It was a week of bits and pieces rather than any major news. Home sales, prices, and some broader economic indicators all had a brief turn on the stage.
Pending home sales finished up 2017 with a third consecutive gain. The National Association of Realtor’s Pending Home Sales Index (PHSI), a forward-looking indicator of existing home sales one or two months ahead, was up 0.5% both from November and the previous December. It was the highest reading for the PHSI since last March.
The last two home price reports for November were more of the same. Black Knight’s Home Price Index rose 0.27% from October and 6.44% year-over-year and the S&P Case-Shiller National Index posted 0.7 and 6.2% gains, respectively.
Eleven months into the year it is clear from all four major price indices that 2017 will finish up with an annual gain of at least 6.2% and probably higher.
The homeownership rate continued to stumble along in the fourth quarter of 2017. It has moved little after finally ending a decade-long slide at 62.9% six quarters ago. The Census Bureau says the portion of Americans who own homes is now 64.2%. However, it is encouraging that the age group making the greatest gain in the last year was those under 35–the Millennials. Their rate ticked up 1.3 points compared to the fourth quarter of 2016. It is still only 36.0%, but at least it is moving in the right direction.
The fourth quarter GDP came in at 2.6%, a little lower than the anticipated 2.9%, but the headline number hid even better news. Consumer spending, a very important component, was up 3.8% which included a 14.2% increase in spending on durable goods. Residential investment, the category for new residential construction, remodeling, and landlord expenditures, was up an annualized 11.6%. It was net exports and flat spending on inventories that punched a hole in the number.
The Federal Reserve’s Open Market Committee (FOMC) finished up its final meeting under Fed Chair Janet Yellen on Wednesday, with a unanimous vote to hold the fed funds rate steady at 1.26 to 1.5%. Yellen will be replaced by Jerome Powell, a member of the Fed’s Board of Governors since 2012.
In its after-meeting statement, the FOMC said labor market and economic activity had both improved since the group’s December meeting, but both overall inflation and inflation for items other than food and energy continue below the Fed’s target 2% rate. They did not set any dates for additional rate hikes–most economists expect there will be two or three this year–but it seems clear inflation will be the key.
Both existing and new home sales had a rough December, but each had an excellent year. It was, in fact, the best year for existing home sales in 11 years, and we suspect new home sales could make a similar claim.
There were an estimated 5.51 million existing homes sold during the year, bumping the 5.45 million 2016 sales into third place. The National Association of Realtors (NAR) says there is still a ways to go to top the 6.5 million sold in 2006.
As for December, sales ended a three-month winning streak, falling 3.6%. They were 1.1% higher than in December 2016.
NAR chief economist Lawrence Yun said the market performed “remarkably well” in 2017, bringing homeowners substantial gains in wealth. “At the same time, market conditions were far from perfect,” he said. “New listings struggled to keep up with what was sold very quickly and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.”
NAR also said inventories dropped another 11.4%, from the already record low in November. There are now only 1.48 million homes for sale nationwide, an estimated 3.2-month supply. NAR considers a 6-month supply a “balanced” market. The inventory has shrunk on an annual basis for 31 straight months
It was somewhat the same story for new home sales, a good year topped with a disappointing December. Sales fell 9.3% month-over-month to an annual rate of 625,000 units. This was still 14.1% higher than the rate in December 2016.
Sales for the entire year totaled an estimated 608,000. This was up 8.3% from the 561,000 sold in 2016.
All being said, a pretty good week for real estate.
While it probably won’t be nearly enough to relieve those pesky inventory shortages, residential construction did finish 2017 in pretty good shape. The Census Bureau said on Thursday that there were an estimated 1,152,300 housing units completed during the year, an increase of 8.7% from 2016.
That said, the construction numbers for December were only so-so. Analysts had anticipated that there would be a little give-back after some unexpectedly high permitting and housing start numbers in October and November. Construction authorizations did slip compared to November, but only by a tiny 0.1%, leaving the rate almost 3% higher than a year earlier.
Housing starts, however, gave back a lot. Their seasonally adjusted rate fell by 8.2%, to a seasonally adjusted rate of 1.192 million units. Analysts had been looking for a rate nearly 90,000 units higher. Even more surprising, the single-family sector, which has been the recent star of the show, fell back by 11.8% compared to November, although those starts are still 3.5% ahead of last year.
Still and all, there were 4.7% more permits issued in 2017 than in 2016. Housing starts were up by 2.4%.
The National Association of Home Builders (NAHB) recently surveyed its new home builder members and found that, while home building increased in 2017, the houses are essentially the same. NAHB had been noting a slight trend toward smaller units, but last year the square footage inched up 5 whole feet, to an average of 2,627. Forty-six percent of the homes built last year had four bedrooms and 37% had three full baths, little changed from the respective 45% and 35% pattern in 2016.
