Demand up for New Homes:
According to the Mortgage Banker’s Association, mortgage applications for New Homes (homes not previously occupied) are on the move upward.
Purchase apps were up 15% year over year. Month over month, applications went up by 4%.
On a seasonally adjusted basis, last month saw an increase of 8.6% from April’s 557,000 units; on an unadjusted basis, new home sales increased by 5.6% to 57,000 new units from 54,000 in April.
“Following a decline in April, applications for new homes slightly rebounded month-over-month in May, setting up a 15% year over year increase relative to May of 2016,” said Lynn Fisher, MBA vice president of research and economics. “While March has signaled the peak in applications for new homes for the last two years, we may see more sustained activity throughout the balance of this year as demand for new homes continues to increase and strong house price growth continues to motivate homebuilding.”
Conventional loans made up 69.2% of loan applications; FHA loans, 17.5%; RHS/USDA loans, 1.1%; and VA loans, 12.2%. The average loan size of new homes decreased to $324,844 last month from $329,244 in April.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained +13 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week. The market saw its lowest rates on Wednesday and its highest rates on Tuesday.
We had a very busy week with some very important and heady economic reports (Retail Sales, PPI, CPI) as well as some strong Treasury auctions (10Y note, 30Y Bond). But it was the Federal Reserve that drove bond prices last week.
If we viewed and interpreted the Federal Reserve actions, outlook and comments last week in a vacuum, they would be considered very “hawkish” as they raised rates, laid out a plan to reduce their monthly purchases of Treasuries and Mortgage Backed Securities and 12 out of 16 members told the markets to expect at least one more hike this year. But we don’t live in a vacuum and currently the market simply doesn’t believe that the Fed will follow through with their plans and/or the economic data moving forward will be to weak to justify further tightening this year.
Here are the details of the Federal Reserve action last week: You can read the official Fed statement here.
We also got their economic projections: You can read their projections here.
Here are some key highlights of their announcement:
1) Increased their fed fund rate by 25 basis points to the 1.00% to 1.25% range.
2) Only one dissenting vote – Neel Kashkari
3) Said that recent lower inflation needs to be “monitored” but expects the 12 month period to stabilize around 2%.
4) Keeps their reference to “gradual rate hikes” moving forward.
5) Upgraded their economic outlook. Says economic activity has been rising moderately vs prior assessment that it has slowed.
6) Says risks appear “roughly balanced” in the near-term.
In addition, they gave detailed information about winding down their massive balance sheet:
1) Says expects to begin the process of balance sheet normalization ‘this year” which the market is interpreting as 4th QTR.
2) The size of the “caps” for Treasuries will start at $6B and for MBS it will be $4B. That will gradually move to a max cap of $30B for Treasuries and $20B for MBS.
Dot Plot Chart:
As you can see by the Fed’s own Dot Plot Chart, that 12 out of 16 Feds are still projecting at least one more hike this year and as many as another 4 by in 2018.
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:
First Imperial Mortgage
3409 Morrison St
Houston, TX 77009
Copyright © 2016 Powered by www.MBSauthority.com
You are currently signed up to receive my newsletters to Unsubscribe, please click on the following link: firstname.lastname@example.org