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By Taff Weinstein at

Existing Home Sales Stronger than Expected

Existing Home Sales Stronger than Expected:

Existing-home sales grew for the second consecutive month in March according to the National Association of Realtors®. This report shows that home prices are rising, inventory levels are falling and the time a home is available for sale is dropping quickly. The trifecta of a strong housing market.

Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.1 percent to a seasonally adjusted annual rate of 5.60 million in March from 5.54 million in February. Economists had forecasted only a 0.2% gain.

Lawrence Yun, NAR chief economist, says closings in March eked forward despite challenging market conditions in most of the country. "Robust gains last month in the Northeast and Midwest – a reversal from the weather-impacted declines seen in February – helped overall sales activity rise to its strongest pace since last November at 5.72 million," said Yun. "The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year ago levels because supply is woefully low and home prices keep climbing above what some would-be buyers can afford."

The median existing-home price for all housing types in March was $250,400, up 5.8 percent from March 2017 ($236,600). March's price increase marks the 73rd straight month of year-over-year gains.

"Although the strong job market and recent tax cuts are boosting the incomes of many households, speedy price growth is squeezing overall affordability in several markets – especially those out West," said Yun.

Total housing inventory at the end of March climbed 5.7 percent to 1.67 million existing homes available for sale, but is still 7.2 percent lower than a year ago (1.80 million) and has fallen year-over-year for 34 consecutive months. Unsold inventory is at a 3.6-month supply at the current sales pace (3.8 months a year ago).

Properties typically stayed on the market for 30 days in March, which is down from 37 days in February and 34 days a year ago. Fifty percent of homes sold in March were on the market for less than a month.

"Realtors® throughout the country are seeing the seasonal ramp-up in buyer demand this spring but without the commensurate increase in new listings coming onto the market," said Yun. "As a result, competition is swift and homes are going under contract in roughly a month, which is four days faster than last year and a remarkable 17 days faster than March 2016."

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -54 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: The threat of inflation continued to pressure MBS as we saw the worst levels in several years (highest mortgage rates in several years). CPI is back above 2.0%, Oil is up which is very inflationary (WTI 68.21, Brent 73.88), there is steady economic growth above 2%, the Fed is trimming down its colossal balance sheet and looks to hike at least two more times this year alone. That is the perfect petri dish for bonds to sell off.

Manufacturing: The Philly Fed Manufacturing Survey and Outlook came in better than expected, 23.2 vs est of 21.0. Prices paid jumped nearly 14 points to 56.4 for the highest reading in 7 years. And prices received jumped more than 9 points to 29.8 which is a 10-year high and an echo of yesterday's Beige Book which said higher metal prices are being passed through, at least to some customers.

Industrial Production: Rose by 0.5% in March vs est of 0.4%, it was the largest gain in 6 years but much of that was due to energy production. Capacity Utilization improved by 78.0% vs est of 77.9%.

Retail Sales: The March Headline Retail Sales report was stronger than expected with a 0.6% vs 0.4% estimate. But when you strip out autos, Retail Sales matched expectations with a 0.2% reading. Department stores continue their free-fall but restaurants and furniture sales climbed higher.

The Talking Fed: The Beige Book was released (you can read it here.)
The main message in this report that is prepared exclusively for the May Fed meeting is "tariff".
The word "tariff" appeared exactly zero times in the March Beige book that was used to raise rates at their April meeting. In this Beige Book, the word "tariff" is used 36 times!
- Outlooks remained positive, though contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed or proposed tariffs.
- Inflation was seen as increasing but at a muted level, with prices increasing across all Districts, but at a moderate pace, although there were widespread reports that steel prices rose, sometimes dramatically, due to trade tensions. The Fed also notes that businesses generally anticipated further price increases in the months ahead, particularly for steel and building materials.
- Most Districts reported wage growth as only "modest" while reports of labor shortages over the reporting period were most often cited in high-skill positions, including engineering, information technology, and health care, as well as in construction and transportation.

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.

By Taff Weinstein at

Housing Affordability Tightens

Housing Affordability Tightens:

The newly released Spring 2018 Housing and Mortgage Market Review compiled by Arch MI shows that national housing affordability declined by 5% in the first quarter of 2018. This is due to slightly higher mortgage rates, rising home prices and historically low inventory levels. And If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15 percent. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.

Researchers looked at the median-priced home, now $250,000, and estimated price gains this year of 5 percent in addition to mortgage rates going from 4 percent to 5 percent on the 30-year fixed. Other studies that factor in median income also show decreasing affordability because home prices are rising far faster than income growth.

"A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast." said Ralph DeFranco, global chief economist-mortgage services at Arch Capital Services.

However, For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.

Source: Arch MI Spring 2018 Housing and Mortgage Market Review

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -32 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: The bond market was under pressure (higher rates) due to inflationary data (CPI 2.4%) and several major bond funds (most notably PIMCO) recommending lightening up on bond holdings. Global military and geo-political concerns kept MBS from selling off even more.

Jobs, Jobs, Jobs: The February Job Openings and Labor Turn Over Survey (JOLTS) continues to show over 6 million unfilled jobs which shows that employers are having major issues finding qualified workers to fill the open positions.

Consumer Sentiment: The Preliminary April reading was a miss to the downside (97.8 vs est of 100.6). This will be revised but it shows a pullback in sentiment from our recent historic highs.

PIMCO says Sell: The world's largest bond fund, PIMCO, said that it's time to take profits....now. Dan Ivascyn, the man who replaced Bill Gross as CIO, and the man responsible for allocating hundreds of billions in client funds, said that geopolitical tensions and rising interest rates have created a “much more fragile situation”.
Inflation Nation: The March Consumer Price Price Index matched market expectations but did show an increase in the pace of inflation for consumers and we saw a rare "two handle" on the Core YOY number. Headline CPI YOY hit 2.4% vs est of 2.4% but that is up from Feb's pace of 2.2%. The Core CPI YOY hit 2.1% which matched estimates but it was a hotter pace than Feb's rate of 1.8%.

