Homeowners Gained a Collective $570 billion in 2016

Over 39.5 million homeowners now have over half-a-trillion dollars in home equity that they can access and have at least 20% equity in their property.

Rising home values are a big reason for the increase in equity and as it turns out, the number one reason homeowners are tapping into their home’s equity is for home improvement/remodeling which will in turn, cause a further increase in their home’s value.

But access to that equity has switched from the simple cash-out refinance (that often accompanied getting rid of private mortgage insurance at the same time) to a Home Equity Line of Credit (HELOC) which is a form of a second lien mortgage.

“The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent,” said Ben Graboske, executive vice president at Black Knight. He expects to see more HELOCs instead.

And more millennials are using HELOCs than Gen-Xers or baby boomers, according to a survey by TD Bank. In fact, more than a third of millennials said they are considering applying for a HELOC in the next 18 months, which is more than twice the rate as Gen-Xers and nine times that of baby boomers.

“We were a little surprised about that,” admitted Mike Kinane, general manager of home equity products at TD Bank. “I think millennials are taking a more conservative approach, but they recognize that HELOCs have a good purpose, especially for remodeling.”

Home remodeling was the No. 1 reason for taking out a HELOC last year, according to TD Bank, with debt consolidation coming in second. The home remodeling industry has seen a huge boost in the last year, as home prices rise and the supply of homes for sale shrinks. Homeowners are finding it harder to find and afford a suitable move-up home, so they’re increasingly choosing to stay and remodel.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) gained +29 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower from the prior week.

Overall, our domestic economic data was fairly strong and showed both growth and inflation, both of which are generally negative for bonds and interest rates.  However, offsetting that was the fact that Great Brittan officially evoked “Article 50” which officially starts the break up process from the European trade union (they were never a part of the Euro currency).  The unknown impact of this event on the future of the European Union and the global economy has provided support for our long bonds as global investors pour their funds into low yield (but high safety) U.S. bonds which helps keep our rates low.

Domestic Flavor:
Inflation?: It’s heeeere.  Headline Personal Consumption Expenditures (PCE) Year-over-Year (YOY) is finally back above 2.0% for the first time since April 2012.  It came in at 2.1% which matched market expectations.  When you strip out food and energy and look at the Core PCE YOY it moved up to 1.8% which was higher than the market forecasts of 1.7%.

Income and Spending:  Personal Income Continues to make gains as it rose 0.4% in Feb, plus January was revised upward from 0.4% to 0.5%.  Spending increased by 0.1% which was shy of market forecasts of 0.2%.

Chicago PMI: Hit its highest level since January 2015 with a block-buster reading of 57.7 in  March.  This is stronger than the forecasts of 56.5.  Any reading above 50 is expansionary and reading above 55 is very hot.

Consumer Sentiment: The University of Michigan’s final reading for March was revised from the initial release of 97.6 down to 96.9.  It remains the fourth highest reading in 10 years though.

Gross Domestic Product: We received the third and final revision to the 4th QTR GDP.  It was revised upward from 1.9% to 2.1%.  This was driven by an increase in Consumer Spending which jumped 3.5% in the 4th QTR and follows a 3rd QTR gain of 3.0%, so spending is showing good strength.

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
Office: 832-794-2136
Cell: 832-794-2136

First Imperial Mortgage
3409 Morrison St
Houston, TX 77009
NMLS 225846


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