The National Association of Realtors reported gains in home prices holding steady in May, while a lack of inventory helped prevent an uptick in growth.

 

According to the S&P CoreLogic Case-Shiller National Home Price Index, average home prices in major metropolitan areas rose 6.4% in May, identical to the year-over-year increase reported in April. An index of 10 cities gained 6.1% over the year, down from 6.4% the prior month. The 20-city index gained 6.5%, down from 6.7% the previous month.

 

Since August 2016 the annual increase in the Case-Shiller national index has topped 5% each month. Pricing is one of the few strong spots in the housing market due to a low volume of homes being offered, arming sellers with continued pricing power despite slowing sales.

 

According to the S & P’s David Blitzer, rising prices are contributing to a slowdown in virtually every other housing-market indicator—from existing home sales to housing starts to pending home sales, which have lagged behind for six straight months.

 

“The combination of rising home prices and rising mortgage rates are beginning to affect the housing market,” Mr. Blitzer said in the article.

 

The West is still the price leader. with Seattle reporting a 13.6% annual gain in prices in May compared with a year earlier. Las Vegas followed closely behind with 12.6% and San Francisco saw a 10.9% increase.

 

Experts are saying that rising mortgage rates are no small factor in the slowed pace of home sales in recent months, potentially having put a slight downward pressure on prices. “Existing home sales have now declined on an annual basis in five of the first six months this year, as rising prices and mortgage rates and a lack of inventory have made it more difficult for would-be buyers to find and afford homes,” according to the report.

 

Source: Realtor Mag, NAHB,TBWS

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The stock market posted modest gains this past week, as did mortgage bonds, while the 10-year Treasury yield pulled back on Thursday and Friday after hitting the 3% mark intraday on Wednesday.  This resulted in relatively stable equity, bond, and mortgage markets for the week.

 

There were a significant number of economic reports released during the week headlined by the Federal Reserve’s monetary policy decision on Wednesday and the Labor Department’s latest Employment Situation Summary on Friday.

 

As widely expected, Fed officials left interest rates unchanged to keep their target range from 1.75% to 2.00%.  The Fed’s policy statement characterized the economy as “strong,” suggesting the Fed remains on course to raise interest rates two additional times this year.  The Fed Funds Futures market is projecting the next rate hike will likely arrive at September’s policy meeting with a current probability of 93.6%.

 

On the job creation front, the Labor Department released a “not too hot, not too cold Goldilocks” jobs report revealing a below-forecast increase in nonfarm payrolls of 157,000 new jobs vs. a consensus forecast of 190,000 jobs.  However, June’s jobs number was upwardly revised to 248,000 from 213,000 while the three-month average of new job formation is trending noticeably higher.  Average Hourly Earnings increased 0.3% matching expectations, and the year-over-year increase in Earnings held steady at 2.7%.  The Unemployment Rate fell to 3.9%.  Overall, the financial markets were pleased with this report.

 

In housing, the National Association of Realtors reported Monday a week ago that Pending Home Sales edged higher for the month of June by 0.9%.  This was a slightly better number than analyst expectations of 0.5%, but was 2.5% lower year-over-year.  However, home inventory levels increased by 0.5% year-over-year, the first increase in three years, suggesting greater opportunities for future sales as many potential buyers are “waiting in the wings” to purchase a home.

 

 

The latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey released on Wednesday showed a decrease in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 2.6% during the week ended July 27, 2018.  The seasonally adjusted Purchase Index decreased 3.0% from the week prior while the Refinance Index decreased by 2.0% from a week earlier.

 

Overall, the refinance portion of mortgage activity increased to 37.1% from 36.8% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 6.4% from 6.3% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.84% from 4.77% with points remaining unchanged at 0.45.

 

For the week, the FNMA 4.0% coupon bond gained 10.9 basis points to close at $101.672 while the 10-year Treasury yield decreased 0.55 basis points to end at 2.9525%.  The Dow Jones Industrial Average gained 11.52 points to close at 25,462.58.  The NASDAQ Composite Index added 74.60 points to close at 7,812.02.  The S&P 500 Index advanced 21.53 points to close at 2,840.35.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 3.01%, the NASDAQ Composite Index has advanced 13.16%, and the S&P 500 Index has added 6.24%.

