2016 Best Year for Housing in a Decade:

Existing-home sales closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions and historically low supply levels, according to the National Association of Realtors® (NAR).

The January 24th report from the NAR says that total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million).

Lawrence Yun, NAR chief economist, says the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note. “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” he said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.”

Added Yun, “While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.”

The median existing-home price for all housing types in December was $232,200, up 4.0 percent from December 2015 ($223,200). December’s price increase marks the 58th consecutive month of year-over-year gains.

Total housing inventory at the end of December dropped 10.8 percent to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), and has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015).

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) gained just +2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.  While just a 2 BPS move seems very tame, we actually had a very choppy week that saw large swings in rates and pricing.  MBS had an intra-week swing of -96 BPS from our highs (lowest rates) to our lows (highest rates).

As far as economic data, it had very little impact on rates.  The most important data of the week didn’t hit until Friday with the 4th QTR GDP and Durable Goods Orders.  We did have 2,5 and 7 year Treasury note auctions that were luke-warm in terms of demand compared to 2016 levels and had no impact on long bond prices.  The biggest shifts in intra-day pricing levels was the bond markets reaction to President Trump’s Executive Orders which included freezing government hires and salaries, ending TPP, tightening immigration policies and funding the building of the “the wall”.  He had some strife with the Mexican President but had a great meeting with the British Prime Minister.

Domestic Flavor:
GDP: We got our first look at the 4th QTR GDP data.  It was a bit of a miss as it came in at 1.9% vs est of 2.1%.  However, this will be revised three more times and statistically, GDP is usually revised upward.  The only real bright spot was a pick up in business spending.  The purchase price index saw an increase of 2.1% from the 3rd to 4th QTRs, so we have yet another data point that shows inflation over 2.0% (CPI being the other).

Durable Goods Orders:  The headline reading was a huge miss to the downside (-0.4% vs est of +2.6%).  But we have seen a lot volatility in the headline reading as just a few airplane orders can skew it dramatically.  So, when we look at the Ex-Transportation reading, it matched expectations of modest growth with at 0.5% reading.  Those are month-over-month(MOM) readings.  The YOY (year-over-year) Ex-Transport reading is now 3.5% which is a good trend line.

Consumer Sentiment: The January University of Michigan’s Survey was revised upward from the previously released 98.1 to 98.5.  A solid reading and is the best we have seen in 13 years.

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.

Brought to you by:

Taff Weinstein


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