Your Major Could Determine How Much House You Can Afford:

Is your major at the top of this list?

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It’s the classic college-age query: “What’s your major?” But maybe the real question should be: What kind of house do you want to live in?

Here’s a nonshocker: Not all college majors are created equal, especially when you consider those four years of tuition as an investment in future earnings. A few years down the road, when you’re ready to settle down and purchase a home, your specific college concentration may very well have a lot to do with how much you can afford.

This, it turns out, is very good news for engineers. But it’s not so great, sadly, for horticulturists.

Despite the controversy around rising tuition and student debt that make some doubt whether a college degree is still worth it, a 2014 analysis by the Federal Reserve Bank of New York shows the average value of a college degree has remained near its all-time high since 1970.

According to PayScale, a midcareer employee with a bachelor’s degree earns a median salary of $77,006, meaning he or she can afford a house costing up to $341,000. That’s about 60% more than a high school graduate.

Out of all 300-plus majors, petroleum engineering came out on top: With a midcareer salary of $168,000, these grads can afford to buy as high as $744,000, more than three times the national median list price. Even those fresh out of college land impressive starting salaries of $101,000. Unsurprisingly, other engineering branches (e.g., chemical engineering, computer science engineering) are also more likely to earn six-figure salaries with a few years’ experience.

At the bottom of the list: liberal arts and education majors. Early-childhood education brings up the rear with a midcareer salary of $38,000—barely enough to buy a house priced at $168,000 (not even the national median). Social work, another popular major for an awfully good cause, is also among the lowest paid, with a midcareer salary of just $45,700.

Don’t be too discouraged, however! Those numbers don’t factor in geographic differences. Teaching jobs are up for grabs all over the country, but engineering positions are concentrated in a few technology hubs where the booming economy has driven housing prices up significantly.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) lost -34 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways to slightly higher as we traded in a very narrow range.

The breadth of the weekly channel for MBS trades was very tight. Overall, the majority of the domestic economic data was positive and it would have taken a “perfect storm” of very weaker economic data and new and or heightened global fear for MBS to have mounted any type of rally and we simply didn’t get that “perfect storm” so MBS values retreated from our very strong overhead technical resistance for some small losses compared to the prior week.

Trapped until the Fed. The First MBS trade in September was at 103.59 and the close (last trade) from Friday was 103.64 that means MBS have netted out only 5BPS so far this month. Now, that is sideways movement!

Domestic Flavor:
Jobs, Jobs, Jobs: We continued to get strong jobs data. Labor Market Conditions Index: August’s reading was higher than expected (2.1 vs est of 1.3) and July was revised upward significantly (1.1 to 1.8).This index is based on a broad set of 19 components and could be sighted by the hawks as evidence of labor market improvement at next week’s FOMC. JOLTS: The Job Openings and Labor Turnover Survey came in at 5.753M vs market expectations of 5.301M. This is a big beat and a very large increase from the last reading (June) of 5.249M. Normally, this report does not get a lot of play by bond traders but this certainly could figure into the Fed discussions next week as Yellen has referred to this report several times recently. Initial Weekly Jobless Claims remained on point with the closely watched 4 week moving average still below 280K with a reading of 275.50K. The weekly reading matched market expectations with a reading of 275K.

Inflation?: The Producer Price Index (PPI) was a little stronger than expected with the Headline MOM reading flat at 0.0% vs est of -0.1% to -0.2%. The Core PPI data was also higher than expected +0.3% vs est of +0.1%. YOY the data did make some gains but are well below the Fed’s “target” rate of 2%. While this is not the only inflationary gauge that the Fed looks at, it is something that could impact their on going rate hike discussions.

Consumer Sentiment: The preliminary reading for September was weaker than expected with a reading of 85.7 vs est of 91.0. While this number will be revised one more time (usually the second release is higher than the first release), this is still a disappointment.

Wholesale Inventories: The July Reading gives us our first look at the 3rd QTR and it was much weaker than expected with a reading of -0.1% vs est of +0.3%.

Treasury Auctions: We had two big auctions that hit last week with our 10 year note and more importantly, our 30 year bond auctions. Both had similar results. They both saw a very nice spike in demand (as measured by the bid-to-cover ratios). However, that increased interest in our debt came at a price where we had to pay a higher interest rate than during our last auctions.

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.

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The Housing Market Update

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Pending Home Sales Rise Again:

U.S. home buyer demand remained steady in July, an index of pending home sales from the National Association of Realtors, which represents signed contracts, not closings, rose 0.5 percent from an upwardly revised June reading.

The index is now up 7.4 percent from one year ago. The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015.

Just about every metric showed a very vibrant housing market that is constrained only by the lack of good quality available inventory. If there were more of it…it would be snapped up.

“Contract activity in most of the country held steady last month, which bodes well for existing-sales to maintain their recent elevated pace to close out the summer,” said Lawrence Yun, chief economist for the NAR in a release. “While demand and sales continue to be stronger than earlier this year, Realtors have reported since the spring that available listings in affordable price ranges remain elusive for some buyers trying to reach the market and are likely holding back sales from being more robust.”

Looking ahead, with inventory shortages likely to persist into the fall, Yun expects the national median existing-home price to increase 6.3 percent in 2015 to $221,400. Yun forecasts total existing-home sales this year to increase 7.1 percent to around 5.29 million, about 25 percent below the prior peak set in 2005 (7.08 million).

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) lost -26 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher.

We had a wild ride in our stock market (as measured by the Dow) with huge daily swings, yet our MBS pricing were largely insulated from the swing in stocks as long bond traders and short term stock traders had very different outlooks on economic and geopolitical events and their potential impact on future growth and Fed action.

Here is a very telling table that really spells this out:

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As you can see by the table above we had very large swings in the stock market and in 2 of the 5 trading sessions both stock and bonds moved in the same direction (historically they have an inverse relationship). What is really interesting are days like Monday where we had a giant -588 point sell off in the stock market yet our benchmark MBS only moved 12 basis points (which is statistically insignificant) on a daily basis. August 26 makes more sense with a +609 rally in the stock market and a -33BPS sell off in the bond market. However, under “normal” circumstances that would be a -200 BPS sell off instead of only -33BPS in MBS. And then on Thursday we saw a giant +369 rally in the stock market and MBS also improved. Again, “normally” you would expect a big -100 or -200 BPS sell off in MBS.

As far as domestic economic data is concerned, overall it was much stronger than anticipated by economists, analysts and traders. Consumer Confidence was very robust coming it at a blistering 101.5 which is almost unheard of and handily beat forecasts of only 92.6. Next up was Durable Good Orders which was +2.0% and much, much stronger than forecasts only -0.8%. We then got our first revision to our 2nd QTR GDP data and it trumped all estimates – hitting 3.7% which was much higher than market estimates of 3.7%.

But much of the spotlight was on the Jacksonhole, WY Symposium that is put on every year by the Federal Reserve Bank of Kansas City and attended by all the major Central Bankers in the world. We had comments and speeches by several Federal Reserve Bank Presidents on Friday and their comments ranged from “lets raise rates already” to “we need to wait until 2016” and as a result, the bond market is still trying to hedge the probability of a Fed rate hike in September, October or December.

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.