The Talking Fed: The Minutes from last month's FOMC meeting where released you can read them here.
Overall, the Minutes reveal that the Fed is shifting away from accommodative policies. Here are some of the highlights:
- Recent fiscal policy changes (tax reform) could lead to a greater expansion in economic activity over the next few years than the staff had previously projected.
- A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected.
- Some participants suggested that, at some point, it might become necessary to revise statement language to acknowledge that, in pursuit of the Committee’s statutory mandate and consistent with the median of participants’ policy rate projections in the SEP, monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.
- Many participants stated that recent readings from indicators on inflation and inflation expectations increased their confidence that inflation would rise to the Committee’s 2 percent objective in coming months and then stabilize around that level; others suggested that downside risks to inflation were subsiding.
- Regarding wage growth at the national level, several participants noted a modest increase, but most still described the pace of wage gains as moderate; a few participants cited this fact as suggesting that there was room for the labor market to strengthen somewhat further.
- Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy.

By Taff Weinstein at

Fannie Mae Guideline Change Can Reduce Amount of Cash the Buyer Needs at Closing

The mortgage industry behemoth Fannie Mae has issued a letter to lenders with a revised set of guidelines stating that mortgage lenders could now provide assistance to borrowers as a gift that is not subject to repayment. This could cover some or all of the closing costs associated with the purchase of a home.

Many times, it is negotiated in the purchase contract that the seller covers some or all of the closing costs that are normally the buyer's responsibility. But in this red-hot housing market which has seen the lowest levels of available housing inventory on record, it is becoming more common for the seller to not have to pay the closing costs of the buyer as an incentive to purchase the home.

The money cannot go toward the down payment or surpass the closing costs, but otherwise there is no cap on the amount.

“We’re making it easier for borrowers to purchase a home by allowing lenders to fund closing costs and prepaid fees,” Fannie Mae Chief Credit Officer for Single-Family Carlos Perez said in a letter to lenders.

“While there is no limit to the amount of the lender-sourced contributions, the funds cannot be used toward a down payment, cannot exceed the total closing costs, and should not be subject to any form of repayment agreement,” Perez added.

Source: Fannie Mae

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just -4 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move basically move sideways for the week.

Overview: Opposing forces. Overall, the economic data was very strong last week (ISM and Jobs) which is generally negative for MBS trades and therefore negative for rates. But, global uncertainty over a potential trade war between the U.S. and China provided support for MBS. The two opposing forces "squeezed" MBS into a very narrow and tight range.
Jobs, Jobs, Jobs: We got a lot of labor/wage related data on Friday. Here is the Tale of the Tape:
March Non-Farm Payrolls (NFP) was much lighter than expected 103K vs est. of 193K.
February NFP was revised upward from 313K to 326K.
January NFP was revised downward from 239K to 176K.
The rolling three month moving average is now 202K, so its still above the important 200K mark.
Average Hourly Earnings increased by 0.3% vs est. of a 0.2% gain on a MOM basis. Average Hourly earnings are now $26.82.
The more closely watched YOY number increased by 2.7% which matched market expectations and was a small improvement in the yearly pace of increases than the Feb pace of 2.6%.
Unemployment Rate:
The March Unemployment Rate remained at 4.1%. The market was expecting a small decrease, down to 4.0%.
The Participation Rate (which drives the Unemployment Rate) moved from 63.0% in Feb, down to 62.9% in March.

Overall, this was a solid report. Yes, NFP was a miss, but the Fed (and the markets) focus on the rolling three month average which is still above 200K which is very strong. Wages were up 2.7% YOY which is also strong but matched market expectations.

The Talking Fed: Fed Chair Jerome Powell did not say anything to shock the markets. He indicated that the Federal Reserve would likely need to keep raising U.S. interest rates to keep inflation under control and that it was too soon to know if rising trade tensions would hurt the U.S. economy.
ISM Non-Manufacturing: The March reading for the Services sector hit 58.8 vs est of 59.0 which is a very robust reading. The services sector accounts for more than 2/3 of our economy, so this reading gets more weight than the ISM Manufacturing data.

What to Watch Out For This Week:

By Taff Weinstein at

Average Millennial Wastes $93K on Rent by the Time They Hit 30

Average Millennial Wastes $93K on Rent by the Time They Hit 30:

Why is it called "wasting"? Because after you pay rent....that money is gone.  No equity, no tax benefits, nothing.  While home prices have increased for 72 straight months of year-over-year gains (according to the National Association of Realtor's Existing Home Sales Report), millennials that pay rent have missed out on that appreciation.

According to a new study by Rent Cafe, the average millennial spends nearly $100,000 on rent by the time they turn 30 which is around 45% of their income.

Other key findings in their report:

- Millennials pay a whopping $92,600 in total rent by the time they turn 30. Although they earn more compared to previous generations, they also have to spend more on rent.
- By the time Millennials might be thinking about buying a home or starting a family, they are struggling with rent and student loan debt instead. Compared to Baby Boomers (36%) and Generation X (41%), Millennials have to cope with a 45% rent burden in their 20s.
- Because of the ever-increasing rents, discrepancies appeared within the same generation as well. With a rent burden of 47%, younger Millennials (20 - 29) surpass older Millennials who spent about 44% of their income on rent between the ages of 22 and 30.
- If this trend continues, Gen Z-ers  are expected to pay something in the vicinity of $102,000 while in their 20's just to put a rented roof over their head.

Millennials paid much more in rent than what their Baby Boomer parents paid by the time they hit the same age. It seems that Millennials do put a massive amount of money into renting, but the numbers also show that their total median income is the highest among generations, earning about $206,600 in 8 years.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +22 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move basically move sideways for the week, in some cases you may have seen a very slight improvement.

Overview:  We had a holiday-shortened week with the bond market closing early on Thursday and closed for Good Friday.  MBS reached their best levels of the week on Thursday as traders rushed to park their money in the safety of bonds over the long holiday weekend which caused a temporary increase in demand.  For the week, there was actually some very strong economic reports (GDP 2.9%, very high Consumer Confidence and Consumer Sentiment readings and an uptick in the Fed's key inflationary reading) but this was offset with uncertainty and concern over a looming trade with China as well other key trading partners.

