If you think inventory levels are tight now, wait until a massive wave of new buyers enter the market.
“The mortgage industry is poised to experience a monumental shift as more millennial homebuyers begin to enter the market, as there are roughly 87 million would-be homebuyers in the millennial generation and 91 percent of them say they intend to own a home one day. Lenders must prepare today to meet their needs.” Said Jonathan Corr, CEO of mortgage processor Ellie Mae, said in a release.
While millennials are waiting longer to get married and have children, factors that are the primary drivers of home ownership, the leading edge is now entering the housing market. Millennials are even starting to move to the suburbs, and in fact, last year marked a turning point, where urban centers reached “peak millennial,” according to a new study from Dowell Myers, a professor of urban planning and demography at USC Price School of Public Policy.
“After more than a decade of growing concentration, we see that the millennial trend of increased downtown living has peaked out and is now beginning a decline,” Myers wrote. “This is a dramatic human interest story with great implications for cities and real estate investments.”
Single-family rentals in the suburbs are more popular and more abundant than ever before, but the majority of millennials say they do want eventually want to buy. That means mortgages.
More than one-third of home loans made to millennials since 2014 were Federal Housing Administration loans insured by the federal government, according to Ellie Mae’s new Millennial Tracker. This is far higher than the 22 percent overall share that FHA commands in total mortgage volume today. FHA allows borrowers to put just a 3.5 percent down payment, which is attractive to younger buyers who are cash-strapped to begin with, but additionally burdened by a sky-high rental market.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) gained +45 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly lower from the prior week however, MBS lost a total of -25BPS for the month of April (even with last week’s run up of +45) which means that Mortgage rates at the end of April were slightly higher than at the beginning of April.
The two biggest events last week was the Fed’s inaction and several GDP releases.
The Talking Fed: The FOMC (Federal Open Market Committee) left its key interest rate unchanged. You can read their official policy statement here: https://www.federalreserve.gov/newsevents/press/monetary/20160427a.htm
There was one dissenting vote: Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent, she also voted against leaving rates unchanged at the previous meeting.
They certainly left the door wide open and even increased the probability in most bond traders’ minds of a June rate hike by letting us know that they are (U.S.) data dependent moving forward.
While they pulled back from blaming international forces (China), they walked a fine line of praising our economy and warning of weakness as well.
Their overall theme to the market place was to watch domestic data for growth.
U.S.: The estimates for our 1st QTR GDP were all over the place…just about every major economic outlet had a different “consensus” (Econcal, Briefing, Reuters, etc). The prelim data came in at 0.5%. That is on the lower end of the 0.5% to 0.9% estimate range but above the Atlanta Fed’s estimate of 0.3%. So, this really wasn’t that much of a miss…if a miss at all. This number will be revised two more times and usually revisions to GDP are upward…so after about two months this might be in the 0.7% to the 0.9% range.
EU: We got some stronger than expected data out of the EU, as they released their 1st QTR GDP data and it hit 0.6% vs est of 0.4%. Also,their Unemployment Rate dropped from 10.4% down to 10.2%.
Great Brittan: Their 1st QTR GDP matched expectations with a a reading of +0.4% and their YOY GDP was a tick stronger than expected with 2.1%.
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.
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