Shelter Six:  Tax Reform Seems Close

A major step toward tax reform was taken last week with the House of Representatives passing the “Tax Cut and Jobs Act.”  The Senate continues to debate its version of the bill.

There were no major surprises in the House’s bill, so market reaction was small.  There is still a long way to go before actual changes to the tax code become law.

October Housing Starts rose 5% nationally, but a whopping 17% in the South due to the impact of the hurricanes.

The Director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, announced his resignation last week effective at the end of November.

Cordray has been the only Director in the bureau’s short five year history but has been a constant center of controversy and front and center of many controversial policies.

President Trump will nominate the next CFPB Director, who is expected to favor a much less regulated market.

Rate Update

For the second straight week, there was little reaction to the economic news.  Neither key data on retail sales nor the passage of the House tax reform bill had much effect.  Mortgage rates finished the week slightly lower.

This Week

Existing Home Sales will be released on Tuesday with Durable Orders, Jobless Claims, and Consumer Sentiment all due out on Wednesday.  Mortgage markets will be closed on Thursday and will close early on Friday in observance of Thanksgiving.

November 20, 2017 by · Leave a Comment

Shelter Six:  Big Change to Fannie Mae Underwriting Model

Fannie Mae is making a big change to its underwriting model to allow a loan to be underwritten when a borrower has frozen credit at only one of the three credit bureaus.

When one score is frozen, the “DU” model will only view credit from the other two bureaus.  If two or more scores are frozen, the borrower will need to have the scores unlocked to proceed.

On Thursday, the Senate released tax overhaul plans and will now work with the House to reconcile differences to create one uniform plan to pass through Congress.

In general, tax reform is expected to be inflationary and any news indicating that the package will be larger or will go into effect sooner most likely will drive mortgage rates higher, and vice versa.

Consumers remain very optimistic about current and future economic conditions as Consumer Sentiment readings have peaked over the last few months to the highest levels since 2004.

With the stock market near record levels, the unemployment rate the lowest in decades, and hopes for tax cuts high, it makes sense that consumers are feeling good about the economy.

Rate Update

Last week was very light for new economic data and details about the Senate tax plan dominated the headlines.  Mortgage rates were mostly flat finishing the week slightly higher.

This Week

Retail Sales and the Consumer Price Index (CPI) are both due out on Wednesday, Industrial Production on Thursday, and Housing Starts on Friday.

November 13, 2017 by · Leave a Comment

Shelter Six:  US Economy Maintains Strength

The US economy expanded at an annual rate of 3% in the 3rd Quarter, just short of 3.1% in the 2nd Quarter, and very impressive considering the impact of the hurricanes.

The economy added 261K jobs in October.  The average monthly job gains over the past three months is 162K and in line with the levels seen earlier in the year.

The unemployment rate, which is based on a separate survey, unexpectedly declined from 4.2% to 4.1%, which is the lowest level since December 2000.

Since the drop in unemployment was due to a large number of people choosing to leave the labor force rather than more people finding jobs, this was not viewed as a sign of strength.

At last Wednesday’s meeting, the Fed held the Federal Funds rate steady and made no significant change to policy.

President Trump has nominated Jerome Powell to start as Fed Chair in February, a move that is expected to maintain a course of monetary policy similar to the current one.

Rate Update

With a Fed meeting, the selection of the next Fed Chair, details about tax reform, and an Employment report, last week had the potential to be extremely volatile but it wasn’t.  No significant surprises led to little change in mortgage rates.

This Week

The Job Openings & Labor Turnover report (JOLTS) will be released on Tuesday.  Beyond that, investors will primarily be keeping an eye on the progress on tax reform this week.

November 6, 2017 by · Leave a Comment

Shelter Six:  The ‘Home Ready’ 3% Down Conventional Program

At last, a Conventional 3% down program that competes with FHA.  Fannie Mae’s ‘Home Ready’ allows for average credit but delivers with a competitive rate and reduced PMI.

The max loan amount is $424,100 ($358,800 for FHA) and the PMI is cancellable (unlike FHA).  The 3% down can also be from savings, a gift, or even an approved 2nd Mortgage.