 

This past week, the national average 30-year mortgage rate remained unchanged at 4.72%; the 15-year mortgage rate fell to 4.18% from 4.19%; the 5/1 ARM mortgage rate remained unchanged at 4.00% while the FHA 30-year rate was also unchanged at 4.42%.  Jumbo 30-year rates eased to 4.48% from 4.50%.

 

Economic Calendar – for the Week of August 6, 2018

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($101.672, +10.9 bp) traded within a narrow 37.5 basis point range between a weekly intraday low of 101.313 on Tuesday and a weekly intraday high of $101.688 on Friday before closing the week at $101.672 on Friday.  Mortgage bonds remain “oversold” while trading in a familiar sideways pattern between resistance and support.  The chart continues to suggest there will be stable to slightly improved mortgage rates this coming week.

 

 

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So you’ve found the house of your dreams, made an offer, and finally, both you and the seller have agreed on a price. This is when your agent has you sign the sales contract, and you pop the bubbly, right? Perhaps you shouldn’t pop that cork so fast. You may have more negotiating to do.

 

Unless you are buying a new construction home where most buyers opt out of doing an inspection, you are only at the beginning of the negotiating process, because negotiations still occur during the escrow period — mostly notably over what is revealed during a home inspection. Zillow’s Brendon DeSimone offers these tips for this step along your home purchase journey:

 

Don’t expect the seller to get the work done for you, even if they agree to pay for it. Instead, ask for a credit for the work to be done. Why? Because the seller’s focus is on moving out. “If the property is moving toward closing, they’re likely packing and dreaming of their life post-sale. The last thing they want to do is repair work on their old home. They may not approach the work with the same conscientiousness that you, as the new owner, would. They may not even treat the work as a high priority,” says DeSimone.

 

Even if you got a quote from a contractor or tow for the repairs, taking a cash-back credit at close of escrow means you can even use the money to complete the project yourself (if it’s simple enough) and pocket the difference.

 

If you got inspired watching a slew of HGTV shows and are already planning to remodel a bathroom the minute escrow closes, then it’s unlikely that you would care about a bit of floor damage, a leaky faucet, or that the tiles need caulking because they’ll get taken care of during your renovation. But the repairs are still up for negotiation and asking the seller for a credit to fix these issues will help offset some of your closing costs.

 

Don’t share your plans with the seller or the seller’s agent. “Revealing your comfort level with the home or your intentions, in the presence of the listing agent, could come back to haunt you in further discussions or negotiations,” says DeSmone. “If they sense you are uneasy with the inspection, they’ll be more willing to relay that to the seller. Conversely, if you spend two hours measuring the spaces and picking paint colors, you lose negotiation power.”

 

This is especially important if you mention gutting the kitchen, according to DeSimone. “If you mention you’re planning a gut renovation of the kitchen, the sellers will certainly hear about it. And they’re going to be less likely to offer you a credit back to repair some of the kitchen cabinets.” It’s wise to resist the urge to share your giddiness regarding plans for the house.

 

He warns buyers about completing the original contract assuming with the expectation that they can and will negotiate the price down more after the inspection, as it may backfire on you — particularly in a competitive seller’s market where sellers tend to call all the shots.

 

DeSimone ends his cautionary advice with, “A real estate transaction is never a done deal until the money changes hands and the deed is transferred. Stay on your toes. Otherwise, you may risk losing out on further viable negotiation opportunities, which could lead to buyer’s remorse.”

 

 

Source: TBWS

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Mortgage bond prices slipped lower and the 10-year Treasury yield moved modestly higher this past week while the major stock market indices put in a mixed performance.  While the Dow Jones Industrial Average and the S&P 500 saw some decent gains, the technology-heavy NASDAQ Composite Index took it on the chin following social media giant Facebook’s 19% plunge on Thursday.  Facebook’s dive marked the largest-ever one-day drop in market value for a U.S.-listed company to the tune of -$119.1 billion.

 

In economic news, the preliminary reading for 2nd Quarter GDP showed an annualized increase of 4.1%.  This matched most analyst forecasts although there were those hoping for a more robust number closer to 5%.  This was the best GDP reading since the third quarter of 2014, driven mostly by consumer spending which increased 4.0% and contributed 2.69 percentage points to the GDP total.

