Entries by Taff Weinstein

Louisville!  While the fabled Kentucky Derby at Churchill Downs in Louisville, KY had an unusual outcome this weekend, the City of Louisville was the big winner. 

And that is because homeowner's in Louisville, KY pay the lowest real estate taxes among the 50 biggest Metro-City areas!

LendingTree just released its study on how owning real estate impacts people in different areas around the country. 

LendingTree looked at the average amount of real estate taxes, mortgage interest and mortgage insurance premiums that were paid by homeowners in a given metro, as reflected on their tax returns. The study then ranked the nation’s 50 largest metros to show where people paid the lowest taxes on their homes.

Key findings

• People from metros in more rural states tend to pay less in real estate taxes. Homeowners in Birmingham, Ala., Louisville, Ky., and Salt Lake City pay an average of $2,600 on real estate taxes, which is the lowest out of the nation’s 50 largest metros.
• Louisville, Ky.
  % of returns with real estate taxes: 27.7%
  Average real estate tax amount: $2,733
  % of returns with mortgage interest paid: 24.2%
  Average mortgage interest paid: $6,297
  % of returns with mortgage insurance premiums paid: 4.3%
  Average mortgage insurance premium amount: $1,227

Source: LendingTree Real Estate Tax Survey

 
What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) were unchanged (+0) basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways compared to the previous week.

Overview:  With a net change of zero basis points, it appears as if we had a pretty boring week. But actually we had a lot of volatility as the long bond market reacted to the Federal Reserve and Friday's jobs data.  Overall, the message from the Fed was that our economy and labor market are very solid but they are going to wait and see how things develop before they take any action one way or another.

The Talking Fed: The Federal Open Market Committee released its Interest Rate and Policy Statement on Wednesday.  You can read the official release here.
Here are some key points:

• • They kept their key interest rate (the Fed Funds Target Rate) unchanged at the 2.25%-2.50% range.

• • They lowered the Interest On Excess Reserves rate (IOER) by 5bps to 2.35% hoping to push banks to lend rather than parking cash at the central bank.

• • The decision is unanimous at 10-0; there have been no FOMC dissents since Powell became chairman in February 2018.

• • Not "hawkish" nor "dovish" as the statement shows that the central bank is still reluctant to signal a policy bias in either direction.

• • The FOMC adjusted its language on the economy, characterizing economic growth and job gains as "solid'' while saying consumer spending and business investment slowed in the first quarter; the Fed acknowledges both overall and core inflation have declined and are running below 2 percent.

• Markets are focusing on Fed Chair Powell's repeated statement that the low inflation is "transitory" and will move higher to norms.

What to Watch Out For This Week:

Reader's Digest has come out with a very interesting list where they complied the most "famous" home in every state.  Some have historical significance, some architectural and some are due to celebrity status.

The list below has some gems like Helen Keller's birthplace, the Playboy Mansion and the house from the Home Alone movie:

Alabama - Helen Keller's birthplace
Alaska - Governor's Mansion
Arizona - Taliesin West
Arkansas - Johnny Cash's boyhood home
California - The Playboy Mansion
Colorado - Molly Brown's house
Connecticut - The Glass house
Delaware - Nemours Estate
Florida - Earnest Hemingway House
Georgia - Birth home of Martin Luther King, Jr.
Hawaii - Lolani Palace
Idaho - The former Idaho State Penitentiary
Illinois - The "Home Alone" house
Indiana - Culbertson Mansion
Iowa - the American Gothic House 
Kansas - Amelia Earhart's birthplace
Kentucky - Mary Todd Lincoln's house
Louisiana - Oak Valley Plantation
Maine - Harriet Beecher Stowe's house
Maryland - Mount Clare
Massachusetts - Lizzie Bordern's house
Michigan - The Ford House
Minnesota - Paisley Park
Mississippi - Elvis Presley's birthplace
Missouri - Mark Twain's boyhood home
Montana - Moss Mansion
Nebraska - Buffalo Bill's farmhouse
Nevada - Governor's Mansion
New Hampshire - Castle in the Clouds
New Jersey - Walt Whitman's house
New Mexico - Kit Carson's home
New York - Gracie Mansion
North Carolina - Biltmore Estate
North Dakota - Lawrence Welk's birthplace
Ohio - The A Christmas Story house
Oklahoma - The Marland Mansion
Oregon - The Hughes House
Pennsylvania - Fallingwater
Rhode Island - The Breakers
South Carolina - The John Joyner Smith House
South Dakota - The Summer White House
Tennessee - Graceland
Texas - Yates House
Utah - The Beehive House
Vermont - Robert Frost's house in Shaftsbury
Virginia - Mt. Vernon
Washington - Kurt Cobain's house
West Virginia - Lockwood House
Wisconsin - Laura Ingalls Wilder birthplace
Wyoming - Fossil Cabin

How many of these have you visited?

For pictures of each house and why each place was selected, visit the article on Reader's Digest

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +29 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower compared to the previous week.

Overview:  MBS were pressured lower and trading right along our bottom support level until Friday's GDP report.  And it was a very interesting take on the GDP data by the markets. First, MBS moved lower (higher rates) on the massive headline beat of 3.2%. However, once the market read through and digested the report, it became clearer that a good chunk of the beat was due to inventory build up, which may (or may not) have been due to front running higher tariffs. The internal prices paid was also about half of market expectations. Together, these two combined to cause trades to reverse course and back into positive territory (lower rates).

