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By Taff Weinstein at

Pending Home Sales Index Strong

The National Association of Realtors latest Pending Home Sales Index was just released and came in at a very strong 106.4.  According to the NAR, any reading above 100 is above historical norms.

But it was still a mixed bag with the South leading the way with very strong growth.  Other geo-graphic regions were hampered by a severe lack of available inventory to satisfy demand.

Lawrence Yun, NAR chief economist, says the housing market this spring is hindered because of the severe housing shortages in much of the country. “Pending sales slipped in April and continued to stay within the same narrow range with little signs of breaking out,” he said. “Feedback from Realtors®, as well as the underlying sales data, reveal that the demand for buying a home is very robust. Listings are typically going under contract in under a month1, and instances of multiple offers are increasingly common and pushing prices higher.”

Added Yun, “The unfortunate reality for many home shoppers is that reaching the market will remain challenging if supply stays at these dire levels.”

Heading into the summer months, if low supply and swift price growth were not enough of a headwind for the housing market, Yun believes that rising mortgage rates and gas prices could lead to hesitation among some would-be buyers.

“The combination of paying extra at the pump, while also needing to save more for a down payment because of higher rates and home prices, may weigh on the psyche of those looking to buy,” he said. “For now, the economy is very healthy, job growth is holding steady and wages are slowly rising. However, it all comes down to overall supply. If more new and existing homes are listed for sale, it would allow home prices to moderate enough to stave off inflationary pressures and higher rates.”

Yun still forecasts for existing-home sales in 2018 to increase 0.5 percent to 5.54 million – up from 5.51 million in 2017. The national median existing-home price is expected to increase around 5.1 percent. In 2017, existing sales increased 1.1 percent and prices rose 5.7 percent.

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -1 basis poins (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week but we had a very "choppy" session with a large spread of -59BPS from our best pricing of the week (lowest rates) to the worst pricing of the week (highest rates.

Overview:  We had a holiday-shortened week that started on a big upswing (lower rates) due to Geo-Political concerns over Italy's government and debt issues potentially crashing the Eurozone.  However, we had some very strong domestic economic data and by the end of the week both Italy and Spain were able to form new governments which calmed down the markets and caused MBS to loose their "fear factor" premium.

Jobs, Jobs, Jobs: We had our Big Jobs Friday!  And here is the "tale of the tape":
Jobs:
May Non Farm Payrolls 223K vs est of 188K
April NFP revised from 164K down to 159K
March NFP revised from to 135K up to 155K
The more closely watched rolling 3 month average is now 179K
Wages:
Average Hourly Earnings YOY 2.7% vs est of 2.7%
Average Hourly Earnings MOM 0.3% vs est of 0.2%
Unemployment Rate:
Unemployment Rate 3.8% vs est of 3.9%
Participation Rate 62.7% vs est of 62.6%

Japanese Taper:
The Bank of Japan chose to cut the size of its purchases of 5-to-10 year JGBs from 450bn to 430bn yen.

Manufacturing:
ISM Manufacturing: This was a very strong report! The headline reading beat estimates with a 58.7 vs 58.1 reading. But the Prices Paid when through the roof with a 79.5 reading. Chicago PMI was very strong with a 62.7 reading vs est of 58.4. Any reading above 60.0 is rare and very expansionary.

Inflation Nation: The Fed's "trigger" rate, PCE YOY remained at 2.0% and the Core PCE YOY hit 1.8% which matched expectations and March was revised lower from 1.9% to 1.8%. Personal Spending shot up 0.6% vs est of 0.4% and Personal Income matched forecasts with a 0.3% monthly gain.

What to Watch Out For This Week:


The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

Home Prices Rise at Fastest Pace in 5 Years

 

The housing industry's bell-weather index, The Case-Shiller Home Price Index was released today and it showed a year-over-year gain of 6.79% in their key 20 Metro City Composite Index, which is the fastest appreciation rate since 2014.

Broadening out from the 20-City composite, the national home-price gauge climbed 6.5% YoY, matching February’s YoY advance that was the biggest since May 2014.

“Months-supply, which combines inventory levels and sales, is currently at 3.8 months, lower than the levels of the 1990s, before the housing boom and bust,” David Blitzer, chairman of the S&P index committee, said in a statement.

“Until inventories increase faster than sales, or the economy slows significantly, home prices are likely to continue rising.”

Source: S&P CoreLogic Case-Shiller Report

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +57 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower for the week.

Overview:  Geo-Political concerns were the main driving factor in pricing last week as investors poured money into the low-return but safe-haven of U.S. backed bonds.  This spike in demand for our bonds caused rates to pull back to levels from two weeks ago.

Geo-Political: U.S. Treasury Secretary Steven Mnuchin declared that looming U.S. - China trade war is "on hold". The U.S. will hold off on implementing tariffs and the China has agreed to purchase more from the U.S., specifically from the agriculture segment.  The next day, China's Ministry of Finance announced that it would slash passenger car duties to 15%, further opening up the market that’s been a key target of the U.S. in its trade fight with Beijing. Car parts will be slashed from 25% down to only a 6% rate.

President Trump called off the proposed summit with North Korea but left the door open for negotiations.  He also signed the Dodd-Frank reform Bill.

The Talking Fed:
We got the Minutes from the May FOMC meeting. The bond market viewed the overall tone of the Minutes as a smidge more "dovish" than the original policy statement on May 2 but not by enough to help MBS break above our channel.  The word "symmetry" was used 9 times in the Minutes and the Fed basically stressed that inflation is HERE but that they will let it run over 2.00% before freaking out and raising rates at an accelerated pace. They will simply stay the course for awhile, and the markets will get their two more rate hikes this year.

What to Watch Out For This Week:


The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

Homeowners Plan to Pump over $13B in Tax Savings into the Housing Market

Both current Home Owners and Renters plan to use their tax savings in the housing market.