Speaking of Inching Up
Mortgage rates moved higher for the second straight week, crossing the 4.0% line for the first time since July. The thirty-year rate has increased by a total of 9 basis points since the week ended January 5, and now stands at 4.04%. This doesn’t necessarily mean the party is over, however. Rates rose above 4% several times in 2017, only to return to a lower range.
If you are concerned about the short-term rate outlook, call us. We don’t have a crystal ball, nor can we offer any guarantees, but we will have some insight about where the market might be headed. Remember too, Freddie Mac is forecasting rates to stay below 4.5% this year.
The final 2017 Employment Situation report was just OK, partially because the beleaguered retail sector lost 20,000 jobs, amidst the holiday shopping season no less, as consumers increasingly bought on-line. Construction jobs however, shone for the third straight month, contributing 30,000 to the 148,000 new jobs created during the month. Hopefully this will ease one of the more persistent constraints on new home building. The unemployed rate stayed at 4.1% but wages ticked up by 0.3% for an annual gain of 2.5%.
Analysts has looked for around 191,000 new jobs. Adjustments tot he prior two months, down in October, up in November, netted out to a decline of 9,000 jobs.
Black Knight reports the rising prices reduced the number of borrowers with negative equity by 800,000 during the first ten months of 2017. About 1.36 million homeowners remain underwater, 2.7% of all those with a mortgage. This is a far cry from 25% rate at the height of the housing crisis. US homeowners now have an estimated $5.4 trillion in “tappable” equity, an increase of more than $3 million from the bottom of the market in 2012.
What will homeowners do with their new wealth? Many of those who wish to “liberate” some of it may find refinancing impractical. About half the tappable equity is held by homeowners with first mortgage interest rates under 4.0%. On the surface that appears to be a market ready made for home equity and hand on to their existing low rate.
But Blake Knight points out the new tax law may shift that equation. While last minute changes in the law kept the mortgage interest deduction for first mortgages, although with a lower cap, it eliminated it for second mortgages, including HELOCS.
Isn’t Technology Wonderful?
Occasionally we find an opportunity to say that without a hint of sarcasm. John McManus, publisher of BuilderOnLine reports from this week’s Consumer Electronics Show in Las Vegas that the same technology that changed that way Americans buy goods and services and meet their mates could be about further transform buying a home.
Among several technology ideas he proposes is the introduction of ratings or reviews, something available for most products sold in both digital and real worlds, but lacking for homebuyers. The technology now exists to rate all homes based on their energy and water usage, just like the MPH ratings for cars. Further, he expects a star type rating system for homebuilders may be only months away.
We close with a reminder about the new conforming loan limits. For most of the country the cap is now $453,100. Loans in “high cost” countries will have varying limits up to $679.650.
From 0% down payments to minimal credit requirements, VA loans feature some amazing benefits for those who qualify. Though they do provide a great opportunity for certain veterans, servicemembers and other borrowers to purchase a home, VA loans should not be taken lightly. If you are considering a VA-backed mortgage, it’s important that you look carefully at your finances to determine how much you can afford to finance. At Sierra Pacific Mortgage – Roseville, our mortgage professionals can help guide you as you look closer at VA financing. If you would like to purchase a home in Roseville or nearby California communities, contact us to get started today.
VA Insurance Limits
VA loans are insured through the U.S. Department of Veterans Affairs and funded through private lenders. Private lenders ultimately determine if they will approve your loan and for what amount. When you start to consider this mortgage option, you’ll need to carefully examine your finances to determine how much you can afford and how much a lender will offer to you. VA loans can be made for any amount – that is, the federal government does not limit how much a lender can provide for a VA loan. However, the VA will only insure a loan up to certain limits. If you choose to purchase a home higher than this limit (and qualify for a loan of this value), you will simply need to supply a down payment only for the difference between the VA limit and your loan.
Your Debt-to-Income Ratio
When we discuss VA loan affordability and your approval, we will look at your debt-to-income ratio (DTI), sometimes also called a debt ratio. This number represents your monthly financial responsibilities in comparison with your income. To determine your DTI, we’ll look at your income, savings, your bills, and certain other expenses. Our mortgage professionals will divide your monthly debt obligations by your gross monthly income. Debt obligations might include student loans, a car payment, or other obligations. Income may be from one or more jobs or from monthly stipends you receive from the military or elsewhere. A Your DTI should not exceed 41% if you hope to qualify for a VA loan.
We’re Here at Every Step
The team at Sierra Pacific Mortgage – Roseville helps homebuyers in Roseville and nearby California find mortgage solutions that help them achieve their dreams. If you are a veteran, servicemember, surviving spouse of a veteran killed during service or otherwise believe you may qualify for a VA loan, contact us. Our certified mortgage professionals will quickly determine if you meet the requirements, help you obtain a certificate of eligibility, and determine for how much you qualify.
