Sales of existing homes jumped 14.7 percent in December compared to November, according to the National Association of Realtors. The nearly 11 percent monthly drop in home sales in November was not due to a pull back in demand for housing but rather, that drop in November had all to do with something in the mortgage market called “TRID.”
TRID is an acronym for TILA-RESPA Integrated Disclosure. It’s a new set of rules from federal regulators, deemed “Know Before You Owe,” designed to protect borrowers from hidden fees and costs in a home loan. It requires lenders to present borrowers with a simple disclosure form listing all facets of the loan three business days prior to closing. This is so borrowers can ask educated questions if they need to.
“(Friday’s) data just confirms that the November drop was due to delays in closings that were pushed to December,” said Lawrence Yun, chief economist for the NAR.
“November was the first month of getting a sense of some impact. We saw a softer November in terms of closings and saw much of that activity push into December. December is going to look a little stronger relative to seasonality,” said Jonathan Corr, president and CEO of Ellie Mae, a mortgage software company, which saw an average delay of three days due to the new rules.
Closings are in December took a week longer than in December 2014, according to Ellie Mae, but that may be due to factors outside of TRID. Lenders began downsizing as mortgage rates rose, expecting fewer refinance applications, but rates stayed low longer than expected, after the Federal Reserve delayed increasing its lending rate until December. That prompted more refinances.
“Things were creeping out throughout the year, and as that refi picked up, and there was more demand, they tried to accomplish it with the same labor force,” Corr said.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -4 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.
We had a holiday shortened week and our trading sessions were dominated by wild swings in Oil prices. This is a more recent phenomena as Oil prices historically don’t have very much impact on long term bond prices. But in this case, it represents low inflation and many believe will cause our own Fed to wait much longer before they raise rates again. You can see by our chart that MBS moved higher as Oil prices dropped and moved lower as Oil prices increased.
We also had an important European Central Bank meeting. They left their key interest rate alone but their President Mario Draghi made sure that the markets knew that the ECB would be revaluating their current bias and will do anything to help to start inflation and growth back up. Many believe he is telegraphing additional QE in March.
Inflation? Well we do have one metric that is above 2.00% and that is the YOY (year over year) Core CPI (2.1%). This is supposed to be one of the key measures (along with core PCE) that the Fed uses as an inflation gauge. However, it obviously doesn’t include energy costs which are in the toilet right now. The headline MOM (month over month) CPI reading was lower than expected (-0.1% vs est of 0.0%) and the Core MOM reading was 0.1% vs est of 0.2%. All-in-all this report was basically what the market expected and will do nothing to change the Fed’s mind for this week’s meeting.
|What to Watch Out For This Week: