Shelter Six:  Stock Market Surge Pushes Mortgage Rates Higher

1. A key inflation report was a little higher than expected on Friday.  Hopefully, this is not a trend as higher inflation always leads to higher mortgage rates.

2. The U.S. population is up to 327M, an increase of 2.3M (.71%) over where we started last year.

3. NAR reports single women account for 17% of homebuyers (vs. 7% for single men), buy homes at a later age (34 vs. 31), and at a lower average price ($147k vs. $191k).

4. Bloomberg reports that Baby Boomers aren’t selling as 53% of owner-occupied homes are now owned by people 55 and older (43% a decade ago).

5. This dynamic is crowding out younger Americans trying to own their first property.  The share of U.S. homes sold to first-timers declined in 2017 to the lowest level in 30 years.

6. Census Bureau data, however, shows new homeowners 132% higher than new renters over 1st Qtr of last year, which could be a trend of greater ownership for younger families.

Rate Update

Investors have started the year very optimistic about the prospects of U.S. economic growth.  The stock market continues to surge to new highs but at the sake of the bond market.  Higher bond yields have led to higher mortgage rates.

This Week

Industrial Production and the NAHB Housing Index are due out on Wednesday, Housing Starts on Thursday, and Consumer Sentiment on Friday.

January 15, 2018 by · Leave a Comment

Shelter Six:  Housing Market Remains Very Strong

1. Housing remains strong as November home sales were up 6% from October to the highest level since 2006.

2. Single-family housing starts and building permits also reached the best levels in over a decade, which will eventually help with inventory issues.

3. First-time home buyer demand surged to its highest level in 17 years during the 3rd Quarter, according to Genworth Mortgage Insurance.

4. The U.S. ended a fabulous year for job growth by adding 148K jobs in December, down a little from the consensus estimate, but still a strong finish to an amazing year!

5. Unemployment rate remains 4.1%, the lowest level since 2000.

6. Tame inflation is one reason that mortgage rates are starting 2018 even lower than last year.  The Core PCE Price Index was just 1.5% higher than a year ago (Fed’s target is 2%).

Rate Update

Weaker than expected labor market data was offset by a rally in the stock market with the net effect being little change with mortgage rates last week.

This Week

The Job Openings & Labor Market Turnover Rates Report (JOLTS) is due out on Tuesday with both Retail Sales and the Consumer Price Index (CPI) due out on Friday.

January 8, 2018 by · Leave a Comment

Shelter Six:  Excellent 2018 Economic Forecast for Georgia

1. UGA’s Terry School of Business hosted an economic forum last month that was full of good news for the residential real estate industry.  Here are the key forecasts for 2018.

2. The outlook for Georgia’s expanding economy and personal income growth is excellent and the projected pace of GDP in GA (3.2%) will outpace the nation (2.5%).

3. Employment growth will also be stronger in GA (2%) than the rest of the country (1.1%).

4. Existing home prices will increase 4% and rise to all-time record highs.  The number of single-family home starts will increase by 16%.

5. Population growth will help drive GA economic growth as the net-migration to GA will be 1.5% v .8% nationally, equating to 109,200 more Georgians over the next year.

6. Credit standards will continue to ease but the Federal Reserve will hike interest rates 3-4 times and reduce the size of its balance sheet, which will drive mortgage rates higher.

 

Rate Update

Despite strong November housing data, mortgage rates ended last week a little lower and 30 year-fixed rates begin 2018 at virtually the same 4.125% level as 2017.

This Week

The ISM National Manufacturing Index will be released on Tuesday, the ISM National Services Index on Thursday, and Employment figures on Friday.

January 2, 2018 by · Leave a Comment

Shelter Six:  2018 Tax Reform Signed Into Law

1. On Friday, the President signed the “Tax Cuts and Jobs Act” into law.  Although there will be dramatic tax reform in 2018, there were major things effecting our industry that did not change.

2. The capital gains treatment for home sales was preserved allowing homeowners to exclude up to $500K of the gain on the sale of a principal residence.

3. The mortgage interest deduction for both first and second homes was kept intact, though the cap on deductibility was lowered from $1.0M to $750K.

4. State and Local Tax (SALT) property deductions were preserved but now limited to $10K.

5. Section 1031 “like-kind” exchange rules for real property were kept intact, which should help support future investment activity.

