Entries by Debbie Patella

Sales of new single-family houses in the United States jumped 16.9 percent from the previous month to a seasonally adjusted annual rate of 657 thousand in November of 2018.

It is the strongest reading since March 2018, supported by higher sales in the South, the Midwest and the Northeast. New Home Sales in the United States averaged 650.36 Thousand from 1963 until 2018, reaching an all time high of 1389 thousand in July of 2005 and a record low of 270 thousand in February of 2011.

The median sales price of new homes sold was $302,400 in November, below $ 343,400 in the same month of the previous year. The average sales price also fell to $362,400 from $388,500 a year ago.

The stock of new houses for sale edged up 0.6 percent to 330 thousand in November. This represents a supply of 6 months at the current sales rate.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +47 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move lower compared to the previous week.

Overview:  Mortgage backed securities which control mortgage rates, moved higher for the week (mortgage rates moved lower) on concern over a second government shutdown and a much more "dovish" Fed that market participants interpreted that they would not move on rates for at least six months (but that is not what the Fed said).  But bonds moved off of their best levels in response to a very strong jobs report as well as a very strong manufacturing report on Friday.

Government Shutdown Showdown: President Trump reached an agreement with the Democratic leadership and announced that he would agree to temporarily reopening the government for only 3 weeks and back pay would be going to government employees very quickly. Whether the 3 weeks turns into longer depends on the works of a new commission that is required to be formed as part of this deal to review all the data and proposals from agencies involved in border security. If the works of this commission lead to a new homeland security budget/bill that does include enhanced (wall) security then most likely the government will remain open past the three week period. But if not, it could be another shutdown ahead.

The Talking Fed: The FOMC kept their key interest rate unchanged in the 2.25% to 2.50% range. 
They also spent a lot of time communicating to the markets their view of using their balance sheet as a monetary policy tool. 
Here are a couple of key highlights from the policy statement:
• They are and are going to be "patient" on any further action. "In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.''
• The case for raising interest rates has "weakened" 
• The Fed removes a statement about "some further gradual increases."
• The line about "balance of risks" is also removed, replaced by a line about policy "patience amid muted inflation and global economic and financial developments."
• The Committee continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy.....but
• The Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate. 
• The U.S economy is growing well but there are headwinds from overseas.
• Labor market strengthened, unemployment remained low
• Spending grew strongly, investment moderated
• Core and Headline inflation "muted" and likely to remain near 2% 
During Fed Chair Powell's live press conference, he said the government shutdown will have an "imprint" on the 1st QTR GDP but that “We don’t know the ultimate resolution of it. If that’s all there is and the shutdown is gone and there isn’t another shutdown, we’ll get most of [the lost growth] back in the second quarter.” He also said that the Brexit outcome could have major market implications.

Jobs, Jobs, Jobs: Big Jobs Friday is here. Lets look at the Tale of the Tape!
Jobs: 
Non Farm Payrolls for January hit 304K vs est of 165K.
December was revised from 312K down to 212K
November was revised from 176K up to 196K
The more closely watched 3 month moving average is a robust 241K!!!
This is now the 100th consecutive month of job gains!!!
Wages:
The Average Hourly Earnings YOY remained at 3.2% which matched December's pace and market estimates.
The Average Hourly Earnings rose by 3 cents and is now $27.56 
Unemployment:
The survey rate ticked up from 3.9% to 4.0%. The market was expecting 3.9%
The Participation Rate increased from 63.1% to 63.2%

Manufacturing: The January ISM Manufacturing Index hit 56.6 vs est of 54.2. Prices Paid came in at 49.6 vs est of 54.5.

What to Watch Out For This Week:

Donating a house comes with a bunch of benefits not only to the charity of your choice, but to you, too. Here are the main ones to consider:

• Getting a major tax deduction: This one's the biggie. According to Chris DiLorenzo, a certified public accountant with Nussbaum Yates Berg Klein & Wolpow in New York City, you may be able to use the cost basis of your home (its value when you purchased it originally) as the amount of your charitable deduction. This allows you to take a deduction of up to 60% of your adjusted gross income. If you take your deduction based on the appreciated basis, which is the value of your home right now, your deductions are limited to 30% of your adjusted gross income. It's a bit complicated, so talk to your trusted financial advisers before moving forward.
• Avoiding capital gains taxes: "You can avoid capital gains taxes on the appreciated value of the house, and the charity can also avoid those taxes," says Josh Zimmelman, president of Westwood Tax & Consulting in Rockville Centre, NY. "Your donation is worth more than if you sold the home yourself and donated the proceeds after taxes."
• Minimizing estate taxes: Transferring your property to a charity instead of leaving it to someone in your will removes your property from your estate, saving money on estate taxes, according to Zimmelman.
• Making a difference: Donating a house allows you to make a sizable donation that might not otherwise be possible, and you can do it without the hassle and stress that typically goes with a home sale.