 

In political news, President Trump scored a promising trade deal with European Commission President Jean-Claude Juncker on Wednesday.  President Trump procured trade concessions from the European Union (EU) whereby the EU would import more soybeans and natural gas from the U.S. and improve market access for U.S. medical devices.  Future negotiations will be taking place on auto tariffs.

 

In housing, the National Association of Realtors reported sales of Existing Homes edged 0.6% lower in June to a seasonally adjusted annual rate of 5.38 million.  This was slightly below the consensus forecast of 5.45 million and also below a downwardly revised 5.41 million in May.  Compared with a year earlier, sales in June fell 2.2% and have now fallen year-over-year for four straight months.

 

The median existing home price for all housing types increased 5.2% to an all-time high of $276,900 – the 76th straight month of year-over-year gains.  The median existing single-family home price was 5.2% higher from a year ago reaching $279,300.  The inventory of existing homes for sale at the end of June increased 4.3% to 1.95 million while unsold inventory is at a 4.3-month supply at the current sales rate.  Overall, low housing supply continues to act as a burden on overall sales in addition to high prices on available inventory hindering affordability, especially for first-time buyers seeing home prices rise faster than income.

 

 

Last Wednesday, the Commerce Department reported sales of New Homes declined 5.3% from May through June to a seasonally adjusted annual rate of 631,000, the weakest rate in eight months possibly indicating the housing market is cooling off.  This was the slowest pace for new-home sales since October.  Plus, the three-month average for new home sales was 646,000 for the three months ending in June, the lowest average since the period that ended in February.

 

The median sales price decreased 4.2% year-over-year to $302,100 while the average sales price decreased 2.0% to $363,300.  With the current sales rate, the inventory of new homes for sale increased to a 5.7-months’ supply compared to 5.3 months in May and 5.3 months in the year-ago period.  One thing to worry about is the June swoon took place despite a decline in median and average selling prices.

 

The latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey released on Wednesday showed a decrease in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 0.2% during the week ended July 20, 2018.  The seasonally adjusted Purchase Index decreased 1.0% from the week prior while the Refinance Index increased by 1.0% from a week earlier.

 

Overall, the refinance portion of mortgage activity increased to 36.8% from 36.5% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 6.3% from 6.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.77% with points decreasing to 0.45 from 0.46.

 

For the week, the FNMA 4.0% coupon bond lost 25.0 basis points to close at $101.563 while the 10-year Treasury yield increased 6.49 basis points to end at 2.9580%.  The Dow Jones Industrial Average gained 392.94 points to close at 25,451.06.  The NASDAQ Composite Index fell 82.78 points to close at 7,737.42.  The S&P 500 Index advanced 16.99 points to close at 2,818.82.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 2.96%, the NASDAQ Composite Index has advanced 12.08%, and the S&P 500 Index has added 5.43%.

 

This past week, the national average 30-year mortgage rate climbed to 4.72% from 4.63%; the 15-year mortgage rate rose to 4.19% from 4.13%; the 5/1 ARM mortgage rate increased to 4.00% from 3.96% while the FHA 30-year rate rose to 4.42% from 4.37%.  Jumbo 30-year rates remained unchanged at 4.50%.

 

Economic Calendar – for the Week of July 30, 2018

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($101.563, -25.0 bp) traded within a narrow 37.5 basis point range between a weekly intraday high of 101.84 on Monday and a weekly intraday low of $101.47 on Friday before closing the week at $101.563 on Friday.  After taking a step lower below technical support last Monday, mortgage bonds continued to trade mostly in a sideways direction.  They are now deeply “oversold” and could take a turn higher this coming week on either disappointing economic news or a faltering stock market.  If mortgage bonds do turn higher they will face a stiff, multiple layer of overhead resistance as shown on the chart below.  The chart suggests there will be stable to slightly improved mortgage rates this coming week

 

 

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As in any industry, the real estate industry has its fair share of stereotypes and myths, but a new report from the National Association of Realtors just debunked some of those myths.

Read full article from Housingwire.

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A recent 2018 Bank of the West study dealing with the buying habits of millennials indicates the equity-shy demographic is now turning to real estate as the cornerstone of their investment portfolio. Homeownership is emerging as the most popular ingredient of their American Dream (56%), followed by debt pay-off, and the goal of a comfortable, early retirement (49%) as the second and third most critical components.