GDP:  A huge beat with the release of the preliminary (will be revised several times) 1st QTR GDP of 3.2% vs est of 2.1%.  Those estimates were 0.4% a month ago and 1.9% a week ago.  This is one of the hottest 1st QTRs in recent history.  However, inflation remained at bay with GDP Prices up only  0.6% for the Quarter which was half of the market expectations of 1.3%.

Consumer Sentiment:  The preliminary April reading hit 97.2 vs et of 97.0

Durable Goods: The Preliminary March data was three times as high as expected with the headline reading coming in at 2.7% vs est of 0.8%.  When you strip out Transportation it was double the expectations, 0.4% vs est of 0.2%.  And big focal point of traders is the Non-Defense/Ex Aircraft which jumped by 1.3% vs expectations of only 0.1%. 

Taking it to the House: Existing Home Sales for March were a little lower than expected (5.21M vs est of 5.30M) on an annualized basis.  But is that a miss?  Or are the "estimates" wrong to begin with?  Regardless, time on the market fell, and we hit a new all time high for March for the median sales price.  In fact the median sales price YOY has now risen for 85 straight months.

What to Watch Out For This Week:

While the total number of units selling is down slightly (due to limited inventory), the median home price set a new all time record for a March reading.  According to the National Association of Realtors Existing Home Sales report, the median price for a home moved upward to $259,400 which is up from March 2018 ($249,800). March’s price increase marks the 85th straight month of year-over-year gains.

Total housing inventory at the end of March increased to 1.68 million units, up from 1.63 million existing homes available for sale in February and a 2.4% increase from 1.64 million a year ago. Unsold inventory is at a 3.9-month supply at the current sales pace, up from 3.6 months in February and up from 3.6 months in March 2018.

“Further increases in inventory are highly desirable to keep home prices in check,” says Lawrence Yun, NAR's Chief Economist. “The sustained steady gains in home sales can occur when home price appreciation grows at roughly the same pace as wage growth.”

Properties remained on the market for an average of 36 days in March, down from 44 days in February but up from 30 days a year ago. Forty-seven percent of homes sold in March were on the market for less than a month.

First-time buyers were responsible for 33% of sales in March, up from last month and a year ago (32% and 30%). All-cash sales accounted for 21% of transactions in March, down from February’s 23%, but up from a year ago (20%). Individual investors, who account for many cash sales, purchased 18% of homes in March, up from February’s 16%, and up from a year ago (16%).

Distressed sales – foreclosures and short sales – represented 3% of sales in March, down from 4% last month and down from 4% in March 2018. One percent of March 2019 sales were short sales.
Source: NAR

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just -5 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 holiday shortened week with the bond market closing at 2:00 Eastern on Thursday.  We got some fairly good economic data with strong Retail Sales and yet another strong jobs report.  The Fed's Beige Book received the most attention but it really offered no surprises.

The Talking Fed: We got to take a look at the latest Beige book prepared by the Fed in advance of their next policy meeting.You can read the official release here.
Here are some key highlights:
- On Labor: "employment continued to increase nationwide, with nine districts reporting modest or moderate growth" even as the other three reporting slight growth. Furthermore, a majority of districts cited shortages of skilled laborers, most commonly in manufacturing and construction, while wages for both skilled and unskilled positions generally grew at about the same pace as earlier this year.
- On Manufacturing: Contacts in many districts reported that trade-related uncertainty was weighing on activity.
- On Inflation: On balance, prices have risen modestly since the previous report. Input costs increased in the modest-to-moderate range. Tariffs, freight costs, and rising wages were often cited as key factors driving this trend.
- Economic Activity: Similar to the last report, most First District business contacts cited modest to moderate growth, with some slowing in manufacturing. 
- Retail Spending: All retail contacts for this round, covering late February through early April, reported that same-store sales grew by low- to mid-single digits on a year-over-year basis, indicating that "consumers were in a buying mood." 

Retail Sales:  The March data was much stronger than expected.  The headline reading hit 1.6% vs est of 0.9%. Ex-Autos, another beat with a 1.2% vs est 0.7% expectation.  Plus February was revised upward from -0.4% to -0.2%.

Jobs, Jobs, Jobs: For the second straight week, we got a sub-200K reading in Initial Weekly Jobless Claims (192K vs est of 205K).  The more closely watched 4 week moving average dropped down to  201,250 with is the lowest since 1969.

Philly Fed: Their Business Outlook Survey for April was a little lighter than expected but still in positive territory (8.5 vs est of 10.2)

Business Inventories:   The February data was better than expected (lower number is better) 0.3% vs est of 0.4%. 

Leading Indicators: The March Leading Economic Indicators were a little better than expected (0.4% vs est of 0.3%

What to Watch Out For This Week:

According to ATTOM Data Solutions, U.S. properties with a foreclosure filing during the first quarter of 2019, were down 23 percent from the previous quarter and down 15 percent from a year ago to the lowest level since Q1 2008.

“While some markets saw a slight uptick in foreclosure filings, that is above pre-recession levels, the majority of the major markets are well below pre-recession levels,” said Todd Teta, chief product officer at ATTOM Data Solutions. “While we did see a slight increase in U.S. foreclosure starts from last quarter, bank repossessions reached an all-time low in the first quarter of 2019, showing continuing signs of a strong housing market.”

Markets below pre-recession levels include San Jose, Memphis, Dallas-Fort Worth
The 132 out of the 220 markets (60 percent) with a population greater than 200,000 in the first quarter foreclosure activity below pre-recession averages included San Jose (79 percent below); Memphis (77 percent below); Dallas-Fort Worth (77 percent below); Las Vegas (74 percent below); and Phoenix (68 percent below).

