Home Sales Rise, Low Inventory Concerns

The National Association of Realtors reported that their Pending Home Sales Index rose 1.4% from this point last year.  And the Existing Home Sales Report showed an annual increase of 7.5% with an increase of home values over the past 12 months at 8.2%.

With super-low fixed mortgage rates and an Unemployment Rate below 5%, why aren’t sales even higher?  Answer: .

Sellers are certainly in the driver’s seat as a lack of desirable homes in the popular price ranges are very tight as first-time buyers in high demand areas continue to encounter instances where their offer is trumped by cash buyers and investors. Without a much-needed boost in new and existing-homes for sale in their price range, their path to homeownership will remain an uphill climb.

The hope is that appreciating home values will start to entice more homeowners to sell. NAR Chief Economist, Lawrence Yun says supply and affordability conditions won’t meaningfully improve until homebuilders start ramping up production – especially of homes at lower price points, which is something that we are not seeing right now.

The bottom line is that there is strong demand for housing and even less than perfect homes are seeing a lot of interest.  Buyers need to be ready to move quickly on any listing.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.00 MBS) lost -13 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.

We had a 71 basis point spread between our lowest MBS pricing (highest rates) on Tuesday and our highest MBS pricing (lowest rates) on Wednesday….that is just a one day swing and that volatility was mostly due to fluctuations in Oil prices.

Texas Tea, Black Gold:  WTI Oil prices continues to be a major factor in our pricing and rates.  Lower Oil prices are really a proxy now for bond traders to bet/hedge on the timing of the next rate hike by the Federal Reserve.  As Oil stays close to $30 or below, it prolongs our time at these uber low mortgage rates as traders are pricing in zero chance of a rate hike this year due to no inflation.  But as Oil moves towards $35 per barrel, MBS start to sell off as it opens the window (at least in trader’s minds) of a rate hike or two this year.

Domestic Flavor:
Durable Goods:  We much stronger than expected in January.  This report has seen some wild swings in the past 12 months though.  The headline reading was almost double the market expectations (4.9% vs est of 2.5%) and core number (Ex Transports) was a very strong 1.8% vs est of only 0.2%.

We have had a string of weak manufacturing reports but we wondered out loud if last week’s much stronger than expected Industrial Production report was an anomaly or a real sign of some progress.  This reports puts manufacturing in that second category.  While it is still too early to say that the manufacturing sector has come back to life, it is very clear that not all the data is negative either.

GDP:  We got our first revision to the previously released 4th QTR GDP and it was much stronger than expected.  It was originally released last month at 0.7%.  The market was expecting it to be cut in half down to 0.4% with some estimates as low as 0.2%. But it surprised to the upside, hitting a solid 1.0%.

Personal Outlays:  Across the board this is hotter than expected and negative for rates.  Personal Income continues to increase, this time at 0.5% vs est of 0.4%.  As we have discussed, wage inflation is real and it has been the only thing the Fed has been able to hang their hat on.  Personal Spending finally saw some improvement and was stronger than expected as well (0.5% vs est of 0.3%).  When the Fed talks about their 2% inflation rate, they are really talking about the YOY (year over year) Core PCE rate.  This shot up from 1.4% in Dec to 1.7% in Jan and was much higher than forecasts of 1.2%.  Its still below the 2% threshold though.

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.

Brought to you by:

Taff Weinstein
Broker/Owner
Office: 832-794-2136
Cell: 832-794-2136
taff@firstimperialmortgage.com

First Imperial Mortgage
3409 Morrison St
Houston, TX 77009
NMLS 225846

www.firstimperialmortgage.com

Copyright © 2016 Powered by www.MBSauthority.com

Sellers are holding all the cards this Spring Home Buying Season:

MBSauthorityHousing

President’s Day marks the beginning of the important Spring Home Buying Season and Monday’s open to the season has the Sellers sitting pretty.

Buyers that try low ball offers or waiting to write an offer until they view several homes are learning it will cost them.

Low Unemployment Levels (4.9%), rising wages and super low mortgage rates have buyers ready to pull the trigger but they are not in the driver’s seat this season.  Why?  One word – Inventory.

The latest numbers paint an empty picture. Inventory at the end of December nationally was down nearly 4 percent from the previous December, but sales were up nearly 8 percent, according to the National Association of Realtors. The supply of homes for sale was the lowest since the start of 2005, and back then there were far more homes being built to add to overall supply. As for January, the NAR’s listing site, Realtor.com, reported that listings were down a sharper 4.4 percent from a year ago.

New construction has been increasing but when you strip away the multi-family sector, single family residences are only adding about 500K new homes on an annualized basis which is not enough to change the inventory mix.