Zillow estimates both homeowners and renters could put $13.2 billion in tax savings directly into the American housing market in 2018, using some of their tax cut to rent or buy a bigger home. Americans will likely spend almost double that amount – an additional $24.7 billion – on home renovations in 2018, and will add about $62.6 billion to their savings and investments, according to results of the most recent Zillow Housing Aspirations Report (ZHAR)

  • Zillow estimates homeowners and renters could put $13.2 billion in tax savings directly into the American housing market in 2018, using some of their tax cut to rent or buy a bigger home.
  • Americans will likely spend almost double that amount – an additional $24.7 billion – on home renovations in 2018.
  • Lower-income households are likely to spend a larger portion of their tax cut on housing: 12.2 cents on the dollar for households in the bottom income quintile, compared to 3.6 cents on the dollar for households in the top income quintile.

The Tax Cuts and Jobs Act (TCJA) enacted in December is likely to result in tens of billions of dollars being reinvested into housing in some form or another – despite the fact the legislation expressly limited a number of longstanding tax benefits for homeowners.

The net effect of the TCJA was to reduce most Americans’ federal tax liability and increase their after-tax income, in large part by lowering marginal tax rates and increasing the standard deduction. Many are likely to spend at least some of these gains, however small, on housing – despite new limits on tax benefits historically aimed at homeowners, including the mortgage interest deduction and deductions for state and local property taxes.
Source: Zillow Housing Aspirations Report

 

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -40 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: Inflation concerns drove rates higher last week. Inflation is the number one enemy of long bond investors as it eats away at the real rate of return. We have solid economic growth and are seeing increased wages and input prices in some regional Fed manufacturing surveys which pressured MBS last week.

Retail Sales: We had a mixed bag for the April data but the real story is the upward revisions to March. April Headline Retail Sales matched market expectations of a monthly gain of 0.3%. But March was revised upward from 0.6% to 0.8%. When you strip out Autos, Retail Sales improved by 0.3% vs est of 0.5%. However, March was revised higher from 0.2% to 0.4%..so actually without that revision, April matched market expectations.

Manufacturing: The regional Empire Manufacturing Survey was much stronger than expected (20.1 vs est of 15.0). Of particular interest is that the survey responders were very concerned about import tariffs in April, but no so much in May.

Inflation Nation: Joining the recent PCE report that shows inflation over 2.0% (net of a drop in auto prices), the NY Fed’s UIG inflation metric shows inflation to be 3.1% and the Atlanta Fed’s Sticky Inflation metric shows inflation to be 2.5%

Philly Fed: The May Philadelphia Fed Business Outlook Survey jumped to a very robust reading of 34.4 vs est of 21.0 and included a new 45 year high for new orders, selling prices increased by 7 points which is the highest levels since 1981
Leading Economic Indicators: The April reading hit 0.4% which matched expectations and March was revised upward from 0.3% to 0.4%. The report showed a rise in the factory work week but contained no surprises.

The Talking Fed: Dallas Fed President Robert Kaplan thinks we are at full employment. He said “Our judgment at the Dallas Fed is that we are either at or already past full employment.”
April New Housing Starts were lighter than expected (1.287M vs est of 1.310M) But March was revised upward from 1.319M to 1.336M. Building Permits were higher than estimates (1.352M vs est of 1.350). The prior month was also revised upward, from 1.354M to 1.377M. Single-family permits rose 0.9 percent to an 859,000 rate.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

What's the Best Day to Put Your Home on the Market?

While the timing of listing your home for sale should be determined with your Realtor based upon the right solution for your unique circumstances, we do have some national data that simply can't be ignored.

To sell for the most money, you should put your home on the market on a Wednesday. To sell the fastest, list on a Thursday. Avoid Sunday, which is the worst day to list. This is according to Redfin that analyzed a sample of 100,000 homes that sold in 2017 and reviewed the results.

Because homes listed on Sunday perform the worst, they used Sunday as a baseline to compare how much better homes do when listed on the other days of the week.

Homes listed on Wednesday had an advantage of $2,023 in sale price over homes listed on a Sunday, a sale-to-list premium of 0.53 percent. For a $500,000 house, that means you could make $2,650 more just by listing on a Wednesday instead of a Sunday.

For speed, Thursday had a clear advantage, with Thursday-listed homes finding buyers five days faster than the baseline. Homes listed on Thursday also had the edge as far as being more likely to be sold within 90 and 180 days.

Source: Redfin Analytics

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -22 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: Domestic economic data continued to show steady growth but bonds focused on geo-political news more than economic news last week. The United States has decided not to extend the agreement with Iran and we got a firm meeting date between President Trump and North Korea's leader, we also received three "detainees" back from North Korea. Overall, this removed some of the "fear factor" support that has been in long bonds for some time.
Inflation Nation: April Headline Consumer Price Index was bang inline with market expectations (2.5% vs est of 2.5% YOY). The closely watched core (ex food and energy) increased by 0.1% on a MOM basis which was lighter than expectations of 0.2% and YOY, it increased by 2.1% which matched March's pace of 2.1% but was just off expectations of 2.2%.

April Producer Price Index was very close to market expectations. The closely watched core (ex food and energy) increased by 0.2% on a MOM basis which matched forecasts and increased by 2.3% vs 2.4% on a YOY basis.

The Talking Fed: Atlanta Fed President Raphael Bostic summed up the prevailing sentiment in the bond market perfectly last week when he said “swelling optimism over tax policy in the beginning of the year has now been replaced almost completely by uncertainty regarding the proposed tariffs and the possibility of a trade war,” and “I come away with the sense that for now, many firms may be responding to increased uncertainty by moving to the sidelines with respect to new cap-ex plans.”

Small Business Optimism: The NFIB Index improved from 104.7 in March to 104.8 in April. Capital Expenditure Plans, Earnings and Adding Employees all showed good gains.

Jobs, Jobs, Jobs: Another blockbuster reading with the March JOLTS report with 6.550M openings reported which is a half-million more than in February.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

Housing Confidence at All-Time High

The Fannie Mae Home Purchase Sentiment Index® (HPSI) rose 3.4 points in April to 91.7, marking a new all-time survey high.

Americans expressed an increased sense of job security, with the net share who say they are not concerned about losing their job increasing 5 percentage points this month.
The net share reporting that their income is significantly higher than it was 12 months ago increased 1 percentage point in April.
The net share who said home prices will go up in the next 12 months increased 7 percentage points in April.
The net share who reported that now is a good time to sell a home increased 6 percentage points month over month.
"The latest HPSI reading edged up to a new survey high, showing that consumer attitudes remain resilient going into the spring/summer home buying season," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "High home prices and good economic conditions helped push the share of Americans who think it’s a good time to sell to a fresh record high. However, the upward trend in the good-time-to-sell share seen since last spring has done little to release more for-sale inventory. The tightest supply in decades, combined with rising mortgage rates from historically low levels, will likely remain a hurdle for mobility and a persistent headwind for home sales."

Source: Fannie Mae National Housing Survey

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained just +1 basis point (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: The bond market had a very big week for economic data and events. It started with PCE hitting 2% (the Fed's "trigger") rate but then was followed by the Fed meeting where they stressed that they wont react to inflation hitting 2% just once, they want to see a trend line. We also got very strong manufacturing and services data as well as a very solid jobs report.
Fed's Target Rate met? Yes....but there is a catch. While the Fed's official measure of inflation is the Personal Consumption Expenditures (PCE), there are several key reports that are all at 2.00% or above, lets take a look (all reports have been released in the last 30 days):
PCE YOY - 2%
Average Hourly Earnings - 2.7%
GDP - 2.3%
CPI YOY - 2.4%
PPI YOY - 3.0%
WTI Oil - $68.89 now vs $48.84 1 year ago, 36.36% increase.

PCE: The March YOY Headline PCE showed an increase from 1.7% in Feb to 2.0% in March. The Core (Ex food and Energy) reading moved from 1.6% in Feb to 1.9% in March. Both of these data points matched the market expectations.

The Talking Fed: The FOMC voted unanimously to keep their key federal funds rate in the range of 1.5% to 1.75% which was widely expected with markets only giving them a 25% to 30% of raising rates at this meeting.
Here are some key highlights:
• They removed the line about "monitoring inflation developments closely"
• They also removed the prior statement that "the economic outlook has strengthened in recent months."
• Change in inflation language: "On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent"
• FOMC statement now twice uses the word `symmetric' to describe its inflation objective, emphasizing they view a persistent overshoot the same way that they view a persistent undershoot
• Removal of the following language in its entirety: "The economic outlook has strengthened in recent months"
• "Risks to the economic outlook appear roughly balanced" instead of "Near-term risks"

Manufacturing: April ISM Manufacturing hit 57.3 vs est of 58.3, anything above 50 is expansionary and a reading near 60 is very very strong. ISM Prices Paid (another key measure of inflation) jumped to 79.3 vs est of 78.0

Services: The national ISM Non-Manufacturing Services report (2/3 of our economy) was lighter than expected (56.8 vs est of 58.1) but still at a very moderate and expansionary pace.

Jobs, Jobs, Jobs: Its Big Jobs Friday!!
April Non-Farm Payrolls 164K vs est of 190K
March NFP revised upward from 103K to 135K
February NFP revised downward from 326K to 324K
The rolling three month average is now 208K, so the bottom line is the trend is still above 200K.

Unemployment:
The headline Unemployment Rate (U3) dropped from 4.1% down to 3.9%, the market was expecting 4.0%. And is the lowest since 2000.
The Participation Rate dropped to 62.8% from 62.9%
The U6 Unemployment Rate (which includes part time workers for economic reasons and discouraged workers) dropped to 7.8% which is the lowest since 2001.
Wages:
Average Hourly Earnings increased again, this time by 67 cents to get to YOY level of $26.84 which is a 2.6% gain which matches March's pace of 2.6% (downwardly revised).
On a MOM basis, Average Hourly Earnings increased by 4 cents for a change of 0.1% vs estimates of 0.2%.

Hours Worked:
The Average Weekly Hours remained at its longer term trend of 34.5 hours, however Overtime ticked up by 0.1 to 3.7 hours which is normally a precursor to an increase in weekly hours.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

Mortgage Delinquencies Fall to 12 Month Low

In yet another sign of the seemingly ever-strengthening housing market, homeowners are keeping current on their mortgage payments as mortgage delinquencies fall to a 12 month low. This is key because delinquencies can turn in to foreclosures which can disrupt the housing market with "zombie" inventories or below market-price liquidations.

According to a recently published report by Black Knight, the total US loan delinquency rate, which represents loans 30 or more days past due, but not in foreclosure, was at? 3.73% in March, marking a year-over-year change of 3.09%. The delinquency rate declined 13.24% compared to February.

March data also revealed a continuous improvement in the active foreclosure inventory. The total dropped another 10,000 loans in March to its lowest level since late 2006. Additionally, Black Knight found that prepayment activity during the month rose by 22% from February’s 4-year low. The improvement came despite interest rates remaining above 4.4%.

Source: Black Knight, Inc.

What Happened to Rates Last Week?

What Happened last week

Mortgage backed securities (FNMA 4.00 MBS) gained just +3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: Just a net three basis point move for the entire week seems really tame on the surface but in reality, we had a very volatile week with mortgage rates increasing Monday through Wednesday. We had a swing -57BPS from our best pricing of the week (lower rates) to our worst pricing of the week (higher rates). Overall, it was another week with stronger than expected domestic economic data with strong GDP and Durable Goods data as well as very high Consumer Sentiment and Consumer Confidence levels which did combine to pressure pricing but a more "dovish" than expected European Central Bank and Bank of Japan helped MBS to climb off of their worst levels of the week.

Jobs, Jobs, Jobs: The Employment Cost Index for the 1st QTR showed an increase of 0.8% vs est of 0.7% with Wages and Salaries up 0.9% and benefits up 0.7%.

GDP: The Preliminary 1st QTR GDP was hotter than expected with at 2.3% vs 2.0% estimated growth rate due to a sharp rise in service spending (2.3%) while consumer spending increased modestly (1.1%). The QTR over QTR PCE increased by 2.7% vs est of 2.6%.

Durable Goods: The Preliminary March reading (will be revised) saw a much stronger than expected reading on the headline number with a 2.6% MOM gain vs expectations for a 1.6% gain. Plus, February was revised upward from 3.1% to 3.5%. But when you strip out the volatile Transportation sector, the Core Durable Goods reading was flat at 0.0% which was lower than market expectations calling for a small gain of 0.5%.

