Shelter Six:  Three Straight Years of More Buyers Than Renters

March 18, 2019 by · Leave a Comment 

A vote passed last week extending the Brexit departure date from March 29 to June 30, but there continues to be great uncertainty around if and when the UK will leave the EU.

Last week’s inflation news was very positive as the latest Consumer Price Index figures increased less than expected.

According to the U.S. Census Bureau, there were 1.6M owner-occupied households formed in 2018, the largest annual increase since 2004.

After a nine-year stretch from 2007 to 2016 where the number of new renters exceeded the number of new buyers each year, we have now had three straight years of more buyers!

The surge in new buyers has fortunately led to a spike in the homeownership rate to 64.8% in the 4th Quarter of 2018, up from the low point of 62.9% in the 2nd Quarter of 2016.

With appreciation moderating, mortgage rates declining, and wage growth strengthening, the MBA’s latest projection is for purchase origination volume to increase 4% per year in both 2019 and 2020.

Rate Update

Mortgage markets remain jittery around the uncertainty of Brexit.  Along with last week’s weaker-than-expected inflation data, this led to rates falling to the low point in over a year.

This Week

It will be a light week for economic data.  The big story will be the Fed meeting on Wednesday.  The most significant economic report will be Existing Home Sales on Friday.

Shelter Six:  Wages Continue to Rise

March 11, 2019 by · Leave a Comment 

February Wage Growth reached the highest level since April 2009 as average hourly earnings were up 3.2% from January and 3.4% from a year ago.  Rising incomes are always good for home sales.

The Unemployment Rate declined from 4% to 3.8%, with much of the reduction due to workers returning to the workforce after the end of the government shutdown.

The economy added just 20K jobs in February, well less than expected with much of the shortfall attributed to poor weather across the country.

The Chief Economist for Freddie Mac, Len Kiefer, recently shared his viewpoint that although home prices have risen greatly, we are not in a housing bubble similar to 2008.

Kiefer emphasized that the market is not driven by the speculative mortgage products that existed in 2008 nor is today’s mortgage default potential very high.

Kiefer predicts the economy will experience modest growth in ‘19, mortgage rates will gradually rise capping at 5%, and home prices will moderate substantially over the next few years.

Rate Update

Mortgage rates slipped last week on news that the European Central Bank sharply reduced the economic outlook for Europe while announcing some new stimulus programs.

This Week

Retail Sales will be released on Monday, the Consumer Price Index on Tuesday, and Durable Orders on Wednesday.  Investors also will be watching for signs of progress in the trade talks between the U.S. and China.

Shelter Six:  National Homeownership Rate Up to 64.8%

March 4, 2019 by · Leave a Comment 

Housing demand continues to be strong.  For the third straight year, there was growth in homeownership and 2018 ended up being the strongest year for owner household formation since 2004.

National Homeownership Rate up.  The Census Bureau reported last week that the national homeownership rate rose in the 4th Quarter to 64.8%, the highest level since 2014.

The largest gains came from the 35-44 age group (up 1.2% to 61.1%) and the under 35 age group (up .5% to 36.5%).

GDP continues to be strong and was up more than expected over the 4th Quarter (2.6%), with unexpected strength seen in business investment and exports.

2018 GDP ended the year at a solid 2.9%, the highest level since 2015.  2019 forecasts are for slower growth (2.5%) as the tax cut stimulus fades and the economy struggles overseas.

Negotiations with China progress.  The U.S.’s plan to increase tariffs on Chinese goods on March 1 was postponed last week as talks with China continue.

Rate Update

Stronger than expected economic growth data along with progress in trade negotiations with China put upward pressure on mortgage rates last week.

This Week

The ISM National Services Index is due out on Tuesday with the Employment Report due out on Friday.

Shelter Six:  Long-Term Economic Outlook Favorable

February 25, 2019 by · Leave a Comment 

The bad news.  Existing Home Sales declined in January for the 6th straight month, were 11% lower than a year ago, and down to the lowest level since November 2015.

The reason why.  Home Sales have been affected over the last few months by one-time events like the government shutdown, stock market volatility, and the election that should all be things of the past.

Good inventory news.  Inventory is finally on the rise climbing for the 4th straight month and 6.4% higher than a year ago.

Favorable outlook.  The longer-term outlook with home sales is favorable as employment is strong, incomes are rising, interest rates are holding steady, and more Millennials are buying.

A major international concern has been trade tensions between the U.S. and China.  The U.S. was scheduled to increase tariffs on Chinese goods 10-25% on Saturday.

After a weekend of “substantial progress”, however, President Trump has agreed to postpone raising tariffs in hopes of negotiating a more comprehensive trade agreement.

Rate Update

There were few surprises in the world of economic news last week and mortgage rates have stayed virtually unchanged throughout all of February.

This Week

Housing Starts are due out on Tuesday, Pending Home Sales on Wednesday, GDP on Thursday, and ISM National Manufacturing Index and Core PCE Price Index on Friday.

Shelter Six:  Inflation Flat but Retail Sales Down

February 18, 2019 by · Leave a Comment 

Inflation still not a threat.  The most recent major inflation data came in very close to expected levels and had little impact on mortgage rates.

Retail Sales way down.  Consumer spending accounts for about 70% of all economic activity in the U.S., so Retail Sales figures are a key indicator.

December Retail Sales figures were delayed due to the government shutdown, but finally came out last week and were much less than anticipated with the biggest drop since 2009.

First American’s Real House Price Index (RHPI) measures home price changes adjusted for consumers’ home-buying power as impacted by income and interest rate changes.

The RHPI indicated that 2018 U.S. home prices were up a whopping 15.3% from November 2017 to November 2018.

While unadjusted house prices are now 1.8% above the housing boom peak in 2006, the RHPI indicates that real house prices are actually 35.3% below the 2006 peak.

Rate Update

The last-minute compromise bill to avert another government shutdown put upward pressure on mortgage rates but was offset by the weak Retail Sales figures and, as a result, mortgage rates ended last week unchanged.

This Week

It’s a very light week for economic data.  The minutes from the January 30 Fed meeting are due out on Wednesday with both Durable Orders and Existing Home Sales due out on Thursday.

Shelter Six:  GDP Forecasts Solid for U.S. but Down in Europe

February 11, 2019 by · Leave a Comment 

1. Although the 2019 forecast for U.S. GDP remains around 2.5%, global GDP has emerged as a key economic concern early in the new year.

2. Last week, 2019 GDP forecasts were sharply reduced for Europe (1.9% to 1.3%), Germany (1.8% to 1.1%), and the UK (1.7% to 1.2%).

3. A major concern over the next month will be ongoing trade negotiations with China, which appear to be progressing very slowly.  U.S. tariffs are set to increase again on March 1.

4. Another major concern is the British exit from the EU (Brexit), which is scheduled to occur on March 31 and the terms of the departure still have not been finalized.

5. Encouraging news to report, Fannie Mae’s January National Housing Survey showed more people believe it is a good time to buy a home.

6. The survey showed home buyer purchase sentiment rebounding nicely after a drop in December as respondents reported higher incomes and less concern about job loss.

Rate Update

Mortgage rates trickled down a little last week and are now lower than the same date a year ago for the first time since early 2018 with the Conventional 30 Year Fixed-Rate now below 4.5% for the best-qualified borrowers.

This Week

The JOLTS Report is due out on Tuesday, the Consumer Price Index (CPI) on Wednesday, and Retail Sales on Thursday.

Shelter Six:  Many Now Projecting Fewer Rate Hikes in 2019

February 4, 2019 by · Leave a Comment 

1. As expected, the Fed did not increase short-term rates last week. Not expected, however, were comments from Fed members that point to fewer Fed rate hikes in 2019.

2. The Fed is now also considering selling fewer Treasuries and mortgage-back securities than previously indicated, which would go a long way in helping keep mortgage rates low.

3. Friday’s Employment figures were very strong once again with 304K jobs added in January.  What seemed like a stellar report, however, turned out to be a bit of an illusion.

4. The Employment figures were skewed due to distortions from the government shutdown and unusual weather. The report was solid but not quite as strong as it first appeared.

