forecast and Housing Outook

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost just -2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview:  The bond market (specifically Mortgage Backed Securities) was once again range-bound with very solid resistance and support levels that were tested and that held.  The biggest economic report of the week was Retail Sales but it took a back seat to global concern over Trade talks.

Retail Sales: The July was hotter than expected but part of the reason was due to revisions in June more so than a big surge in spending. The Headline Number increased by 0.5% vs est of 0.1%, but June was revised lower from 0.5% down to 0.2%. When you strip out the volatile Automobile market, then Retail Sales hit 0.6% vs est of 0.3%. June was revised lower from 0.4% to 0.2%.

Manufacturing:
 The August Empire Manufacturing Index (NY) crushed it with a 25.6 vs 20.0 estimate. The Preliminary Q2 Non-Farm Productivity report was much better than expected with a 2.9% vs 2.3% improvement. But the Q1 data was revised lower from 0.4% to 0.3%. Q2 Unit Labor Costs actually fell by -0.9% vs est of +0.3% but Q1 was revised higher from 2.9% to 3.4%. The July Industrial Production was lighter than expected (0.1% vs est of 0.3%) but that was due to a revision from 0.6 to 1.0 in May. Capacity Utilization at 78.1% vs est of 78.2%.

Taking it to the House: Housing Starts and Building Permits both improved but remained at low levels as land, labor and raw material costs make it almost prohibitive to build on the lower end of the price range (where all the demand is). Housing Starts hit 1.168M vs est of 1.260M. Permits hit 1.311M vs est of 1.310M. The bright spot in permits is that SFR are up 6.4%.

Consumer Sentiment:
 The Preliminary August Reading was lighter than expected with a 95.3 vs 98.0 estimate which is the lowest since September. This will be revised though.
Leading Economic Indicators: The composite index of 10 components rose to 0.6% in July vs est of 0.4%. Inflation Expectations picked up in the 5 to 10 year horizon.

Trade Snore: The Wall Street Journal reported that Chinese and U.S. negotiators are drawing a “road map” for talks to end the trade deadlock, culminating with meetings between U.S. President Trump and Chinese President Xi at multilateral summits in November, citing officials in both nations. As part of preparation for the November summit, the two nations have scheduled the previously disclosed mid-level talks in Washington next week.

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 confidence

Housing Confidence All-Time High

The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 3.4 points in April to 91.7, marking a new all-time survey high.

Americans expressed an increased sense of job security, with the net share who say they are not concerned about losing their job increasing 5 percentage points this month.
The net share reporting that their income is significantly higher than it was 12 months ago increased 1 percentage point in April.
The net share who said home prices will go up in the next 12 months increased 7 percentage points in April.
The net share who reported that now is a good time to sell a home increased 6 percentage points month over month.
“The latest HPSI reading edged up to a new survey high, showing that consumer attitudes remain resilient going into the spring/summer home buying season,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “High home prices and good economic conditions helped push the share of Americans who think it’s a good time to sell to a fresh record high. However, the upward trend in the good-time-to-sell share seen since last spring has done little to release more for-sale inventory. The tightest supply in decades, combined with rising mortgage rates from historically low levels, will likely remain a hurdle for mobility and a persistent headwind for home sales.”

Source: Fannie Mae National Housing Survey

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained just +1 basis point (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview: The bond market had a very big week for economic data and events. It started with PCE hitting 2% (the Fed’s “trigger”) rate but then was followed by the Fed meeting where they stressed that they wont react to inflation hitting 2% just once, they want to see a trend line. We also got very strong manufacturing and services data as well as a very solid jobs report.
Fed’s Target Rate met? Yes….but there is a catch. While the Fed’s official measure of inflation is the Personal Consumption Expenditures (PCE), there are several key reports that are all at 2.00% or above, lets take a look (all reports have been released in the last 30 days):
PCE YOY – 2%
Average Hourly Earnings – 2.7%
GDP – 2.3%
CPI YOY – 2.4%
PPI YOY – 3.0%
WTI Oil – $68.89 now vs $48.84 1 year ago, 36.36% increase.

PCE: The March YOY Headline PCE showed an increase from 1.7% in Feb to 2.0% in March. The Core (Ex food and Energy) reading moved from 1.6% in Feb to 1.9% in March. Both of these data points matched the market expectations.

