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By Taff Weinstein at

Home Builders Confidence Remains Very High

The National Association of Home Builders Sentiment Index was released today and it came in at 68. Anything above 50 is considered positive sentiment. The survey was at 64 in July of 2017. 

U.S. homebuilders are heartened by the strong demand and tight supply in today’s housing market, but they still can’t meet that demand as much as they might like. 

“Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.

Challenges to homebuilders include rising costs for land, labor and materials. The price of lumber spiked to a record high a few months ago and is still up over 50 percent in the past year.  

“Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market,” said NAHB Chief Economist Robert Dietz.
Source: NAHB

 

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -8 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.  

Overview:  We had some very strong inflationary data (CPI and PPI) which is normally very negative for mortgage rates (makes them move higher) and while bonds did feel some of the pressure, it was largely offset by the global uncertainty of the scale and length of the Trade War that started on July 5th.  These opposing forces "squeezed" bonds into a very narrow range which pushed mortgage rates sideways.

Inflation Nation: The June Consumer Price Index (CPI) matched market expectations but hit the highest level since 2012. The headline YOY number hit 2.9% vs est of 2.9% and the Core (ex food and energy) came in at 2.3% vs est of 2.2%. Both were higher than the previous YOY pace in May. The CPI would have been even hotter if it wasn't for a -3.7% drop in hotel prices. The June Producer Price Index (PPI) was much hotter than expected with the YOY Headline number coming in at 3.4% vs est of 3.2% and it is the highest level since 2011. The Core (ex food and energy) was also a beat to the upside (2.8% vs est of 2.6%). The Atlanta Fed Business Inflation Expectations hit 2.1% in July which matched June's pace.

Small Business Optimism: The NFIB Index was stronger than expected (107.2 vs est of 105.6). Overall, it was a good report. But small business are still reporting that they are unable to fill open positions with skilled workers.

Jobs, Jobs, Jobs: The May Job Openings and Labor Turnover Survey (JOLTS) was hotter than expected (6.638M vs est of 6.583M) and still shows more open positions available than there are people looking for work.

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

Millennial's Define Wealth Differently

Owning a Home still is a big factor in Millennial's feeling "wealthy", but it is not the number one factor.

Schwab asked people to think about personal definitions of wealth in their lives, and the survey revealed a wide range of perspectives. When asked for their personal definition of wealth, two of the top three most popular descriptors aren’t even about money at all.

Their definition of "wealthy" is not the same as your grandparents' definition.  A new survey called the 2018 Modern Wealth Index compiled by Charles Schwab showed that owning a home was rated just above "eating out".  Here are the top 5 things that make them "feel" more wealthy:

  • Spending time with family (62 percent)
  • Having time to myself (55 percent)
  • Owning a home (49 percent)
  • Eating out or having meals delivered (41 percent)
  • Subscription services like movie/TV and music streaming (33 percent)

Other things that make people feel wealthy in their daily lives include owning the latest tech gadgets (27 percent), having a gym membership or personal trainer (17 percent), and using a home cleaning service (12 percent).

When asked to focus just on numbers, survey respondents believe it takes $1.4 million to be considered financially comfortable. To be considered truly “wealthy,” that number increases to $2.4 million.

Source: 2018 Modern Wealth Index

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +12 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.  Over the past 4 weeks, the rolling average has seen a slight decline in mortgage rates.

Overview:  We had a holiday-shortened trading session which was really only 3 full days of trading in the bond market.  We had very strong domestic economic data (ISM Services, Jobs, Manufacturing) that would have normally caused mortgage rates to increase.  But offsetting our strong data was concern over the start of the trade wars with China and to a lessor effect, Canada, Mexico and Russia.  The uncertainty over the path of the trade war has kept money into long term bonds where normally, it would flow out.

Jobs, Jobs, Jobs:  Big Jobs Friday showed us that the job market continues to be very strong.
Jobs:
June Non Farm Payrolls (NFP) 213K vs est of 195K.
May NFP revised upward from 233K to 244K.
April NFP revised up[ward from 159K to 175K.
The rolling three month average increased to 211K
Wages:
The MOM change in Average Hourly Earnings increased by 0.2% vs estimates of 0.3% and is now $26.98.
The YOY change is 2.7% which matched market expectations and last month's pace.
Unemployment Rate:
The Unemployment Rate increased from 3.8% to 4.0% but that is only because more people are actually looking for work. This is reflected in an increase in the Participation Rate from 62.7% to 62.9%

Services: The June ISM Non-Manufacturing Index (2/3 of our economy) had a very robust reading of 59.1 vs est of 58.3. This is the third highest reading since 2005.