Consumer Sentiment: The Final April University of Michigan's Consumer Sentiment Index rose to 98.8 vs est of 98.0.

Consumer Confidence: The April MOM reading hit 128.7 vs est of 126.1 with is a block-buster type reading and reflective of consumers seeking larger net paychecks due to the tax cuts.

Taking it to the House: The March Existing Home Sales data was stronger than expected, rising 1.1% vs est of 0.2%. Key takeaways: Median Sales Price increased to $250,400 and marks the the 73rd straight month of year-over-year gains. Inventories fell to 3.6 months of supply and the average time on market dropped from 37 days in Feb to 30 days in March with just over 50% of all inventory selling in 15 days or less.

What to Watch Out For This Week:

What to WAtch out for

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

Existing Home Sales Stronger than Expected

Existing Home Sales Stronger than Expected:

Existing-home sales grew for the second consecutive month in March according to the National Association of Realtors®. This report shows that home prices are rising, inventory levels are falling and the time a home is available for sale is dropping quickly. The trifecta of a strong housing market.

Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.1 percent to a seasonally adjusted annual rate of 5.60 million in March from 5.54 million in February. Economists had forecasted only a 0.2% gain.

Lawrence Yun, NAR chief economist, says closings in March eked forward despite challenging market conditions in most of the country. "Robust gains last month in the Northeast and Midwest – a reversal from the weather-impacted declines seen in February – helped overall sales activity rise to its strongest pace since last November at 5.72 million," said Yun. "The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year ago levels because supply is woefully low and home prices keep climbing above what some would-be buyers can afford."

The median existing-home price for all housing types in March was $250,400, up 5.8 percent from March 2017 ($236,600). March's price increase marks the 73rd straight month of year-over-year gains.

"Although the strong job market and recent tax cuts are boosting the incomes of many households, speedy price growth is squeezing overall affordability in several markets – especially those out West," said Yun.

Total housing inventory at the end of March climbed 5.7 percent to 1.67 million existing homes available for sale, but is still 7.2 percent lower than a year ago (1.80 million) and has fallen year-over-year for 34 consecutive months. Unsold inventory is at a 3.6-month supply at the current sales pace (3.8 months a year ago).

Properties typically stayed on the market for 30 days in March, which is down from 37 days in February and 34 days a year ago. Fifty percent of homes sold in March were on the market for less than a month.

"Realtors® throughout the country are seeing the seasonal ramp-up in buyer demand this spring but without the commensurate increase in new listings coming onto the market," said Yun. "As a result, competition is swift and homes are going under contract in roughly a month, which is four days faster than last year and a remarkable 17 days faster than March 2016."

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -54 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: The threat of inflation continued to pressure MBS as we saw the worst levels in several years (highest mortgage rates in several years). CPI is back above 2.0%, Oil is up which is very inflationary (WTI 68.21, Brent 73.88), there is steady economic growth above 2%, the Fed is trimming down its colossal balance sheet and looks to hike at least two more times this year alone. That is the perfect petri dish for bonds to sell off.

Manufacturing: The Philly Fed Manufacturing Survey and Outlook came in better than expected, 23.2 vs est of 21.0. Prices paid jumped nearly 14 points to 56.4 for the highest reading in 7 years. And prices received jumped more than 9 points to 29.8 which is a 10-year high and an echo of yesterday's Beige Book which said higher metal prices are being passed through, at least to some customers.

Industrial Production: Rose by 0.5% in March vs est of 0.4%, it was the largest gain in 6 years but much of that was due to energy production. Capacity Utilization improved by 78.0% vs est of 77.9%.

Retail Sales: The March Headline Retail Sales report was stronger than expected with a 0.6% vs 0.4% estimate. But when you strip out autos, Retail Sales matched expectations with a 0.2% reading. Department stores continue their free-fall but restaurants and furniture sales climbed higher.

The Talking Fed: The Beige Book was released (you can read it here.)
The main message in this report that is prepared exclusively for the May Fed meeting is "tariff".
The word "tariff" appeared exactly zero times in the March Beige book that was used to raise rates at their April meeting. In this Beige Book, the word "tariff" is used 36 times!
- Outlooks remained positive, though contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed or proposed tariffs.
- Inflation was seen as increasing but at a muted level, with prices increasing across all Districts, but at a moderate pace, although there were widespread reports that steel prices rose, sometimes dramatically, due to trade tensions. The Fed also notes that businesses generally anticipated further price increases in the months ahead, particularly for steel and building materials.
- Most Districts reported wage growth as only "modest" while reports of labor shortages over the reporting period were most often cited in high-skill positions, including engineering, information technology, and health care, as well as in construction and transportation.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

By Taff Weinstein at

Housing Affordability Tightens

Housing Affordability Tightens:

The newly released Spring 2018 Housing and Mortgage Market Review compiled by Arch MI shows that national housing affordability declined by 5% in the first quarter of 2018. This is due to slightly higher mortgage rates, rising home prices and historically low inventory levels. And If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15 percent. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.

Researchers looked at the median-priced home, now $250,000, and estimated price gains this year of 5 percent in addition to mortgage rates going from 4 percent to 5 percent on the 30-year fixed. Other studies that factor in median income also show decreasing affordability because home prices are rising far faster than income growth.

"A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast." said Ralph DeFranco, global chief economist-mortgage services at Arch Capital Services.

However, For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.

Source: Arch MI Spring 2018 Housing and Mortgage Market Review

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 4.00 MBS) lost -32 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.

Overview: The bond market was under pressure (higher rates) due to inflationary data (CPI 2.4%) and several major bond funds (most notably PIMCO) recommending lightening up on bond holdings. Global military and geo-political concerns kept MBS from selling off even more.

Jobs, Jobs, Jobs: The February Job Openings and Labor Turn Over Survey (JOLTS) continues to show over 6 million unfilled jobs which shows that employers are having major issues finding qualified workers to fill the open positions.

Consumer Sentiment: The Preliminary April reading was a miss to the downside (97.8 vs est of 100.6). This will be revised but it shows a pullback in sentiment from our recent historic highs.