The Talking Fed: The FOMC voted unanimously to keep their key federal funds rate in the range of 1.5% to 1.75% which was widely expected with markets only giving them a 25% to 30% of raising rates at this meeting.
Here are some key highlights:
• They removed the line about “monitoring inflation developments closely”
• They also removed the prior statement that “the economic outlook has strengthened in recent months.”
• Change in inflation language: “On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent”
• FOMC statement now twice uses the word `symmetric’ to describe its inflation objective, emphasizing they view a persistent overshoot the same way that they view a persistent undershoot
• Removal of the following language in its entirety: “The economic outlook has strengthened in recent months”
• “Risks to the economic outlook appear roughly balanced” instead of “Near-term risks”

Manufacturing: April ISM Manufacturing hit 57.3 vs est of 58.3, anything above 50 is expansionary and a reading near 60 is very very strong. ISM Prices Paid (another key measure of inflation) jumped to 79.3 vs est of 78.0

Services: The national ISM Non-Manufacturing Services report (2/3 of our economy) was lighter than expected (56.8 vs est of 58.1) but still at a very moderate and expansionary pace.

Jobs, Jobs, Jobs: Its Big Jobs Friday!!
April Non-Farm Payrolls 164K vs est of 190K
March NFP revised upward from 103K to 135K
February NFP revised downward from 326K to 324K
The rolling three month average is now 208K, so the bottom line is the trend is still above 200K.

Unemployment:
The headline Unemployment Rate (U3) dropped from 4.1% down to 3.9%, the market was expecting 4.0%. And is the lowest since 2000.
The Participation Rate dropped to 62.8% from 62.9%
The U6 Unemployment Rate (which includes part time workers for economic reasons and discouraged workers) dropped to 7.8% which is the lowest since 2001.

Wages:
Average Hourly Earnings increased again, this time by 67 cents to get to YOY level of $26.84 which is a 2.6% gain which matches March’s pace of 2.6% (downwardly revised).
On a MOM basis, Average Hourly Earnings increased by 4 cents for a change of 0.1% vs estimates of 0.2%.

Hours Worked:
The Average Weekly Hours remained at its longer term trend of 34.5 hours, however Overtime ticked up by 0.1 to 3.7 hours which is normally a precursor to an increase in weekly hours.

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.

Fannie Mae Guideline Change Can Reduce Amount of Cash

Fannie Mae Guideline Change Can Reduce Amount of Cash the Buyer Needs at Closing

The mortgage industry behemoth Fannie Mae has issued a letter to lenders with a revised set of guidelines stating that mortgage lenders could now provide assistance to borrowers as a gift that is not subject to repayment. This could cover some or all of the closing costs associated with the purchase of a home.

Many times, it is negotiated in the purchase contract that the seller covers some or all of the closing costs that are normally the buyer’s responsibility. But in this red-hot housing market which has seen the lowest levels of available housing inventory on record, it is becoming more common for the seller to not have to pay the closing costs of the buyer as an incentive to purchase the home.

The money cannot go toward the down payment or surpass the closing costs, but otherwise there is no cap on the amount.

“We’re making it easier for borrowers to purchase a home by allowing lenders to fund closing costs and prepaid fees,” Fannie Mae Chief Credit Officer for Single-Family Carlos Perez said in a letter to lenders.

“While there is no limit to the amount of the lender-sourced contributions, the funds cannot be used toward a down payment, cannot exceed the total closing costs, and should not be subject to any form of repayment agreement,” Perez added.

Source: Fannie Mae

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just -4 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move basically move sideways for the week.

Overview: Opposing forces. Overall, the economic data was very strong last week (ISM and Jobs) which is generally negative for MBS trades and therefore negative for rates. But, global uncertainty over a potential trade war between the U.S. and China provided support for MBS. The two opposing forces “squeezed” MBS into a very narrow and tight range.
Jobs, Jobs, Jobs: We got a lot of labor/wage related data on Friday. Here is the Tale of the Tape:
Jobs:
March Non-Farm Payrolls (NFP) was much lighter than expected 103K vs est. of 193K.
February NFP was revised upward from 313K to 326K.
January NFP was revised downward from 239K to 176K.
The rolling three month moving average is now 202K, so its still above the important 200K mark.
Wages:
Average Hourly Earnings increased by 0.3% vs est. of a 0.2% gain on a MOM basis. Average Hourly earnings are now $26.82.
The more closely watched YOY number increased by 2.7% which matched market expectations and was a small improvement in the yearly pace of increases than the Feb pace of 2.6%.
Unemployment Rate:
The March Unemployment Rate remained at 4.1%. The market was expecting a small decrease, down to 4.0%.
The Participation Rate (which drives the Unemployment Rate) moved from 63.0% in Feb, down to 62.9% in March.

