Rates, Home Prices and the Federal Reserve

January 09, 2019

Mortgage rates continued to edge lower in the latest week to levels not seen since the spring of last year. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell 10 basis points to 4.74% with 0.47 in points. “This drop in rates spurred a flurry of refinance activity – particularly for borrowers with larger loans – and pushed the average loan size on refinance applications to the highest in the survey (at $339,800),” said Joel Kan, MBA’s Associate Vice President.

Home price gains are beginning to ease back to more normal levels after the big increases seen since the housing market recovery began. Black Knight reports that home price growth has slowed in 33 states and in 71 of the 100 largest markets. Black Knight said the West saw the most deceleration with California the hardest hit. Gains of +7% or more year-over-year couldn’t last forever.

The Fed minutes from the December meeting will be released today at 2:00 p.m. ET. The minutes are sort of in the rear view mirror after Fed Chair Powell spoke last Friday and sparked a rally in the U.S. stock markets with his dovish remarks on monetary policy. Fed Fund Futures show a zero percent chance of a rate hike at least through the first half of this year and maybe none at all in 2019, given the current low inflation environment. A dovish tone means that Fed members favor looser, more accommodating interest rate policies. A hawkish policy is the opposite.

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Home prices nationwide jumped|Mortgage rates last week of 2017

January 02, 2018

CoreLogic reports that home prices nationwide, including distressed sales, jumped 7% from November 2016 to November 2017 and increased 1% month over month from October to November. Looking ahead, price gains are expected to cool a bit as CoreLogic sees a 4.2% increase from November 2017 to November 2018. CoreLogic’s chief economist, Frank Nothaft, said, “Growing numbers of first-time homebuyers find limited for-sale inventory for lower-priced homes, leading to both higher rates of price growth for starter homes and further erosion of affordability.”

Online real estate database company Zillow reports that the total value of all U.S. homes in 2017 was $31.8 trillion. The top cities for value were Los Angeles at number one worth $2.7 trillion followed by New York at $2.6 trillion. The $31.8 trillion is more than 1.5 times the Gross Domestic Product (GDP) of the U.S. and approaching three times the size of China’s GDP. In 2017, renters spent a record $485.6 billion with renters in New York and Los Angeles spending the most.

The last week of 2017 saw mortgage rates hit a five-month high though still below the rates seen at the end of 2016 and early 2017. Freddie Mac reported last Thursday that the 30-year fixed-rate mortgage hit 3.99% with an average 0.5 in points and fees. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

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Inflation tame |Fed Funds rate should rise | Mortgage rates unchanged

December 13, 2017

Inflation at the consumer level was somewhat tame in November, due in part to weak healthcare costs and a big drop in apparel prices. The Labor Department reported that the Consumer Price Index (CPI) rose 0.4% in November from October, which was inline with expectations. When stripping out volatile food and energy, the more closely watched Core CPI rose 0.1%, below the 0.2% expected. Year over year, Core CPI fell to 1.7% from 1.8%.

The Federal Reserve Bank of the U.S. is expected to raise the short term Fed Funds Rate when the Fed meeting ends later this afternoon. The Fed Funds Rate should rise by 0.25% to 1.50%. The Fed Funds Rate impacts interest rates for car loans, credit cards, small business loans and home equity lines of credit. The Fed Funds Rate is the interest rate in which banks lend their balances held at the Federal Reserve to other banks on an overnight basis.

The Mortgage Bankers Association (MBA) reports that mortgage rates were essentially unchanged in the latest week as 2017 comes to a close. The average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) rose to 4.20% from 4.19% with an average point of 0.39. The MBA also reports that the refinance share of applications fell 3.0% while the purchase index decreased 1.0%.

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Inflation remained tame, Beige Book economic activity, Mortgage Rates edged lower

November 30, 2017

Inflation remained tame in October. The Fed’s favorite inflation gauge, the annualized Core PCE, rose 1.4% from October 2016, well below the Fed’s 2% target range. Despite low inflation, the Fed is on target to raise rates at next month’s FOMC meeting. Don’t expect many more hikes if inflation doesn’t move higher. Within the report it showed that Personal Spending rose 0.3% in October, below the 0.9% in September.