 

The study shows how millennials’ desire to own a home is pushing some to risk their other goals by taking on mortgages, with one in four say that they are willing to withdraw or borrow against retirement funds to finance down payments for a home.

 

Builder Magazine quoted Ryan Bailey, who heads up Bank of the West’s Retail Banking Group. “Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face. The fact that nearly one in three millennials who already own their homes have dipped into their retirement nest eggs to finance their down payment is alarming.”

 

The study suggests millennial homeowners may be rushing into a home buying decision without asking all the right questions, citing 68% having reported buyer’s remorse regarding ill-prepared going into the purchase and 44% have issues with space itself. Many feel that soon after they closed escrow, they felt stuck in one place with a house that either had unnoticed damage or didn’t work for their family. A full 41% cited financial regrets, saying they felt stretched too thin financially, either dealing with home maintenance expenses or not having waited long enough to save up for a larger down payment.

 

“A white picket fence can certainly be a smart investment. To help avoid buyer’s remorse, millennials should consider covering their bases and kick the proverbial tires—reflecting on their physical and financial wishes for their home before they sign on the dotted line,” said Bailey.

 

According to the Builder article, timing has worked against millennials when it comes to home-buying. Most weren’t ready to close on a home when housing prices were at their lowest, and interest rates hovered just above zero. For those who may feel ready to buy now, the new Tax Cuts and Jobs Act eliminates some of the homeownership tax breaks (deducting state and local property taxes from federal tax bills) their parents enjoyed.

 

Despite these setbacks, 4 in 10 millennials in the study are already homeowners, while the rest remains interested in someday owning a home (92%). Despite the housing crisis when homes values fell like rocks, 59 percent still believe it is a good investment or say it makes more financial sense to own than rent.

 

According to the article, 69% of millennials in the study believe debt-free status is the ultimate dream. 58% say they pay off their credit card balances in full each month, while they try to avoid credit cards in general and are most likely to use cash, checks, or debit cards (59%).

 

Bailey goes on to say that debt doesn’t have to be a dirty word. “By responsibly borrowing the amount that is just right for their financial situation, millennials can fund their homeownership dreams, while freeing up capital to invest in the markets today when they still have a long time-horizon on their side.”

 

 

Source: Builderonline.com, TBWS

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This past week was the second week of earnings season resulting in a roughly flat finish for the stock market with bonds edging modestly lower.  So far, approximately 20% of corporations have reported their second quarter earnings and they have mostly exceeded expectations as the economy continues to build strength.  Evidence of the economy humming right along included the latest release of the Federal Reserve’s Beige Book reporting “Economic activity continued to expand across the United States, with 10 of the 12 Federal Reserve Districts reporting moderate or modest growth.”  Plus, the Philadelphia Fed Manufacturing Index rose to 25.7 from 19.9 and that was 4.2 points better than expected.

 

Furthermore, the June Case Freight Index reported “The Cass Freight Shipments and Expenditures Indices are clearly signaling that the U.S. economy, at least for now, is ignoring all of the angst coming out of Washington D.C. about the trade war.  Demand is exceeding capacity in most modes of transportation by a significant margin.  In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy.”  This hasn’t gone unnoticed by the Fed.  Fed Chair Jerome Powell gave Congress his semiannual update on the economy and monetary policy, speaking before both the Senate Banking and the House Financial Services Committees.  Mr. Powell’s testimony strengthened the view that improving economic conditions should allow the Fed to continue to gradually raise short-term interest rates.  Rate hike odds are now showing about a 60% chance for two more hikes this year with the next likely one coming in September.

 

In housing, the Commerce Department reported homebuilding fell to a nine month low during June with housing starts dropping 12.3% to a seasonally adjusted annual rate of 1.173 million units.  Economists had been expecting 1.318 million starts.  Single-family homebuilding, accounting for the largest share of the housing market, fell 9.1% to a rate of 858,000 units.  Meanwhile, building permits fell for the third consecutive month to a rate of 1.273 million units – a 2.2% decline to their lowest level since September 2017.  The consensus forecast called for 1.301 million permits.  Permits for single-family units increased a modest 0.8% to 850,000.  The data from this report is somewhat surprising as it shows weakness at a time when there should be strength.  This weakness reveals the difficulties builders are having finding adequate labor in addition to the challenges they are facing from higher labor, land, and materials costs.