The buyer has to go through an education course and there are income limitations based on the property address, so be sure to check with your Shelter Loan Officer for eligibility.

Last week, as expected, the European Central Bank announced plans to extend its bond purchase program by nine months while reducing monthly purchases in half.

The White House is expected to announce the next Federal Reserve Chairman this week from Jerome Powell, a current Fed governor, or John Taylor, a Stanford Univ. economist.

Powell is the heavy favorite and aligns most closely to Janet Yellen’s current policy, while Taylor is more conservative and favors a more rapid increase in short-term rates.

Rate Update

Neither last week’s European Central Bank meeting nor the latest GDP figures caused much market reaction and mortgage rates finished the week only slightly higher.

This Week

The Fed meets Wednesday but no policy changes are expected.  The Core PCE Price Index will be released on Monday, the ISM National Manufacturing Index on Wednesday, and Employment figures on Friday.

October 30, 2017 by · Leave a Comment

Shelter Six:  Strength in the Labor Market

Jobless claims dropped in September showing strength in the labor market.

After three months of strong results, September Housing Starts were down 5%, mostly due to the recent hurricanes.

According to the experts, there is an 88% chance that the Federal Reserve will hold short-term rates steady on Nov 1 and then bump them up .25% on Dec 13.

The Producer Price Inflation Index jumped up in September, mostly due to increase in gas prices.

With the Senate voting in favor of the 2018 budget plan, tax reform seems on the horizon.

The tax changes are expected to boost economic growth, but increases in the deficit could raise the outlook for inflation and lead to higher mortgage rates.

Rate Update

The passage of last week’s budget plan was negative for mortgage rates, which ended the week higher.

This Week

The big event this week will be Thursday’s meeting of the European Central Bank (ECB).  Investors expect that the ECB will announce its future plans for its bond purchase program.  Also due out are Durable Orders and New Home Sales on Wednesday and Pending Home Sales on Thursday.

October 23, 2017 by · Leave a Comment

Shelter Six:  Homeownership Rate Trending Higher

Moving in a good direction, the Homeownership Rate rose to 63.7% in the 3rd Quarter, up from 63.6% in the 2nd Quarter and 62.9% last year.

The recent hurricanes greatly skewed September’s Employment report, which showed 33K jobs lost in September after 100K new jobs had been projected.

The job losses were mainly seen in the areas most affected by the hurricanes such as the restaurant industry.

Wage growth shot up more than expected though (up to highest level since December 2016), but this was mostly due to the hurricanes as many of the lost jobs were lower paying ones.

Wow!  The Unemployment Rate unexpectedly declined to 4.2% from 4.4% in August and is now at the lowest level since February 2001!

Optimistic comments from the SF Federal Reserve Bank President last week stood out and have investors thinking the Fed is going to be aggressive about raising short-term rates over the next year.

Rate Update

Rates moved slightly higher last week after a startling low Unemployment Rate as well as comments from a key Fed official outweighed a report of North Korea’s latest missile test plans.

This Week

The minutes from September’s Fed meeting are due out on Wednesday with Retail Sales and Consumer Price Index (CPI) figures both due out on Friday.

October 9, 2017 by · Leave a Comment

Shelter Six:  Rural Housing Funding Temporarily On Hold

It’s that time of the year again when, coinciding with the start of a new fiscal year on Oct 1, USDA temporarily loses funding on its Rural Housing program.

Most lenders will continue to process Rural Housing loans with conditional commitments with an expectation that Congress will approve and restore funding soon.

LIBOR stands for London Inter-Bank Offered Rate and is the index used on most adjustable rate mortgages.  The Fed announced recently that it will be going away over the next few years.

The new benchmark proposed by the Fed is called the Secured Overnight Financing Rate (SOFR) and is based on data covering almost $1 Trillion in daily US Treasury overnight repurchases.

The Fed believes that SOFR will be a more effective benchmark than LIBOR, which was tarnished by a rate manipulation scandal, and experts have already projected the index to run .1 to .2% lower than LIBOR.

The Fed is not expected to start publishing the new index until 2018 with full market adaptation not expected until 2021.