While the nation was ringing in the New Year, the old one went out in pretty solid condition, at least as far as housing was concerned. Reports on October and November sales and price activity ranged from stable to WOW!
The WOW applied to November’s new home sales. For the second month in a row, the Census Bureau and Department of Housing and Urban Development reported double digit increases–although there was a catch. New home sales increased by a spectacular 17.5% from October, to a seasonally adjusted rate of 733,000. However, the 14.2% gain reported for October evaporated with its November revision. Despite that glitch, the pace of new home sales is now 26.6% higher than in November 2016.
Existing home sales were also up, the third straight monthly increase. The National Association of Realtors (NAR) said the annualized pace of sales during the month was the strongest in nearly 11 years at 5.81 million. This was an increase of 5.6% from October and 3.8% above the November 2016 rate.
Pending home sales, which are assumed to predict actual sales in the following couple of months, were also higher, but it was a squeaker, a tiny gain of 0.2%. Still, as it was the second increase in as many months, following a truly disappointing late summer and early fall, no one was complaining. The uptick brought NAR’s November Pending Home Sale Index to 109.5, a 0.8% improvement from November 2016.
Home prices continue to respond to short inventories. There was only a 3.4 month supply of existing homes on the market in November, almost a 10% decline from a year earlier against demand that is strengthening after a summer of listless sales. Three major price indices, all for October, were released over the last two weeks, and the rate of appreciation ticked up in all three. Case-Shiller’s David M. Blitzer said its National Index year-over-year increase of 6.2% was three times the rate of inflation. Black Knight and the Federal Home Finance Agency announced annual increases of 6.5 and 6.6%, respectively.
Despite rapid price gains, homes are still historically affordable, largely because of continued low interest rates. Those rates started the year by dropping four basis points to 3.95%. Ken Kiefer, Freddie Mac’s chief economist notes that while short-term rates have increased, long-term rates “remain subdued.” The 30-year rate is a quarter point lower than a year ago, and the spread between the 30-year fixed and 5/1 adjustable rate mortgage is the lowest since 2009. With inflation rates remaining low, Kiefer said, there isn’t a lot of upward pressure on long-term rates.
We’re all caught up now and hoping 2018 is the best year ever for you. See ya’ next week!
This holiday-shortened week brings us the release of seven relevant economic reports for the markets to digest. A couple of these reports are considered to be key data, so we may see plenty of movement in the markets and mortgage rates as a result. The financial and mortgage markets will be closed tomorrow in observance of the Memorial Day holiday and will reopen for regular trading Tuesday morning. Accordingly, we will not be updating this report tomorrow.
April’s Personal Income and Outlays data is the first of the week at 8:30 AM ET Tuesday. It gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. Since consumer spending makes up over two-thirds of our economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.4% increase in income and a 0.7% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.
The Conference Board is next with their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer willingness to spend. If the index rises, it indicates that consumers felt better about their personal financial and employment situations and therefore are more apt to make large purchases in the near future. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending is such a big portion of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning while a larger than expected increase would likely cause rates to move higher. It is expected to show a reading of 96.2, up from April’s 94.2 reading.
There are three reports worth watching Wednesday. The ADP Employment report is first, set for release before the markets open. It has the potential to cause some movement in the markets if it shows much stronger or weaker numbers than expected. This report tracks changes in private-sector jobs of ADP’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not very accurate in predicting results of the monthly government report that follows a couple days later. Still, because we sometimes see a reaction to the report, we should be watching it. Analysts are expecting it to show that 180,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.
Also Wednesday morning, the Institute for Supply Management (ISM) will post their manufacturing index. This 10:00 AM ET release is highly important and measures manufacturer sentiment about current business conditions. One reason why it is considered so important is the fact that it is the first piece of economic data posted every month that covers the preceding month. In other words, it is the first look into the previous month’s economic conditions. That differs from many reports that aren’t released until mid or late month. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 50.4 reading in this month’s release, meaning that sentiment slipped a little during May. A smaller reading will be good news for the bond market and mortgage shoppers while a larger than expected increase could contribute to higher mortgage rates Wednesday.
Wednesday’s other relevant report is the Federal Reserve’s Beige Book, which is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.
Thursday doesn’t have any monthly or quarterly reports to worry about, but Friday has two scheduled including one of the biggest reports we regularly see. That will come from the Labor Department, who will post May’s Employment data early Friday morning. It will give us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate fall to 4.9% in May from 5.0% in April with approximately 157,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller number than 157,000 would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. However, stronger than expected numbers should cause a stock rally and a spike in mortgage rates.
The final release of the week will come from the Commerce Department at 10:00 AM Friday. They will post April’s Factory Orders report that is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn’t expected to cause much of a change in rates this month because it follows the almighty Employment report. Current forecasts are calling for a 1.6% jump in new orders from March’s level.