The latest trend are buyers partnering up with very aggressive Realtors to find them that property that isn’t even listed yet.

So, buyers get with your loan officer and get everything they need in ASAP and ready to go, so that when you find a  home you can close quickly because a fast closing could mean the difference between a seller accepting your offer or someone else’s.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) gained +8 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week. But we had a very volatile session that saw another new intra-day high for MBS (lowest rates of 2016) on Thursday followed by a massive -116 BPS sell off from those highs on Thursday to Friday’s lows which more than erased the lowest rates for the week.

While Fed Chair Janet Yellen’s testimony received a lot of attention from bond traders, it was actually overseas events that provided the most volatility for our rates.

Sweden cut their key interest rate further into the red (from -0.35% down to -0.50%) and concern spiked on all European banks on fears that they are under capitalized to endure the wave of bad loans and weak economic conditions in Europe. Later, in the week some of that fear dissapated as Deutcha Bank announced that they buy back over five billion (both U.S. dollar denominated and Euro denominated in the mix).

Yellen is Yelling: Our Fed Chair Janet Yellen got grilled by committees in the the House on Wednesday and the Senate on Thursday. So key takeaways are that the Fed is now admitting that they are concerned enough about a recession and negative rates (from abroad and the potential of them here to) that they are building in some scenarios into their worst case scenario models.

Texas Tea, Black Gold: Provided a tremendous amount of volatility for our MBS trades. Our best MBS pricing of the week (and year) was when WTI Crude Oil dropped to $26.22. But MBS lost those lofty levels as Oil gradually increased and caused a large pricing worsening on Friday as Oil hit $29.39.

Domestic Flavor:
Retail Sales: The January Headline reading was double the market expectations (0.2% vs est of 0.1%). The core reading (ex autos) also was stronger than expected (0.1% vs est of 0.0%). But what got the most attention from bond traders is the Ex-Auto AND Ex-Gas reading which was up a very nice +0.4%.

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.

Brought to you by:

Taff Weinstein
Broker/Owner
Office: 832-794-2136
Cell: 832-794-2136
taff@firstimperialmortgage.com

First Imperial Mortgage
3409 Morrison St
Houston, TX 77009
NMLS 225846

Copyright © 2016 Powered by www.MBSauthority.com

Homeowners are once again taking cash out

Home values are rising and homeowners are taking advantage of that, finally tapping into that equity again in the form of cash-out mortgage refinances. They are doing so, however, by pulling the most conservative amounts in history.

Prior to the historic housing crash of the last decade, homeowners used their homes like ATMs, pulling out as much cash as the bank would allow, which at the time was essentially all of it and more. This led to millions of borrowers falling underwater on their home loans as home prices fell, and leading to 7.1 million homes so far ending up in foreclosure, according to Black Knight Financial Services.

Lending standards have tightened significantly since then, but borrowers are clearly much more risk averse. They are taking cash out again; 42 percent of mortgage refinances last fall involved borrowers taking cash out of their homes, not just lowering their interest rates. That is the highest share since 2008, according to Black Knight.

The average cash-out amount was over $60,000, but the average loan-to-value ratio after the refinance was 67 percent, the lowest level on record. Borrowers left 33 percent equity still in the home which is still a very healthy level.

With rents rising, many are taking out cash to purchase rental properties or make some upgrades to their current homes as there is simply not enough quality inventory available. So, many are not selling..they are staying put and improving instead.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) gained +27 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve from the prior week. 30 year fixed rates fell to their lowest levels of 2016 so far.

While Friday’s jobs data pressured MBS pricing (higher rates)on an intra-day basis, the overall trend for the week was upward momentum on MBS trades (lower rates) due to lower Oil prices and weaker ISM data. This has the bond community hedging towards very low risk and very low inflation for most of 2016 which means very low rates.

Jobs, Jobs, Jobs:
Tale of the tape:
Non-Farm Payrolls – January 151K vs est of 190K
Non-Farm Payrolls – December – revised from 292K down to 262K
Non-Farm Payrolls – November – revised from 252K up to 280K
Non-Farm Payrolls – rolling 3 month average 231K
Unemployment Rate – 4.9% vs est of 5.0%
Average Hourly Earnings – 0.5% vs est of 0.3%
Average Weekly Hours Worked – 34.6 vs est of 34.5
Labor force Participation Rate: Increased from 62.6% to 62.7%

Ok, now that you have all the data laid out for you…what does it mean and how are long-bond traders viewing it? The answer is that we view this as a very solid report that confirms that the labor market slack is tightening but that this will do little to nothing to change the Fed’s trajectory of rate hikes (if any) this year.