Other major markets with first quarter foreclosure activity below pre-recession averages were San Francisco, Riverside-San Bernardino in Southern California, Chicago, Detroit and Seattle.

Bank repossessions down in 48 states and DC
Lenders repossessed 35,787 U.S. properties through foreclosure (REO) in Q1 2019, down 21 percent from the previous quarter and down 45 percent from a year ago — the 14th consecutive quarter with a year-over-year decrease in U.S. REOs.

Along with the District of Columbia, 48 states posted year-over-year decreases in REOs in the first quarter, including Arizona (down 77 percent); California (down 41 percent); Florida (down 33 percent); New Jersey (down 59 percent); and Texas (down 43 percent).

Source: ATTOM Data

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -34 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher compared to the previous week.

Overview:  Mortgage rates moved a little higher last week on the heels of inflationary data that was a smidge hotter than expected and on growing optimism of a trade deal with China moving forward.

Inflation Nation:  The March Import Prices were much higher than expected with the MOM at 0.6% vs est of 0.4% and Feb revised upward from 0.6% to 1.0%. YOY Import Prices came in at 0.0% but that is a huge beat considering the estimates called for a decline of -1.3%.  The majority of the increase is attributed to energy costs. The March Producer Price Index (PPI) was a littler hotter than expected.  The Headline PPI YOY moved upward from 1.9% in Feb to 2.2% in March, the market was pricing in another 1.9% reading.  The Core PPI YoY remained at 2.4%. (PPI) was a littler hotter than expected.  The Headline PPI YOY moved upward from 1.9% in Feb to 2.2% in March, the market was pricing in another 1.9% reading.  The Core PPI YoY remained at 2.4%. The March Consumer Price Index (CPI) was a mixed bag.  The Headline CPI YOY moved upward from 1.5% in Feb to 1.9% in March, which is a large move.   However, it was largely expected with expectations in the 1.8% rang.  Meanwhile the Core (Ex Food and Energy) CPI YOY hit 2.0% vs est of 2.1%.

Jobs, Jobs, Jobs:  The February Job Openings and Labor Turnover Survey (JOLTS) continued to show very high levels of unfilled jobs and once again topped 7 million.   It was lighter than expectations (7.087M vs est of 7.550M) but January was revised upward from 7.581M to 7.625M which is a new and all time high record.

The Talking Fed: We got the Minutes from the last FOMC meeting where they seemed to tilt more to the "dovish" side of policy on Wednesday.  You can read the official release here.
Here some key takeaways:

What to Watch Out For This Week:

According to a new report by RedFin, Americans are speeding up the time to search and tour homes before making a decision and putting in an offer.

With more homes on the market, prices growing at a slower rate and even falling in some markets, and less competition from other buyers, finding a home is a lot less stressful this year than it has been in recent years. When a buyer finds the home they want to make an offer on there’s now a greater chance that their offer will be the only one and that the seller will accept it. This has led to the shortest median home search length for buyers during the winter months in at least six years.

As the market is becoming more tenable for buyers, it’s becoming less favorable for sellers, who are waiting longer to secure a buyer this year. Nationwide, homes that sold in February spent a median 59 days on the market before going under contract, up two days from a year earlier, and following three consecutive years of acceleration.

Buyers this year are also having to see fewer homes in person and write fewer offers before successfully landing a home. Nationally, buyers toured an average of about 10 homes this winter before closing on a home, and made an average of 1.6 offers, compared to touring about 11 homes and making 1.8 offers a year ago.

Buyers’ Time on Market, 3-Month Median as of February

What Happened to Rates Last Week?

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

Overview:  While rates were very similar at the end of the week compared to the prior week, we actually had a little volatility during the week with mortgage rates rising due to strong economic news and some positive sentiment on the progress of the U.S./China trade talks.  However, on Friday MBS rebounded which caused rates move back to their starting position at the beginning of the week due to a smaller than expected rise in wages and more turmoil that is the soap-opera of Brexit.

Jobs, Jobs, Jobs: We got the big jobs report on Friday.  You can read the official BLS report here.
Lets look at the Tale of the Tape:
Jobs:
March Non Farm Payrolls (NFP) higher than expected 196K vs est of 180K
February NFP revised upward to 33K from 20K, will be revised again.
January NFP revised upward to 312K from 311K
The more closely watched rolling three month average is now 180K
Unemployment:
The Unemployment rate remains at 3.8% which matched market expectations.
The Participation rate is 63.0% vs est of 62.9%, but it is a decline over Feb's pace of 63.2%
Wages:
The Average Hourly Earnings moved up by 0.1% on a MOM basis to $27.70 per hour.
Average Hourly Earnings YOY increased by 3.2%, which was below estimates of 3.4%

Services: The March ISM Services (2/3 of our economy) had a very strong and expansionary reading of 56.1, the problem is that the market was expecting 58.0 and we are coming off of a pace of 59.7 in February.  Markit ISM for March was stronger than expected though (55.3 vs est of 54.

Retail Sales: This report has been all over the place over the past four months and most economists and bond traders are not giving it the weight that it once enjoyed.  The  February data appears to be much worse than expected with the headline reading at -0.2% vs est of +0.3%, however the miss is because January was revised upward from 0.2% to 0.7%. Same goes for Retail Sales Ex-Autos (-0.4% vs est of +0.4%) as January was revised upward significantly from 0.9% to 1.4%.