6. Also preserved were the business interest deduction for real estate, low-income housing tax credits, and the tax-exempt status for private activity bonds.

Rate Update

The passage of a potentially inflationary tax bill as well as stronger than expected economic data led to mortgage rates pushing a higher last week.

This Week

It is a slow last week of the year for economic reports with Pending Home Sales and Consumer Confidence due out on Wednesday and Weekly Jobless Claims on Thursday.

December 26, 2017 by · Leave a Comment

Shelter Six:  Federal Funds Rate Up .25%

1. The Federal Reserve met last week and increased short-term rates .25% as expected.

2. This is the fifth time the Fed has lifted rates since the 2008 financial crisis, and most experts see the Fed increasing rates either 3 or 4 times in 2018.

3. The European Central Bank also met last week but there were little surprise or impact to the financial markets.

4. November Retail Sales, excluding the volatile auto segment, surged 1% from October, much higher than anticipated.

5. Consumer spending accounts for about 70% of economic activity in the U.S., so Retail Sales is a key indicator and November in many ways was surprisingly the best month of the year.

6. This is a big week in D.C. as a vote on the tax bill is expected early this week, and a bill to extend government funding is needed by December 22.

Rate Update

Rates dropped a little after last week’s Fed meeting but pushed back up after the surging Retail Sales figures, which were viewed as inflationary.  The net effect was little change.

This Week

Housing Starts are due out on Tuesday and Existing Home Sales on Wednesday.  The Core PCE Price Index, the inflation indicator favored by the Fed, is also due out on Friday.

 

December 18, 2017 by · Leave a Comment

Shelter Six:  FHA Loan Limit Increased to $359,950

The new 2018 FHA loan limit for 29 counties around Metro Atlanta is $359,950, up marginally from $358,800 last year.

FHA sets the limit each year at 115% of median house prices but is able to combine 29 counties into one “metropolitan statistical area” using the county with the highest price.

FHA loan limits also increased to $460,800 for 2-unit, $557,000 for 3-unit, and $692,200 for 4-unit properties.

New 2018 Conforming loan limits were also recently announced to be $453,100 for 1-unit, $580,150 for 2-unit, $701,250 for 3-unit, and $871,450 for 4-unit properties.

The economy added 228K jobs in November, well above the number forecasted.  Unemployment remains at 4.1% as expected.

On Thursday, the House and Senate agreed to a bill that prevented a government shutdown and temporarily extends government funding until December 22.

Rate Update

Strong Employment figures combined with the avoidance of a government shutdown led to slightly lower mortgage rates last week.

This Week

The Federal Reserve meets on Wednesday and it is widely expected that the Fed will raise the Federal Funds Rate by .25% for the third time this year.  Investors will be paying attention to any new information about the number of 2018 rate hikes.  CPI will be released on Wednesday and Retail Sales on Thursday.  In addition, political news on Flynn, tax reform, and government funding could all influence mortgage rates.

December 11, 2017 by · Leave a Comment

Shelter Six:  Showdown at the CFPB

As expected, Richard Cordray resigned as the Director of the CFPB on Friday.  President Trump promptly named Mick Mulvaney to be the Interim Director.

Not expected, however, was Cordray also making an Interim Director appointment of his chief of staff, Leandra English, and claiming he had the power to do so.

Both Mulvaney and English showed up at the CFPB this morning.  It appears that Mulvaney is in charge but English has filed a lawsuit against Trump seeking power.

The showdown of who is in charge of the CFPB is only the beginning of a bitter battle for the future of the bureau with Republicans fighting to shrink it and Democrats fighting to preserve it.

The home mortgage interest deduction has been part of IRS code since its inception in 1913, but looks to be drastically weakened as Congress contemplates tax reform.

The most likely plan seems to be for the amount of home debt on which interest can be deducted to be lowered from $1M to $500,000.

Rate Update

Last week’s economic news was good with Consumer Sentiment and Leading Economic Indicators higher than expected and Weekly Jobless Claims lower than expected.  Mortgage rates finished the shortened Thanksgiving week unchanged.

This Week

New Home Sales are due out Monday, Consumer Confidence on Tuesday, 3rd Quarter GDP and Fed Beige Book on Wednesday, Weekly Job Claims and PCE Core Inflation on Thursday, and the ISM Index on Friday.

November 27, 2017 by · Leave a Comment

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

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