Manufacturing: The national ISM Manufacturing report was very robust and beat expectations with a 60.2 vs estimates of 58.4. Input costs (ISM Prices Paid) were very lofty at 76.8 but were smidge lower than in May.

The Talking Fed: We got the Minutes from the last FOMC meeting. There were no real surprises in the minutes. They clearly are wiling to let inflation run hotter in the near term and do have some concern over the impact of tariffs but overall feel that the economic risks to a trade war as being "balanced".

Trade Wars: Friday started the official kickoff of 25% tariffs on $34B worth of items from China and vice-versa. President Trump has said that the U.S. is ready with another $500B in tariffs on China if they don't come to terms with a more equitable agreement and protect intellectual property rights.

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

Top Concerns for Millennial Buyers

 

According to a recent survey, the top concern among first-time millennial homebuyers was having enough money for a down payment, with 50 percent citing that response, followed by affording a home in their preferred location (45%) and rising home prices (41%).
top concerns for millenials

Redfin commissioned a survey of 2,000 U.S. residents who planned to buy or sell a primary residence in the next 12 months. The purpose of the survey was to better understand the objectives, perspectives and concerns of those about to enter the real estate market.

Aside from the 69 percent who saved directly from paychecks, millennials used several tactics and sources to accumulate the money needed for a down payment on their first home. Thirty-six percent used earnings from a second job, 13 percent pulled money out of retirement funds early and 10 percent sold cryptocurrency. Some were lucky enough to have received a cash gift from their family (24%) or an inheritance (12%).

When broken down by household income levels, there were some notable differences in how millennials achieved a down payment. Millennials in households earning more than $100,000 per year were less likely than those earning less to have saved directly from paychecks, with 60 percent of high-earners having done so, compared with 75 percent of those who earn less than $100,000. Millennial households earning more than $100,000 were more than three times more likely than their less-well-off peers to have sold cryptocurrency investments and twice as likely to have sold stock investments. They were also more likely to have received an inheritance or cash gift from family or to have dipped into their retirement savings.

To afford a mortgage, 65 percent of millennials who intend to buy their first home this year plan to take some action, aside from just paying from their regular paychecks:

32% plan to pursue additional employment
19% intend to rent out a room to someone they know
15% say they will drive for a ride-sharing service
14% plan to split ownership of the home with friends or roommates

Source: RedFin

What Happened to Rates Last Week?

 

Mortgage backed securities (FNMA 4.50 MBS) gained just +7 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview:  We had a net change of just 7 basis points.  Generally, it takes around a 21 basis point movement for rates to be impacted.  We had a big week for economic data with high inflation (PCE) and strong manufacturing data as well as very positive readings on the consumer.  Usually, that type of economic data is very negative for mortgage rates.  However, last week's data took a back seat to the swirling changes in trade talks and escalating tariffs which more than offset the downward pressure from the economic data.

Inflation Nation: The Fed's "official" measure of inflation, PCE (personal consumption expenditures) was hotter than expected with the headline YOY number hitting 2.3% vs est of 2.2%. It was at 2.0% when the Fed's raised rates at their last meeting. The Core YOY number hit 2.0% for the first time since 2012! Personal Income matched market expectations with a 0.4% MOM change and Personal Spending improved by 0.2% but that short of the estimates of 0.4%.

Manufacturing: The Bell-Weather Chicago PMI posted a block-buster reading of 64.1 vs est of 60.1. This is the second highest reading this year and one of the highest readings on record. Some internals show problems filling vacant job openings, rising costs and increased new orders and backlogs. Just about everything that points to growth in the manufacturing sector.

Consumer Sentiment Index: The final reading for June was 98.2 vs May's reading of 98.0, so MOM it did improve. Inflation Expectations for the next 12 months moved up to 3.00%. Consumer Confidence: The June data was below expectations (126.4 vs est of 128) but ANY reading above 120 is an extremely high level and points to strong consumer spending.

GDP: We got the final and third look at the 1st QTR GDP. The final revision dropped to 2.0% which is down from the last revision of 2.2%. The surprise came in the form of the Price Index which jumped up to 2.2% from the last revision of 1.9%.

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

New Home Sales Jump

MBSauthority
New Home Sales Jump:
Sales of new single-family houses in May 2018 were at a seasonally adjusted annual rate of 689,000, according to estimates released jointly today by the U.S.Census Bureau and the Department of Housing and Urban Development.

This is 6.7 percent above the revised April rate of 646,000 and is 14.1 percent above the May 2017 estimate of 604,000.

The median sales price of new houses sold in May 2018 was $313,000. The average sales price was $368,500.