PIMCO says Sell: The world's largest bond fund, PIMCO, said that it's time to take profits....now. Dan Ivascyn, the man who replaced Bill Gross as CIO, and the man responsible for allocating hundreds of billions in client funds, said that geopolitical tensions and rising interest rates have created a “much more fragile situation”.
Inflation Nation: The March Consumer Price Price Index matched market expectations but did show an increase in the pace of inflation for consumers and we saw a rare "two handle" on the Core YOY number. Headline CPI YOY hit 2.4% vs est of 2.4% but that is up from Feb's pace of 2.2%. The Core CPI YOY hit 2.1% which matched estimates but it was a hotter pace than Feb's rate of 1.8%.

The Talking Fed: The Minutes from last month's FOMC meeting where released you can read them here.
Overall, the Minutes reveal that the Fed is shifting away from accommodative policies. Here are some of the highlights:
- Recent fiscal policy changes (tax reform) could lead to a greater expansion in economic activity over the next few years than the staff had previously projected.
- A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected.
- Some participants suggested that, at some point, it might become necessary to revise statement language to acknowledge that, in pursuit of the Committee’s statutory mandate and consistent with the median of participants’ policy rate projections in the SEP, monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.
- Many participants stated that recent readings from indicators on inflation and inflation expectations increased their confidence that inflation would rise to the Committee’s 2 percent objective in coming months and then stabilize around that level; others suggested that downside risks to inflation were subsiding.
- Regarding wage growth at the national level, several participants noted a modest increase, but most still described the pace of wage gains as moderate; a few participants cited this fact as suggesting that there was room for the labor market to strengthen somewhat further.
- Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy.

By Taff Weinstein at

Fannie Mae Guideline Change Can Reduce Amount of Cash the Buyer Needs at Closing

The mortgage industry behemoth Fannie Mae has issued a letter to lenders with a revised set of guidelines stating that mortgage lenders could now provide assistance to borrowers as a gift that is not subject to repayment. This could cover some or all of the closing costs associated with the purchase of a home.

Many times, it is negotiated in the purchase contract that the seller covers some or all of the closing costs that are normally the buyer's responsibility. But in this red-hot housing market which has seen the lowest levels of available housing inventory on record, it is becoming more common for the seller to not have to pay the closing costs of the buyer as an incentive to purchase the home.

The money cannot go toward the down payment or surpass the closing costs, but otherwise there is no cap on the amount.

“We’re making it easier for borrowers to purchase a home by allowing lenders to fund closing costs and prepaid fees,” Fannie Mae Chief Credit Officer for Single-Family Carlos Perez said in a letter to lenders.

“While there is no limit to the amount of the lender-sourced contributions, the funds cannot be used toward a down payment, cannot exceed the total closing costs, and should not be subject to any form of repayment agreement,” Perez added.

Source: Fannie Mae

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just -4 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move basically move sideways for the week.

Overview: Opposing forces. Overall, the economic data was very strong last week (ISM and Jobs) which is generally negative for MBS trades and therefore negative for rates. But, global uncertainty over a potential trade war between the U.S. and China provided support for MBS. The two opposing forces "squeezed" MBS into a very narrow and tight range.
Jobs, Jobs, Jobs: We got a lot of labor/wage related data on Friday. Here is the Tale of the Tape:
Jobs:
March Non-Farm Payrolls (NFP) was much lighter than expected 103K vs est. of 193K.
February NFP was revised upward from 313K to 326K.
January NFP was revised downward from 239K to 176K.
The rolling three month moving average is now 202K, so its still above the important 200K mark.
Wages:
Average Hourly Earnings increased by 0.3% vs est. of a 0.2% gain on a MOM basis. Average Hourly earnings are now $26.82.
The more closely watched YOY number increased by 2.7% which matched market expectations and was a small improvement in the yearly pace of increases than the Feb pace of 2.6%.
Unemployment Rate:
The March Unemployment Rate remained at 4.1%. The market was expecting a small decrease, down to 4.0%.
The Participation Rate (which drives the Unemployment Rate) moved from 63.0% in Feb, down to 62.9% in March.

Overall, this was a solid report. Yes, NFP was a miss, but the Fed (and the markets) focus on the rolling three month average which is still above 200K which is very strong. Wages were up 2.7% YOY which is also strong but matched market expectations.

The Talking Fed: Fed Chair Jerome Powell did not say anything to shock the markets. He indicated that the Federal Reserve would likely need to keep raising U.S. interest rates to keep inflation under control and that it was too soon to know if rising trade tensions would hurt the U.S. economy.
ISM Non-Manufacturing: The March reading for the Services sector hit 58.8 vs est of 59.0 which is a very robust reading. The services sector accounts for more than 2/3 of our economy, so this reading gets more weight than the ISM Manufacturing data.

What to Watch Out For This Week:

By Taff Weinstein at

Average Millennial Wastes $93K on Rent by the Time They Hit 30

Average Millennial Wastes $93K on Rent by the Time They Hit 30:

Why is it called "wasting"? Because after you pay rent....that money is gone.  No equity, no tax benefits, nothing.  While home prices have increased for 72 straight months of year-over-year gains (according to the National Association of Realtor's Existing Home Sales Report), millennials that pay rent have missed out on that appreciation.

According to a new study by Rent Cafe, the average millennial spends nearly $100,000 on rent by the time they turn 30 which is around 45% of their income.

Other key findings in their report:

- Millennials pay a whopping $92,600 in total rent by the time they turn 30. Although they earn more compared to previous generations, they also have to spend more on rent.
- By the time Millennials might be thinking about buying a home or starting a family, they are struggling with rent and student loan debt instead. Compared to Baby Boomers (36%) and Generation X (41%), Millennials have to cope with a 45% rent burden in their 20s.
- Because of the ever-increasing rents, discrepancies appeared within the same generation as well. With a rent burden of 47%, younger Millennials (20 - 29) surpass older Millennials who spent about 44% of their income on rent between the ages of 22 and 30.
- If this trend continues, Gen Z-ers  are expected to pay something in the vicinity of $102,000 while in their 20's just to put a rented roof over their head.

Millennials paid much more in rent than what their Baby Boomer parents paid by the time they hit the same age. It seems that Millennials do put a massive amount of money into renting, but the numbers also show that their total median income is the highest among generations, earning about $206,600 in 8 years.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +22 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move basically move sideways for the week, in some cases you may have seen a very slight improvement.