The net revisions to Dec and Nov was basically a wash and this reading of 152K will be revised as well. More importantly, we look at the trend line which is well above 200K.

The big key is Average Hourly Wages which jumped up 0.5% (the Unit Labor Costs on Thursday jumped 4.5%). This is had the most impact on rates as it is inflationary and also shows economic strength…two things that bonds don’t like.

The Unemployment Rate dropped below 5.0% for the first time since May 2008 and what a long strange trip it has been since then. Lately the Unemployment rate (particularly in early to mid 2015) was dropping mostly due to a drop in the Participation Rate (which basically means if you don’t have a job and are not looking for work…then you are not counted as Unemployed). But in this particular case, the Participation rate actually increased AND the Unemployment Rate fell….that is encouraging.

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.

Brought to you by:
Taff Weinstein
Broker/Owner
Office: 832-794-2136
Cell: 832-794-2136
taff@firstimperialmortgage.com

First Imperial Mortgage
3409 Morrison St
Houston, TX 77009
NMLS 225846

www.firstimperialmortgage.com

Copyright © 2016 Powered by www.MBSauthority.com

Rising Rents Make Ownership More Attractive:

MBSauthorityHousing

For 2016 experts predict rents will rise faster than inflation, increasing around 3%-5% on a national level.

“We are already in a rental affordability crisis, and 2016 won’t let up,” said Svenja Gudell, chief economist at Zillow.

In the years following the financial crisis, vacancy rates have plummeted as demand for renting rose, sending rents soaring.

While new construction will bring new rental units on the market, it isn’t likely to keep up with growing demand. Vacancy rates are so low in many places that it’ll take at least a year for supply to catch up to demand, according to research from Yardi Matrix. Plus, new inventory tends to be high-end, which won’t be much help with rental affordability.

Experts generally recommend keeping your housing costs around 30% of your monthly income. But the number of “cost-burdened” tenants — those who spend more than 30% of their income on rent — rose to 21.3 million people last year, according to Harvard’s Joint Center for Housing Studies.

Of those, more than 26% are “severely cost burdened” and spend more than half of their income to cover rent.

Here’s the problem: rents are increasing much faster than wages. Inflation-adjusted rents increased 7% from 2001-2014 while household incomes dropped 9%, the report showed. At the same time, rising demand for rental units has pushed the national vacancy rate to a 30-year low, driving prices even higher.

“These trends have led to record numbers of renters paying excessive amounts of income for housing, with little prospect for meaningful improvement,” the report said. The median rent for a new apartment climbed to $1,372 last year, a 26% increase from 2012.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.50 MBS) gained +67 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve from the prior week.  30 year fixed rates fell to their lowest levels of 2016 so far.

The Award for the biggest market moving event goes to Japan. The Bank of Japan shocked the financial markets with an unexpected cut to negative interest rates for the first time ever.  It dropped their rate down to -0.1%  on excess reserves that financial institutions park at their bank.  This is designed to force banks to put that money back to work but instead the banks are taking their cash and putting into U.S. bonds which pay a low yield but provide safety.  Hey, a low yield is better than a negative one.  This caused a big spike in demand for our mortgage backed securities which caused their prices to rise which means that interest rates decreased.

Domestic Flavor:

The Talking Fed: Left their key interest rate Unchanged.
Here are some points of interest from their policy statement
No longer viewing risk as “balanced” between upside and downside which is a significant change in their language.
Labor market has improved but economic growth slowed
Expectations that Inflation will march upward to 2% are reduced.
Said slow and steady pace of future rate hikes
The market is viewing this as telegraphing no rate hike in March and this is generally good for back end pricing but this is basically what was expected and it was not a shock to the system.

We got our first glimpse at the 4th QTR GDP (0.7% vs est of 0.8%) and it was pretty much what the market expected given the recent round of negative manufacturing reports, etc. This is not the final number, it will be revised a couple more times.  The business side was the biggest drag as our very strong dollar is simply crushing exports.  PCE on a QonQ basis hit 1.2%…a far cry from the Fed’s 2% threshold.

Manufacturing:

The Chicago PMI for January was a huge beat, coming in at 55.6 vs est of 45.0.  Any reading above 50 is expansionary, so a reading past 55 is very strong.  But what is really interesting is that this “business barometer” had been trending below 50 which is usually a precursor to a manufacturing recession.

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.

Brought to you by:

Taff Weinstein
Broker/Owner
Office: 832-794-2136
Cell: 832-794-2136
taff@firstimperialmortgage.com

First Imperial Mortgage
3409 Morrison St
Houston, TX 77009
NMLS 225846

Copyright © 2016