Homeowners get a $1.7 trillion holiday bonus
Potential homebuyers who don’t have a lot of cash to put down now have a cheaper way to get a loan.
Home prices have picked up in 2014, and made enough gains to give U.S. homeowners a collective $1.7 trillion in additional home equity, according to real estate company Zillow.
Some tapped that immediately, taking out home equity lines of credit. In fact, that was the fastest growing segment of the mortgage market.
Others, many of whom came up from under water on their mortgages, decided to sell. Inventory is up nearly 12 percent from a year ago. Seven million borrowers have escaped negative equity since 2012, either through foreclosure, short sale, paying down debt or home price appreciation; nearly 9 million are still drowning in housing debt, according to Zillow.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -18 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move slightly higher from the prior week on a very choppy session. We had our best pricing on Tuesday and our worst pricing on Thursday.
We had a choppy session with MBS alternating gains and losses each day. The domestic economic data, while strong, did not materially impact pricing. Industrial Production, Capacity Utilization and the Leading Economic Indicators were are slightly better than market expectations while the Consumer Price Index showed no threat of inflation in the short run.
The biggest domestic news was Wednesday’s Federal Reserve meeting and policy statement followed by Fed Chair Janet Yellen’s live press conference.
Opposing views: The stock market rallied for three days as they focused on the Fed’s phrase “patience” to mean that any rate hike will be in late 2015 (if at all) and the stock market rallied on this perspective.
Meanwhile, long bond traders (which include MBS which set your mortgage rates) are focusing on Janet Yellen’s prior comment that rate hikes could come 6 months after they announce the end of QE combined with Wednesday’s comment that a rate hike could come “within the next couple of meetings”. By both metrics…that puts a rate hike announcement in April of 2015. Given the low inflation picture, long bond traders are moving that estimate to June. As a result, MBS have been under pressure from the Fed statement.
The two biggest international stories of the week were oil prices and the Russian ruble. Oil, Oil Oil: WTI may have found a temporary bottom as oil prices appear to have stabilized and made some small (very small) gains. But are still trading in the mid 50s and these low prices are a positive for long bonds as they are anti-inflationary and helped to keep mortgage rates at fantastic levels last week.
The collapse of the Russian ruble is in direct response to the drop in oil prices and compounded by the international sanctions and has caused international funds to move into the safety of U.S. bonds which also helps your mortgage rates.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|22-Dec||10:00 AM||Existing Home Sales||–||5.20M||5.26M|
|23-Dec||8:30 AM||Durable Orders||–||2.80%||0.40%|
|23-Dec||8:30 AM||Durable Goods -ex transportation||–||1.00%||-0.90%|
|23-Dec||8:30 AM||GDP – Third Estimate||–||4.20%||3.90%|
|23-Dec||8:30 AM||GDP Deflator – Third Estimate||–||1.40%||1.40%|
|23-Dec||9:00 AM||FHFA Housing Price Index||–||NA||0.00%|
|23-Dec||9:55 AM||Michigan Sentiment – Final||–||93.8||93.8|
|23-Dec||10:00 AM||Personal Income||–||0.50%||0.20%|
|23-Dec||10:00 AM||Personal Spending||–||0.50%||0.20%|
|23-Dec||10:00 AM||PCE Prices – Core||–||0.10%||0.20%|
|23-Dec||10:00 AM||New Home Sales||–||460K||458K|
|24-Dec||7:00 AM||MBA Mortgage Index||–||NA||-3.30%|
|24-Dec||8:30 AM||Initial Claims||–||290K||289K|
|24-Dec||8:30 AM||Continuing Claims||–||2358K||2373K|
|24-Dec||10:30 AM||Crude Inventories||–||NA||-0.847M|
|24-Dec||12:00 PM||Natural Gas Inventories||–||NA||-64 bcf|
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.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.