Overall, this was a solid report. Yes, NFP was a miss, but the Fed (and the markets) focus on the rolling three month average which is still above 200K which is very strong. Wages were up 2.7% YOY which is also strong but matched market expectations.

The Talking Fed: Fed Chair Jerome Powell did not say anything to shock the markets. He indicated that the Federal Reserve would likely need to keep raising U.S. interest rates to keep inflation under control and that it was too soon to know if rising trade tensions would hurt the U.S. economy.
ISM Non-Manufacturing: The March reading for the Services sector hit 58.8 vs est of 59.0 which is a very robust reading. The services sector accounts for more than 2/3 of our economy, so this reading gets more weight than the ISM Manufacturing data.

What to Watch Out For This Week:

Best Cities for First Time Homebuyers

Best Cities for First Time Homebuyers:

The housing market has recovered from the crisis of 10 years ago like it never even happened. National home prices have surpassed their prior peaks, and homebuyers are faced with bidding wars as inventory is low. These challenges are more onerous for first-time homebuyers who do not have the advantage of another home to sell (that has likely appreciated) to help with funding the down payment for a new home. It’s not all doom and gloom though, and some cities have more favorable conditions for first-time buyers than others.

In a new study, Lending Tree decided to rank the best cities for first-time homebuyers in the nation’s 100 largest cities. The factors that made a housing market favorable were:

Average down payment amount. The big initial pile of cash is something most first-time buyers struggle with and takes years of savings for many.

The share of buyers using an FHA mortgage. Buyers using FHA financing are required to put down as little as 3%, and have higher limits on the debt-to-income ratios. These and other loan features increase the likelihood of being approved for a mortgage while still getting competitive mortgage interest rates.

Average down payment percentage. Lower down payments increase access for first-time buyers. Down payments are one of the main obstacles to home ownership, as many renters can afford the monthly mortgage payment.
Percentage of buyers who have less than prime credit (below 680). First-time buyers often have lower credit scores than repeat buyers so are more competitive in areas without as many prime borrowers.

The share of homes sold that the median income family can afford (Housing Opportunity Index). Many cities have become too expensive for the median family. This measure of affordability in our ranking elevates cities that are still affordable for median income families.

Average FHA down payment as a percentage of average down payment for all loans: The lower down payment for FHA loans is more valuable in some areas than others. This measure of the FHA benefit tells us how much FHA borrowers truly saved on down payments.

Lending Tree ranked the following cities the top 10 most accessible:
Little Rock, Ark.
Birmingham, Ala.
Grand Rapids, Mich.
Youngstown, Ohio
Winston, N.C.
Dayton, Ohio
Indianapolis
Scranton, Pa.
Pittsburgh
Cincinnati

Source: Lending Tree

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 3.50 MBS) gained +9 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Overview: Mortgage backed securities sold off for much of the week on higher inflationary data (bonds hate inflation) but we got a nice (and temporary) bounce on Friday due to parking over the long holiday weekend with the world’s two largest economies shut down (U.S. and China).

Inflation? You bet. The Consumer Price Index readings for January were higher than expected with the Headline YOY CPI hitting 2.1% vs est. of 1.9% which is a big beat. Core (ex food and energy…everything that actually matters) CPI YOY increased by 1.8% vs est. of 1.7%. The Producer Price Index readings for January were double than expected when looking Core PPI MOM (0.4% vs est. of 0.2%). The YOY PPI Headline data hit 2.7% vs est. of 2.5%.

In another inflationary report, Import Prices MOM jumped by 1.0% vs est. of 0.6% and the prior month was doubled from 0.1% to 0.2%. YOY, Import Prices were up by 3.6% vs est. of 3.0%.

Retail Sales: The headline data was disappointing. January was lighter than expected (-0.3% vs est. of +0.2%), plus December was revised lower from 0.4% down to 0.0%. When you strip out Autos, Retail Sales were flat at 0.0% vs est. of a gain of 0.4%.