Overview:  We had a holiday-shortened week with the bond market closing early on Thursday and closed for Good Friday.  MBS reached their best levels of the week on Thursday as traders rushed to park their money in the safety of bonds over the long holiday weekend which caused a temporary increase in demand.  For the week, there was actually some very strong economic reports (GDP 2.9%, very high Consumer Confidence and Consumer Sentiment readings and an uptick in the Fed's key inflationary reading) but this was offset with uncertainty and concern over a looming trade with China as well other key trading partners.

Inflation Nation: The Fed's key measure of inflation inched up as the Headline PCE YOY reading hit 1.8% vs est of 1.7%. The Core YOY number inched up from 1.5% to 1.6% which was expected. Both readings are still below their target rate of 2.00% but starting to trend upward. Personal Income saw another monthly gain, this time 0.4% which was expected. Personal Spending gained 0.2% vs est of 0.2%.

Manufacturing: The bell-weather Chicago PMI was much lower than expected (57.4 vs est of 62.0) and is one of the lowest readings in the last 12 months. However, ANY reading above 50.0 is expansionary and reading in the upper 50's is very, very strong.

Consumer Sentiment: The University of Michigan's Survey was revised from the mid-month prelim reading of 102.00 to the final monthly reading of 101.4 which is the highest level since 2004.

Consumer Confidence: The March reading continues a trend of very high levels. It was just off its record setting pace in February (127.7 vs 103.8-)

Taking it to the House: The February Pending Home Sales report was much stronger than expected with a MOM gain of 3.1% vs est of 2.1%. Weekly Mortgage Applications improved by 4.8% led by a big 7.8% jump in Refinance Applications. Purchase applications continued their solid trend with a 3.0% improvement.

Gross Domestic Product: We got our 3rd look at the 4th QTR GDP and its second and final revision. It was revised upward to 2.9% from 2.5%. The market was expecting something in the 2.6% to 2.7% range, so this was stronger than expected. PCE QoQ remained at 1.9%.

What to Watch Out For This Week:

By Taff Weinstein at

Cost of Living is Drastically Different across the U.S.

Cost of Living is Drastically Different across the U.S.

The cost of living can look drastically different depending on where you are. It will cost a single person about $29,118 a year to live in Brownsville, Texas, for example, but in San Francisco, California, that expense more than doubles, to $69,072.

The Economic Policy Institute's (EPI) newly updated family budget calculator, shows how much income for differently sized families is needed in order to attain a baseline standard of living across the U.S. In other words, it measures "what families need to get by," says EPI Senior Economist Elise Gould.
You can access their calculator by clicking here.

The calculator factors in geographic differences in cost of living and six main expenses: housing, food, transportation, health care, other basic necessities and taxes.

"In order to keep the budgets modest, the calculator notably does not include many expenses associated with a middle-class lifestyle, such as paying off student loans or saving for college or retirement," the EPI notes.

The EPI gathered data for 10 family types in all 3,142 counties and in all 611 metro areas.

Below is a list of 10 metro-city areas across the country so you can see how housing expenses and the cost of living stacks up in each area.

San Antonio, Texas
Housing costs: $649 per month ($7,788 per year)
Total cost of living: $2,716 per month ($32,587 per year)
Columbus, Ohio
Housing costs: $601 per month ($7,212 per year)
Total cost of living: $2,719 per month ($32,632 per year)
Jacksonville, Florida
Housing costs: $604 per month ($7,248 per year)
Total cost of living: $2,759 per month ($33,104 per year)
Indianapolis, Indiana
Housing costs: $599 per month ($7,188 per year)
Total cost of living: $2,794 per month ($33,530 per year)
Dallas, Texas
Housing costs: $730 per month ($8,760 per year)
Total cost of living: $2,880 per month ($34,563 per year)
Phoenix, Arizona
Housing costs: $684 per month ($8,208 per year)
Total cost of living: $3,143 per month ($37,715 per year)
Philadelphia, Pennsylvania
Housing costs: $824 per month ($9,891 per year)
Total cost of living: $3,191 per month ($38,291 per year)
Chicago, Illinois
Housing costs: $879 per month ($10,548 per year)
Total cost of living: $3,217 per month ($38,605 per year)
Los Angeles, California
Housing costs: $1,067 per month ($12,804 per year)
Total cost of living: $3,569 per month ($42,825 per year)
New York, New York
Housing costs: $1,514 per month ($18,168 per year)
Total cost of living: $4,277 per month ($51,323 per year)

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: MBS pricing (and therefore rates) were squeezed by opposing forces. On one side, we had a Fed Rate Hike and an increase in the projected number of rate hikes for 2019 and 2020. On the other side, you had increasing deficits with the new $1.3T spending bill and concern over a trade war with China and other major economies. This kept mortgage backed securities stuck in a very tight range all week.

The Talking Fed: The Federal Open Market Committee (FOMC) released their interest rate decision and policy statement on Wednesday. They also released their economic projections. You can read the official monetary policy and Fed statement here.

As expected, the FOMC increased their Fed Fund rate by a 1/4 point. And actually had a slightly stronger outlook compared to December. Here are some highlights:
- Changed the word "solid" as in solid rate of growth to "moderate".
- Said "Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings"
- Kept their dot plot chart at 3 total rate hikes for 2018 but shifted to more rate hikes in 2019 and 2020.
- Still, 7/15 "dots" (not quite half) still see 4 rate hikes in 2018.
- Upgraded their median 2018 GDP forecast from 2.5% to 2.7%
- Upgraded their median Unemployment Rate from 3.9% down to 3.8%
- Kept their core inflation projections at 1.9% for 2018

During his live Press Conference, the quote that got the attention of bond traders (and sent MBS to their best levels of the day) was "a number of participants reported that about their conversations with business leaders around the country and reported that trade policy has come a concern going forward for that growth."

Geo-Political: The President signed the $1.3T spending bill (after threatening to veto it) and will keep the government funded but only until October.

Trade War? The original tariffs (which actually don't legally exist yet) for steel and aluminum have been postponed. But yesterday's launch of $50B in tariffs on China over stolen IP, has China responding with a list of 128 U.S. products that they will have a tariff on.

