Exodus from CA by the Middle Class:

A lot of people are moving out of California because housing is just too expensive for them.

“There is clearly a relationship between the migration patterns and home prices,” said Sam Khater, deputy chief economist at CoreLogic. “The middle and lower middle can no longer afford to live in California.”

California’s housing market is one of the most expensive in the nation, with a median home price of $428,000 across the state. Prices have shot up 71% since 2011.

And a number of its local markets are prohibitively expensive. Of the five priciest housing markets in the country, four are in California, according to the latest data from the National Association of Realtors. San Jose tops the list with a median home price of $1 million.

But incomes just haven’t kept up with the home price bonanza for many people — particularly for the working and middle class.

Despite strong job and wage growth, the Golden State has been losing residents for years and could be facing a shortage of middle-wage workers, according to a report from Beacon Economics released in March.

For instance, California’s tech scene has been prosperous, but its benefits have been somewhat concentrated.

“All the gains aren’t coming in support of the rest of the economy, they’re coming at the expense of the rest of the economy,” said Christopher Thornberg, founding partner of Beacon Economics. “Folks in the tech industry make craploads of money and they can afford to live there and will force out other people.”

Plus, California is still a magnet for foreign buyers, who tend to be more affluent.

“It makes it harder for the average person to make a living there,” said Khater. “So that means less teachers, fire fighters, retailer workers. It’s causing the entire state to become more expensive.”

To help make life more affordable, residents are trading the beaches and nice weather for states with more affordable housing markets and a lower costs of living. Places like Arizona, Texas and Nevada, according to Khater.

And when it comes to buying new homes, they’re getting more for less. Last year, California migrants sold their homes for an average of $495,500, and only spent $315,000 in their new — and often bigger — houses.

“They are saving money and moving up market,” said Khater. “You can increase your standard of living.”

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.00 MBS) lost -201 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher for the week and brought mortgage rates to levels not seen since January 15th.

We had a holiday-shortened trading session (no bond trades on Friday for Veterans Day).  It was a light week for domestic economic data as there were no major economic releases with the gravitas to impact pricing/rates.  The big story was the Trump victory.

Mortgage backed securities sold off (meaning higher rates) in direct response to the election.  Long bond traders now know that in 2017 that we will have a Senate, House and Executive Office all controlled by Republicans.  But what does that mean?

It can be summed up in one word.  Growth.  For bonds, Growth = Inflation and Inflation = a lower rate of return and that = higher yields.

Long bond traders view this as very positive for economic growth and growth is really a form of inflation and bonds hate inflation.  The economic growth may be accelerated due to: Lower tax rates, repatriation of corporate cash parked overseas, regulatory reform, a national budget, etc.  The wild card that we are waiting to see moving forward is the anti-trade rhetoric which can be negative for the economy.  The market also feels that Fed will be free to act in December (with a rate hike) and there is going to be growing speculation on the future of Fed Chair Janet Yellen.

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.

Homeowners are Twice as “House Rich” as They Were 5 Years Ago:

America’s housing market is heating up again, fortifying the finances of current homeowners and frustrating potential first-time buyers.

After hitting bottom in 2012, home prices took off dramatically before leveling off a bit in mid-2014. In the last two months, though, they turned higher again. The amount of equity homeowners now have — the value outside their mortgage debt — has doubled in the last five years, according to CoreLogic.

The latest read on September home prices showed a 6.3 percent annual gain, a touch bigger than August and a clear sign that prices are heating up again after cooling through much of spring and summer.

“Home-equity wealth has doubled during the last five years to $13 trillion, largely because of the recovery in home prices,” said Frank Nothaft, chief economist for CoreLogic. “Nationwide during the past year, the average gain in housing wealth was about $11,000 per homeowner, but with wide geographic variation.”

Homeowners today show more wealth on paper, but they are not extracting it at nearly the rate they did during the last housing boom. Near-record-low mortgage rates have certainly prompted thousands of borrowers to refinance and lower their monthly payments, but a very small share have extracted cash in these refinances and home equity lines of credit (HELOC).

So homeowners get richer, and those trying to become homeowners have to face not just higher prices, but a severe lack of homes for sale, especially at the entry level. There is clearly demand, just not enough supply.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.00 MBS) gained +15 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

From a technical/charting perspective, our benchmark MBS was “sandwiched” between our 10 day and 200 day moving averages.  MBS made several runs below our 200 day support level but pulled back above it every time.

It was Central Bank Palooza last week with all three (Bank of England, Bank of Japan and our Federal Reserve) deciding to stand pat on any rate or policy changes. We also had our Big Jobs Friday but neither event really had an impact on interest rates as were channel locked.