How to donate a house

Donating a house is a bit more complex than other types of donations, but it doesn't need to be daunting. Here are the steps to ensure you have a smooth home donation process:

1. Talk with your donor organization. To take a tax deduction from donating a house, it would need to go to a 501(c)(3) organization. Once you confirm your organization's status, ask if it would like a home donation. Some organizations will be thrilled to receive your home donation. For other organizations, though, a home donation may not be a good fit due to the cost involved in maintaining or selling the home.
2. Get a professional appraisal. "You want an appraisal in order to give credence to the value of the home you would be giving," says James G. Aaron, attorney and partner at Ansell Grimm & Aaron in Ocean, NJ. "You're going to want to take [the donation] as a tax deduction, and you want it to pass muster with the IRS." Although you can look up your property value online or through your local municipality, a professional appraisal may give you a higher value and lends your appraisal more weight if your donation comes under scrutiny. Your donor organization may require a professional appraisal as well.
3. Talk to your advisers. A tax adviser can guide you regarding the potential tax benefits of your deduction. DiLorenzo recommends taking an estimate of the fair market value, a record of your purchase date and the original cost of the property, and the amount you've spent on capital improvements to your adviser meeting.
4. Pay off your mortgage. If you haven't already, consider paying off your mortgage. This simplifies the donation process immensely and keeps the receiving organization from having to pay unrelated business income tax if they sell the property. In general, it's best for all parties involved to donate a home with a clear mortgage, but if this isn't possible or realistic, talk to your advisers and the donor organization to find out the best path for proceeding with the donation.
5. Sign over the property and get a receipt. Once everyone is on the same page, proceed with the property transfer. Coordinate with the donor organization regarding utilities and any belongings that need to be removed from the home. Be sure to get documentation of your transaction from the donor organization.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just 3 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways compared to the previous week.

Overview:  We had a holiday-shortened week with very little economic data that was released.  Bond across the board moved sideways as uncertainty over the Government Shutdown, China trade talks and a looming Fed meeting kept traders in a tight range, unwilling to move out of their positions (or add to them).

Government Shutdown Showdown: President Trump reached an agreement with the Democratic leadership and announced that he would agree to temporarily reopening the government for only 3 weeks and back pay would be going to government employees very quickly. Whether the 3 weeks turns into longer depends on the works of a new commission that is required to be formed as part of this deal to review all the data and proposals from agencies involved in border security. If the works of this commission lead to a new homeland security budget/bill that does include enhanced (wall) security then most likely the government will remain open past the three week period. But if not, it could be another shutdown ahead.

Central Bank Palooza:  Both the Bank of Japan and the European Central Bank held their respective interest rates and announced no new significant policy changes.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were much lighter than expected (199K vs est of 220K). This was one of the lowest readings in 50 years...despite furloughed Federal Workers up 15K to a total of 25K. The more closely watched 4 week moving average dropped to 215K.

Taking it to the House: December Existing Home Sales were lighter than expected (4.99M units on an annualized basis vs est of 5.25M). But that doesn't mean it was a bad report. Actually, there were many very strong components of the report. The median existing-home price for all housing types in December was $253,600, up 2.9 percent from December 2017 ($246,500). December’s price increase marks the 82nd straight month of year-over-year gains.

What to Watch Out For This Week:

In yet another encouraging housing report, foreclosure filings are down by 78% from a peak in 2010, hitting its lowest level since 2005.

According to a new study released by ATTOM Data Solutions, foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 624,753 US properties in 2018, down 8% from 2017 and down 78% from a peak of nearly 2.9 million in 2010.

“Plummeting foreclosure completions combined with consistently falling foreclosure timelines in 2018 provide evidence that most of the distress from the last housing crisis has now been cleaned up,” said Todd Teta, chief product officer at ATTOM. “But there was also some evidence of distress gradually returning to the housing market in 2018, with foreclosure starts increasing from the previous year in more than one-third of all state and local housing markets.”