Manufacturing:  The March ISM Manufacturing report was stronger than expected (55.3 vs est of 54.2) This is also much stronger than February's reading of 54.2 demonstrating that their is an upward, not downward trajectory of manufacturing in the U.S.  Prices Paid were also higher (inflationary) than expected with a 54.3 vs est of 52.5 reading.

Construction Spending:  The February data was almost three times higher than expectations (1.0% vs est of 0.4%) and January was revised upward from 1.3% to 2.5%.  eading for the bell-weather Chicago PMI was lighter than expected (58.7 vs est of 61.0).  However, ANY reading above 55 is VERY robust growth.  However, Residential Spending dropped by 11.7%.  All the gains were in public works and commercial.

What to Watch Out For This Week:

New Home Sales were much stronger than market expectations and consensus forecasts.

February sales jumped to an 11-month high as new home sales hit 667,000 units on an annualized pace, this was 4.9% higher than January's pace and 0.6% from this time a  year ago.

At the current sales rate, it would take 6.1 months to exhaust the available supply of homes. Over many decades, 6 months of supply has been the amount that’s generally considered a sign of a market evenly balanced between supply and demand.  Inventory dropped 0.6 percent from revised January figures to 340,000, and rose 13.3 percent from a year earlier.

The median price of a home sold during the month was $315,300, which is up 3.8% from January.  The Average Sales Price moved up to 379,000.

Lower mortgage rates, low employment and solid wage growth are all factors that are driving up sales for both Existing and New Homes.

Source: U.S. Census Bureau

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just -2 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways compared to the previous week, keeping the lowest rates of 2019 alive and well.

Overview:  Mortgage rates remained at or near their lowest levels of 2019 as concerns over multiple failed votes on Brexit continued to keep money pouring into the safe-haven of U.S. bonds.  That added demand for our debt pushes rates lower.  We had very tame inflationary data (PCE) but very strong manufacturing, GDP and consumer sentiment which would normally be a factor in pushing rates higher.

Inflation Nation: The Fed's Key measure of inflation, PCE (Personal Consumption Expenditures) YOY (Year-over-Year) Core (Ex-Food and Energy) was lighter than expected, coming in at 1.8% vs est of 1.9%. However, the prior month was revised upward from 1.9% to 2.0%, so really it was a match. The Headline PCE YOY matched expectations with a 1.4% increase and the prior month moved up from 1.7% to 1.8%. We had a big miss on Personal Spending which showed MOM increase of only 0.1% vs est of 0.3% and Personal Income hit 0.2% vs est of 0.3%

Manufacturing: The March reading for the bell-weather Chicago PMI was lighter than expected (58.7 vs est of 61.0). However, ANY reading above 55 is VERY robust growth.

Consumer Sentiment: The final reading of the University of Michigan's Consumer Sentiment Index for March was revised upward from 97.8 to 98.4 which is the strongest reading since October.

Taking it to the House:  New Home Sales MOM hit 667K vs est of 620K. Plus, January was revised upward from 607K to 636K. February Pending Home Sales were down -1.0% vs est of 0.7%. Weekly Mortgage Applications jumped up by 8.9%. Refinances increased by 12% and Purchases increased by 6.0%. February New Housing Starts were lighter than expected (1.162M vs est of 1.213M) but January was revised upward from 1.230M to 1.237M. Building Permits were close to the mark with a 1.296M vs est of 1.300M reading. The January Case-Shiller 20 Metro City Home Price Index showed a YOY gain 3.6% of vs est of 4.0%. The more comprehensive FHFA Home Price Index showed a MOM gain 0.6% of vs est of 0.3%

GDP: We got the final revision to the 4th QTR GDP and it was revised lower from 2.6% to 2.2%, however 2.2% is exactly what the market was expecting. As the BEA notes, measured from the fourth quarter of 2017 to the fourth quarter of 2018, real GDP increased 3.0 percent during the period. That compared with to an increase of 2.5 percent during 2017.

What to Watch Out For This Week:

Existing home sales increased strongly in February, experiencing the largest month-over-month gain since December 2015, according to the National Association of Realtors®. Three of the four major U.S. regions saw sales gains, while the Northeast remained unchanged from last month.

Total existing home sales are completed transactions that include single-family homes, townhomes, condominiums and co-ops.  Total sales shot up 11.8 percent from January to a seasonally adjusted annual rate of 5.51 million in February. 

Lawrence Yun, NAR's chief economist, credited a number of aspects to the jump in February sales. "A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound."

The median existing-home price for all housing types in February was $249,500, up 3.6 percent from February 2018 ($240,800). February's price increase marks the 84th straight month of year-over-year gains.

Total housing inventory at the end of February increased to 1.63 million, up from 1.59 million existing homes available for sale in January, a 3.2 percent increase from 1.58 million a year ago. Unsold inventory is at a 3.5-month supply at the current sales pace, down from 3.9 months in January but up from 3.4 months in February 2018.

Properties remained on the market for an average of 44 days in February, down from 49 days in January but up from 37 days a year ago. Forty-one percent of homes sold in February were on the market for less than a month.

Source: NAR

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +50 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower compared to the previous week.

Overview:  Mortgage rates dropped to their lowest levels due to three main factors: Weak manufacturing data out of Asia and Europe, a very "dovish" Federal Reserve on Wednesday, and the continued train wreck that is Brexit.  The weak economic data and geo-political instability had money flowing into the safe-haven of our U.S. bonds.