Yesterday’s Fed Beige Book showed that economic activity continued to increase at a modest to moderate pace in October and mid-November, with a slight improvement in the outlook among contacts in reporting districts. In addition, reports of tightness in the labor market were widespread. The Beige Book precedes the Federal Open Market Committee meeting which will begin on December 12 and end on December 13.

Mortgage rates edged lower this week and remain just above all-time lows. Freddie Mac reports that the 30-year fixed-rate mortgage fell 2bp this week to 3.90% with an average 0.5 in points and fees. Freddie Mac says average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

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Weekly Initial Jobless Claims rose, 30-Fixed Rate mortgage, Mortgage delinquencies down

November 16, 2017

In economic news, Weekly Initial Jobless Claims rose 10,000 to 249,000 and above the 234K expected. First-time claims are hovering near levels seen back in the early 1970’s as the labor market is near to being very healthy. The November Philadelphia Fed Manufacturing Index fell to 22.7 from 27.9 in October. The index has been positive for 16 consecutive months. The report went on to say that firms continue to expect growth in both activity and employment over the next six months.

The Mortgage Bankers Association’s (MBA) Michael Fratantoni, chief economist and senior vice president of research and technology, recently said that the MBA believes the 30-year fixed-rate mortgage will rise to 4.6% in 2018, then above 5% in 2019 and 2020. Freddie Mac sees the rate at 4.4% next year. As far as housing prices, the MBA says that home prices can’t continue to increase at the current pace and sees a stabilization but not a decrease.

Credit reporting agency TransUnion reports that serious mortgage delinquencies decreased in the past 12-months to the lowest levels since the recession. Serious delinquencies are considered 60 or more days past due. The serious mortgage borrower delinquency rate fell nearly 16% annually to 1.91% by the end of the third quarter of 2017. The average mortgage debt per borrower also rose from $193,489 last year, reaching $199,417.

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Producer Price Index, Small Business Optimism rose, Mortgage applications strong

November 14, 2017

The October Producer Price Index (PPI) rose 0.4% versus the 0.1% expected, fueled by higher costs for services. Core PPI also rose 0.4%, above the 0.2% expected. Year over year, PPI rose 2.8%, the biggest increase since February 2012, while Core PPI increased 2.4%. The PPI is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time.

The NFIB’s Small Business Optimism Index rose to 103.8 in October from 103 the previous month as more owners expect higher sales and think now is a good time to expand. Thirty-five percent of all owners reported job openings they could not fill in the current period, up 5 points, the highest reading since November 2001. “Owners became much more positive about the economic environment last month, which suggests a longer-run view,” said NFIB Chief Economist Bill Dunkelberg. “In the nearer term, they are more optimistic about real sales growth and improved business conditions through the end of the year.”

The Mortgage Bankers Association reports that its Builder Application Survey soared 23% in October after plunging 20% in September due in part to hurricanes Harvey and Irma. It was the strongest month in 2017. From a year ago, the index is up 16.1%. By product type, conventional loans made up 71.8% of loan applications while the average loan size for new homes hit a high of $339,534.


Antique store owner

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Tax Cut Bill released, Consumer Sentiment unexpectedly declined

November 10, 2017

The U.S. Senate released its version of a tax cut bill yesterday with the focal point being mortgage interest deductions. The Senate bill will keep in place the current mortgage interest deduction cap of $1,000,000. The House would cap the deduction at $500,000. The corporate tax rate for the Senate bill would be slashed to 20% from the current 35%, but implementation would come in 2019, as opposed to 2018 for the House bill. The House and Senate seem to have a tough road ahead to come to some sort of compromise on the new tax bill.