Taking it to the House: The NAHB Sentiment Index remained at 72 which is an extremely high reading and was not impacted by rising mortgage rate expectations. New Housing Starts in January were much higher than expected with 1.326M vs est. of 1.234M. Building Permits were also stronger than expected (1.396M vs est. of 1.300M). SFR were basically at the same pace as the prior month, the beat was due to a surge in Rental Properties which is not good news for the housing market.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims matched expectations with a low 230K reading. The more closely watched 4 week moving average is still below 230K with a 228,500 reading.

Philly Fed: Their February Business Outlook Survey jumped to an extremely high reading of 25.8 which handily beat out expectations of 21.1. New orders, at 24.5, are surging and unfilled orders, at 14.5, are piling up fast. Hiring is so far keeping up, at 25.2.

Consumer Sentiment: The Preliminary February University of Michigan’s national survey was red hot with a reading of 99.9 vs est. of 95.5. The one year inflation expectations were at 2.7%, the 5 to 10 year outlook was at 2.5%.

What to Watch Out For This Week:

Number of Renting Households Decline for the First Time Since 2004

Number of Renting Households Decline for the First Time Since 2004:

The 2017 Annual Rent Report prepared by ABODO showed that average Rents rose by 2.4% over the course of 2017.  And for the first time since 2004, the number of households that rent instead of own, dropped.

Citing Harvard University’s Joint Center for Housing Studies (JCHS), ABODO said more than a third of US households are renters, with about $43 million households renting across the US as of the middle of 2017.

ABODO said 2017 marked the first decline, although slight, of renting households in 13 years, citing a JCHS report. The number of renting households had been continuously increasing since 2004.

The decline in renting households in 2017 came as rents rose over the same period. At the end of 2017, one-bedrooms had a national median rent of $1,040, a 2.4% increase. Meanwhile, the national median rent for two-bedroom apartments was $1,252 in December, an increase of 3% from its level in January.

As rents rise, it strengthens demand for home sales as very low mortgage rates and unemployment levels make the cost of owning an appreciating asset far more attractive then throwing away monthly rent payments.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -19 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had another holiday-shortened week with bond trading closed on Monday for New Years Day. Once again we had very strong economic data which did pressure MBS trades lower (higher mortgage rates) but this was mitigated by concern over a looming Government Shutdown (January 19th) and geo-political concerns overseas.

We got the survey data from the U.S. Bureau of Labor and Statistics on Friday, you can read their official report here.

Here is the Tale of the Tape:
Payrolls:
December Non Farm Payrolls  148K vs est of 190K.
November Non Farm Payrolls revised upward from 228K to 252K.
October Non Farm Payrolls revised downward from 244K to 211K.
The number that the bond market pays attention to is the rolling three month average and it is above 200K at 204K.
Wages:
Average Hourly Wages for December had a monthly gain of 0.3% which matched expectations.
Average Hourly Wages YOY had a gain of 2.5% which also matched expectations.
The national average hourly wage is now $26.63.
The bond market is the most sensitive to this data set and it was right what the market expected.
Unemployment:
The national Unemployment Rate remained at 4.1% for the 3rd straight month.
The Participation Rate remained at 6.7%.
This survey data is basically ignored by bond traders.

ISM Services:  The December reading hit 55.9 vs est of 57.6.  This data set was a miss but it is still above 55.0 which is very strong considering any reading above 50.0 is expansionary.

Manufacturing:
The ISM Manufacturing Index for December was stronger than expected (59.7 vs est of 58.0) and is the 2nd highest reading since March of 2011. ISM Prices Paid (a key measure of future inflation expectations) jumped to 69.0 vs est of 65.0 and is one of the highest readings on record.

Factory Orders:  The November reading was stronger than expected (1.4% vs est of 1.1%) and October was revised upward significantly from -0.1% to +0.4%.

The Talking Fed: Cleveland Fed President Loretta Mester (voting member) said she is “o.k” with “three or four” rate hikes next year based upon her economic expectations but will need to see how Tax Reform impacts growth.

We got the Minutes from their last FOMC meeting where they raised their Fed Fund Rate by 1/4 point and showed median expectations of at least 3 rate hikes in 2018. There really were not any “bombshells” in the Minutes as views were generally favorable towards economic growth and the need to flatten out the curve (between inflation and the fund rate, which requires raising the Fed fund rate).

Construction Spending: The November data showed a nice pick up of 0.8% which beat out estimates of 0.5%. However October was revised lower from 1.4% to 0.9%

What to Watch Out For This Week: