Home Sales Hit Nine Year High

MBSauthorityHousing

U.S. home resales rose in May to a more than nine-year high as improving supply increased choice for buyers, suggesting the economy remains on solid footing.

But tight inventory levels and rising prices are still a major hurdle for buyers as the median house price soared 4.7 percent from a year ago to a record $239,700 last month and it would take 4.7 months to clear the stock of houses on the market, unchanged from April. A six-month supply is viewed as a healthy balance between supply and demand.

The National Association of Realtors said on Wednesday existing home sales increased 1.8 percent to an annual rate of 5.53 million units last month, the highest level since February 2007.

April’s sales pace was revised down to 5.43 million units from the previously reported 5.45 million units. Economists polled by Reuters had forecast sales rising 1.1 percent to a 5.54 million-unit pace in May.

Sales were up 4.5 percent from a year ago.

The strong home resales added to retail sales data in painting an upbeat picture of the economy. That should help allay fears about the economic outlook which were stoked by last month’s paltry job gains.

Existing home sales surged 4.1 percent in the Northeast and climbed 4.6 percent in the South. Sales in the West, which has seen a strong increase in house prices amid tight inventories, jumped 5.4 percent.

In the Midwest, sales tumbled 6.5 percent last month. The decline, however, followed recent hefty gains.

The number of unsold homes on the market in May rose 1.4 percent from April to 2.15 million units. Supply was, however, down 5.7 percent from a year ago.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.00 MBS) gained +23 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve slightly from the prior week.

Even though MBS “popped” by +60 basis points on Friday, we still only closed up +23 BP for the week that is because MBS were under steady pressure for the entire week until Friday.

MBS closed at their highest levels (which equals lowest rates) since February 2, 2015.  However, we have traded in this range several times over the past two months.

Brexit text with British and Eu flags illustration

Brexit:

It was a very close vote and in the end the “leave” votes prevailed totaling 17,410,742 or 51.9% of the total votes.

Prime Minister David Cameron announced his resignation but will stay put for the next 3 months or so.

Officially, Great Brittan is still part of the EU.  This was a populist referendum and not a policy vote.  It is expected that the next Prime Minister and Parliament will at some time in the near term invoke “Article 50” which is the exit clause in their membership with the EU. At that point then Great Brittan will have 2 years to gradually ease out of the EU and negotiate new trade agreements with each individual country.

Primarily, voters were most concerned about the UK’s sovereignty and were frustrated with being forced to follow rulings imposed upon them by unelected officials that were operating the EU as a socialist operation and dictating immigration (refugee) laws among other liberal policies that were clearly not the desire of the conservative British nation.

The voters did not fall for and even disliked the “doom and gloom” projections from President Obama, and the heads of the IMF, ECB, BofE as well as just about every major financial institution in London.

What we don’t know:
We certainly don’t know the timing of their actual exit from the EU but the ripple effects are definitely on the radar of bond traders.
Federal Reserve – just about every “Talking Fed” had come out saying that our own economic conditions were supportive of a rate hike or two this year but held off at the last meeting citing concern over a possible Brexit vote.  Does this now mean that there will be no rate hikes this year?  Does there need to be a rate cut?  This is a big issue and wont be known for some time.  Clearly our economy has been, is and will be operating at a level that does not warrant “emergency low rates” which is what we have right now.  Our economy can certainly support (and even needs) a rate hike in order to progress but we might not see one until December if at all.
Scotland – overwhelmingly, the country voted to stay in the EU.  There is already talk of another referendum vote to separate from Great Brittan so that they can remain in the EU.  This wont be a major market event though.  It was a big concern the last time that they had a referendum vote but that was because the market was concerned about the impact on Great Brittan’s economy and that certainly isn’t an issue now.
The Fate of the EU: Does this spell the end of the EU?  Maybe…it certainly spells the end of the EU in its current state.  Every single member nation has an opposition party that has wanted to exit the Eurozone but has not had the traction to do it.  Bond traders are concerned that now those opposition efforts will increase.  Since the UK was not part of the currency its not as large of a factor but if other member nations that are a part of the currency (Germany, Spain, Italy, etc) leave then its game over for the EU.

Domestic Flavor:

Durable Goods: We have seen some wild swings in this data set and the May data was no exception coming in at -2.2% vs market expectations of -0.5%.  When you strip out the volatile transportation sector it fell -0.3% vs market expectations of a flat reading.  The culprit?  Well much has to do with capital goods but this data set simply isn’t jiving with the strong ISM and labor, production,etc data readings that we have been seeing. Either this report is wrong or all the others are..too early to tell.