Supply still remains very tight with The seasonally-adjusted estimate of new houses for sale at the end of May was 299,000. This represents a supply of 5.2 months at the current sales rate.

Sales in the South appeared to drive last month’s growth. New-home purchases in the region rose 17.9%, the largest gain since the end of 2014. Meanwhile, sales in the Northeast and West declined and purchases were flat in the Midwest in May.

Source: U.S. Census Bureau

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +4 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview:  We had a net change of just 4 basis points.  Generally, it takes around a 21 basis point movement for rates to be impacted.  We traded in a very narrow range with significant resistance at our 50 day moving average.

Taking it to the House: Weekly Mortgage Applications jumped by 5.1%. Refinances led the way with a 6.0% increase. Purchase applications increased by 4.0%.  Existing Home Sales were close to expectations (5.43M vs est of 5.52M) in May. As usual, tight inventory and rising prices are restricting sales at higher levels. May Housing Starts were stronger than expected with a seasonally adjusted annualized pace of 1.350M Units. When you strip out the multi-family sector, SFR saw a 3.9% increase with a 936K pace. Building Permits were lighter than expected with a pace of 1.301M units. SFR Permits decreased by 2.2% with a 844K pace.

The Talking Fed:
Fed Chair Jerome Powell said that there is robust growth and a generational low in unemployment. In his prepared remarks the said "Earlier in the expansion, as the economy recovered, the need for highly accommodative monetary policy was clear, but with unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong."

Trade Wars: After last week's $50B in tariffs, President Trump directed the U.S. Commerce Department to identify $200 billion worth of China goods for an additional 10% of tariffs. China said that it would respond "in-kind" but they cant as they purchase less than $200B worth of goods from the U.S. Actually, when you back out the $50B that they have already announced, that would leave only $150B that they could issue tariffs on but they don't buy that much from us...so it is unclear as to how they could match the U.S. tit-for-tat.

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

Home Builder Confidence High Despite Rising Costs

The June National Association of Home Builders/Wells Fargo Housing Market Index came in at a very strong reading of 66. The index stood at 66 last year in June 2017. A reading above 50 is considered positive sentiment.

All three the index's components were very solid. Current sales conditions hit 75, the component gauging sales expectations in the next six months was 76 and buyer traffic fell came in at 50.

Housing starts have been climbing slowly but not as much as the market needs. There is a severe shortage of existing homes for sale, and that is pushing home prices higher at a very fast pace, weakening affordability, especially at the entry level. Homebuilders, faced with higher costs for land, labor and materials, are focused mostly on move-up and luxury home construction, as margins are squeezed at the entry level.

"Improved economic growth, continued job creation and solid housing demand should spur additional single-family construction in the months ahead," said NAHB chief economist Robert Dietz. "However, builders do need access to lumber and other construction materials at reasonable costs in order to provide homes at competitive price points, particularly for the entry-level market where inventory is most needed."

Source: NAHB.org

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview:  While a net change of just 3 basis points looks like a boring week, it was anything but.  We had a lot of volatility last week with a 50 BPS swing from our best pricing of the week to our worst pricing of the week.  The main focus of the markets was the Central Bank meetings and the Trade War.  Of the three main Central Banks that had policy statements (The Fed, European Central Bank and Bank of Japan) only our Fed had any real action.

Trade War: The U.S. announced $50B of tariffs on Chinese products. This is a 25% tariff rate on 1,102 product lines. The tariffs will be implemented in two tiers, the first one on July 6, and will cover $34B in imports, and a second wave, which will cover the remaining $16B, or 284 product lines, and will undergo further review in a public notice and comment process, including a hearing. 

China's response: They unveiled $50 billion in tariffs against U.S. goods including soybeans, light aircraft, orange juice, whiskey and beef, starting on July 6th which mirrored the U.S. tariffs schedule and tier system, China's Ministry of Finance is setting a two-tier system with $34B on July 6th and $16B more to follow.