5. The government shutdown, which lasted from December 22 to January 25, continues to cause delays in the release of some key economic data.

6. The economic reports are produced by government agencies, which continue to play catch up and release the data as they are able.

Rate Update

Mortgage rates fell slightly last week mostly on the heels of a Federal Reserve meeting that implied there will be fewer Fed rate hikes in the future than anticipated.

This Week

The ISM National Services Index is due out on Tuesday. As government agencies continue to catch up, there may be other unplanned economic reports released during the week, too.

Shelter Six:  Partial Government Shutdown Temporarily Ends

January 28, 2019 by · Leave a Comment 

1. After 35 days, the longest US government shutdown in history ended on Friday but with only a temporary three-week agreement.

2. This is still great news for 800K government employees returning to work this week and finally getting paid, but plenty of uncertainty remains around what will happen past February 15.

3. The Mortgage Bankers Association (MBA) is optimistically forecasting purchase volume to increase 4% this year, followed by 3% in 2020, and 3% in 2012.

4. According to the MBA, keys to a solid spring market are rates staying low, housing inventory continuing to grow, and the job market maintaining its strength.

5. There is plenty of optimism early in the year with strong prequalification activity and mortgage purchase applications up 11% compared to last year.

6. According to the MBA, the biggest risks in 2019 will be ongoing political tensions, slowing global growth, Brexit, rising rates, higher home prices, and a volatile stock market.

Rate Update

Most major economic data was unavailable last week due to the government shutdown and mortgage rates ended the week nearly unchanged.

This Week

The Federal Reserve meets on Wednesday but no change in interest rates is expected.  Core PCE Price Index is due out on Thursday with both Employment figures and the ISM National Manufacturing Index due out on Friday.

Shelter Six: IRS Resumes Providing Income Verifications

January 21, 2019 by · Leave a Comment 

1. One key part of the government shutdown is over as the IRS has resumed providing tax transcripts for mortgage applications, thanks to efforts of the Mortgage Bankers Association (MBA).

2. MBA advocacy is also responsible for the resumption of flood insurance policies, which FEMA had halted at the beginning of the shutdown.

3. Last week was more notable for the economic reports that did not get released rather than the ones that did.  Retail Sales and Housing Starts were not released due to the partial government shutdown.

4. This month’s Retail Sales report was particularly important because it covered the holiday shopping season in December.

5. The lack of key economic data has left the Fed flying blind to a degree.  It is extremely difficult to monitor economic growth and missing data only compounds the problem.

6. As expected, the British Parliament rejected Theresa May’s Brexit deal last week.  The UK is scheduled to leave the EU on March 29 and much of the exit remains unresolved.

Rate Update

Due to the government shutdown, there was little major economic data released last week and mortgage rates ended the week slightly higher.

This Week

Existing Home Sales are due out on Tuesday, New Home Sales on Friday, and Durable Orders on Friday.  Mortgage markets will be closed on Monday in observance of MLK Day.

Shelter Six:  Mortgage Business as Usual Despite Government Shutdown

January 14, 2019 by · Leave a Comment 

1. As we enter the fourth week of the partial government shutdown, the mortgage business has been mostly unaffected but concerns around FHA, verifying income, and funding all loom.

2. The shutdown is causing delays in the release of some government economic reports, which are coming out more sporadically than normal.

3. Good news on the inflation front as the latest inflation figures indicate that inflation continues to track close to the Fed’s target level of 2%.

4. Minutes released from the Fed’s most recent meeting eased investor concerns that the Fed may increase short-term rates too aggressively or too quickly.

5. Mortgage denial rates are at the lowest point since 2004.  CoreLogic estimates that only about one in ten mortgage applications were denied in 2017, the most recent year reviewed.

6. Thanks largely to affordability issues, an excessive Debt Ratio is now the number one reason for mortgage denials (30.3% of all denials) surpassing poor credit.

Rate Update

There were few surprises in last week’s economic data and mortgage rates ended the week with little change.

This Week

Retail Sales will be released on Wednesday, Housing Starts on Thursday, and Industrial Production on Friday.

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