 

The latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey released on Wednesday showed a decrease in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 2.5% during the week ended July 13, 2018.  The seasonally adjusted Purchase Index decreased 5.0% from the week prior while the Refinance Index increased by 2.0% from a week earlier.

 

Overall, the refinance portion of mortgage activity increased to 36.5% from 34.8% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 6.1% from 6.3% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.77% from 4.76% with points increasing to 0.46 from 0.43.

 

For the week, the FNMA 4.0% coupon bond lost 17.1 basis points to close at $101.813 while the 10-year Treasury yield increased 6.23 basis points to end at 2.8931%.  The Dow Jones Industrial Average gained 38.71 points to close at 25,058.12.  The NASDAQ Composite Index fell 5.78 points to close at 7,820.20.  The S&P 500 Index added 0.52 of one point to close at 2,801.83.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 1.37%, the NASDAQ Composite Index has advanced 13.28%, and the S&P 500 Index has added 4.80%.

 

This past week, the national average 30-year mortgage rate was unchanged at 4.63%; the 15-year mortgage rate rose to 4.13% from 4.12%; the 5/1 ARM mortgage rate increased to 3.96% from 3.95% while the FHA 30-year rate rose to 4.37% from 4.35%.  Jumbo 30-year rates decreased to 4.50% from 4.54%.

 

Economic Calendar – for the Week of July 23, 2018

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($101.813, -17.1 bp) traded within a narrow 28.2 basis point range between a weekly intraday high of 102.063 on Thursday and a weekly intraday low of $101.781 on Monday and Friday before closing the week at $101.813 on Friday.  Mortgage bonds continued to trade within a narrow range between resistance and support levels ending the week between the 25-day and 50-day moving averages which serve as short-term support levels.  Trading has been in a consolidating, “sideways” direction for several consecutive weeks now and it appears this “sideways” pattern could continue this coming week.  Unless an unforeseen market-moving “catalyst” such as a major geopolitical or economic event comes along to shake up the financial markets this coming week, bond prices are likely to continue trading in a tight trading range resulting in relatively stable mortgage rates

 

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Trade tensions and inflation data dominated investor sentiment creating increased volatility in the stock market.  Stocks got off to a good start last Monday primarily due to a lack of any bad news over the prior weekend.  Stocks then fell on Wednesday when trade tensions surfaced on news the U.S. would continue its plan to enact an additional $200 billion worth of tariffs on a variety of Chinese goods to begin a few months from now.  However, this threat was not met with an immediate response from China and investors viewed this as a positive sign helping the stock market to recover on Thursday.  In fact, the technology laden NASDAQ Composite Index set a new all-time high on Thursday and Friday.

 

Inflation data came in a little hotter than expected with the Producer Price Index rising 0.3% in June following a 0.5% increase in May.  On an annualized basis, Producer Prices have increased 3.4%, their fastest increase in almost seven years.  Increased costs for steel and aluminum were noticeable suggesting the tariffs recently put in place by the Trump administration for these metals are beginning to drive input costs higher for manufacturers.

 

Also, inflation at the consumer level edged higher but was within the consensus forecast.  The headline Consumer Price Index (CPI) in June increased 0.1% with the Core CPI rising 0.2%.  However, consumer prices have risen 2.9% over the past year for its highest rate in six years.  This year-over-year rate more than offsets the 2.7% increase in average annual wages over the same time period leading to growing inflation concerns.   These concerns have shown up in the latest Consumer Sentiment report from the University of Michigan where it was noted “The primary concerns expressed by consumers were a decline in the future pace of economic growth and an uptick in inflation.”

 

In housing, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey released on Wednesday showed an increase in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) rose 2.5% during the week ended July 6, 2018.  The seasonally adjusted Purchase Index increased 7.0% from the week prior while the Refinance Index decreased by 4.0% from a week earlier to its lowest level since December 2000.

 

Overall, the refinance portion of mortgage activity decreased to 34.8% from 37.2% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 6.3% from 6.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.76% from 4.79% with points increasing to 0.43 from 0.41.

 

For the week, the FNMA 4.0% coupon bond lost 7.9 basis points to close at $101.984 while the 10-year Treasury yield increased 0.068 of one basis point to end at 2.8308%.  The Dow Jones Industrial Average gained 562.93 points to close at 25,019.41.  The NASDAQ Composite Index advanced 137.59 points to close at 7,825.98.  The S&P 500 Index added 41.49 points to close at 2,801.31.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 1.21%, the NASDAQ Composite Index has advanced 13.36%, and the S&P 500 Index has added 4.78%.

 

This past week, the national average 30-year mortgage rate decreased to 4.63% from 4.65%; the 15-year mortgage rate fell to 4.12% from 4.13%; the 5/1 ARM mortgage rate decreased to 3.95% from 3.99% while the FHA 30-year rate fell to 4.35% from 4.37%.  Jumbo 30-year rates decreased to 4.54% from 4.59%.

 

Economic Calendar – for the Week of July 16, 2018

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($101.984, -7.9 bp) traded within a narrower 26.6 basis point range between a weekly intra-day high of 102.016 on Friday and a weekly intraday low of $101.750 on Wednesday and Thursday before closing the week at $101.984 on Friday.  Mortgage bonds traded within a narrow range between resistance and support levels ending the week close to resistance located at $101.988 on Friday.  A weak sell signal on Tuesday was followed by a weak buy signal on Friday suggesting the bond could continue to consolidate and trade sideways like it did last week.  This should result in stable mortgage rates this coming week

 

 

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This past holiday-shortened week was good for both the broad stock market indexes and mortgage bonds as both asset classes finished the week moderately higher.  Trading volumes were lower than usual due to the 4th of July holiday, although active investors had to wade through ongoing news of a “trade war” between the U.S. and China; the release of Fed minutes from their latest policy meeting; and data from the June Employment Report.

 

Thursday, the Fed released the minutes from its June 12-13 policy meeting revealing officials are aware of the possibility that growing trade tensions could have a negative impact on future business sentiment and investment spending.  Friday brought a “not too hot, not too cold” “Goldilocks” employment report featuring solid nonfarm payrolls growth of +213,000 jobs coupled with a restrained 2.7% year-over-year gain in average hourly earnings that kept inflation and aggressive rate-hike worries at arms’ length.  Nevertheless, neither the Fed minutes nor the key jobs data had much of an impact on long-term interest rates, with the yield on the benchmark 10-year Treasury note decreasing slightly for the week.

 

In housing news, CoreLogic reported Tuesday their Home Price Index (HPI) showed home prices increased by 1.1% in May and by 7.1% on a year-over-year basis.  May’s one-year appreciation of 7.1% was stronger than April’s reading of 6.9% and was the strongest number in four years.  Moving forward, CoreLogic is forecasting homes will appreciate 5.1% in the coming year which is slightly below their forecast of 5.3% last month.

 

The highest price gains in metro areas were seen in Denver, Las Vegas, and San Francisco.  CoreLogic Chief Economist Frank Nothaft remarked “The lean supply of homes for sale is leading to higher sales prices and fewer days on market, and the supply shortage is more acute for entry-level homes.

 

Wednesday, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed a decrease in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 0.5% during the week ended June 29, 2018.  The seasonally adjusted Purchase Index increased 1.0% from the week prior while the Refinance Index decreased by 2.0% from a week earlier.

 

Overall, the refinance portion of mortgage activity decreased to 37.2% from 37.6% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 6.7% from 6.5% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.79% from 4.84% with points decreasing to 0.41 from 0.42.

 

For the week, the FNMA 4.0% coupon bond gained 14.1 basis points to close at $102.063 while the 10-year Treasury yield decreased 3.60 basis points to end at 2.824%.  The Dow Jones Industrial Average gained 185.07 points to close at 24,456.48.  The NASDAQ Composite Index advanced 178.09 points to close at 7,688.39.  The S&P 500 Index added 41.45 points to close at 2,759.82.  Year to date on a total return basis, the Dow Jones Industrial Average has lost 1.06%, the NASDAQ Composite Index has gained 11.37%, and the S&P 500 Index has advanced 3.22%.