The Talking Fed:  As widely expected, the Fed raised their Fed Fund Rate by a 1/4 point to a range of 1.75% to 2.00%.  However, there was much that went on.  
You can read the official FOMC statement here
You can read their Economic Projections here. 
Here are some Key Points from the Fed Action:
 - Raised Fed Fund rate by 1/4 point to a range of 1.75% to 2.00% 
 - Raised the Primary Credit Rate (not the same as the headline Fed Fund Rate) to 2.50%
 - Raised the Interest Rate on Reserve Balances by 20 BPS to 1.9%
 - The vote was 8-0
 - FOMC statement says economy growing at "solid rate,'' job gains have been "strong,'' consumer spending has picked up and investment continued to grow "strongly''.
 - The Fed removed the low inflation line: "Market-based measures of inflation compensation remain low".
 - Language about the economy upgraded, line about rates remaining below long-run levels "for some time'' was removed.
 - The median 'dot' for the end of 2018 has been 2.125% since Dec 2016 and this time around, it shifted higher to 2.375% confirming The Fed's expectation for two more rate hikes this year, while the 2019 dot rose from 2.9% to 3.1%, suggesting the hiking carries through.
 - 2018 is 2.375% vs 2.125% in March
 - 2019 is 3.125% vs 2.875% in March
 - 2020 and longer-run medians are unchanged at 3.375% and 2.875% respectively
 - Starting in January ALL FED MEETINGS WILL INCLUDE A LIVE PRESS CONFERENCE WITH POWELL.

Retail Sales: The May data showed the biggest surge in spending in 8 months. The Headline reading increased by 0.8% which was double the market expectations of 0.4%. Plus April was revised higher. When you strip out Autos, Retail Sales increased by 0.9% vs est of 0.5%. April was also revised higher. Across the board it looked very good with discretionary spending (restaurants,etc), building materials, department stores you name it. Just about every category saw strong growth with the exception of furniture.

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

Home Flipping Rate Matches Six Year High

Home Flipping Rate Matches Six Year High:

Inventory levels of homes for sale have been at or near all-time low's all year long.  So, it is great news that home "flipping" is going strong.  This process takes homes that are in poor shape (and out of the range of most home buyers that do not have the funds to repair the home) and puts them back into the system - all fresh and new and ready for a buyer.

ATTOM Data Solutions, released its Q1 2018 U.S. Home Flipping Report, which shows that 48,457 U.S. single family homes and condos were flipped in the first quarter of 2018.

The 48,457 homes flipped in the first quarter represented 6.9 percent of all home sales during the quarter, up from 5.9 percent in the previous quarter and unchanged from a year ago — matching the highest home flipping rate since Q1 2012.

Homes flipped in Q1 2018 sold at an average gross profit of $69,500, up from an average gross flipping profit of $68,250 in the previous quarter and up from $66,287 in Q1 2017 to the highest average gross flipping profit since ATTOM began tracking in Q1 2000.

The average gross flipping profit of $69,500 in Q1 2018 translated into an average 47.8 percent return on investment compared to the original acquisition price, down from a 48.9 percent average gross flipping ROI in Q4 2017 and down from an average gross flipping ROI of 50.3 percent in Q1 2017 to the lowest level since Q2 2015 — a nearly three-year low.

“The 2018 housing market is a double-edged sword for home flippers,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Rapidly rising home prices boosted by low available inventory of homes for sale or for rent are padding profits at the back end when flippers sell, but those same market realities are eroding flipping returns at the front end by forcing flippers to pay more to acquire homes to flip.”

Source: ATTOM Data Solutions.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -25 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had a fairly light week for economic data and the few reports that we did get were very strong which is negative for rates.  The long bond market was focused on what could come of of the G7 meeting and while there were plenty of headlines out of that meeting, there was no real action.

Jobs, Jobs, Jobs: The Job Openings and Labor Turnover Survey (JOLTS) hit 6.698M vs est of 6.40M. Plus the prior month was revised upward significantly. This is a VERY strong reading and it one of the few times where there are actually more jobs available then there are people that are unemployed.

ISM Services: The May reading hit 58.6 vs est of 57.5. The services sector represents more than 2/3 of our economic engine. This is one of the top readings in recent history.

Economic Optimism: The June IBD/TIPP Economic Optimism Index improved from 53.6 in May to 53.9 in June.

G7: The G7 meeting produced plenty of headlines and tweets but didn't produce anything else.  As there was no real movement on trade/tariffs that was any different than before the G7 gathering.

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

Pending Home Sales Index Strong

The National Association of Realtors latest Pending Home Sales Index was just released and came in at a very strong 106.4.  According to the NAR, any reading above 100 is above historical norms.

But it was still a mixed bag with the South leading the way with very strong growth.  Other geo-graphic regions were hampered by a severe lack of available inventory to satisfy demand.

Lawrence Yun, NAR chief economist, says the housing market this spring is hindered because of the severe housing shortages in much of the country. “Pending sales slipped in April and continued to stay within the same narrow range with little signs of breaking out,” he said. “Feedback from Realtors®, as well as the underlying sales data, reveal that the demand for buying a home is very robust. Listings are typically going under contract in under a month1, and instances of multiple offers are increasingly common and pushing prices higher.”