Consumer Sentiment: The revised June reading (from 94.0 down to 93.5) is actually pretty strong.  The current conditions index increased to 110.8 which is a positive for future spending.  Of course, sentiment may change after the Brexit it will be interesting to see how American’s perceive that event as a headwind if anything at all.

Exiting Home Sales: The May reading increased by 1.8% for 5.53M units, which was basically in line with forecasts calling for 5.54M units.  The median price moved up to $239,700 which is a 4.7% increase from May last year.  Inventory levels were only at 4.7 months.

The Talking Fed:
Fed Chair Janet Yellen testified before the Senate Banking Committee and the House Financial Services Committee.

Overall, she seemed to softened up a little bit more from her last press conference.  There was nothing really new or shocking in her responses that would change any bond trader’s mind on the timing and trajectory of future rate hikes.  She was asked in several different ways about the impact of a “Brexit” and she responded “If it does so, it could have consequences in turn for the U.S. economic outlook that would be a factor in deciding on the appropriate path of policy,” she said.

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

Homebuilders’ Sentiment Rises as Prices Hit New Record:

MBSauthorityHousing

After sitting tight for four straight months, confidence among U.S. homebuilders improved in June. A monthly survey of builder sentiment from the National Association of Home Builders (NAHB) rose two points to 60. Anything above 50 is considered “positive” sentiment.

“Builders in many markets across the nation are reporting higher traffic and more committed buyers at their job sites,” said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Illinois. “However, our members are also relating ongoing concerns regarding the shortage of buildable lots and labor and noting pockets of softness in scattered markets.”

June’s reading is the highest since January of this year but the same as June of 2015. Of the index’s three components, all posted gains. Current sales conditions rose one point to 64, sales expectations in the next six months increased five points to 70. Buyer traffic rose three points to 47, but it is still the only component in negative territory.

“Rising home sales, an improving economy and the fact that the HMI gauge measuring future sales expectations is running at an eight-month high are all positive factors indicating that the housing market should continue to move forward in the second half of 2016,” said NAHB chief economist Robert Dietz.

Homebuilders have benefited from very short supply of existing homes for sale nationwide, but their costs continue to rise, and they are passing those on to buyers in the form of higher prices. Sales of newly built homes jumped dramatically in April, as did prices. The median price of a newly built home hit $321,100, up 9.7 percent year-over-year to the highest level on record.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.00 MBS) gained +17 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve slightly from the prior week.

We had several positive economic reports however, they were overshadowed by global Central Bank inaction.  And there inaction was due to polling data that showed a significant shift towards the “leave” vote among the British.

Central Bank Palozza: The bull dog is wagging its tail.  The bull dog is the Brexit (get it? a British bull dog…Im very clever) and the tail is the Central Banks.  After our Fed bowed out Wednesday, we had two more that did nothing as the world is on pause until this week’s vote.
Bank of England: The BofE left their key interest rate unchanged at 0.5% and their asset purchase program at the same levels, the  vote was 9 to 0 as obviously, they do not want to do anything until the vote.
Bank of Japan:  The BofJ was actually widely believed to ease some more at this meeting but they took their marching orders and held off citing their Upper House elections and the Brexit.  But traders expect an easing at the next meeting.
The Talking Fed:  You can read their official policy statement here:  http://www.federalreserve.gov/newsevents/press/monetary/20160615a.htm
You can read their economic projections here: http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160615.htm
Key points of the Fed’s policy statement:
– Last meeting, Esther George voted against leaving rates alone, instead favoring a rate hike.  This time around she changed her vote so that it was unanimous.
– Only one Fed member in March expected just one rate hike in 2016 (Meaning everyone else expected two or more rate hikes in 2016).  This time around there are now 6 Fed members that expect only 1 rate hike in 2016.
– Says Growth in economic activity has picked up.
– Says Labor Market Indicators to strengthen gradually but that the pace of labor growth is slowing.
– Mentioned a strong 2.5% increase in wages on a YOY basis.
– Cut its expectation for full-year gross domestic product growth, from 2.2 percent at the March meeting to 2.0 percent this week. The committee also lowered its 2017 projection a notch, from 2.1 percent to 2.0 percent.

During Janet Yellen’s Live Press Conference she was directly asked about the Brexit and said that it was discussed and was a big concern of the Fed.

She also reiterated that they are not on any kind of fixed path for rate increase, cuts, or leaving them alone.

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

Loop Hole has Lite Doc Making a Come Back

MBSauthorityHousing

Most loan applications today require two years of 1040 income tax statements, two years of employment W2s and at least four pay stubs, in addition to bank statements and credit checks.