 

This past week, the national average 30-year mortgage rate decreased to 4.65% from 4.66%; the 15-year mortgage rate rose to 4.13% from 4.11%; the 5/1 ARM mortgage rate decreased to 3.99% from 4.00% while the FHA 30-year rate fell to 4.37% from 4.38%.  Jumbo 30-year rates decreased to 4.59% from 4.69%.

 

Economic Calendar – for the Week of July 9, 2018

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($102.063, +14.1 bp) traded within a slightly wider 34.4 basis point range between a weekly intraday high of 102.094 on Friday and a weekly intraday low of $101.750 on Tuesday before closing the week at $102.063 on Friday.  Mortgage bonds traded mostly between resistance and support levels during a holiday-shortened week, but did manage to close just above nearest resistance located at $101.988 on Friday.  However, the bond is currently extremely “overbought” and will be susceptible to a slight pull-back or sideways trading this coming week.  With the stock market seemingly “shrugging off” the latest trade news with China on Friday, we could see bond prices consolidate leading to stable or very slightly higher mortgage rates this coming week.

 

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When we think of new home designs, we generally don’t think of what apartments look like or live like inside. Two different animals, right? But the truth of it is, although single-family and multifamily builders are not so much siblings as second cousins, there is a lot that is similar about them, according to a recent article in builderonline.com, the website for Builder Magazine.

 

“Both sets of builders have to buy land, get approvals, and build housing. But then things diverge. Single-family builders sell a house and walk away, while in most cases multifamily builders hold a property and have an ongoing relationship with consumers,” writes Frank Anton in his article Modernizing How We Build.

 

While that may add up to a big difference between the two, what new homebuilders (who have been experiencing a bit of a boom lately but fall WAY short when it comes to affordable housing) don’t seem to focus on is that multifamily builders have seen starts quadruple since they bottomed out in 2009, while single-family starts haven’t even doubled since hitting bottom in 2010.

 

“Multifamily builders have done the better job of reaching 25- to 36-year-olds. Yes, they have advantages. Renters don’t have to come up with a big down payment nor do they have to qualify for a mortgage, and single people are naturally more likely to rent than buy.” says Anton.

 

Think for a moment about how student debt is like an albatross around the necks of 45 million young people, a third of which have yet to form an independent household and end up staying longer than ever in Mom and Dad’s basement. The article cites how for the first time in 40 years (according to the University of Michigan’s consumer sentiment survey) that younger Americans are more pessimistic than older Americans. And pessimists are more reluctant to buy than rent, even if they might qualify for a mortgage.

 

While those negative factors affect the multifamily market as well, it’s still outperforming the for-sale market for one simple reason, according to Anton: “Multifamily builders are doing a better job of satisfying younger Americans’ housing needs.”

 

He goes on to outline a case in point where a young multifamily developer was describing the success of his most recent development, a 200-unit project in pricey San Francisco, practically offering a blueprint for how single-family builders can crack the first-time buyer market. The builder he describes put up a development in downtown San Francisco, where many young people want to live, but it’s not a stretch to believe the concept would work in city-close residential areas. His building has no parking, but if a developer were to put up a similar single-family development in nearby Daly City or San Bruno, perhaps it would offer houses with a one-car garage “or—heaven forbid—no garage,” says Anton.

 

What also attracted buyers was the SF project’s design – thoroughly contemporary, which is what the younger demographic prefers. The apartments are minuscule (the smallest unit is only 160 square feet), but homebuilders paying attention to the idea that anyone would be willing to pay a high rent for a closet-sized apartment might want to sit up and take notice of how they might design, perhaps, a 1,200-square-foot house in a suburb within commuting distance and call it good.

 

Younger renters, as well as buyers, are not like the rest of us, he points out. Harkening back to their college roots, they may be willing to share a compact common area in order to save money, as evidenced by this multi-family builder’s design for the larger units in the building.

 

“The only generous space in the building is a first-floor common area that brings residents together,” says Anton. “Single-family builders routinely build clubhouses in retirement communities, so why not clubhouses for first-time buyers?”

 

Who’d a thunk it would be a study in marketing and design for single-family homebuilders to visit successful multi-family projects to get clues on what younger buyers want? Someone did.

 

 

Source: builderonline.com, TBWS

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