Added Yun, “The unfortunate reality for many home shoppers is that reaching the market will remain challenging if supply stays at these dire levels.”

Heading into the summer months, if low supply and swift price growth were not enough of a headwind for the housing market, Yun believes that rising mortgage rates and gas prices could lead to hesitation among some would-be buyers.

“The combination of paying extra at the pump, while also needing to save more for a down payment because of higher rates and home prices, may weigh on the psyche of those looking to buy,” he said. “For now, the economy is very healthy, job growth is holding steady and wages are slowly rising. However, it all comes down to overall supply. If more new and existing homes are listed for sale, it would allow home prices to moderate enough to stave off inflationary pressures and higher rates.”

Yun still forecasts for existing-home sales in 2018 to increase 0.5 percent to 5.54 million – up from 5.51 million in 2017. The national median existing-home price is expected to increase around 5.1 percent. In 2017, existing sales increased 1.1 percent and prices rose 5.7 percent.

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -1 basis poins (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week but we had a very "choppy" session with a large spread of -59BPS from our best pricing of the week (lowest rates) to the worst pricing of the week (highest rates.

Overview:  We had a holiday-shortened week that started on a big upswing (lower rates) due to Geo-Political concerns over Italy's government and debt issues potentially crashing the Eurozone.  However, we had some very strong domestic economic data and by the end of the week both Italy and Spain were able to form new governments which calmed down the markets and caused MBS to loose their "fear factor" premium.

Jobs, Jobs, Jobs: We had our Big Jobs Friday!  And here is the "tale of the tape":
Jobs:
May Non Farm Payrolls 223K vs est of 188K
April NFP revised from 164K down to 159K
March NFP revised from to 135K up to 155K
The more closely watched rolling 3 month average is now 179K
Wages:
Average Hourly Earnings YOY 2.7% vs est of 2.7%
Average Hourly Earnings MOM 0.3% vs est of 0.2%
Unemployment Rate:
Unemployment Rate 3.8% vs est of 3.9%
Participation Rate 62.7% vs est of 62.6%

Japanese Taper:
The Bank of Japan chose to cut the size of its purchases of 5-to-10 year JGBs from 450bn to 430bn yen.

Manufacturing:
ISM Manufacturing: This was a very strong report! The headline reading beat estimates with a 58.7 vs 58.1 reading. But the Prices Paid when through the roof with a 79.5 reading. Chicago PMI was very strong with a 62.7 reading vs est of 58.4. Any reading above 60.0 is rare and very expansionary.

Inflation Nation: The Fed's "trigger" rate, PCE YOY remained at 2.0% and the Core PCE YOY hit 1.8% which matched expectations and March was revised lower from 1.9% to 1.8%. Personal Spending shot up 0.6% vs est of 0.4% and Personal Income matched forecasts with a 0.3% monthly gain.

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

Home Prices Rise at Fastest Pace in 5 Years

 

The housing industry's bell-weather index, The Case-Shiller Home Price Index was released today and it showed a year-over-year gain of 6.79% in their key 20 Metro City Composite Index, which is the fastest appreciation rate since 2014.

Broadening out from the 20-City composite, the national home-price gauge climbed 6.5% YoY, matching February’s YoY advance that was the biggest since May 2014.

“Months-supply, which combines inventory levels and sales, is currently at 3.8 months, lower than the levels of the 1990s, before the housing boom and bust,” David Blitzer, chairman of the S&P index committee, said in a statement.

“Until inventories increase faster than sales, or the economy slows significantly, home prices are likely to continue rising.”

Source: S&P CoreLogic Case-Shiller Report

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +57 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower for the week.

Overview:  Geo-Political concerns were the main driving factor in pricing last week as investors poured money into the low-return but safe-haven of U.S. backed bonds.  This spike in demand for our bonds caused rates to pull back to levels from two weeks ago.

Geo-Political: U.S. Treasury Secretary Steven Mnuchin declared that looming U.S. - China trade war is "on hold". The U.S. will hold off on implementing tariffs and the China has agreed to purchase more from the U.S., specifically from the agriculture segment.  The next day, China's Ministry of Finance announced that it would slash passenger car duties to 15%, further opening up the market that’s been a key target of the U.S. in its trade fight with Beijing. Car parts will be slashed from 25% down to only a 6% rate.

President Trump called off the proposed summit with North Korea but left the door open for negotiations.  He also signed the Dodd-Frank reform Bill.