Inflation Nation: The Fed's key measure of inflation inched up as the Headline PCE YOY reading hit 1.8% vs est of 1.7%. The Core YOY number inched up from 1.5% to 1.6% which was expected. Both readings are still below their target rate of 2.00% but starting to trend upward. Personal Income saw another monthly gain, this time 0.4% which was expected. Personal Spending gained 0.2% vs est of 0.2%.

Manufacturing: The bell-weather Chicago PMI was much lower than expected (57.4 vs est of 62.0) and is one of the lowest readings in the last 12 months. However, ANY reading above 50.0 is expansionary and reading in the upper 50's is very, very strong.

Consumer Sentiment: The University of Michigan's Survey was revised from the mid-month prelim reading of 102.00 to the final monthly reading of 101.4 which is the highest level since 2004.

Consumer Confidence: The March reading continues a trend of very high levels. It was just off its record setting pace in February (127.7 vs 103.8-)

Taking it to the House: The February Pending Home Sales report was much stronger than expected with a MOM gain of 3.1% vs est of 2.1%. Weekly Mortgage Applications improved by 4.8% led by a big 7.8% jump in Refinance Applications. Purchase applications continued their solid trend with a 3.0% improvement.

Gross Domestic Product: We got our 3rd look at the 4th QTR GDP and its second and final revision. It was revised upward to 2.9% from 2.5%. The market was expecting something in the 2.6% to 2.7% range, so this was stronger than expected. PCE QoQ remained at 1.9%.

What to Watch Out For This Week:

By Taff Weinstein at

Cost of Living is Drastically Different across the U.S.

Cost of Living is Drastically Different across the U.S.

The cost of living can look drastically different depending on where you are. It will cost a single person about $29,118 a year to live in Brownsville, Texas, for example, but in San Francisco, California, that expense more than doubles, to $69,072.

The Economic Policy Institute's (EPI) newly updated family budget calculator, shows how much income for differently sized families is needed in order to attain a baseline standard of living across the U.S. In other words, it measures "what families need to get by," says EPI Senior Economist Elise Gould.
You can access their calculator by clicking here.

The calculator factors in geographic differences in cost of living and six main expenses: housing, food, transportation, health care, other basic necessities and taxes.

"In order to keep the budgets modest, the calculator notably does not include many expenses associated with a middle-class lifestyle, such as paying off student loans or saving for college or retirement," the EPI notes.

The EPI gathered data for 10 family types in all 3,142 counties and in all 611 metro areas.

Below is a list of 10 metro-city areas across the country so you can see how housing expenses and the cost of living stacks up in each area.

San Antonio, Texas
Housing costs: $649 per month ($7,788 per year)
Total cost of living: $2,716 per month ($32,587 per year)
Columbus, Ohio
Housing costs: $601 per month ($7,212 per year)
Total cost of living: $2,719 per month ($32,632 per year)
Jacksonville, Florida
Housing costs: $604 per month ($7,248 per year)
Total cost of living: $2,759 per month ($33,104 per year)
Indianapolis, Indiana
Housing costs: $599 per month ($7,188 per year)
Total cost of living: $2,794 per month ($33,530 per year)
Dallas, Texas
Housing costs: $730 per month ($8,760 per year)
Total cost of living: $2,880 per month ($34,563 per year)
Phoenix, Arizona
Housing costs: $684 per month ($8,208 per year)
Total cost of living: $3,143 per month ($37,715 per year)
Philadelphia, Pennsylvania
Housing costs: $824 per month ($9,891 per year)
Total cost of living: $3,191 per month ($38,291 per year)
Chicago, Illinois
Housing costs: $879 per month ($10,548 per year)
Total cost of living: $3,217 per month ($38,605 per year)
Los Angeles, California
Housing costs: $1,067 per month ($12,804 per year)
Total cost of living: $3,569 per month ($42,825 per year)
New York, New York
Housing costs: $1,514 per month ($18,168 per year)
Total cost of living: $4,277 per month ($51,323 per year)

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: MBS pricing (and therefore rates) were squeezed by opposing forces. On one side, we had a Fed Rate Hike and an increase in the projected number of rate hikes for 2019 and 2020. On the other side, you had increasing deficits with the new $1.3T spending bill and concern over a trade war with China and other major economies. This kept mortgage backed securities stuck in a very tight range all week.

The Talking Fed: The Federal Open Market Committee (FOMC) released their interest rate decision and policy statement on Wednesday. They also released their economic projections. You can read the official monetary policy and Fed statement here.

As expected, the FOMC increased their Fed Fund rate by a 1/4 point. And actually had a slightly stronger outlook compared to December. Here are some highlights:
- Changed the word "solid" as in solid rate of growth to "moderate".
- Said "Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings"
- Kept their dot plot chart at 3 total rate hikes for 2018 but shifted to more rate hikes in 2019 and 2020.
- Still, 7/15 "dots" (not quite half) still see 4 rate hikes in 2018.
- Upgraded their median 2018 GDP forecast from 2.5% to 2.7%
- Upgraded their median Unemployment Rate from 3.9% down to 3.8%
- Kept their core inflation projections at 1.9% for 2018

During his live Press Conference, the quote that got the attention of bond traders (and sent MBS to their best levels of the day) was "a number of participants reported that about their conversations with business leaders around the country and reported that trade policy has come a concern going forward for that growth."

Geo-Political: The President signed the $1.3T spending bill (after threatening to veto it) and will keep the government funded but only until October.

Trade War? The original tariffs (which actually don't legally exist yet) for steel and aluminum have been postponed. But yesterday's launch of $50B in tariffs on China over stolen IP, has China responding with a list of 128 U.S. products that they will have a tariff on.

What to Watch Out For This Week:

By Taff Weinstein at

Home-Buying Demographics

Home Buying Demographics:

Who is driving the super-hot demand in housing right now? The answers are found in the newly published National Association of Realtors 2018 Home Buyer and Seller Generational Trends.

