Quiz: Are there more or less homes available to purchase this year vs 2014?

Well ask anyone trying to buy a home today, and the vast majority will launch into a story about a bidding war. Demand for housing has returned, but housing supply has not, and the numbers are only getting worse.

The supply of homes for sale nationally in June fell 6.5 percent from a year ago, according to a new report from Zillow, a real estate listing and analytics company.

U.S. home resales rose in June to their highest level in nearly 8-1/2 years, a sign of pent-up demand that should buoy the housing market recovery and overall economy.

The reasons for tight supply are manifold: Homebuilders are putting up single family homes at a far slower pace than historical norms. They cite a shortage of labor for at least some of that weakness, but they also are not seeing strong demand, due to their higher prices.

“Finding a house is the last hurdle for many buyers who have saved a down payment and gotten pre-approved for a mortgage, but low inventory levels like those we’re seeing across the country can bring the homebuying process to a screeching halt,” said Stan Humphries, chief economist at Zillow. “In many markets, there just isn’t a lot to choose from in terms of homes on the market.”

The bigger the city, the bigger the problem. Inventory fell in 19 of the nation’s largest metropolitan areas. Supplies are also falling the most in the lower price ranges, making it even more difficult for already cash-strapped first-time buyers to get into home ownership.

Supply is also directly connected to price. Supplies are lowest in markets where prices continue to rise, but supply is actually starting to ease in markets where home prices have flattened. Take Washington, D.C., for example. Home prices are flat from a year ago, and inventory is now up nearly 19 percent, according to Zillow. In Dallas, however, where prices are still rising, up 12.5 percent from a year ago, inventory is down nearly 20 percent.

“Sellers tend to want to hang in and get the last juice out of the orange,” said Humphries. “If you think you might see 10 percent appreciation over the next year, is it rational to move where you might squeeze more out of the market? No.”

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) gained +47 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve slightly.

Rates moved sideways all week, even with a FOMC meeting and some big hitting reports.  But after Friday’s Employment Cost Index, MBS rallied to their best levels in weeks which caused rates to drop.

The Employment Cost Index rose only 0.2 percent in the second quarter which is far below expectations and the lowest result in the 33-year history of the report. Year-on-year, the ECI fell to plus 2.0 percent from 2.6 percent in the first quarter. The record low for this reading is plus 1.4 percent back in the early recovery days of 2009.  MBS moved upward in direct reaction to this release.  However, it is important to note that this is OLD data that compares the change in costs from the 1st QTR to the 2nd QTR and is completely removed from our current employment situation which will find out more about on next Friday with our NFP report.

As expected, the Federal Reserve left their key interest rate unchanged.   And if you thought the Fed was on track to raise rates in September, you got a little more fuel as they pointed to improvements in the labor market and used a little rosier language than last time.  They also stated that rates will rise after a little more improvement in the labor market (which makes this Friday’s Non-Farm Payroll very important)  But they kept in their statement that the risks to the overall economy and labor market was “nearly balanced”.  The market was waiting to see if that language would be “tweeked” from the last statement and it wasn’t.  They also continued to give themselves some wiggle room on concern over low inflation.  All-in-all, this was basically what the long bond market expected and as a result, mortgage rates had little to no reaction to this event.

What to Watch Out For This Week:

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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