Time to Trade Up?
Despite an improving economy and rock-bottom rates, inventory of available homes is inconsistent. Anything more than a trickle of listings sends prices down, causing sellers to pull their homes off the market. Then prices go up again because competition gets fierce, and sellers re-emerge. As a result, a bustle of trade-up activity is expected for this spring’s selling season, before conditions change again.
Other positive signs: new single-family housing starts are at a high since 2008, according to the Commerce Department’s latest report. Also, fewer homeowners are renting out their homes to delay selling them, down to 35 percent in 2014 from 39 percent in 2013, according to Redfin, a real-estate brokerage.
And more consumers have positive equity. Last spring, 19 percent of homeowners in Redfin markets (such as Atlanta and Philadelphia) had low or negative equity. That was down to 11 percent in November. Nela Richardson, Redfin’s chief economist, expects it to hit 8 percent by March 2015.
Even better for buyers, interest rates are near-historic lows below 4 percent. “The question of staying versus leaving is shifting. For people who were afraid to leave their mortgage because they thought it was the best they’re ever going to get, now there is another good mortgage around the corner,” Richardson says.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +74 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to improve from the prior week. We traded in a fairly narrow range for the majority of the week and made most of our gains on Friday.
We had a packed week for domestic economic data that was certainly a mixed bag. Durable Goods Orders and 4th QTR GDP were much weaker than expected but we saw strength in better than expected readings in Consumer Confidence and Chicago PMI.
The Federal Reserve Open Market Committee (FOMC) released their latest and greatest interest rate decision and policy statement. They of course left their key interest rate alone and stated that they will continue to remain ‘patient’. The noted that economic activity has expanded and that the labor market is improving. But they also mentioned for the very first time, concern over international deflation. That last component caused MBS to rise (lower rates).
But the biggest market mover of the week was not the Fed, it was Friday’s release of the preliminary (it will be revised 2 more times) 4th QTR GDP. The market was expecting a very robust reading in the 3.00% to 3.20% range, but it came in much lighter than that with a reading of 2.6%. This caused bond traders to bet that the Fed is a long way off from raising their key rate and MBS shot up (lower rates for you).
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|2-Feb||8:30 AM||Personal Income||–||0.30%||0.40%|
|2-Feb||8:30 AM||Personal Spending||–||-0.20%||0.60%|
|2-Feb||8:30 AM||PCE Prices – Core||–||0.00%||0.00%|
|2-Feb||10:00 AM||ISM Index||–||54.7||55.1|
|2-Feb||10:00 AM||Construction Spending||–||0.80%||-0.30%|
|3-Feb||10:00 AM||Factory Orders||–||-2.00%||-0.70%|
|3-Feb||2:00 PM||Auto Sales||–||NA||5.9M|
|3-Feb||2:00 PM||Truck Sales||–||NA||7.9M|
|4-Feb||7:00 AM||MBA Mortgage Index||–||NA||-3.20%|
|4-Feb||8:15 AM||ADP Employment Change||–||230K||241K|
|4-Feb||10:00 AM||ISM Services||–||56.5||56.5|
|4-Feb||10:30 AM||Crude Inventories||–||NA||8.874M|
|5-Feb||7:30 AM||Challenger Job Cuts||–||NA||6.60%|
|5-Feb||8:30 AM||Initial Claims||–||290K||265K|
|5-Feb||8:30 AM||Continuing Claims||–||2375K||2385K|
|5-Feb||8:30 AM||Trade Balance||–||-$38.0B||-$39.0B|
|5-Feb||8:30 AM||Unit Labor Costs||–||1.20%||-1.00%|
|5-Feb||10:30 AM||Natural Gas Inventories||–||NA||-94 bcf|
|6-Feb||8:30 AM||Nonfarm Payrolls||–||235K||252K|
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.