Millennials are now buying more homes than any other group with thirty-six percent of all home purchases were made by that generation over the last year. That makes millennials the most active generation in home buying for the fifth straight year. Gen-Xers ranked second at 26%, followed by younger and older baby boomers at 18% and 14%, respectively. The silent generation – those born between 1925 and 1945 – accounted for 6% of homebuyers over the last year.

Here are some more important statistics from the report:

First-time buyers made up 34 percent of all home buyers, a decrease from last year at 35 percent. Sixty -five percent of buyers 37 years and younger were first -time buyers, followed by buyers 38 to 52 years at 2 4 percent.
Sixty-five percent of recent buyers were married couples, 18 percent were single females, seven percent were single males, and eight percent were unmarried couples. The highest percentage of single female buyers was found in the 72 and older age group. The highest share of unmarried couples were found in the 37 and younger age group.
The most common reasons for recently purchasing a home differed between the generations. For all three groups under the age of 62 years, the main reason for purchasing was the desire to own a home of their own. Among the 63 and older age groups, the desire to be closer to friends and family was the top reason to purchase at 25 percent. Buyers between 72 and 92 years also purchased for the desire for a smaller home at 19 percent.
Overall, buyers expect to live in their homes for a median of 15 years, while 18 percent say that they are never moving. For buyers 37 years and younger, the expected length of time is only 10 years compare to 20 years for buyers 53 to 62 years.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +13 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We continued to see sideways movement in long bond yields throughout the month of March as the market is awaiting the first Fed rate hike of the year. Overall, last week had very strong labor market data and both small business and consumers had some of the highest sentiment readings on record. Inflation was tame but above 2.00% on headline CPI.

Jobs, Jobs, Jobs: January JOLTS (Job Openings and Labor Turnover Survey) showed over 6 million vacant jobs....just waiting for the right person (that can pass a drug test, and has experience/skills). This was a much stronger than expected reading (6.312M vs est of 5.890M) and is at a record high.

Consumer Sentiment: The University of Michigan's Consumer Sentiment Index Preliminary March reading hit 102.00 vs est of 99.3 and is one of the hottest readings on record.

Small Business Optimism: The February NFIB index moved higher from January's level of 106.9 to Feb's reading of 107.6. It the 2nd highest level in 45 years!

Inflation Nation: Across the board, the Consumer Price Data matched market expectations with the closely watched YOY headline reading rising to 2.2% in February from 2.1% in Jan. The Core YOY remained at the 1.8% level. Producer Price Data matched also market expectations with the closely watched YOY Headline reading rising to 2.8% in February from 2.7% in Jan. The Core PPI YOY rose from 2.2% to 2.5%.

Atlanta Fed: Their Year ahead inflation expectations rose from 2.0% in February to 2.1% in March. However, their GDPNow forecast model dropped the 1st QTR GDP expectations down to 1.9%. If you recall, this was 5.2% in January, dropped to 4.3% and then 2.5% and now 1.9%.

Manufacturing: The February Industrial Production figures were almost three-times stronger than expected with a 1.1% vs an estimated 0.2% reading. Capacity Utilization was also a beat (78.1 vs est of 77.6). There was strength in mining, business equipment and building supplies.

What to Watch Out For This Week:


By Taff Weinstein at

More Taxes = More Homes For Sale?

More Taxes = More Homes For Sale?

Sounds bizarre but Vancouver, British Columbia is going to try just that.

You see, they have the same problem that we have here in the U.S.A, tight inventory. With inventory levels so low, they have been struggling to find a way to get inventory controlled by "hoarders" back into the market place.

Vancouver is slapping thousands of empty homes with a new tax as part of a government effort to tame the out-of-control Real Estate bubble that just won't quit there and is being closely watched by many U.S. metro markets to see if it works.

Approximately 4.6% or 8,481 homes in Vancouver have stood empty or underutilized for over six months in 2017, down from 10,800 in 2016 according to declarations submitted to the municipality by homeowners. Empty properties will be charged a 1% tax on the assessed value - not much, but with average detached home prices hovering below C$1.8 million, attached units going for C$715K and condominiums at C$571K, 1% is still a large sum of money.

The problem of a hot housing market and tight inventory levels gets even worse as foreign buyers move in which effectively takes a residence out of the market and it sits vacant as thousands of home buyers are scrambling to find a home for sale. According to local sales agents, investors from Hong Kong, Mainland China and other parts of Asia have been acquiring as much as 40% of the units going up for sale and just sitting on them afterwards.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -7 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We continue to see very strong economic data with Jobs (ADP Private Payrolls and BLS Non-Farm Payrolls) as well as a very upbeat economic review by the 12 districts of the Federal Reserve. Both of those are providing pressure on mortgage rates. But the resignation of Gary Cohn and the uncertainty of tariffs and a potential trade war is providing support for rates.

Jobs, Jobs, Jobs: We had Big Jobs Friday! You can read the official BLS report here.
Here is the Tale of the Tape:

Jobs - Non Farm Payrolls:
February 313K vs est. of 200K
January was revised upward from 200K to 239K
December was revised upward from 160K to 175K
The more closely watched rolling 3 month moving average increased to 242K which is very robust.

Wages: Monthly Average Hourly Earnings increased by 0.1% over the prior month. Market was expecting 0.2%.
YOY Average Hourly Earnings increased by 2.6% form this time last year. Market was expecting 2.8%.
The national average hourly rate for private non-farm workers increased to $26.75
Hours Worked picked up by 0.1% to 34.5 which was higher than expectations of 34.4

Unemployment Rate: The February Unemployment Rate hit 4.1% which is the same rate as January. The market was expecting a small improvement to 4.0%.
The Participation Rate had a very rare increase and hit 63.0% vs est. of 62.5%
The February ADP Private Payrolls came in hotter than expected (235K vs est. of 195K), plus January was revised higher from 234K up to 244K (10K).

Productivity: The revised 4th QTR data was revised a little higher. Non-Farm Productivity was revised from -0.1% up to 0.0% and Unit Labor Costs were revised higher from 2.0% to 2.5%.