The Talking Fed:
We got the Minutes from the May FOMC meeting. The bond market viewed the overall tone of the Minutes as a smidge more "dovish" than the original policy statement on May 2 but not by enough to help MBS break above our channel.  The word "symmetry" was used 9 times in the Minutes and the Fed basically stressed that inflation is HERE but that they will let it run over 2.00% before freaking out and raising rates at an accelerated pace. They will simply stay the course for awhile, and the markets will get their two more rate hikes this year.

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

Homeowners Plan to Pump over $13B in Tax Savings into the Housing Market

Both current Home Owners and Renters plan to use their tax savings in the housing market.

Zillow estimates both homeowners and renters could put $13.2 billion in tax savings directly into the American housing market in 2018, using some of their tax cut to rent or buy a bigger home. Americans will likely spend almost double that amount – an additional $24.7 billion – on home renovations in 2018, and will add about $62.6 billion to their savings and investments, according to results of the most recent Zillow Housing Aspirations Report (ZHAR)

  • Zillow estimates homeowners and renters could put $13.2 billion in tax savings directly into the American housing market in 2018, using some of their tax cut to rent or buy a bigger home.
  • Americans will likely spend almost double that amount – an additional $24.7 billion – on home renovations in 2018.
  • Lower-income households are likely to spend a larger portion of their tax cut on housing: 12.2 cents on the dollar for households in the bottom income quintile, compared to 3.6 cents on the dollar for households in the top income quintile.

The Tax Cuts and Jobs Act (TCJA) enacted in December is likely to result in tens of billions of dollars being reinvested into housing in some form or another – despite the fact the legislation expressly limited a number of longstanding tax benefits for homeowners.

The net effect of the TCJA was to reduce most Americans’ federal tax liability and increase their after-tax income, in large part by lowering marginal tax rates and increasing the standard deduction. Many are likely to spend at least some of these gains, however small, on housing – despite new limits on tax benefits historically aimed at homeowners, including the mortgage interest deduction and deductions for state and local property taxes.
Source: Zillow Housing Aspirations Report

 

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -40 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: Inflation concerns drove rates higher last week. Inflation is the number one enemy of long bond investors as it eats away at the real rate of return. We have solid economic growth and are seeing increased wages and input prices in some regional Fed manufacturing surveys which pressured MBS last week.

Retail Sales: We had a mixed bag for the April data but the real story is the upward revisions to March. April Headline Retail Sales matched market expectations of a monthly gain of 0.3%. But March was revised upward from 0.6% to 0.8%. When you strip out Autos, Retail Sales improved by 0.3% vs est of 0.5%. However, March was revised higher from 0.2% to 0.4%..so actually without that revision, April matched market expectations.

Manufacturing: The regional Empire Manufacturing Survey was much stronger than expected (20.1 vs est of 15.0). Of particular interest is that the survey responders were very concerned about import tariffs in April, but no so much in May.

Inflation Nation: Joining the recent PCE report that shows inflation over 2.0% (net of a drop in auto prices), the NY Fed’s UIG inflation metric shows inflation to be 3.1% and the Atlanta Fed’s Sticky Inflation metric shows inflation to be 2.5%

Philly Fed: The May Philadelphia Fed Business Outlook Survey jumped to a very robust reading of 34.4 vs est of 21.0 and included a new 45 year high for new orders, selling prices increased by 7 points which is the highest levels since 1981
Leading Economic Indicators: The April reading hit 0.4% which matched expectations and March was revised upward from 0.3% to 0.4%. The report showed a rise in the factory work week but contained no surprises.

The Talking Fed: Dallas Fed President Robert Kaplan thinks we are at full employment. He said “Our judgment at the Dallas Fed is that we are either at or already past full employment.”
April New Housing Starts were lighter than expected (1.287M vs est of 1.310M) But March was revised upward from 1.319M to 1.336M. Building Permits were higher than estimates (1.352M vs est of 1.350). The prior month was also revised upward, from 1.354M to 1.377M. Single-family permits rose 0.9 percent to an 859,000 rate.

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

What's the Best Day to Put Your Home on the Market?

While the timing of listing your home for sale should be determined with your Realtor based upon the right solution for your unique circumstances, we do have some national data that simply can't be ignored.

To sell for the most money, you should put your home on the market on a Wednesday. To sell the fastest, list on a Thursday. Avoid Sunday, which is the worst day to list. This is according to Redfin that analyzed a sample of 100,000 homes that sold in 2017 and reviewed the results.

Because homes listed on Sunday perform the worst, they used Sunday as a baseline to compare how much better homes do when listed on the other days of the week.

Homes listed on Wednesday had an advantage of $2,023 in sale price over homes listed on a Sunday, a sale-to-list premium of 0.53 percent. For a $500,000 house, that means you could make $2,650 more just by listing on a Wednesday instead of a Sunday.

For speed, Thursday had a clear advantage, with Thursday-listed homes finding buyers five days faster than the baseline. Homes listed on Thursday also had the edge as far as being more likely to be sold within 90 and 180 days.

Source: Redfin Analytics

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -22 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: Domestic economic data continued to show steady growth but bonds focused on geo-political news more than economic news last week. The United States has decided not to extend the agreement with Iran and we got a firm meeting date between President Trump and North Korea's leader, we also received three "detainees" back from North Korea. Overall, this removed some of the "fear factor" support that has been in long bonds for some time.
Inflation Nation: April Headline Consumer Price Index was bang inline with market expectations (2.5% vs est of 2.5% YOY). The closely watched core (ex food and energy) increased by 0.1% on a MOM basis which was lighter than expectations of 0.2% and YOY, it increased by 2.1% which matched March's pace of 2.1% but was just off expectations of 2.2%.

April Producer Price Index was very close to market expectations. The closely watched core (ex food and energy) increased by 0.2% on a MOM basis which matched forecasts and increased by 2.3% vs 2.4% on a YOY basis.

The Talking Fed: Atlanta Fed President Raphael Bostic summed up the prevailing sentiment in the bond market perfectly last week when he said “swelling optimism over tax policy in the beginning of the year has now been replaced almost completely by uncertainty regarding the proposed tariffs and the possibility of a trade war,” and “I come away with the sense that for now, many firms may be responding to increased uncertainty by moving to the sidelines with respect to new cap-ex plans.”

Small Business Optimism: The NFIB Index improved from 104.7 in March to 104.8 in April. Capital Expenditure Plans, Earnings and Adding Employees all showed good gains.

Jobs, Jobs, Jobs: Another blockbuster reading with the March JOLTS report with 6.550M openings reported which is a half-million more than in February.

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 Confidence at All-Time High

The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 3.4 points in April to 91.7, marking a new all-time survey high.

Americans expressed an increased sense of job security, with the net share who say they are not concerned about losing their job increasing 5 percentage points this month.
The net share reporting that their income is significantly higher than it was 12 months ago increased 1 percentage point in April.
The net share who said home prices will go up in the next 12 months increased 7 percentage points in April.
The net share who reported that now is a good time to sell a home increased 6 percentage points month over month.
"The latest HPSI reading edged up to a new survey high, showing that consumer attitudes remain resilient going into the spring/summer home buying season," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "High home prices and good economic conditions helped push the share of Americans who think it’s a good time to sell to a fresh record high. However, the upward trend in the good-time-to-sell share seen since last spring has done little to release more for-sale inventory. The tightest supply in decades, combined with rising mortgage rates from historically low levels, will likely remain a hurdle for mobility and a persistent headwind for home sales."

Source: Fannie Mae National Housing Survey

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained just +1 basis point (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: The bond market had a very big week for economic data and events. It started with PCE hitting 2% (the Fed's "trigger") rate but then was followed by the Fed meeting where they stressed that they wont react to inflation hitting 2% just once, they want to see a trend line. We also got very strong manufacturing and services data as well as a very solid jobs report.
Fed's Target Rate met? Yes....but there is a catch. While the Fed's official measure of inflation is the Personal Consumption Expenditures (PCE), there are several key reports that are all at 2.00% or above, lets take a look (all reports have been released in the last 30 days):
PCE YOY - 2%
Average Hourly Earnings - 2.7%
GDP - 2.3%
CPI YOY - 2.4%
PPI YOY - 3.0%
WTI Oil - $68.89 now vs $48.84 1 year ago, 36.36% increase.

PCE: The March YOY Headline PCE showed an increase from 1.7% in Feb to 2.0% in March. The Core (Ex food and Energy) reading moved from 1.6% in Feb to 1.9% in March. Both of these data points matched the market expectations.

The Talking Fed: The FOMC voted unanimously to keep their key federal funds rate in the range of 1.5% to 1.75% which was widely expected with markets only giving them a 25% to 30% of raising rates at this meeting.
Here are some key highlights:
• They removed the line about "monitoring inflation developments closely"
• They also removed the prior statement that "the economic outlook has strengthened in recent months."
• Change in inflation language: "On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent"
• FOMC statement now twice uses the word `symmetric' to describe its inflation objective, emphasizing they view a persistent overshoot the same way that they view a persistent undershoot
• Removal of the following language in its entirety: "The economic outlook has strengthened in recent months"
• "Risks to the economic outlook appear roughly balanced" instead of "Near-term risks"

Manufacturing: April ISM Manufacturing hit 57.3 vs est of 58.3, anything above 50 is expansionary and a reading near 60 is very very strong. ISM Prices Paid (another key measure of inflation) jumped to 79.3 vs est of 78.0

Services: The national ISM Non-Manufacturing Services report (2/3 of our economy) was lighter than expected (56.8 vs est of 58.1) but still at a very moderate and expansionary pace.