The Federal Reserve Open Market Committee (FOMC) voted to keep rates the same.  This was widely expected, but there were a few subtle changes from their last meeting.
First, there were two dissenting votes (meaning two voting members wanted to raise rates).  They were Mester and George.  However, last time there were actually three dissenting votes.  Mester, George and Rosengren.  This time around, Rosengren moved his vote over to the other side.
Some key take-aways from their policy statement:
Their key statement of the day: “The Committee judges that the case for an increase in the federal funds rate has continued to strengthen”

They replaced their September statement of “Inflation is expected to remain low for the near term” with “Inflation is expected to rise to 2 percent over the medium term” which is a slightly “hawkish” shift.
The Fed also changed the language to the phrase that “Market-based measures of inflation compensation remain low” and replaced it with “…have moved up but remain low.”

Big Jobs Friday: Overall a very solid jobs report but not to the degree that it was a shock to the system.
Tale of the tape:  The following are the key areas of interest.
Non-Farm Payrolls for October were lower than expected (161K vs est of 175K).
But there were major revisions to the prior months and most likely we will see this 161K revised next month as well.
August was revised from 167K to 176K, September was revised from 156K to 191K.
The rolling 3 month average last month (as released and prior to revisions) was 192K per month, the new rolling 3 month average is 176K which is a nice level considering that labor slack is tightening.
Average Hourly Earnings were higher than expected (0.4% vs est of 0.3%) and more importantly the YOY reading shot up to 2.8% which is the fastest pace in 8 years.  This is certainly reflective of higher wage jobs (mostly in the services industry) being added.
The Unemployment Rate fell to 4.9% which matched expectations and while its below the important psychological mark of 5.0%, the Participation Rate fell from 62.9% to 62.8% (more people unemployed but not seeking employment) which causes the Unemployment Rate to fall.
Average Hourly Work Week remained unchanged at 34.4 hours.

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.

Single Ladies a Driving Force in Home Ownership:

In the past year, single women made up 17 percent of all homebuyers, purchasing at twice the rate of single men, according to a new annual report from the National Association of Realtors. This, despite the fact that women have much lower average incomes than men. Like men, three-quarters of the properties the women buy are single-family, detached homes.

“Single women for years have indicated a strong desire to own a home of their own, as well as an inclination to live closer to friends and family,” said Lawrence Yun, chief economist for the NAR. “With job growth holding steady and credit conditions becoming somewhat less stringent than in past years, the willingness and opportunity to buy is becoming more feasible for many single women.”

As women move ahead in the workplace, commanding larger salaries, it just makes sense they would start buying more homes. Much of the buying, however, is by older women. That could just be part of the trend of downsizing baby boomers.

In the past, single women often had harder times qualifying for mortgages than men. They might have to have a parent co-sign the loan. Those days are well past us and more often than not, they are in the driver’s seat.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.00 MBS) lost -43 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move to their highest level since June 23rd.

The biggest movement of the week came after Thursday’s Durable Goods Orders which drove MBS to their worse levels (highest rates) of the week.  The strength in the August revisions and September data caused bond traders to sell off ahead of Friday’s 3rd QTR GDP data which they were betting would be higher than forecasts, and they were right.  From a technical perspective, our 200 day moving average was tested but it held which kept rates from rising even more.

Durable Goods: The Headline September reading was lighter than expected (-0.1% vs est of +0.1%) However, August was revised upward from 0.0% all the way up to 0.3%. So, if August had not been revised upward, the net activity for September would have more than matched market forecasts.  When you strip out the huge Transportation sector, Core Durable Goods matched expectations with a reading of 0.2%.  August was revised upward from -0.4% to +0.1%.

GDP: The preliminary 3rd QTR GDP reading was much stronger than market expectations with a 2.9% reading (vs est of 2.5%).  The Product Price Index also beat expectations (1.4% vs est of 1.3%) for the Quarter.  Core PCE QoQ was up 1.7% which was stronger than expectations of 1.6% and just 0.3% away from the magical unicorn level of 2.0%.  ad a very light week for domestic economic data.  We did hear from the Federal Reserve’s number 2 (Stanley Fischer) and number 3 (William Dudley) and both seemly supported a rate hike in December.  Overall, our housing data looked healthy and inflation looked to be in check.

Housing: We got two different data sets on home appreciation this morning.  The Case Shiller Home Price Index rose 5.1% vs est of 5.0%.  This is a year-over-year YOY reading and is a very small sample size of just 20 metro areas.
The FHFA released their monthly MOM change in Home Prices which were higher than expected (0.7% vs est of 0.5%). This report has much more value as it is derived from all of FNMA, FHLMC, FHA, VA purchase loans during that month.
New Home Sales:  The September reading hit 593K vs est of 600K and August was revised downward from 609K to 575K which is a sizable revision downward.

Consumer Confidence: The October reading was lighter than expected (98.6 vs est of 100.8) and September was revised lower (from 104.1 down to 103.5) but anything above 100 is still a great reading.  This miss to the down side is a slight positive for pricing.

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.