Geo-Political: President Trump's Senior Economic Advisor Gary Cohn resigned presumably over his objection to the proposed tariffs.

The Talking Fed: On Wednesday we got the Fed's Beige Book. This is prepared specifically to be used in the decision making process during the March Fed policy meeting. It is a compilation of all 12 Fed districts on their views of how each of their fiefdoms are doing economically. You can read the official release HERE.
Overall, the picture is stable growth and concern over impending wage inflation.

What to Watch Out For This Week:

By Taff Weinstein at

Home Prices up 51% from the bottom in 2011

Home Prices up 51% from the bottom in 2011

Home prices across the US have grown 51% since they bottomed out in March 2011, with prices in most markets returning to peak levels after dropping 33% during the recession, according to a new report released by CoreLogic.

The increase in home prices is further evidence that the housing market has more than recovered from housing crisis.

CoreLogic said home prices are now 1% higher compared to their peak in 2006. Additionally, year-over-year gains in home equity averaged $14,888 during the third quarter.

“Homeowners in the United States experienced a run-up in prices from the early 2000s to 2006, and then saw the trend reverse with steady declines through 2011,” CoreLogic Chief Economist Frank Nothaft said. “After reaching bottom in 2011, our national price index is up more than 50%. West Coast states, such as California, Washington, and Oregon, are seeing some of the largest trough-to-current growth rates in home prices. Greater demand and lower supply – as well as booming job markets – have given some of the hardest-hit housing markets a boost in home prices. Yet many are still not back to pre-crash levels.”

Source: Core Logic Special Report

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We had a choppy session with a net swing of -66 basis points from the best pricing (lowest rates) to our worst pricing (highest rates) but when the smoke cleared - pricing was basically the same at the end of the week as it was at the beginning of the week. While we did get some big name economic reports (ISM/GDP) and Powell's first testimony in front of Congress, it was the Trump Tariff announcement that caused the most volatility.

Trade Wars: President Trump announced tariffs on steel and aluminum imports today which concerns traders that it will spark a trade war which may provide some headwinds to our growing economy. The White House has yet to release the specifics but "next week" he will put forth his plan on 10% aluminum and 25% on steel.

The Talking Fed: Fed Chair Jerome Powell has his first round of Semi-annual Monetary Policy hearings. Tuesday in front of the House Financial Services Committee and Thursday in front of the Senate Banking Committee. Here are a few of his statements:
- "some of the headwinds the U.S. economy faced in previous years have turned into tailwinds"
- "inflation remains below our 2 percent longer-run objective. In the FOMC's view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives. As always, the path of monetary policy will depend on the economic outlook as informed by incoming data."
- "These interest rate and balance sheet actions reflect the Committee's view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent."

Overall he did very well in his responses to questions from committee members and kept to the same theme as his prepared remarks. He painted a picture of global growth, tax reform helping the economy, MBS purchases decreasing, concern over the lack of labor slack and was concerned that we might begin to see rising wages "soon".

Personal Income and Outlays: Personal Income increased by 0.4% in January which was a tic higher than expected. Personal Spending matched expectations with a monthly gain of 0.2%. The Fed's key measure of inflation, PCE YOY came in at 1.7% vs est of 1.6%. Core PCE YOY matched forecasts with a 1.5% reading.

Manufacturing: February ISM Manufacturing was the best since 2004 with a 60.8 reading which handily beat out estimates calling for a reading of 58.7. ISM Prices Paid jumped to a 6 1/2 year high (74.2 vs est of 70.5)

GDP: We got the first revision to the 4th QTR GDP and it was revised lower from 2.6% down to 2.5% which is exactly what the market was expecting.

What to Watch Out For This Week:

By Taff Weinstein at

Gradual Increase in Mortgage Rates Unlikely to Hurt Housing Market

Gradual Increase in Mortgage Rates Unlikely to Hurt Housing Market:

With expectations among economists that the 30-year fixed-rate mortgage will approach 5% by the end of 2019, First American Chief Economist Mark Fleming said that their is an increase in market potential which reflects faster economic growth, low unemployment, and continued low mortgage rates. Fleming said it is unlikely that large numbers of home buyers will be dissuaded by a modest increase in mortgage rates.

“There are a variety of reasons why people buy homes that are completely independent of mortgage rates. A gradual rise in mortgage rates won’t change that,” Fleming said.

“Our Potential Home Sales model forecasts what the market potential for home sales should be given current economic, demographic, and housing market environments. Potential home sales, while currently at a level of 6.1 million SAAR, are expected to reach an estimated 6.29 million SAAR by the end of 2019, despite a rising rate environment,” he said. “However, while the yearly growth rate in potential sales is currently at 3.6%, it is expected to slow to just below 1% by the end of 2019."

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our potential home sales model measures what home sales should be based on the economic, demographic, and housing market environments.”

Source: First American Title Insurance

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -2 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We had a holiday-shortened week (Monday closed for President's day). There were no major domestic economic releases. We did have three short term Treasury note auctions (2,5 and 7 year) that saw lower than average demand and higher rates. The bond market's only focus was on the Federal Reserve which released the Minutes from their last meeting and their Monetary Policy report.

The Talking Fed: They released the Minutes from the last FOMC meeting, you can read them here.
The Fed is confident that the economy is gaining momentum, as a number of participants said they had marked up their growth forecasts since the previous month, encouraged by firm global growth, supportive financial markets and the potential for US tax cuts to boost the economy more than expected. Still, others said the “upside risks” to growth may have increased, according to minutes of their January gathering. Of note is that FOMC voters agreed to add the word "further'' in front of "gradual increases" because of the stronger economic outlook.

Fed Chair Jerome Powell submitted the Fed Monetary Policy Report along with his prepared speech in written form to Capital Hill on Friday. You can read it here.
It very much followed the same "hawkish" tone and them as this week's FOMC Minutes.