Overall, it appears that Friday is the key day of the week with regards to mortgage rate movement. However, Wednesday could also be a pretty active day for mortgage pricing also. Thursday will probably be the lightest day unless something totally unexpected happens with stocks. We have some key data being posted this week. Therefore, it would be prudent to continue to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.
Friday’s bond market has opened down slightly as the markets prepare for a long weekend. The major stock indexes are showing minor gains of 31 points in the Dow and 23 points in the Nasdaq. The bond market is currently down 3/32 (1.83%), but we may still see a slight improvement in this morning’s mortgage rates is comparing to Thursday’s pricing due to strength in bonds late yesterday.
Yesterday’s 7-year Treasury Note auction went pretty well but not as good as Wednesday’s 5-year Note sale. We did see bonds improve during afternoon trading yesterday, but I don’t believe that this was a result of the auction. The move was enough for some lenders to revise rates lower intraday, so whether or not you see a slight improvement in rates this morning depends if your lender made that move yesterday afternoon or opted to wait for today’s open to reflect it.
The first of this morning’s two pieces of economic data was the revised 1st quarter GDP reading at 8:30 AM ET. It showed that the economy grew at an annual rate of 0.8% during the first three months of the year. This was an upward revision from the previous estimate of 0.5% but slightly softer than the 0.9% that was expected. The higher rate of economic growth is technically bad news for bonds. However, since the increase came as no surprise and was actually a little lighter than forecasts, we can consider this data neutral towards mortgage rates.
The final report of the week came from the University of Michigan just before 10:00 AM ET when they posted their revised Index of Consumer Sentiment for May. It came in at 94.7, falling a little short of expectations and declining from the preliminary reading of 95.8. This indicates that surveyed consumers were slightly less optimistic about their own financial situations than they were at the last survey. That makes the data good news for bonds and mortgage rates because waning confidence usually translates into weaker levels of consumer spending that limits overall economic growth.
Fed Chair Janet Yellen does speak today when she receives an award at Harvard University, but I don’t believe she will say anything that will move the markets. This is scheduled to take place at 1:15 PM ET, so any reaction will come around then. It is also worth noting that the bond market will close at 2:00 PM ET today ahead of Monday’s Memorial Day holiday. The stock markets will be open a full day today but closed Monday with all markets reopening Tuesday for regular trading hours.
Next week brings us the release of a handful or economic reports, but a couple of them are highly influential to mortgage rates. Tuesday does have data, but not one of these key reports. Look for details on next week’s calendar in Sunday evening’s weekly preview.
Thursday’s bond market has opened in positive territory even though we got stronger than expected economic headlines. The stock markets are showing minor losses with the Dow down 42 points and the Nasdaq down 1 point. The bond market is currently up 8/32 (1.84%), but weakness late yesterday should keep this morning’s mortgage rates close to Wednesday’s early levels.
We saw some bond weakness late yesterday despite a pretty decent 5-year Treasury Note auction. Several benchmarks we use to gauge investor demand showed a fairly strong interest in the securities. While that didn’t seem to help much yesterday, it does allow us to be optimistic about today’s 7-year Note sale. Another strong level of investor demand should help boost bond prices this afternoon. Results will be posted at 1:00 PM ET, so any reaction will come during early afternoon trading.
The Commerce Department gave us the first of this morning’s two releases by posting April’s Durable Goods Orders at 8:30 AM ET. They announced an increase of 3.4% that exceeded expectations of a 0.6% rise in new orders for big-ticket products. However, a secondary reading that tracks orders excluding more volatile and costly transportation-related items, such as new airplanes, rose only 0.4% when analysts were predicting a 0.5% increase. The mixed results seemed to prevent much of a reaction to the report.
Also posted early this morning was last week’s unemployment figures. They showed that 268,000 new claims for unemployment benefits were filed last week, down from the previous week’s 278,000 initial claims. This is a sign that the employment sector strengthened last week, especially since forecasts were calling for 275,000 claims. Fortunately, this is only a weekly snapshot and has not had much of an influence on today’s mortgage pricing.
Tomorrow has two reports scheduled for release. One is the first revision to the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month’s preliminary reading revealed a 0.5% annual rate of growth. Analysts expect an upward revision of 0.4% in this update, equating to economic growth of 0.9%. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. Since bonds tend to thrive in weaker economic conditions, a softer than predicted reading would be good news for mortgage rates.
The last mortgage-related data of the week will come from the University of Michigan just before 10:00 AM ET tomorrow morning when they update their Index of Consumer Sentiment for May. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Tomorrow’s report is expected to show a small downward revision to this month’s preliminary reading of 95.8. A higher reading would be considered bad news for bonds and mortgage pricing while a larger decline should help boost bond prices and lead to a slight improvement in rates.