The Talking Fed:  As expected, they kept their key interest rate unchanged.  However, they certainly had a more "dovish" tilt to their outlook compared to their last projections in December.
They had three key releases last week:
Read the Official Fed Policy Statement 
Read their Economic Projections here.
Read their Balance Sheet Normalization plans here.
Here are some key points:

• Fed leaves rates unchanged, says economic growth has slowed form Q4, even as labor market still strong, job gains solid
• As expected, the Fed will taper its balance-sheet rolloff, sees it ending by the of September
• Fed signals no rate hike this year with one increase in 2020
• 11 officials for zero 2019 hikes, four for one hike
• Federal Open Market Committee still sees a sustained economic expansion, strong labor market conditions, and inflation near 2% objective as the most likely outcomes; will be “patient” in determining what rate moves may be appropriate, given global economic and financial developments and “muted” inflation pressures.
• Says overall inflation on a 12-month basis has declined, largely due to lower energy prices, while core gauge remains close to 2 percent; now says market-based measures of inflation compensation have remained low in recent months; continues to see survey-based measures of longer-term inflation expectations as little changed
• The Committee intends to continue to allow its holdings of agency debt and agency mortgage-backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run.
  • Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities subject to a maximum amount of $20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS.
  • Principal payments from agency debt and agency MBS below the $20 billion maximum will initially be invested in Treasury securities across a range of maturities to roughly match the maturity composition of Treasury securities outstanding; the Committee will revisit this reinvestment plan in connection with its deliberations regarding the longer-run composition of the SOMA portfolio.
  • It continues to be the Committee's view that limited sales of agency MBS might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public well in advance.

Taking it to the House: A block-buster Existing Home Sales Report for February with one of the largest monthly gains on record. 5.510M annualized units beat out estimates of 5.10M and represents a 11.2% MOM gain. The March NAHB Housing Market Index remained at 62, the market was expecting 63. Any reading above 50 is positive and above 60 is very strong.

What to Watch Out For This Week:

Monthly rental payments for both single-family homes and multifamily apartments are now rising at the fastest pace in nearly a year, according to Zillow.

The median monthly rent in February came in at $1,472, an increase of 2.4 percent compared with February 2018. For the typical renter, this means about $400 more a year. 

Of course all real estate is local, with rents now significantly higher than a year ago in Orlando, Florida (+7.0 percent), Phoenix (+6.8 percent), Riverside, California (+6.2 percent), Tampa, Florida (+5.5 percent) and Pittsburgh (+4.9 percent). Rents in New York City have seen no effect from Amazon’s decision not to build a new headquarters there. Rents in Northern Virginia, where Amazon is still on track to hire thousands of employees, are expected to rise, as home sales and prices are already getting a boost from investors.

The priciest major metro in the country remains San Jose, Calif., at $3,547 in February, up 1.4 percent from a year earlier. It’s followed by San Francisco at $3,448 a month (up 1.6 percent), Los Angeles at $2,835 a month (up 3.5 percent), San Diego at $2,643 a month (up 4.2 percent) and New York at $2,419 (up 1.2 percent).

Source: Zillow Research

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +10 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways compared to the previous week.

Overview:  Once again, we had some moderate to very strong domestic economic data that would normally be a force that causes MBS to sell off and cause mortgage rates to rise.  But geo-political concerns provide enough global fear to keep demand levels for our bonds at very lofty levels which kept rates at very low levels.  Great Brittan couldn't get their Brexit plans passed and the best they could do after two failed votes last week was to delay their divorce from the Eurozone.

Jobs, Jobs, Jobs: Wow...another new record! The January Job Openings and Labor Turnover Survey (JOLTS) showed 7.581M unfilled positions which beat out estimates calling for a very high level of 7.310M. Per the BLS, the number of Unemployed is 6.2M...so there are 1.381M MORE JOBS THAN THERE ARE PEOPLE LOOKING FOR JOBS.

Inflation Nation: The Feb Headline Consumer Price Index YOY was lighter than expected (1.5% vs est of 1.6%). Core (Ex Food and Energy) YOY hit 2.1% vs est of 2.2%. Prices fell in prescription drugs and auto prices but shelter costs moved up 3.4% YOY. 

Consumer Sentiment: The Preliminary March University of Michigan's Consumer Sentiment Index was much higher than expected (97.8 vs est of 95.3) and a big improvement over Feb's final reading of 93.8

Central Bank Palooza: The Bank of Japan kept their key interest rate at -0.1%.

Taking it to the House: New Home Sales for January hit 607K vs est of 620K. But December was revised upward fro 621K to 652K. Weekly Mortgage Applications rose by 2.3%. Purchases increased by 4.0% but Refinances fell by -0.2%.

What to Watch Out For This Week:

Every year when some states "spring forward" like they did this weekend, the national conversation always turns to "daylight savings time" and if we should keep that system in place.   But we thought it would be a good opportunity to focus on housing affordability in the different time zones.

What is "Affordability"?  Well Nerd Wallet calculated it by comparing median household incomes and median home prices, assuming a 20% down payment. A place with high incomes and low home prices is more affordable for buying a home than an area with low incomes and high home prices.

Each quarter, NerdWallet calculates the home affordability for 178 metropolitan areas, matching the list of metros for which the National Association of Realtors publishes median home prices. This quarter, NerdWallet sorted the metro areas by time zone, slicing the contiguous United States roughly into fourths. There were big differences in affordability of homes among time zones.