What to Watch Out For This Week:

By Taff Weinstein at

Best Cities for First Time Homebuyers

Best Cities for First Time Homebuyers:

The housing market has recovered from the crisis of 10 years ago like it never even happened. National home prices have surpassed their prior peaks, and homebuyers are faced with bidding wars as inventory is low. These challenges are more onerous for first-time homebuyers who do not have the advantage of another home to sell (that has likely appreciated) to help with funding the down payment for a new home. It’s not all doom and gloom though, and some cities have more favorable conditions for first-time buyers than others.

In a new study, Lending Tree decided to rank the best cities for first-time homebuyers in the nation’s 100 largest cities. The factors that made a housing market favorable were:

Average down payment amount. The big initial pile of cash is something most first-time buyers struggle with and takes years of savings for many.

The share of buyers using an FHA mortgage. Buyers using FHA financing are required to put down as little as 3%, and have higher limits on the debt-to-income ratios. These and other loan features increase the likelihood of being approved for a mortgage while still getting competitive mortgage interest rates.

Average down payment percentage. Lower down payments increase access for first-time buyers. Down payments are one of the main obstacles to home ownership, as many renters can afford the monthly mortgage payment.
Percentage of buyers who have less than prime credit (below 680). First-time buyers often have lower credit scores than repeat buyers so are more competitive in areas without as many prime borrowers.

The share of homes sold that the median income family can afford (Housing Opportunity Index). Many cities have become too expensive for the median family. This measure of affordability in our ranking elevates cities that are still affordable for median income families.

Average FHA down payment as a percentage of average down payment for all loans: The lower down payment for FHA loans is more valuable in some areas than others. This measure of the FHA benefit tells us how much FHA borrowers truly saved on down payments.

Lending Tree ranked the following cities the top 10 most accessible:
Little Rock, Ark.
Birmingham, Ala.
Grand Rapids, Mich.
Youngstown, Ohio
Winston, N.C.
Dayton, Ohio
Scranton, Pa.

Source: Lending Tree

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) gained +9 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: Mortgage backed securities sold off for much of the week on higher inflationary data (bonds hate inflation) but we got a nice (and temporary) bounce on Friday due to parking over the long holiday weekend with the world's two largest economies shut down (U.S. and China).

Inflation? You bet. The Consumer Price Index readings for January were higher than expected with the Headline YOY CPI hitting 2.1% vs est. of 1.9% which is a big beat. Core (ex food and energy...everything that actually matters) CPI YOY increased by 1.8% vs est. of 1.7%. The Producer Price Index readings for January were double than expected when looking Core PPI MOM (0.4% vs est. of 0.2%). The YOY PPI Headline data hit 2.7% vs est. of 2.5%.

In another inflationary report, Import Prices MOM jumped by 1.0% vs est. of 0.6% and the prior month was doubled from 0.1% to 0.2%. YOY, Import Prices were up by 3.6% vs est. of 3.0%.

Retail Sales: The headline data was disappointing. January was lighter than expected (-0.3% vs est. of +0.2%), plus December was revised lower from 0.4% down to 0.0%. When you strip out Autos, Retail Sales were flat at 0.0% vs est. of a gain of 0.4%.

Taking it to the House: The NAHB Sentiment Index remained at 72 which is an extremely high reading and was not impacted by rising mortgage rate expectations. New Housing Starts in January were much higher than expected with 1.326M vs est. of 1.234M. Building Permits were also stronger than expected (1.396M vs est. of 1.300M). SFR were basically at the same pace as the prior month, the beat was due to a surge in Rental Properties which is not good news for the housing market.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims matched expectations with a low 230K reading. The more closely watched 4 week moving average is still below 230K with a 228,500 reading.

Philly Fed: Their February Business Outlook Survey jumped to an extremely high reading of 25.8 which handily beat out expectations of 21.1. New orders, at 24.5, are surging and unfilled orders, at 14.5, are piling up fast. Hiring is so far keeping up, at 25.2.

Consumer Sentiment: The Preliminary February University of Michigan's national survey was red hot with a reading of 99.9 vs est. of 95.5. The one year inflation expectations were at 2.7%, the 5 to 10 year outlook was at 2.5%.

What to Watch Out For This Week:

By Taff Weinstein at

Couples Are Out Buying Singles In Homes

Couples able to afford more homes than singles:

A couple with a combined household income of $80,800 could afford 82% of all US homes and would be able to save their down payment in just 5 years.

But for singles, its another story.

An analysis from Zillow calculates that less than half of all US homes are affordable for a single buyer based on a median household income of $34,500. And since they don't have the help of a spouse, it could take up to 11 years to save up enough for a standard down payment.

"Nearly two-thirds of Americans agree that buying a home is a central part of living the American Dream, but for unmarried or un-partnered Americans, that dream is increasingly out of reach," said Zillow senior economist Aaron Terrazas. "Single buyers typically have more limited budgets, which means they are likely competing for lower-priced homes that are in high demand. Having two incomes allows buyers to compete in higher priced tiers where competition is not as stiff."

Source: Zilllow.com

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -11 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slighter higher for the week.

Overview: We saw very weak demand for our 10 year note and 30 year bond auctions but MBS were mostly pressured (higher rates) due to strong jobs data (45 year low) and hawkish commentary by one of the major central banks. While we did see a temporary spending bill, the overall downward trend of MBS since January 1 (-187 BPS) kept fixed mortgage rates on an upward trend.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims hit 221K vs est of 232K. The more closely watched 4 week moving average dropped to 224,500 which is A 45 YEAR LOW. The December Job Openings and Labor Turnover Survey (JOLTS) showed 5.811M jobs that are currently unfilled. The market was expecting 5.9M. November was revised upward from 5.879M to 5.978M. The lack of labor slack continues to be a major problem.

Can Kicked: We had a brief government shut down in the wee hours of the morning but have since rebooted. The Senate passed their pork-laden bill with ease while the house had a mini rebellion of 67 conservatives voting against the bill. It funds the government only until March 23. It added money and time to defense spending and upped the borrowing authority until 2019. Its an awful deal that jacks up our deficit but it keeps the doors open for a little longer.

Great Brittan: Bank of England kept rates unchanged at 0.5%, and QE flat as expected in a unanimous 9-0 vote. But BOE raised its growth forecast and said that the "Committee judges that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainability to the target."

