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.