No surprise as cities in the Pacific time zone have the least-affordable housing in the country, and the Central time zone has the most-affordable housing.  

Here is a great example of a least affordable area:
San Jose-Sunnyvale-Santa Clara, California - Pacific Time Zone
Median home price: $1,250,000
Median household income: $117,474
Principal and interest payment: $5,313 (54.3% of monthly income)
This is the only one of the 178 metro areas with a median house price in the seven figures. A buyer of a typical home, after making a 20% down payment, would get a mortgage of $1 million. Just the principal and interest on the mortgage would cost the typical family more than half its monthly income.

Here is an example of a most affordable area:
Most affordable: Decatur, Illinois - Central Time Zone
Median home price: $89,300
Median household income: $51,970
Principal and interest payment: $380 (8.8% of monthly income)
This central Illinois city had the lowest median house price among the 178 metro areas that the National Association of Realtors tracks. Decatur’s population declined 5.2% from 2010 to 2017, and buyers don’t seem to be in a hurry to take advantage of low house prices. Those factors make Decatur more of a buyer’s market than other metros mentioned in this article. At the end of the fourth quarter of 2018, half the homes listed for sale in Decatur had been on the market for more than 108 days. For the entire United States, the median number of days on market was 80.

Source: Nerd Wallet, WCPO Cincinnati

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +44 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower compared to the previous week.

Overview:  We had very strong economic data with ISM Services (2/3 of our economy) hitting their 4th best level in 20 years and Average Hourly Earnings beating out estimates with a YOY gain of 3.4%.  But concern over Brexit, China Trade and very weak economic data out of Europe, pushed MBS prices higher which inversely pushes mortgage rates lower.

Jobs, Jobs, Jobs: We got the Big Jobs report on Friday and while the headline Non-Farm Payroll missed, overall it was very strong.
Here is the tale of the tape:
Jobs: February Non Farm Payrolls (NFP) were much lighter than expected with a reading of 20K (not a typo) vs estimates in the 180K range. However, everyone expects that to be revised upward by 50K to 100K next time around.
January NFP were revised upward from 304K to 311K
December NFP were revised upward from 222K to 227K
The more closely watched rolling three month moving average is now 186,000 which is extremely solid.
Wages:
Average Hourly Earnings YOY rose by 3.4% vs est of 3.3%
Average Hourly Earnings MOM rose by 0.4% vs est of 0.3%
The national average hourly rate rose by 11 cents and is now $27.66
Employment:
The Unemployment Rate dropped from 4.0% in January to 3.8% in February, the market was expecting 3.9%.
The number of unemployed persons decreased by 300,000 to 6.2 million.
The Labor Force Participation Rate remained at 63.2%

ISM Services: Wow, the February ISM Non Manufacturing had the 4th best reading in 20 years and handily beat market expectations (59.7 vs est of 57.3). This is more important than last week's ISM Manufacturing release as this represents more than 2/3 of our economy.

Taking it the House: January Building Permits were higher than expected (1.345M vs est of 1.289M) and New Housing Starts also beat out estimates (1.230M vs est of 1.197M).

Central Bank Palooza: The European Central Bank kept their key interest rate at 0.00% but came out with a much more dovish approach. ECB President Mario Draghi went full-dove and admitted that its forecasts were way off and revised 2019 growth expectations "substantially" lower (from 1.7% to +1.1%) and slashed all inflation forecasts with 2019 GDP at 1.1% vs their original expectations of 1.7% and inflation of 1.2% vs original "guestimates" of 1.6%.

What to Watch Out For This Week:

Pending home sales rebounded strongly in January, according to the National Association of Realtors®. All four major regions saw growth last month, including the largest surge in the South.

The Pending Home Sales Index is a forward-looking indicator based on contract signings.  It increased 4.6 percent to a reading of 103.2 in January which is up significantly from December's reading of 98.7.

Lawrence Yun, NAR chief economist, had expected an increase in January home sales. “A change in Federal Reserve policy and the reopening of the government were very beneficial to the market,” he said.

Yun also said “Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”

Additionally, Yun noted year-over-year increases in active listings from data at realtor.com to illustrate the potential rise in inventory. Denver-Aurora-Lakewood, Colo., Seattle-Tacoma-Bellevue, Wash., San Diego-Carlsbad, Calif., Los Angeles-Long Beach-Anaheim, and Nashville-Davidson-Murfreesboro-Franklin, Tenn., saw the largest increase in active listings in January compared to a year ago.

Yun says positive pending home sales figures in January will likely continue. “Income is rising faster than home prices in many areas and mortgage rates look to remain steady. Furthermore, job creation will help lift home buying.”

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -33 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher compared to the previous week.

Overview:  We had a very big week for economic data with stronger than expected 4th QTR GDP and very solid manufacturing and income readings.  Mortgage backed securities moved lower (higher mortgage rates) due to some perceived positive momentum in U.S./China trade talks, strong economic data and the Federal reserve which continued to make it clear that they are open to raising rates if economic growth continues (the markets had discounted any interest rate hikes for all of 2019)

GDP: We finally got the Preliminary (will be revised several times) GDP report for the 4th QTR which was delayed due to the government shutdown and it came in much better than expected with a solid growth rate of 2.6% vs estimates in the 1.8% to 2.3% range. 4th QTR 2017 to 4th QTR 2018 is now 3.1% and the calendar year is at 2.9%. Either way you slice it, its a solid 3.0% growth rate for 2018.