However, there is a way to not have to comply with strict new “ability-to-repay,” or ATR, rules established in the wake of the financial crisis under Dodd-Frank legislation, due to a little loophole: As long as you are designated as a community development financial institution, or CDFI, under a small U.S. Treasury program which funds economic revitalization in low-income communities.

The fund, established in 1994, “serves mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities,” according to the Treasury website.

One bank, Quontic, based in Queens, New York, meets the requirements because it makes loans to borrowers in a low-income community. CDFI lenders are exempt from having to comply with so-called ability-to-repay rules.

“We no longer have to have our borrowers qualify in the traditional sense,” said Quontic CEO Steve Schnall. “Because of this new Dodd-Frank requirement, a lot of people who don’t meet the very strict and traditional qualifying guidelines that the ATR requires are simply ineligible for financing. There’s a huge swath of the population that simply can’t get a loan on a primary residence anymore.”

The “Lite Doc” loan is not the “low-doc” loan of the past. It is only for owner-occupied properties, so no investors, and it requires a 40 percent down payment on the property, far higher than most conventional or government loan products. There is a minimum FICO credit score of 700, and the borrower must show he or she has a minimum of 12 months worth of principal, interest, taxes and insurance in the bank at closing.

Schnall said a lot of the bank’s customers are immigrants where seven or eight family members may be pooling the money to make the down payment. They don’t have the traditional income documentation that other borrowers might have, as they get some payment in tips and bonuses.

“A lot of these lower-income earners, they jump around from job to job to job and that doesn’t mean that they’re not going to earn consistently, but they might not earn consistently at one particular place of employment,” said Schnall. “Most of these borrowers have immaculate credit, they have substantial equity in the property and significant liquidity as the result of gifts from family members.”

Their “Lite Doc.” program requires only verification of employment and two months worth of bank statements. For self-employed borrowers, it requires documentation of one year of profit and losses. The Lite Doc loans are five-year adjustable-rate mortgages with interest rates in the low- to mid-5 percent range, according to the bank. Thirty-year fixed-rate loans, which when fully documented can offer rates in the high-3 percent range, are not part of the offering.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.00 MBS) lost -7 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.

Just about all the economic data last week would have justified a larger sell off in mortgage backed securities which would have drive mortgage rates upward.  But international events continued to provide fantastic demand for our MBS and as a result kept rates low.

The primary force driving foreign dollars into U.S. bonds (and therefore keeping rates low) is global concern over a “Brexit”.  That stands for the potential Exit from the European Trade Union by Great Brittan.  Polling results last week showed that the “leave” votes look to outnumber the “stay” votes by 10 points and has been trending upward whereas a month about the “stay” vote looked to have a commanding lead.  The vote will be June 23rd and has basically frozen the markets with fear over the economic fallout if Great Brittan were to leave.

Domestic Flavor:
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lighter than expected, coming in at 264K vs est of 2070K.  The more closely watched 4 week moving average dropped below 270K (269.5K).  Continuing Claims were also lighter than expected (2.095M vs est of 2.171M).  So, we continue the trend of every single jobs related report has been trending positive which means that the NFP report is bubkis.

The April Job Openings and Labor Turnover Survey (JOLTS) showed 5.788 million jobs that are UNFILLED and was much higher than the market expectations of 5.672M and a nice jump over March’s revised 5.67M.  So, if there are basically just under 6M jobs that are unfilled, how can the number of jobs added as reported in last week’s Non-Farm Payroll report be only 38K?  Does it jive at all?  Only if the answer is a very tight labor market.

Unit Labor Costs jumped up +4.5% which was higher than market forecasts of 4.0% and follows Q4’s jump of 4.1%, so there is clearly a strong trend in wage growth with this report.

Wholesale Inventories:
The April reading was six times higher than estimated (0.6% vs est of 0.1%).  The Fed has said very clearly that they are  2nd QTR data dependent and this is a reading that will cause economist to upwardly revise their estimates for 2nd QTR GDP.

The Talking Feds:
Yellen is Yelling:  As expected, she walked a fine line and seemed to try to caution the markets about getting too excited about the upcoming economic projections and dot plot chart that will hit next week.  She said: “Next week, concurrent with our policy meeting, the FOMC participants will release a new set of economic projections. Those could, of course, differ from the previous set of such projections in March. But speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones.”
Regarding the weak NFP report, she said “Although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report,”

Atlanta Fed President Dennis Lockhart told Bloomberg today that he still sees enough Fed meetings left in the year with enough economic data to hit to potentially still see three rate hikes but he felt more confident that there would be at least two.  Asked about June….he said that it would be difficult for him to support a hike due to the uncertainty of the “Brexit” vote.