Rate Update

Additional threats from North Korea led to lower rates early last week; however, the announcement of a tax reform plan on Wednesday had the opposite effect.  If passed, this plan is expected to boost economic growth and to increase the budget deficit, which would raise the outlook for future inflation, which is always negative for mortgage rates.  The two events were roughly offsetting, and mortgage rates ended the week unchanged.

This Week

The ISM National Manufacturing Index will be released on Monday, the ISM National Services Index on Wednesday, and the Employment Report on Friday.  In addition, news about North Korea and tax reform could again influence rates.

October 2, 2017 by · Leave a Comment

Shelter Six:  Fannie Mae Survey May Point to More Listings

Fannie Mae’s latest survey shows a record number of consumers who say now is a good time to sell a home.  Over 36% agreed, up 8% from July’s survey.

Stocks soared to record highs last week, in part because estimated financial losses from Hurricane Irma were lowered from $200B to $50B.

Notable from last week’s Federal Reserve meeting was Fed officials being more supportive of higher rates.

Roughly 75% of Fed officials now forecast one more rate hike this year and three in 2018.  This news caused mortgage rates to rise.

In the years after the financial crisis, the Fed stimulated the economy by driving rates lower and purchasing large quantities of Treasury bonds and mortgage-backed securities.

These purchases left the Fed with massive holdings of these securities.  Last week, the Fed said it is going to gradually shrink its balance sheet beginning in October.  Investors had been expecting this announcement, so there was little reaction.

Rate Update

Mortgage rates went up after last week’s Federal Reserve meeting only to drop back down after more threats from North Korea on Friday.  Rates ended the week with little change.

This Week

New Home Sales will be released on Tuesday, Durable Orders and Pending Home Sales on Wednesday, and the Core PCE Price Index on Friday.  There will also be Fed speakers every day this week including a speech by Fed Chair Janet Yellen on Tuesday.

September 25, 2017 by · Leave a Comment

Shelter Six:  North Korea Continues to Influence Mortgage Rates

Each time North Korea has conducted a missile test this year, investors have shifted money to the bond market, which has lowered interest rates.

As North Korea celebrated its 69th anniversary last week, many investors expected another missile test.  When this did not occur, rates pushed higher.

At the end of the week, however, investors broke from the recent trend and showed surprisingly little reaction to yet another missile launch.

Two big economic reports released on Friday fell well short of expected levels with retail sales falling .2% from July and auto sales dropping sharply as well.

Much of the drop in auto sales was due to the hurricanes though and, with all of the vehicles destroyed, auto sales should boost higher in the months ahead.

The hurricanes will continue to skew economic data in the short-term but, hopefully, weakness will transition to strength as rebuilding gains momentum.

Rate Update

Developments in North Korea continue to influence rates.  Last week’s U.S. economic data caused little reaction though and mortgage rates ended the week up slightly.

This Week

Housing Starts will be released on Tuesday and Existing Home Sales on Wednesday.  The Federal Reserve also has a big meeting on Wednesday as well.

September 17, 2017 by · Leave a Comment

Shelter Six:  Rates Being Influenced By Many Factors

It truly has been a crazy last week full of geopolitical concerns and brutal hurricanes.

North Korea conducted its most powerful missile test yet and investors flocked to the safety of U.S. bonds, which lowered mortgage rates.

The debt ceiling also continues to have a big impact on rates with increases in uncertainty driving rates lower and signs of progress pushing them higher.

On Thursday, the European Central Bank postponed a discussion about tapering its bond buying program until its next meeting, so there was little reaction.

The effects of Hurricane Harvey were evident in the latest Jobless Claims Report with claims jumping to 298K, the highest level since April 2015.

Now attention turns to Hurricane Irma, which is sure to disrupt many closings throughout Florida, Georgia, and the Southeast over the coming months.

Rate Update

Despite the many factors influencing rates, the net effect was small and rates actually dropped to the best levels of the year.

This Week

The Job Openings and Labor Turnover Rates Report is due out on Tuesday, the Consumer Price Index (CPI) on Thursday, and Retail Sales on Friday.  Headlines about the debt ceiling will also continue to influence rates as well.

September 11, 2017 by · Leave a Comment

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