A Big Reason Inventory is Low

By Taff Weinstein at

A Big Reason Inventory is Low

While home sales have been very steady and strong, there is one key roadblock that is keeping a lid on further gains in sales.  Inventory.  The lack of available homes for sale has severely restricted the ability for many to find a home (at any price).   There are many reasons for such a tight supply, in today's article, we will focus on Seniors....yes Seniors.

With people living longer and more productive lives, they are choosing to stay in their homes longer than ever before with Freddie Mac estimating that over 1.6 million homes that would otherwise be available as inventory....is locked up by older generations.

Freddie Mac found that seniors born after 1931 are staying in their homes longer, and aging in place. The result is higher homeownership rates for this group relative to previous cohorts. They estimate that this trend accounts for about 1.6 million houses held back from the market through 2018, representing about one year’s typical supply of new construction, or more than half of the current shortfall of 2.5 million housing units estimated in Freddie Mac's December’s Insight. This additional demand for homeownership from seniors will increase the relative price of owning versus renting, making renting more attractive to younger generations. However, a shortfall of new construction puts upward pressure on both house prices and rental rates.

Why are seniors holding on to their homes? The pattern is explained by a few key factors, such as better health and higher levels of education in more recent cohorts. This pattern is likely to increase over time as improvements in health care and technology make aging in place easier (for example, the ability to Skype with a doctor).

Source: Freddie Mac

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 compared to the previous week.

Overview:  We had a fairly quite week with rates holding steady and at very low levels.  The biggest economic report of the week (ISM Services) showed solid growth but several key members of the Federal Reserve had speeches which more than indicated that the Fed would stand pat on taking any action in the near term. 

ISM Services: The January ISM Non-Manufacturing PMI representing about 2/3 of our economic output hit 56.7 vs est of 57.1. It is one of the lower readings in 2 years but still considered very robust since it is above 55.0. Part of the miss is due to the nice upper revision to December from 57.6 to 58.0

The Talking Fed: Fed Chair Powell said income inequality and sluggish productivity are the biggest challenges of the next decade but he did not discuss anything new about monetary policy. Dallas Fed President Robert Kaplan said that U.S. interest rates are currently “in the neighborhood” of a neutral level, and the Fed should not be using monetary policy to stimulate the economy, or to slow it, at this point. St. Louis Fed President James Bullard said that the U.S. Federal Reserve’s interest rate increase in December likely tipped monetary policy into slightly restrictive territory, a step beyond the neutral level policymakers had hoped to hit.

Factory Orders: The November U.S. Factory Orders were lighter than expected (-0.6% vs est of +0.2%) but were a nice improvement over October's pace of -2.1%.

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.


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