What to Watch Out For This Week:

By Taff Weinstein at

Home-Buying Demographics

Home Buying Demographics:

Who is driving the super-hot demand in housing right now? The answers are found in the newly published National Association of Realtors 2018 Home Buyer and Seller Generational Trends.

Millennials are now buying more homes than any other group with thirty-six percent of all home purchases were made by that generation over the last year. That makes millennials the most active generation in home buying for the fifth straight year. Gen-Xers ranked second at 26%, followed by younger and older baby boomers at 18% and 14%, respectively. The silent generation – those born between 1925 and 1945 – accounted for 6% of homebuyers over the last year.

Here are some more important statistics from the report:

First-time buyers made up 34 percent of all home buyers, a decrease from last year at 35 percent. Sixty -five percent of buyers 37 years and younger were first -time buyers, followed by buyers 38 to 52 years at 2 4 percent.
Sixty-five percent of recent buyers were married couples, 18 percent were single females, seven percent were single males, and eight percent were unmarried couples. The highest percentage of single female buyers was found in the 72 and older age group. The highest share of unmarried couples were found in the 37 and younger age group.
The most common reasons for recently purchasing a home differed between the generations. For all three groups under the age of 62 years, the main reason for purchasing was the desire to own a home of their own. Among the 63 and older age groups, the desire to be closer to friends and family was the top reason to purchase at 25 percent. Buyers between 72 and 92 years also purchased for the desire for a smaller home at 19 percent.
Overall, buyers expect to live in their homes for a median of 15 years, while 18 percent say that they are never moving. For buyers 37 years and younger, the expected length of time is only 10 years compare to 20 years for buyers 53 to 62 years.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +13 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We continued to see sideways movement in long bond yields throughout the month of March as the market is awaiting the first Fed rate hike of the year. Overall, last week had very strong labor market data and both small business and consumers had some of the highest sentiment readings on record. Inflation was tame but above 2.00% on headline CPI.

Jobs, Jobs, Jobs: January JOLTS (Job Openings and Labor Turnover Survey) showed over 6 million vacant jobs....just waiting for the right person (that can pass a drug test, and has experience/skills). This was a much stronger than expected reading (6.312M vs est of 5.890M) and is at a record high.

Consumer Sentiment: The University of Michigan's Consumer Sentiment Index Preliminary March reading hit 102.00 vs est of 99.3 and is one of the hottest readings on record.

Small Business Optimism: The February NFIB index moved higher from January's level of 106.9 to Feb's reading of 107.6. It the 2nd highest level in 45 years!

Inflation Nation: Across the board, the Consumer Price Data matched market expectations with the closely watched YOY headline reading rising to 2.2% in February from 2.1% in Jan. The Core YOY remained at the 1.8% level. Producer Price Data matched also market expectations with the closely watched YOY Headline reading rising to 2.8% in February from 2.7% in Jan. The Core PPI YOY rose from 2.2% to 2.5%.

Atlanta Fed: Their Year ahead inflation expectations rose from 2.0% in February to 2.1% in March. However, their GDPNow forecast model dropped the 1st QTR GDP expectations down to 1.9%. If you recall, this was 5.2% in January, dropped to 4.3% and then 2.5% and now 1.9%.

Manufacturing: The February Industrial Production figures were almost three-times stronger than expected with a 1.1% vs an estimated 0.2% reading. Capacity Utilization was also a beat (78.1 vs est of 77.6). There was strength in mining, business equipment and building supplies.

What to Watch Out For This Week:

 

By Taff Weinstein at

More Taxes = More Homes For Sale?

More Taxes = More Homes For Sale?

Sounds bizarre but Vancouver, British Columbia is going to try just that.

You see, they have the same problem that we have here in the U.S.A, tight inventory. With inventory levels so low, they have been struggling to find a way to get inventory controlled by "hoarders" back into the market place.

Vancouver is slapping thousands of empty homes with a new tax as part of a government effort to tame the out-of-control Real Estate bubble that just won't quit there and is being closely watched by many U.S. metro markets to see if it works.

Approximately 4.6% or 8,481 homes in Vancouver have stood empty or underutilized for over six months in 2017, down from 10,800 in 2016 according to declarations submitted to the municipality by homeowners. Empty properties will be charged a 1% tax on the assessed value - not much, but with average detached home prices hovering below C$1.8 million, attached units going for C$715K and condominiums at C$571K, 1% is still a large sum of money.

The problem of a hot housing market and tight inventory levels gets even worse as foreign buyers move in which effectively takes a residence out of the market and it sits vacant as thousands of home buyers are scrambling to find a home for sale. According to local sales agents, investors from Hong Kong, Mainland China and other parts of Asia have been acquiring as much as 40% of the units going up for sale and just sitting on them afterwards.

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 4.00 MBS) lost -7 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We continue to see very strong economic data with Jobs (ADP Private Payrolls and BLS Non-Farm Payrolls) as well as a very upbeat economic review by the 12 districts of the Federal Reserve. Both of those are providing pressure on mortgage rates. But the resignation of Gary Cohn and the uncertainty of tariffs and a potential trade war is providing support for rates.

Jobs, Jobs, Jobs: We had Big Jobs Friday! You can read the official BLS report here.
Here is the Tale of the Tape:

Jobs - Non Farm Payrolls:
February 313K vs est. of 200K
January was revised upward from 200K to 239K
December was revised upward from 160K to 175K
The more closely watched rolling 3 month moving average increased to 242K which is very robust.

Wages: Monthly Average Hourly Earnings increased by 0.1% over the prior month. Market was expecting 0.2%.
YOY Average Hourly Earnings increased by 2.6% form this time last year. Market was expecting 2.8%.
The national average hourly rate for private non-farm workers increased to $26.75
Hours Worked picked up by 0.1% to 34.5 which was higher than expectations of 34.4

Unemployment Rate: The February Unemployment Rate hit 4.1% which is the same rate as January. The market was expecting a small improvement to 4.0%.
The Participation Rate had a very rare increase and hit 63.0% vs est. of 62.5%
The February ADP Private Payrolls came in hotter than expected (235K vs est. of 195K), plus January was revised higher from 234K up to 244K (10K).

