Chinese money flows into U.S. housing:
What do you do with your money when your stock market is crashing and your government is monkeying around with currency rates? Why you get it out of China and you put it to work somewhere safe…like in your neighborhood.
From sunny suburban developments in Irvine, California, to shiny new condominium towers overlooking Manhattan’s skyline, Chinese buyers are sinking cash into U.S. residential real estate. Chinese are now the top foreign buyers of domestic properties, according to the National Association of Realtors, and nearly half of them are paying cash, according to RealtyTrac, a real estate sales and analytics company.
Forty-six percent of Chinese buyers paid cash for their U.S. homes so far in 2015, up 229 percent from a decade ago. Compare that to a 33 percent cash share for buyers overall, up 65 percent from a decade ago.
“Cash buyers across the board are playing a much bigger role in the housing market now than they were 10 years ago, and that is particularly true for Chinese Mandarin-speaking cash buyers, who are more likely to be foreign nationals,” said Daren Blomquist, vice president at RealtyTrac. “Foreign cash buyers have helped to accelerate U.S. home price appreciation over the past few years given that these buyers are often not as constrained by income as local, traditionally financed buyers.”
Asian buyers accounted for 35 percent of all international purchases of U.S. real estate for the 12-month period ended in March 2015, spending more than $28 billion. They have been very active in high-end markets, especially in California and New York City.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -37 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher from the prior week.
After the prior week’s big run up of +81BPS due to the weaker than expected Non-Farm Payroll report, last week saw MBS leveling off as we clearly hit the upper limits of what traders are willing to pay for our benchmark 30 year fixed MBS.
The market focus was squarely on the Federal Reserve as they released the minutes from their last FOMC meeting. The theme was: The time to tighten is here….BUT it is appropriate to wait at this time.
Talk about a mixed message!
You can read the official minutes here: http://www.federalreserve.gov/
They were very focused on being below their target inflation rate of 2%
They were also very concerned about global weakness and the potential drag on our economy.
Basically, there was nothing really new nor shocking in the minutes but the stock market certainly rallied on the prospect of zero rates forever. Bonds had a mixed reaction and by the end of the session were lower.
We had several speeches by Federal Reserve members and here is an example of the mixed messages that we are getting from them:
Atlanta Fed President Dennis Lockhart spoke and he left the door open for a potential rate hike in 2015 and said that the international slowdown and the weak jobs report shows there is “a touch more downside risk” to the U.S. economy but he said “The economy remains on a satisfactory track and … I see a (rate) liftoff decision later this year at the October or December FOMC meetings as likely appropriate.”
But Chicago Fed President Charles Evans spoke and he said “While I favor a somewhat later lift off than many of my colleagues, the precise timing for first increase in the federal funds rate is less important to me than the path the funds rate will follow over the entire policy normalization process.”
He also said that after “liftoff” he thought it would be appropriate to keep the Fed Funds rate below 1% through 2016.
What to Watch Out For This Week:
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.
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|13-Oct||2:00 PM||Treasury Budget||–||$95.0B||$105.8B|
|14-Oct||7:00 AM||MBA Mortgage Index||–||NA||25.50%|
|14-Oct||8:30 AM||Core PPI||–||0.10%||0.30%|
|14-Oct||8:30 AM||Retail Sales||–||0.20%||0.20%|
|14-Oct||8:30 AM||Retail Sales ex-auto||–||-0.10%||0.10%|
|14-Oct||10:00 AM||Business Inventories||–||0.10%||0.10%|
|14-Oct||2:00 PM||Fed’s Beige Book||–||NA||NA|
|15-Oct||8:30 AM||Continuing Claims||–||NA||2204K|
|15-Oct||8:30 AM||Initial Claims||–||269K||263K|
|15-Oct||8:30 AM||Continuing Claims||–||2200K||2204K|
|15-Oct||8:30 AM||Core CPI||–||0.10%||0.10%|
|15-Oct||8:30 AM||Empire Manufacturing||–||-8||-14.7|
|15-Oct||10:00 AM||Philadelphia Fed||–||-2.3||-6|
|15-Oct||10:30 AM||Natural Gas Inventories||–||NA||95 bcf|
|15-Oct||11:00 AM||Crude Inventories||–||NA||3.073M|
|16-Oct||9:15 AM||Industrial Production||–||-0.20%||-0.40%|
|16-Oct||9:15 AM||Capacity Utilization||–||77.40%||77.60%|
|16-Oct||10:00 AM||JOLTS – Job Openings||–||NA||5.753M|
|16-Oct||10:00 AM||Mich Sentiment||–||88.5||87.2|
|16-Oct||4:00 PM||Net Long-Term TIC Flows||–||NA||$7.7B|