Lower Inventories Equals Higher Prices
Today’s rising prices have less to do with surging demand—though hard-hit markets in Arizona, California, and Florida have seen significant investor appetite for distressed homes—than with declines in the number of properties for sale.
Inventories of “existing” homes—that is, ones that haven’t just been built—are at eight-year lows. New-home inventories are lower than at any time since the U.S. census began tracking them in 1963. In some cities, there are one-third fewer homes listed for sale than a year ago.
Here’s why prices are rising: There are more buyers chasing fewer homes, and—critically—fewer distressed homes, such as foreclosures. Low inventory is one sign that housing markets may have reached a turning point because many want to buy at the bottom but few want to sell. There are several factors behind the low inventory. Banks have slowed their pace of foreclosures. Investors have snapped up discounted properties that they can convert into rentals. Home builders, struggling for several years to compete on price with foreclosed properties, have added little in the way of new supply.
Housing’s progress is good news for the economy. Residential investment has now contributed to U.S. economic output for the past five quarters, which hasn’t happened since 2005. In other words, housing is no longer a drag, though it is packing far less of a punch than it normally does at this point in the economic cycle. Rising prices also could help turn around consumers’ fragile psychology, an unpredictable but important factor that can fuel more sales.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -14 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move higher.
We had our highest mortgage rates on Friday morning and our lowest rates Friday afternoon on a very volatile trading day.
Mortgage backed securities traded downward (worse rates for you) each day of the holiday shortened week.
MBS were pressured by two factors: First, our economic news such as ISM Services and ADP Private Payrolls were better than expected. Positive economic news generally has a negative impact on interest rates.
Second, the European Central Bank (ECB) announced that would move forward with a bond buying program.
MBS had lost -53 basis points by Thursday’s close (worse rates for you) due to the two items listed above.
But then everything changed on Friday.
MBS had a huge reversal after the release of the Unemployment Report. The Unemployment Rate dropped from 8.3% to 8.1%. However, traders and economists ignore this headline data as it is not accurate. It is simply a phone survey and in this round of the survey several hundred thousand people answered that they were no longer looking fort work which meant they were dropped from the pool of the unemployed since their definition of “unemployed” is not someone that doesn’t have a job, it is someone that doesn’t have a job and is actively looking for a new one.
What traders reacted to instead, was the much weaker than expected Non-Farm Payroll data which showed less than 100K new jobs were added across the U.S. This dismal data helped MBS bounce over 70 basis points from
Friday’s early morning lows which helped to give you the best rates of the week.
What to Watch Out For This Week:
The following 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:
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|10-Sep||3:00 PM||Consumer Credit||–||$10.0B||$6.5B|
|11-Sep||8:30 AM||Trade Balance||–||-$44.0B||-$42.9B|
|12-Sep||7:00 AM||MBA Mortgage Index||–||NA||-2.50%|
|12-Sep||8:30 AM||Export Prices ex-ag.||–||NA||-1.40%|
|12-Sep||8:30 AM||Import Prices ex-oil||–||NA||-0.30%|
|12-Sep||10:00 AM||Wholesale Inventories||–||0.30%||-0.20%|
|12-Sep||10:30 AM||Crude Inventories||–||NA||-7.426M|
|13-Sep||8:30 AM||Initial Claims||–||369K||365K|
|13-Sep||8:30 AM||Continuing Claims||–||3300K||3322K|
|13-Sep||8:30 AM||Core PPI||–||0.20%||0.40%|
|13-Sep||12:30 PM||FOMC Rate Decision||–||0.25%||0.25%|
|13-Sep||2:00 PM||Treasury Budget||–||NA||-$134.1B|
|14-Sep||8:30 AM||Retail Sales||–||0.70%||0.80%|
|14-Sep||8:30 AM||Retail Sales ex-auto||–||0.80%||0.80%|
|14-Sep||8:30 AM||Core CPI||–||0.20%||0.10%|
|14-Sep||9:15 AM||Industrial Production||–||-0.20%||0.60%|
|14-Sep||9:15 AM||Capacity Utilization||–||79.20%||79.30%|
|14-Sep||9:55 AM||Mich Sentiment||–||73.3||74.3|
|14-Sep||10:00 AM||Business Inventories||–||0.40%||0.1|
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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