What to Watch Out For This Week:

By Taff Weinstein at

Home-ownership preferred to renting in 78 out the 100 Largest U.S. Cities

Home-ownership preferred to renting in 78 out the 100 Largest U.S. Cities:

However, 22 out of the largest 100 cities are seeing more renting households. RENTCafé has released their analysis based on American Community Survey archives from the US Census Bureau’s public database. The analysis compared the number of people living in renter and owner-occupied housing units in 2006 and 2016.

The analysis found that the renter population increased by more than 23 million over the period, growing by more than a quarter. Meanwhile, the overall homeowner population increased by less than 700,000 – a virtual standstill compared to the growth in renter population.

Although the US is far from becoming a renter nation, the changes in populations were enough to shift the balance in some of the largest cities that were previously dominated by homeowners. From only 20 out of the 100 largest cities dominated by renters in 2006, there are now 42 such cities.

The analysis found the biggest change in renter share in Toledo, Ohio, where the percentage of renters increased 31.1% over the decade from 38.3% in 2006 to 50.3% in 2016. Memphis, Tenn.; Tampa, Fla.; Hialeah, Fla.; and Stockton, Calif., rounded out of the top five new renter-dominated cities in terms of renter share change.

In other large cities, the renter-homeowner population ratio has changed dramatically, despite the renter population continuing to trail homeowners. The analysis found that all large cities recorded increases in the rentership rate, with only Anchorage, Alaska; Irving, Texas; and Winston-Salem, N.C., posting decreases.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -102 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview:  The combination of a more "hawkish" tone from the Federal Reserve and very strong manufacturing, wages and jobs data continued to brighten the economic growth outlook.  Bonds do not perform well in a growing economy and continued their downward trend that we have seen all year which has meant a steady upward march in fixed mortgage rates.

The Talking Fed: The FOMC voted 9-0 to keep their Fed Fund Rate unchanged at 1.25% to 1.50%.
You can read the official statement here.
They had a more noticeably more "hawkish" tone in this statement.  In December they said that inflation would "remain somewhat below 2% in the near term".  That is now "Inflation on a 12 month basis is expected to move up this year".
They also said that:
 - Economy to warrant further gradual increases in rates
 - Market based inflation compensation gauges rose in recent months
 - Gains in employment, spending and investment has been solid.
 - Janet Yellen's last day is Saturday.  Jerome Powell will be sworn in on Monday.

Jobs, Jobs, Jobs:
January Non-Farm Payrolls 200K vs est of 180K
December NFP revised upward from 148K to 160K
November NFP revised downward from 252K to 216K
The three month rolling average is now 192K!
Average Hourly Wages YOY hit 2.9% vs est of 2.6% (increase of 0.75 per hour)
Average Hourly Wage MOM 0.3% vs est of 0.3%
Average Hourly Wage is now $26.74
The headline Unemployment Rate remained at 4.1% which matched expectations.
The participation rate remained at 62.7% vs est of 62.8%

Manufacturing: The January ISM Manufacturing data was very strong and beat out expectations handily with a 59.1 vs est of 58.8 reading. But the real story is ISM Prices Paid which shot up to a crazy 72.7 vs est of 68.0. 

The January Chicago PMI was very robust and handily beat out expectations with a reading of 65.7 vs est of 64.1. Keep in mind that ANY reading above 50.0 is expansionary and readings above 60.0 are crazy hot growth. December's block-buster reading of 67.6 was not a fluke or error, in fact it was actually revised even higher to 67.8.

What to Watch Out For This Week:

By Taff Weinstein at

Sales of Existing Homes Hit 11 year High

Sales of Existing Homes Hit 11 year High:

2017 ended up being the best year for existing-home sales in 11 years, according to the National Association of Realtors.

Existing-home sales dropped 3.6% month over month on a seasonally adjusted basis in December as inventory shortages were severe. But even with that decline, sales for all of 2017 were up 1.1% over the prior year, hitting a sales pace of 5.51 million – the highest since 2006.

Lawrence Yun, NAR’s chief economist said “The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home-price gains – at 5.8% nationally in 2017 – doubled the pace of income growth and were even swifter in several markets.”

Inventory, was tighter than ever and hit a new all-time low. Total US inventory at the end of December was 1.48 million existing homes available for sale – an 11.4% drop from the year before. Unsold inventory is at a 3.2-month supply at the current sales pace – the lowest level since NAR began tracking nearly two decades ago.

The median existing-home price in the US last month was $246,800, a 5.8% spike from December 2016. December of 2017 also marked the 70th consecutive month of year-over-year price gains.

“Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand,” Yun said. “At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace. … Affordability pressures persisted, and the pool of interested buyers at the end of the year significantly outweighed what was available for sale.”

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -6 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview:  Mortgage Backed Securities remained under pressure as long bond strategists continued to shift their hedges towards higher rates in the near term.  Overall, the week's economic data was strong but not by enough to accelerate the sell off.

Taking it to the House: Weekly Mortgage Applications increased by 4.5% led by Refinance Applications up 6.0%. Purchase Applications rose by 1.0%.

The November FHFA Housing Price Index rose by 0.4% on a MOM basis and is up 6.5% on YOY basis.

Existing Home Sales in December felt severe inventory constraints. Inventories fell by 10.3% to their lowest levels ever on record. The annualized sales pace hit 5.57M which was lower than the expectations of 5.70M but that was not due to lack of demand. It was due to lack of inventory. The median home price rose to $246,800.

Gross Domestic Product:  We got the first look at the 4th QTR GDP, it will be revised several more times but the initial reading of 2.6% is good steady growth. Odds are that by the time the final revision hits, that number will be closer to 2.9%.  Consumer Spending saw a very strong 3.8% increase.  Other highlights were a 14.2% burst in spending on durable goods items.  Residential Investment jumped 11.6% and non-residential fixed investment rose by 6.8%.

Durable Goods Orders for December were much hotter than expected, coming in at 2.9% vs est of only 0.6%.  Plus, November was revised upward from 1.3% to 1.7%.  Aircraft and vehicles saw a nice surge in orders.