Inflation Nation: The Fed's primary measure of inflation was released and it remained just a smidge below their 2% target rate with a reading of 1.9%. The December Personal Income was more than double the market estimates (1.0% vs est of 0.4%). Personal Spending for December was -0.5% vs est of 0.3%. No one believes that number as it coincides with the same department that released the awful Retail Sales report for that same period which has been proven to be wrong by every possible metric available. 

Manufacturing: The bell-weather Chicago PMI was a block-buster, coming in at 64.7 vs est of 57.0. Any reading above 50 is expansionary and readings above 60 are extremely strong.The February ISM Manufacturing reading was lighter than expected (54.2 vs est of 55.5) and a pull back from January's level of 56.6. But any reading above 50.0 is expansionary.

Taking it to the House: Weekly Mortgage Applications increased by 5.3%. Purchase applications were up 6.0% and Refinances were up 5.0%. January Pending Home Sales were much better than expected with a nice gain of 4.6% vs est of only 0.4%.

The Talking Fed: Fed Chair Powell gave his semi-annual monetary report to the Senate and House committees on Tuesday and Wednesday. There were really no surprises as the Fed Chair basically reminded everyone that we are at or near full employment and are at nor near their target interest rate and that the economy is growing at a moderate pace. The only two points that he made that were interesting (but did not move bond prices) were:
- “The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” (which was a jab at the MMT "Modern Monetary Theory" that the government can just borrow at will to fund Social Security and free college for everyone, etc).
- "We will continue to use our administered rates to control the policy rate, with an ample supply of reserves so that active management of reserves is not required. Having made this decision, the Committee can now evaluate the appropriate timing and approach for the end of balance sheet runoff." (which follows the same trend as recent remarks about lightening up on the pace of shrinking the balance sheet).

What to Watch Out For This Week:

In yet another sign of a stable and even vibrant housing market, more and more homeowners are current on their mortgage payments.

According to Black Knight Inc.'s First Look at January 2019 mortgage data, mortgage payment delinquencies continued to improve with a 3.45% drop month-over-month and a 12.93% decline year-over-year down to a rate of only 3.75% (based on loans 30 days or more past due but not in foreclosure). That represents a total of 1,945,000 homes.

The highest non-current percentages were in Mississippi (10.10%), followed by Louisiana (7.96%), Alabama (6.75%), West Virginia (6.42%), and Arkansas (6.04%). These states, except West Virginia, are also in the top 5 for serious (90+ days) delinquencies along with Delaware.

The states with the largest deterioration of non-current percentage in the past 6 months are DC, Nebraska, Illinois, South Dakota, and Iowa.

Colorado posted the smallest non-current percentage at 1.82% followed by Oregon (2.03%), Washington (2.15%), Idaho (2.20%), and Utah (2.45%).

Source: Black Knight First Look

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained just +10 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways compared to the previous week.

Overview:  Mortgage backed securities moved in a very well defined and tight range. We had strong housing data but the markets focused on the Fed and on Trade.  The Federal Reserve released their Minutes from their last FOMC meeting and it really didn't contain any surprises for bond traders.  Trade meetings in D.C. appeared to be making progress, particularly near the end of the week.

Taking it to the House: January Existing Home Sales came in at 4.94M units vs est of 5.00M. So a slight miss but December was upgraded from 4.99M to 5.00M. The median existing-home price for all housing types in December was $253,600, up 2.9 percent from December 2017 ($246,500). December’s price increase marks the 82nd straight month of year-over-year gains.  The February NAHB Housing Market Index was much stronger than expected, shooting up from 58 in Jan to 62 in Feb. The market was expecting a reading of 59. Any reading above 50.0 is positive. All regions, with the exception of the North East, had positive gains.

The Talking Fed: We got the Minutes from the last FOMC meeting. Here are a few highlights:
• Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year.
• The Fed will remain patient in light of ambivalent economic and market data.
• The Fed's outlook for the economy and the policy rate have both become more uncertain
• Keeping the current policy rate for now "posed few risks"
• As various Fed speakers noted recently, higher than expected inflation may be a requirement for more rate hikes
• The Fed was worried that the dot plot -which has become a Fed forecasting farce - is being "misinterpreted."
• Many participants commented that upward pressures on inflation appeared to be more muted than they appeared to be last year despite strengthening labor market conditions and rising input costs for some industries.

What to Watch Out For This Week:

There isn't a lot American millennials wouldn't do to have a chance at owning a home some day.

According to a survey of 500 millennials conducted by OnePoll, nearly half of millennials would swear off Instagram forever, and one in four would be willing to spend a week in jail, if it would help them one day achieve the American dream of owning their own home.

So how badly do they want to own a home?  Well, check out this complete rundown of responses from the survey:

In a sign of how desperately out of reach most millennials consider homeownership to be, some 30% of respondents said they felt they had a better chance of dating an A-list celebrity than ever owning their own home. Meanwhile, 40% of respondents said they felt homeownership is "completely out of the question" unless they inherit property from their parents, and 42% said they would like to buy a home, but they simply can't afford it. Nearly half of respondents believe that buying a home would be more difficult now than it was 30 years ago. In a similar vein, only 8% of millennials disagreed with the belief that life is harder now than it was for Baby Boomers.

Source: OnePoll

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -21 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher compared to the previous week.

Overview:  We had very robust jobs data with a record setting JOLTS report but a big miss in Retail Sales.  But it wasn't the economic data that moved pricing lower, it was news that another government shut down was averted as well as positive momentum with the trade talks with China.