Productivity: The revised 4th QTR data was revised a little higher. Non-Farm Productivity was revised from -0.1% up to 0.0% and Unit Labor Costs were revised higher from 2.0% to 2.5%.

Geo-Political: President Trump's Senior Economic Advisor Gary Cohn resigned presumably over his objection to the proposed tariffs.

The Talking Fed: On Wednesday we got the Fed's Beige Book. This is prepared specifically to be used in the decision making process during the March Fed policy meeting. It is a compilation of all 12 Fed districts on their views of how each of their fiefdoms are doing economically. You can read the official release HERE.
Overall, the picture is stable growth and concern over impending wage inflation.

What to Watch Out For This Week:

By Taff Weinstein at

Home Prices up 51% from the bottom in 2011

Home Prices up 51% from the bottom in 2011

Home prices across the US have grown 51% since they bottomed out in March 2011, with prices in most markets returning to peak levels after dropping 33% during the recession, according to a new report released by CoreLogic.

The increase in home prices is further evidence that the housing market has more than recovered from housing crisis.

CoreLogic said home prices are now 1% higher compared to their peak in 2006. Additionally, year-over-year gains in home equity averaged $14,888 during the third quarter.

“Homeowners in the United States experienced a run-up in prices from the early 2000s to 2006, and then saw the trend reverse with steady declines through 2011,” CoreLogic Chief Economist Frank Nothaft said. “After reaching bottom in 2011, our national price index is up more than 50%. West Coast states, such as California, Washington, and Oregon, are seeing some of the largest trough-to-current growth rates in home prices. Greater demand and lower supply – as well as booming job markets – have given some of the hardest-hit housing markets a boost in home prices. Yet many are still not back to pre-crash levels.”

Source: Core Logic Special Report

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We had a choppy session with a net swing of -66 basis points from the best pricing (lowest rates) to our worst pricing (highest rates) but when the smoke cleared - pricing was basically the same at the end of the week as it was at the beginning of the week. While we did get some big name economic reports (ISM/GDP) and Powell's first testimony in front of Congress, it was the Trump Tariff announcement that caused the most volatility.

Trade Wars: President Trump announced tariffs on steel and aluminum imports today which concerns traders that it will spark a trade war which may provide some headwinds to our growing economy. The White House has yet to release the specifics but "next week" he will put forth his plan on 10% aluminum and 25% on steel.

The Talking Fed: Fed Chair Jerome Powell has his first round of Semi-annual Monetary Policy hearings. Tuesday in front of the House Financial Services Committee and Thursday in front of the Senate Banking Committee. Here are a few of his statements:
- "some of the headwinds the U.S. economy faced in previous years have turned into tailwinds"
- "inflation remains below our 2 percent longer-run objective. In the FOMC's view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives. As always, the path of monetary policy will depend on the economic outlook as informed by incoming data."
- "These interest rate and balance sheet actions reflect the Committee's view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent."

Overall he did very well in his responses to questions from committee members and kept to the same theme as his prepared remarks. He painted a picture of global growth, tax reform helping the economy, MBS purchases decreasing, concern over the lack of labor slack and was concerned that we might begin to see rising wages "soon".

Personal Income and Outlays: Personal Income increased by 0.4% in January which was a tic higher than expected. Personal Spending matched expectations with a monthly gain of 0.2%. The Fed's key measure of inflation, PCE YOY came in at 1.7% vs est of 1.6%. Core PCE YOY matched forecasts with a 1.5% reading.

Manufacturing: February ISM Manufacturing was the best since 2004 with a 60.8 reading which handily beat out estimates calling for a reading of 58.7. ISM Prices Paid jumped to a 6 1/2 year high (74.2 vs est of 70.5)

GDP: We got the first revision to the 4th QTR GDP and it was revised lower from 2.6% down to 2.5% which is exactly what the market was expecting.

What to Watch Out For This Week:

By Taff Weinstein at

Gradual Increase in Mortgage Rates Unlikely to Hurt Housing Market

Gradual Increase in Mortgage Rates Unlikely to Hurt Housing Market:

With expectations among economists that the 30-year fixed-rate mortgage will approach 5% by the end of 2019, First American Chief Economist Mark Fleming said that their is an increase in market potential which reflects faster economic growth, low unemployment, and continued low mortgage rates. Fleming said it is unlikely that large numbers of home buyers will be dissuaded by a modest increase in mortgage rates.

“There are a variety of reasons why people buy homes that are completely independent of mortgage rates. A gradual rise in mortgage rates won’t change that,” Fleming said.

“Our Potential Home Sales model forecasts what the market potential for home sales should be given current economic, demographic, and housing market environments. Potential home sales, while currently at a level of 6.1 million SAAR, are expected to reach an estimated 6.29 million SAAR by the end of 2019, despite a rising rate environment,” he said. “However, while the yearly growth rate in potential sales is currently at 3.6%, it is expected to slow to just below 1% by the end of 2019."

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our potential home sales model measures what home sales should be based on the economic, demographic, and housing market environments.”

Source: First American Title Insurance

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -2 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.

Overview: We had a holiday-shortened week (Monday closed for President's day). There were no major domestic economic releases. We did have three short term Treasury note auctions (2,5 and 7 year) that saw lower than average demand and higher rates. The bond market's only focus was on the Federal Reserve which released the Minutes from their last meeting and their Monetary Policy report.

The Talking Fed: They released the Minutes from the last FOMC meeting, you can read them here.
The Fed is confident that the economy is gaining momentum, as a number of participants said they had marked up their growth forecasts since the previous month, encouraged by firm global growth, supportive financial markets and the potential for US tax cuts to boost the economy more than expected. Still, others said the “upside risks” to growth may have increased, according to minutes of their January gathering. Of note is that FOMC voters agreed to add the word "further'' in front of "gradual increases" because of the stronger economic outlook.

Fed Chair Jerome Powell submitted the Fed Monetary Policy Report along with his prepared speech in written form to Capital Hill on Friday. You can read it here.
It very much followed the same "hawkish" tone and them as this week's FOMC Minutes.

What to Watch Out For This Week:

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