Housing, rates, and job growth

January 08, 2020

The housing market in 2020 has been upgraded in forecasts for single-family housing starts, new home sales and mortgage originations. Fannie reports that its Home Purchase Sentiment Index (HPSI) capped off a strong year in December with the index just below the survey high at 91.7. Three of the six HPSI components increased month over month, including the percentage of Americans who believe that home prices will go up over the next 12 months. Annually, the HPSI is up 8.2 points, driven primarily by consumers’ favorable mortgage rate expectations and a growing share reporting it’s a good time to buy a home.

Mortgage rates edged lower in the latest week and remain just above all-time lows. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell by four basis points to 3.91% with 0.33 in points. Mike Fratantoni, MBA Senior Vice President and Chief Economist said, “We expect that the strong job market will continue to support purchase activity this year, and the uptick in housing construction towards the end of last year should provide more inventory for prospective buyers.”

Private job growth surged in December as the labor market continues to be a big source of strength for the U.S. economy. ADP reports that private payrolls rose by 202,000 last month, well above the 155,000 expected. The November number of 67,000 jobs created was revised higher to 124,000. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute said, “The service providers posted the largest gain since April, driven mainly by professional and business services. Job creation was strong across companies of all sizes, led predominantly by midsized companies.”

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U.S. economy – show me the numbers

December 23, 2019

The U.S. economy continued to generate growth in the final reading on Gross Domestic Product (GDP) for 2019. Final Q3 GDP remained unchanged at a solid 2.1%. Within the numbers, it showed that consumer spending, which accounts for two-thirds of U.S. economic activity, was revised higher to 3.2% from 2.9%. The consumer continues to be a key factor driving the economic expansion here in the U.S.GDP measures the market value of all the final goods and services produced in a specific time period, often annually.

Consumer Sentiment remained at very favorable levels in the second of two reading in December at 99.3. Inflation expectations declined in the December survey, with both the year-ahead and five-year expected inflation rates falling and backs up the federal reserves assertion that it will remain low for the foreseeable future. In addition, the impeachment hearing had a barely noticeable impact on economic expectations, as it was mentioned by just 2% of all consumers in the December survey.

U.S. stocks are at fresh record highs on this last full week of trading in 2019. The closely watched S&P 500 is up nearly 30% this year due to an expanding economy, low unemployment, strong consumer spending and confidence along with tame inflation and low-interest rates. The Goldilocks economy continues with chances of a recession extremely low or zero for the foreseeable future.

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Good news, mortgage credit, and China

December 10, 2019

The good news continues to stream in from the small business sector of the economy. The NFIB (National Federation of Independent Business) Small Business Optimism Index saw its largest month-over-month gain since May 2018, up 2.3 points to 104.7 in November. The NFIB said that overall, the Main Street economic machine continued to push the economy forward. “Owners are aggressively moving forward with their business plans, proving that when they’re given relief from the government, they put their money where their mouth is, and they invest, hire, and increase wages,” said NFIB Chief Economist William Dunkelberg.

Mortgage credit availability increased across all loan types in November, reports the Mortgage Bankers Association. The mortgage credit availability index rose by 2.1% to 188.9 last month. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting said, “Expanding credit availability will continue to support active levels in mortgage lending, even as refinance activity starts to level off.”

The December 15 tariff deadline on Chinese exports into the U.S. could be delayed as the two sides continue to negotiate. The White House continues to stress that Beijing commit to large purchases of U.S. farm products in order for the tariffs to be delayed. The headlines are supporting the U.S. stock markets though the gains are modest at best as the market looks ahead to the Federal reserve’s release of its monetary policy statement on Wednesday afternoon.

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Freddie Mac, Trade, and Santa Claus

December 02, 2019

Freddie Mac recently reported its forecast on the housing market revealing that a strong labor should continue to buoy the sector into 2020. Freddie Mac is forecasting that mortgage rates will remain low while originations will be robust. The 30-year fixed-rate mortgage is expected at 3.8% in Q4 2019 with 2020 averaging 3.8%. Total originations are expected at $2.101 trillion this year and $2.132 trillion in 2020. The GSE went on to say that with low-interest rates, modest inflation, and a solid labor market, the U.S. housing market continues to show strength. Freddie Mac’s forecast is for the U.S. housing market to maintain momentum over the next two years. Manufacturing activity across the U.S. contracted for the fourth straight month in November due in part to the trade issues between the US and China. The ISM Manufacturing Index fell to 48.1 last month from 48.3 in October. The new orders index slipped, while the employment component also declined. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally contracting. The major stock indexes here in the US have had a banner year due in part to a strong labor market along with solid consumer spending. The Dow Jones Industrial Average is up 20% year-to-date, the S&P is up 25% while the tech-heavy NASDAQ is higher by 30%. With such lofty gains this year, could stock prices move even higher still in December? That depends upon if whether or not a “Phase One” trade deal between the US and China is hammered out by the December 15 deadline. Will there be a Santa Claus rally at year’s end … it remains to be seen. A Santa Claus rally is a calendar effect that involves a rise in stock prices during the last 5 trading days in December and the first 2 trading days in the following January.

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GDP, October Durable Orders, Mortgage Rates

November 27, 2019


The second reading on Q3 Gross Domestic Product (GDP) rose to 2.1% from 1.9%. Within GDP it showed that consumer spending rose a solid 2.9%. The holiday shopping season is expected to robust given the strong job market and a healthy consumer. However, business investments slid in Q3.

October Durable Orders were up 0.6% versus the -0.7% expected while Weekly Initial Jobless Claims fell by 15,000 to 213,000 hovering near 50-year lows. The Core PCE, the Fed’s favorite inflation gauge, rose 1.6% annually in October from 1.7% in September. Personal Incomes were flat while Spending rose 0.3%. And the last data point today showed that Pending Home Sales unexpectedly fell 1.7% in October from September.

Mortgage rates were essentially unchanged in the week ended November 22, 2019. The 30-year fixed-rate mortgage was 3.97% with 0.30 in points. The Refinance Index rose 4% while the Purchase Index fell by 1%. The Market Composite Index, a measure of total mortgage loan application volume, was up 1.5%. Rates remain historically low and should remain low for quite some time which will continue to support the housing market.

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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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