Consumer Sentiment: The February University of Michigan's Consumer Sentiment Index was much stronger than expected, hitting 95.5 vs est of 93.0 and a nice rebound from January's final reading of 91.2

Retail Sales: This is data that was supposed to be released during the government shutdown...they should not have let it out at all as it was awful. December headline Retail Sales dropped by -1.2% vs est of a gain of 0.2%. When you strip out autos, Retail Sales were down by -1.8% vs est of 0.1%.

Inflation Nation: The January Consumer Price Index was a little hotter than expected with the Headline YOY reading coming in at 1.6% vs est of 1.5%. However, that is a decline from December's pace of 1.9%. The Core (Ex food and energy) YOY CPI reading also edged out estimates (2.2% vs est of 2.1%) and matched December's pace.The January Producer Price Index was a mixed bag, certainly very tame though. PPI YOY Ex Food and Energy was higher than expected (2.6% vs est of 2.5%), but the headline PPI YOY was only 2.0% vs est of 2.1% and a lot lower than the last reading of 2.5%.

Jobs, Jobs, Jobs: The December Job Openings and Labor Turnover Survey (JOLTS) had its highest reading ever on record showing more than 7.335M open positions....just waiting for someone with the right skill set. There are now 800K more jobs avail then their are people unemployed in America. 

Small Business Optimism: The January NFIB Index dropped from 104.4 in December down to 101.2 in January but that is still positive territory for the index. The 35 day government shutdown was cited as the main contributor to the decline in optimism.

The Talking Fed: Fed Chair Jerome Powell said “Data at the national level show a strong economy. Unemployment is near a half-century low, and economic output is growing at a solid pace,” Powell said. “But we know that prosperity has not been felt as much in some areas, including many rural places,” like the counties of the Mississippi Delta where he was speaking.

What to Watch Out For This Week:

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:

Sales of new single-family houses in the United States jumped 16.9 percent from the previous month to a seasonally adjusted annual rate of 657 thousand in November of 2018.

It is the strongest reading since March 2018, supported by higher sales in the South, the Midwest and the Northeast. New Home Sales in the United States averaged 650.36 Thousand from 1963 until 2018, reaching an all time high of 1389 thousand in July of 2005 and a record low of 270 thousand in February of 2011.

The median sales price of new homes sold was $302,400 in November, below $ 343,400 in the same month of the previous year. The average sales price also fell to $362,400 from $388,500 a year ago.

The stock of new houses for sale edged up 0.6 percent to 330 thousand in November. This represents a supply of 6 months at the current sales rate.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +47 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower compared to the previous week.

Overview:  Mortgage backed securities which control mortgage rates, moved higher for the week (mortgage rates moved lower) on concern over a second government shutdown and a much more "dovish" Fed that market participants interpreted that they would not move on rates for at least six months (but that is not what the Fed said).  But bonds moved off of their best levels in response to a very strong jobs report as well as a very strong manufacturing report on Friday.

Government Shutdown Showdown: President Trump reached an agreement with the Democratic leadership and announced that he would agree to temporarily reopening the government for only 3 weeks and back pay would be going to government employees very quickly. Whether the 3 weeks turns into longer depends on the works of a new commission that is required to be formed as part of this deal to review all the data and proposals from agencies involved in border security. If the works of this commission lead to a new homeland security budget/bill that does include enhanced (wall) security then most likely the government will remain open past the three week period. But if not, it could be another shutdown ahead.

The Talking Fed: The FOMC kept their key interest rate unchanged in the 2.25% to 2.50% range. 
They also spent a lot of time communicating to the markets their view of using their balance sheet as a monetary policy tool. 
Here are a couple of key highlights from the policy statement:
• They are and are going to be "patient" on any further action. "In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.''
• The case for raising interest rates has "weakened" 
• The Fed removes a statement about "some further gradual increases."
• The line about "balance of risks" is also removed, replaced by a line about policy "patience amid muted inflation and global economic and financial developments."
• The Committee continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy.....but
• The Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate. 
• The U.S economy is growing well but there are headwinds from overseas.
• Labor market strengthened, unemployment remained low
• Spending grew strongly, investment moderated
• Core and Headline inflation "muted" and likely to remain near 2% 
During Fed Chair Powell's live press conference, he said the government shutdown will have an "imprint" on the 1st QTR GDP but that “We don’t know the ultimate resolution of it. If that’s all there is and the shutdown is gone and there isn’t another shutdown, we’ll get most of [the lost growth] back in the second quarter.” He also said that the Brexit outcome could have major market implications.

Jobs, Jobs, Jobs: Big Jobs Friday is here. Lets look at the Tale of the Tape!
Jobs: 
Non Farm Payrolls for January hit 304K vs est of 165K.
December was revised from 312K down to 212K
November was revised from 176K up to 196K
The more closely watched 3 month moving average is a robust 241K!!!
This is now the 100th consecutive month of job gains!!!
Wages:
The Average Hourly Earnings YOY remained at 3.2% which matched December's pace and market estimates.
The Average Hourly Earnings rose by 3 cents and is now $27.56 
Unemployment:
The survey rate ticked up from 3.9% to 4.0%. The market was expecting 3.9%
The Participation Rate increased from 63.1% to 63.2%

Manufacturing: The January ISM Manufacturing Index hit 56.6 vs est of 54.2. Prices Paid came in at 49.6 vs est of 54.5.

What to Watch Out For This Week: