taff@firstimperialmortgage.com

By Taff Weinstein at

Homeowners Staying in their Homes Longer

The typical American homeowner in 2019 had spent 13 years in their home, up from eight years in 2010. Median home tenure increased in all of the 55 metros Redfin analyzed.

Many local governments have put policies in place that reduce property tax burdens for senior citizens, which have made it more affordable for older people to stay in their homes longer. For example in Texas, where homeowners tend to stay put the longest, homeowners over the age of 65 have the option to defer property taxes until the home is sold.

Homeowners age 67 to 85 are remaining homeowners longer causing a shortage of 1.6 million homes according to a report by Freddie Mac. In San Francisco, the median homeowner had been in their home for 14 years in 2019, compared to only 10 years in 2010. At the same time, there are about half as many homes for sale in San Francisco than there were in 2010, and the homes that are for sale are more expensive — the median home price has more than doubled in San Francisco since 2010.

Homeowners who already live with walkable access to amenities like schools, parks and shops are more likely to stay put in homes. And when homeowners stay put that means fewer homes are for sale. In zip codes with above-average Walk Score? ratings for their metro, the median home tenure is 11 months longer and there is more competition for the homes that are listed with homes staying on the market eight fewer days compared to zip codes with below-average Walk Score ratings. That means first-time homebuyers who are still looking to own a home and start a family are relegated to neighborhoods in less walkable exurbs on the outskirts of town.

Source: Freddie Mac and Redfin.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.500 MBS) gained +33 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower compared to the prior week.

Overview: We had very solid jobs data last week which would normally be very negative for mortgage rates, but offsetting that was concern that the U.S./China Trade deal (a.k.a. Phase 1) was loosing some steam with the cancellation of the summit in Chile.  The Fed did lower their Fed Fund rate but that had little to no impact on mortgage rates.  Inflation was tame (PCE) and we continue to see weakness in the Manufacturing sector.

GDP: The Grand Daddy of them all. The first look at the 3rd QTR GDP was much stronger than expected (1.9% vs est of 1.6%).  This data set will be revised several times.

The Talking Fed: The Federal Reserve Open Market Committee lowered their key interest rate by a 1/4 point to 1.75% which was widely expected. You can read their official statement here. Here are a couple of key highlights from their statement and Powell's live comments:

  • There were two dissenting votes (the two votes were against a rate decrease).  Last time, there were three dissenting votes - 2 for no action and 1 for a steeper cut.
  • The statement omits the familiar pledge from recent months to “act as appropriate to sustain the expansion”; Fed instead says it will monitor incoming information as it “assesses the appropriate path” of rates which seems to be a "tip of the hat" that they are less inclined to lower rates in December.
  • Fed lowered two other key interest rates by quarter point, bringing interest on excess reserves rate to 1.55% and discount rate to 2.25%
  • Powell said, "I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns.”
  • “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

Jobs, Jobs, Jobs: We had a very solid jobs report.  You can read the official BLS release here.

Tale of the Tape:
Jobs - Non Farm Payrolls (NFP):
October NFP 128K vs est of 89K
September NFP revised upward from 136K to 180K
August NFP revised upward from 168K to 219K
The rolling three month average is now a killer 176K

Wages:
Average Hourly Earnings rose by six cents.
Earnings MOM rose by 0.2% vs est of 0.3%
Earnings YOY rose by 3.0% vs est of 3.0%, September was revised upward from 2.9% to 3.0%

Employment:
The Unemployment Rate ticked up from 3.5% to 3.6% which was expected.
The Participation Rate increased from 63.2% to 63.3% (which is why the Unemployment Rate Increased).
The U6 Unemployment Rate ticked up from 6.9% to 7.0% but was below the expectations of 7.2%


Inflation Nation: The Fed's key measure of inflation, Personal Consumption Expenditures (PCE) were inline with expectations. The Core (ex food and energy) YOY hit 1.7% vs est of 1.7% and the Headline YOY number hit 1.3% vs est of 1.4%.  Personal Spending matched expectations of 0.2% but it was really a beat because the prior month was revised upward from 0.1% to 0.2%. Personal Income also matched expectations (0.3% vs est of 0.3%) and again it was really a beat because the prior month was revised from 0.4% to 0.5%.

Manufacturing: The Markit Manufacturing PMI report for October showed expansion with a 51.3 reading. But the ISM Manufacturing report of October showed another month of contraction with a 48.3 vs est of 48.9 reading. Chicago PMI was dismal with a contractionary reading of 43.2 vs est of 48.0.

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.

 

 

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