What to Watch Out For This Week:


By Taff Weinstein at

Tiny Houses May Become Large in New Homes

Tiny Houses May Become Large in New Homes:

A recent survey showed that 53% of new home buyers would entertain the idea of a tiny home (600 square feet or less) in the future with Gen Xers and Millennials more open to the idea compared to baby boomers and seniors.

This is just one of the gems found in a recent survey by the National Association of Home Builders.

The survey also revealed that 65% of homebuyers do not think conditions (inventory shortages and affordability) will improve in 2018, with 79% of prospective buyers surveyed being able to afford only half of the homes in their markets. A majority of homebuyers believe availability and affordability issues will not ease in 2018, they remain committed to their goal of purchasing a home

Rose Quint, assistant vice president of survey research for the NAHB, said the survey findings show that housing availability and affordability continue to be serious issues.

“These potential buyers see a problem with housing availability,” Quint said. “They know it’s a tough nut to crack, but they are not deterred. They are still planning to buy a house in the next 12 months.”

The NAHB said that although housing starts rose by 9% year over year in 2017, home production was still affected by the lack of affordable, buildable lots and the scarcity of labor. Characteristics of new homes were also essentially unchanged in 2017. NAHB said that home sizes averaged 2,627 square feet in 2017, remaining largely the same as the 2,622-square-feet average size in 2016.
Source: NAHB

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -62 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview:  We had a holiday-shortened week (Monday closed for MLK Day), that ended with a government shutdown.  In between, long bonds continued their downward decline as bond traders are still at just the very early stages of rotating funds out of their positions in bonds due to the expected economic boost from Tax Reform.

Taking it to the House: New Housing Starts in December missed the mark with 1.192M units (calculated on an annualized basis) vs est of 1.275M. The real housing market is SFR and that came in at 836K which is not bad but off the pace in November. Needs to be consistently above 1M for it to help with our massive inventory shortage. Building Permits were stronger than expected (1.302M vs est of 1.290M). SFR pemits gained 1.8% to 881K.

The NAHB Housing Market Index for January hit 72 vs est of 72. This continues a string of very strong readings, any reading above 50 is favorable.

Production: December Industrial Production was more than double the market expectations (0.9% vs est of 0.4%) and Capacity Utilization was very robust with a 77.9% reading. This was the highest reading in 3 years.

The Talking Fed: The Beige Book which collects data from the 12 Federal Reserve Districts - found that the economy continued to expand from late November, with the various Fed districts reporting "modest to moderate" gains while Dallas was the sole outlier, recording a "robust increase."  Overall, the report showed a very tight labor market with many saying that they could not find skilled workers. But they also said that for the most part, businesses are seeing wages pick up at only a "modest" pace.

Consumer Sentiment: The preliminary January University of Michigan's Consumer Sentiment Survey Index came in at 94.5 vs est of 97.0. But this number will be revised once more this month. What is interesting in the survey is that expectations of inflation rose in the one year and five year horizon.

What to Watch Out For This Week:


By Taff Weinstein at

Average Consumer Credit Score Increased in 2017

Average Consumer Credit Score Increased in 2017:

Experian's State of Credit 2017 Annual Report showed that the average Vantage Score was 675 in 2017, compared to 673 the year before and only four points from the 2007 average of 679.

Dig deeper into those credit score numbers, and there’s even more good news. For the first time, there are more Americans with very high scores (Super Prime) than very low scores (Deep Subprime). For example, in 2017, 22.3% of Americans had Vantage Scores between 781-850 – a 6% increase versus 2016, and an improvement compared to five years ago when only 19.8% were in that range. Last year, 21.2% were below 600 – versus 22.6% in 2016 and 26.9% in 2012.

The Experian report also found generational differences in change in credit scores and mortgage debt levels.

Millennials had an average score that was four points higher than the previous year. Although they have lowered overall average debt by 8%, the age group increased their mortgage debt by 6%. Experian said the increase is a positive sign for the generation.

Generation X has the highest mortgage debt of all generations. Experience also found that the age group has a high instance of late payments compared to the national average. Despite these, consumers in this generation have improved their credit scores in 2017, signaling better debt management.

Baby Boomers and the Silent Generation continue to carry a lot of mortgage debt. However, Experian found that Baby Boomers have the lowest late payment instance and members of the oldest generation keep other debts low and make payments on time.

Source: Experian

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -48 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had very strong economic data (Retail Sales, CPI) and a very well received 30 year Treasury bond auction.  Both of which pressured long bond prices.  We also had news that Japan had decreased their balance sheet (aka a taper in bond purchases) and a news story (which China decried as a fake news) that China has been purchasing less U.S. debt (Treasury notes) and would decrease purchases further in 2018.  That signaled to bond traders that there may be less demand and also hurt our prices.

Retail Sales: Both Headline and Ex Autos showed a monthly growth rate of 0.4% in December which matched expectations. But the real story was the upward revisions to November. Headline was revised from 0.8% to 0.9% and Ex Autos was revised from 1.0% to 1.3% which is a very strong reading.

Inflation: December's Consumer Price Index report showed an upward movement in inflation. The closely watched Core YOY CPI moved from 1.7% to 1.8%. A small move but just one more tick closer to the 2.0% Fed target inflation rate which has been stubbornly evasive in this key data set. Producer Price Index YOY hit 3.0% vs est of 3.0%.

Treasury Auctions: We had very strong demand for our 30 year Treasury bond auction with indirect bids topping 70%. $12B went off at a high yield of 2.867% which is a very good rate considering that this time last year it was 2.914%.

Small Business Optimism: The NFIB Index hit 104.9 which is a slight pull back from November's reading of 107.5. However, November's reading was a 13 year high and this reading is one of the best that we have seen. So, this is still trending at very elevated levels.

Jobs, Jobs, Jobs: The November Job Openings and Labor Turnover Survey (JOLTS) show there are 5.9M jobs that are awaiting people with the proper job skills to fill them. This is a little lighter than market expectations but basically at the same pace as October.

What to Watch Out For This Week:

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