Boston Fed President Eric Rosengren still sees rate hikes on the table despite the jobs report although June is less likely.

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

Tight Inventory Restricting Sales:

MBSauthorityHousing

The usually strong spring housing market will be strong this year but could be far stronger, if only there were more homes for sale.

The number of listings continues to drop, as demand outstrips supply and potential sellers bow out, fearing they won’t be able to find something else to buy.

The inventory of homes for sale nationally in April was 3.6 percent lower than in April 2015, according to the National Association of Realtors.Despite ongoing inventory shortages and faster price growth, existing-home sales sustained their recent momentum and moved higher for the second consecutive month, according to the National Association of Realtors.

The supply numbers are even tighter in certain local markets: Inventory is down 32 percent in Portland, Oregon, from a year ago; down 22 percent in Kansas City; down 21 percent in Dallas and Seattle; down 17 percent in Charlotte, North Carolina; down 12 percent in Atlanta; down nearly 10 percent in Chicago; and down 8 percent in Los Angeles, according to Zillow. Houston and Miami are seeing big gains in supply, due to economic issues specific to those markets.

“The struggle will continue for home shoppers this summer,” said Zillow chief economist Svenja Gudell. “New construction has been sluggish over the past year; we’re building about half as many homes as we should be in a normal market. There still aren’t enough homes on the market to keep up with the high demand from every type of homebuyer.”

“In many markets, those looking to buy a home in the bottom or middle of the market will need to be prepared for bidding wars and homes selling for over the asking price. This summer’s selling season’s borders will most likely be blurred again, as many buyers are left without homes and will need to keep searching,” added Gudell.

The inventory drops are most severe in the lower-priced tier of the market. Homes in the top tier are seeing gains and therefore show more price cuts. Sixteen percent of top-tier homes had a price cut over the past year, compared with 11 percent of bottom-tier homes and 13 percent of middle-tier, according to Zillow.

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.00 MBS) lost -5 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.

We were trapped in a very narrow technical range, squeezed in between our 50 day and 100 day moving averages.  We did have a lot of speeches by Federal Reserve members and they all certainly leave the door open for a rate hike in June/July but the bond market was effectively “on hold” until next week’s jobs data.

Housing: Pending Home Sales for April were much higher than expected with a nice jump of 5.1% when market only anticipated a 0.6% MOM gain.  YOY, it is up 4.6% which is a big increase over the last reading of 1.4%.

New Home Sales surprised to the upside by jumping 16.6% on a MOM basis, hitting 619K units vs forecasts of 523K.  The median price increased 7.8% to $321,100 which tells you that they are not building for the first time home buyer segment where we have huge inventory shortages.

Manufacturing: April Durable Goods were much higher than expected (3.4% vs est of 0.4%).  Now, we have seen huge swings in that headline numbers due to air craft orders, etc.  So, lets strip that out and look at Durable Goods ex-Transports and it increased by 0.4% vs est of 0.3%, plus March was revised from -0.2% to +0.1%.  Overall, a very robust report but there was an area of weakness as the Core Capital Goods dropped -0.8% and marks the third straight month of declines in that component of this index.

The Talking Fed:
St. Louis Fed President James Bullard stressed that the labor markets are relatively tight and may put upward pressure on inflation. (note: this is why we focus so much on Average Hourly Wages).

Philly Fed President Patrick Harker told the Philadelphia Bond Club that “There will likely be two or perhaps even three rate hikes over the course of the year,” which follows the big wave of Talking Feds pointing to a June/July Rate Hike.

Dallas Fed President Robert Kaplan was also on board with two rate hikes this year: “If economic data keeps going the way it is, I’ve said I will advocate for an increase in the near future,”  and  “That may not be June or July, My approach is take one meeting at a time.”  He also mentioned that a “Brexit” could be a factor at this June’s meeting.

S.F. Fed President John Williams said  that the Federal Reserve is on track to hike interest rates in June or July despite risks such as a “Brexit” vote, and will continue with even more hikes next year given U.S. economic strength.

Fed Reserve Chair Janet Yellen said that the economy has picked up from the slow pace of 4th and 1st QTRs and that she expects that both the labor market will continue to tighten and the economy to grow at the pace that it has been so far in 2nd QTR at the least. And if that is the case, then the Fed will be ready to act in the “coming months” however it is contingent on the data.

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