Underwater Homeowners Actually Helping Home Values
One of the biggest barriers to an even more robust recovery in the housing market is a lack of supply. There are simply not enough homes listed for sale to meet the demand—and part of that is because a growing number of home buyers are not selling their previous homes. Lack of inventory and steady demand have kept home prices moving upward.
“As people are starting to move, they’re also turning into landlords by choice. And that is definitely having a dent in the inventory numbers,” said Nela Richardson, chief economist at Redfin, a real estate brokerage. “Our agents are seeing people come through their door with the cash in hand to buy that next place. A lot of them obviously don’t need that equity in their former home, or they’re able to tap some of it out and then use it to buy the next place.”
It’s a strange new irony in housing. Lack of supply is driving prices higher, which is pricing some demand out and driving up rental demand.
For others, however, the rise in home prices is providing useful equity to buy another home while still holding on to their old home, which is then providing lucrative rental income.
There are no hard numbers as to how many buyers are holding on to their previous properties, but there is plenty of anecdotal evidence, especially as rental demand and rent rates continue to surge.
So, instead of underwater homes hurting the housing market they are driving up rental rates and home prices.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +24 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move sideways. We saw our best rates on Friday and our worst on Tuesday.
We had a mixed week for domestic economic data but under normal circumstances, mortgage backed securities would have sold off and interest rates would have risen. But these are not normal circumstances and as a direct result of global fear, MBS made a modest improvement over the prior week.
For the domestic economic data, Factory Orders, ISM Non-Manufacturing, The Trade Balance, Initial Weekly Jobless Claims and Non-Farm Productivity all showed improvement and were better than market expectations. Wholesale Inventories and Consumer Credit were the only two economic releases that were lighter than expectations.
But once again, it was the foreign headlines that kept up steady demand for our U.S. bonds and as a result rates made a small improvement as Russia held military drills on the Ukrainian border (and then returned to their bases on Friday), a U.S. general was assassinated in Afghanistan, and Israel and Hamas had a cease fire that was broken by Hamas.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|12-Aug||10:00 AM||JOLTS – Job Openings||–||NA||4.635M|
|12-Aug||2:00 PM||Treasury Budget||–||-$96.0B||-$97.6B|
|13-Aug||7:00 AM||MBA Mortgage Index||–||NA||1.60%|
|13-Aug||8:30 AM||Retail Sales||–||0.30%||0.20%|
|13-Aug||8:30 AM||Retail Sales ex-auto||–||0.30%||0.40%|
|13-Aug||10:00 AM||Business Inventories||–||0.40%||0.50%|
|13-Aug||10:30 AM||Crude Inventories||–||NA||-1.756M|
|14-Aug||8:30 AM||Initial Claims||–||305K||289K|
|14-Aug||8:30 AM||Continuing Claims||–||2523K||2518K|
|14-Aug||8:30 AM||Export Prices ex-ag.||–||NA||-0.30%|
|14-Aug||8:30 AM||Import Prices ex-oil||–||NA||-0.10%|
|14-Aug||10:30 AM||Natural Gas Inventories||–||NA||82 bcf|
|15-Aug||8:30 AM||Core PPI||–||0.20%||0.20%|
|15-Aug||8:30 AM||Empire Manufacturing||–||15.5||25.6|
|15-Aug||9:00 AM||Net Long-Term TIC Flows||–||NA||$19.4B|
|15-Aug||9:15 AM||Industrial Production||–||0.30%||0.20%|
|15-Aug||9:15 AM||Capacity Utilization||–||79.20%||79.10%|
|15-Aug||9:55 AM||Mich Sentiment||–||81.7||81.8|
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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