Consumer Sentiment unexpectedly declined in early November after hitting the highest level in early October since 2004. The Consumer Sentiment Index fell to 97.8, below the 100.5 expected and down from 100.7 recorded in late October. The index measures 500 consumers’ attitudes on future economic prospects, in areas such as personal finances, inflation, unemployment, government policies and interest rates. Richard Curtin, chief economist for Surveys of Consumers, attributed that decline in consumer attitudes to “widespread losses across current and expected economic conditions.”

digital visualization of a dollar symbol

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Tax cuts don’t go far enough, Mortgage rates edged lower this week, Black Friday

November 09, 2017

The Senate is supposed to introduce its tax bill later this morning. There is growing sentiment that that tax cuts don’t go far enough, parts will be phased in and there is major concern that middle-to-high income earners in high-tax states like CA, NJ and NY will see little to no tax benefit. This is causing uncertainty and anxiety in the U.S. Stock markets.

After holding steady last week, mortgage rates edged lower this week and remain just above historic lows. Freddie Mac reports that mortgage rates fell four basis points to 3.90% with an average point of 0.5. Last year at this time the rate was 3.57% while the rate was 4.20% in the first week in January 2017. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.

With Black Friday still two weeks away, some retailers have already begun to discount hundreds of items. Walmart, Best Buy and Amazon are a few that are rolling out some super sales. Retailers are trying to lure shoppers into their stores earlier than Black Friday to capture shopper loyalty and to win their money. An industry watcher says as soon as the calendar turned to November 1, promotions and discounts began.

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Mortgage Credit, Home Price Sentiment Index, Mortgage rates edged lower in latest week

November 08, 2017

The Mortgage Bankers Association (MBA) reported this week that mortgage credit availability tightened a bit in October following some loosening in September. The MBA’s Mortgage Credit Availability Index (MCAI) fell by 0.2% to 181.0 with two of the four components decreasing. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. Lynn Fisher, MBA’s Vice President of Research and Economics says, “While government and conforming credit programs saw slight increases in availability in October, a moderate decrease in the number of investor jumbo offerings resulted in a decrease in the total index.”

Government sponsored entity Fannie Mae released its Home Price Sentiment Index (HPSI) on Tuesday slipping on diminished home buyer and seller sentiment. Fannie’s HPSI fell 3.1 points on October to 85.2, falling from its all-time high matched in September. The net share of respondents who said now is a good time to sell a home decreased 8 percentage points compared to September while the net share who reported that now is a good time to buy a home fell 6 percentage points in October.

Mortgage rates edged lower in the latest week as reported by the Mortgage Bankers Association. The 30-year conforming fixed-rate mortgage fell four basis points to 4.18%, while the 30-year fixed-rate mortgage with jumbo loan balances declined to 4.12% from 4.16%. The MBA also reported that its refinance index fell 0.5%, purchase index +0.5%. Mortgage rates remain just above all-time lows.

Man counting using calculator and stress in problem with expenses.

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New Home Sales Surged in Sept, Total Purchase Originations will increase in 2018, Mortgage Rates higher

October 25, 2017

The Commerce Department reported on Wednesday that New Home Sales surged 18.9% in September from August to their highest level since October 2007. This was the largest monthly gain since January 1992! Sales came in at 667,000 units versus the 555,000 units expected and were up 17% year over year. Currently, there is a five-month inventory of houses on the market, down from six months in August. A six-month supply is seen as a healthy balance between supply and demand.

The Mortgage Bankers Association (MBA) reports that it expects that total purchase originations will increase to $1.2 trillion in 2018, a 7.3% increase from 2017. However, the MBA anticipates that refinance originations will decrease 28.3% in 2018 from 2017 to approximately $430 billion. The MBA went on to forecast that total mortgage origination will fall to $1.60 trillion in 2018 from $1.69 trillion in 2017. Looking ahead to 2019, total originations should rise to $1.64 trillion, purchase originations of $1.24 trillion and refinance originations of $395 billion.

Mortgage rates edged higher in the latest week though they still remain historically attractive as reported by the Mortgage Bankers Association (MBA). The average contract interest rate for 30-year fixed conforming loan balances rose four basis points in the latest week to 4.18% with points decreasing to 0.42 from 0.44. The MBA’s Market Composite Index, a measure of total mortgage loan application volume, fell 4.6% in the latest week. In addition, the refinance index fell 3%, while the purchase index declined 6.1%.

Handshake of buyer and vendor of real estate

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