Jobs, Jobs, Jobs: Its Big Jobs Friday!!
April Non-Farm Payrolls 164K vs est of 190K
March NFP revised upward from 103K to 135K
February NFP revised downward from 326K to 324K
The rolling three month average is now 208K, so the bottom line is the trend is still above 200K.

Unemployment:
The headline Unemployment Rate (U3) dropped from 4.1% down to 3.9%, the market was expecting 4.0%. And is the lowest since 2000.
The Participation Rate dropped to 62.8% from 62.9%
The U6 Unemployment Rate (which includes part time workers for economic reasons and discouraged workers) dropped to 7.8% which is the lowest since 2001.
Wages:
Average Hourly Earnings increased again, this time by 67 cents to get to YOY level of $26.84 which is a 2.6% gain which matches March's pace of 2.6% (downwardly revised).
On a MOM basis, Average Hourly Earnings increased by 4 cents for a change of 0.1% vs estimates of 0.2%.

Hours Worked:
The Average Weekly Hours remained at its longer term trend of 34.5 hours, however Overtime ticked up by 0.1 to 3.7 hours which is normally a precursor to an increase in weekly hours.

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

Mortgage Delinquencies Fall to 12 Month Low

In yet another sign of the seemingly ever-strengthening housing market, homeowners are keeping current on their mortgage payments as mortgage delinquencies fall to a 12 month low. This is key because delinquencies can turn in to foreclosures which can disrupt the housing market with "zombie" inventories or below market-price liquidations.

According to a recently published report by Black Knight, the total US loan delinquency rate, which represents loans 30 or more days past due, but not in foreclosure, was at? 3.73% in March, marking a year-over-year change of 3.09%. The delinquency rate declined 13.24% compared to February.

March data also revealed a continuous improvement in the active foreclosure inventory. The total dropped another 10,000 loans in March to its lowest level since late 2006. Additionally, Black Knight found that prepayment activity during the month rose by 22% from February’s 4-year low. The improvement came despite interest rates remaining above 4.4%.

Source: Black Knight, Inc.

What Happened to Rates Last Week?

What Happened last week

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

Overview: Just a net three basis point move for the entire week seems really tame on the surface but in reality, we had a very volatile week with mortgage rates increasing Monday through Wednesday. We had a swing -57BPS from our best pricing of the week (lower rates) to our worst pricing of the week (higher rates). Overall, it was another week with stronger than expected domestic economic data with strong GDP and Durable Goods data as well as very high Consumer Sentiment and Consumer Confidence levels which did combine to pressure pricing but a more "dovish" than expected European Central Bank and Bank of Japan helped MBS to climb off of their worst levels of the week.

Jobs, Jobs, Jobs: The Employment Cost Index for the 1st QTR showed an increase of 0.8% vs est of 0.7% with Wages and Salaries up 0.9% and benefits up 0.7%.

GDP: The Preliminary 1st QTR GDP was hotter than expected with at 2.3% vs 2.0% estimated growth rate due to a sharp rise in service spending (2.3%) while consumer spending increased modestly (1.1%). The QTR over QTR PCE increased by 2.7% vs est of 2.6%.

Durable Goods: The Preliminary March reading (will be revised) saw a much stronger than expected reading on the headline number with a 2.6% MOM gain vs expectations for a 1.6% gain. Plus, February was revised upward from 3.1% to 3.5%. But when you strip out the volatile Transportation sector, the Core Durable Goods reading was flat at 0.0% which was lower than market expectations calling for a small gain of 0.5%.

Consumer Sentiment: The Final April University of Michigan's Consumer Sentiment Index rose to 98.8 vs est of 98.0.

Consumer Confidence: The April MOM reading hit 128.7 vs est of 126.1 with is a block-buster type reading and reflective of consumers seeking larger net paychecks due to the tax cuts.

Taking it to the House: The March Existing Home Sales data was stronger than expected, rising 1.1% vs est of 0.2%. Key takeaways: Median Sales Price increased to $250,400 and marks the the 73rd straight month of year-over-year gains. Inventories fell to 3.6 months of supply and the average time on market dropped from 37 days in Feb to 30 days in March with just over 50% of all inventory selling in 15 days or less.

What to Watch Out For This Week:

What to WAtch out for

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

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:
Jobs:
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.
Wages:
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:

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