“Some of that distress was driven by natural disasters, most notably in Houston, where foreclosure starts increased 61%. But natural disasters do not explain the increase in markets such as Detroit, Minneapolis-St. Paul, Milwaukee and Austin — all of which posted double-digit percentage increases in foreclosure starts in 2018.”

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -26 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly higher compared to the previous week.

Overview:  Overall, the continued Government shutdown and the resounding defeat of the Brexit vote were very bond-friendly and supportive of low rates.  But the heightened optimism of a China/U.S. trade deal pressured bond pricing and pushed global interest rates a little higher last week.

Consumer Sentiment: The Preliminary University of Michigan's Consumer Sentiment Index was much lower than expected with a 90.7 vs 97.0 reading which is the lowest since October 2016. But this is just a preliminary reading and will be revised.

Trade War: Reports hit that at the last meeting between Chinese and U.S. trade representatives in early January, that China offered to erase the trade deficit by upping its purchase of goods from the U.S. by one trillion dollars through 2024. However, it does not appear that they have addressed/agreed to change their rampant intellectual property theft.

Taking it to the House: Weekly Mortgage Applications improved by big numbers for the second consecutive week. This time by 13.5% led by a big jump of 19.0% in Refinance Applications. Purchase Applications improved by 9.0%. The NAHB Home Builders Housing Market Index was stronger than expected with a 58 vs 56 reading.

The Talking Fed: We got the Fed's Beige Book that is prepared specifically for the use of this month's FOMC Interest Rate meeting. 
Overall, it the 12 individual Fed districts showed that the U.S. economy continues to show growth albeit at a slower clip than some recent quarters. Here are some key highlights:
- All districts noted that labor markets were tight and that firms were struggling to find workers at any skill level, the report said adding that wages gained throughout the country and across skill levels, with most districts reporting moderate pay increases.
- Economic activity increased in most of the U.S., with eight of twelve Federal Reserve Districts reporting modest to moderate growth.
- Nonauto retail sales grew modestly, as several Districts reported more holiday traffic compared with last year. Auto sales were flat on balance.
- The word "tariff" was used less times in this report. It was only mentioned 20 times vs December's count of 39 and October's level of 51.

What to Watch Out For This Week:

Looking to find a safe place to live where you can still afford a great home? And wouldn't it be nice if there were even fun stuff to do after work and on weekends? Yes, indeed.

Realtor.com set out to find these seductive strongholds where you can have it all. And we're not talking about the boonies: They zeroed in on metropolitan areas, which include cities and the surrounding suburbs. 

The places that made their affordable safe harbor ranking are a mix of smaller metros that never really struggled with high crime, and cities once riddled with problems that have successfully pulled off a turnaround. Their list is concentrated on resurgent Midwest, Southern, and Rust Belt cities. No Western metros were included because home prices are simply too high.

They analyzed crime data provided by NeighborhoodScout, a website that tracks community data, focusing on America's 150 largest metros. Then, they eliminated those with high rates of violent or property crime, and with home prices above the (roughly) $300,000 national median. Next, they zeroed in on cities with great extracurricular's—running the gamut from nightlife, to kayaking, to great indie bookstores.

And the winners are:

1. Grand Rapids, MI
2. Pittsburgh, PA
3. Port S. Lucie, FL
4. El Paso, TX
5. Syracuse, NY
6. Hartford, CT
7. Fayetteville, AR
8. Springfield, MA
9. Cincinnati, OH
10. Fort Wayne, IN

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost -7 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways compared to the previous week.

Overview:  We had a week filled with Fed speak as we heard from Fed Chair Powell and several Governors and district Presidents as well as the Minutest form their last meet.  Overall, the tone was that they all still expected solid economic growth but are likely to pause for now as they wait to see how some geo-poplitical uncertainties unfold.

Inflation Nation: The December Consumer Price Index was bang-inline with market expectations with the Core (ex food and energy) YOY CPI remaining at 2.2%. The headline CPI YOY matched expectations of 1.9% which is a decline from November's pace of 2.2% but that decline was due to oil/fuel prices.

The Talking Fed: 
We got the Minutes from the last FOMC meeting there really were not any surprises as we have heard from Powell and other Fed members several times since its release. There were a "few" that argued for leaving rates alone at the December meeting but obviously they were not voting members. Discussion centered on global concern and recognition that our own economy was solid but could face some headwinds from global and national geopolitical events as well as prolonged trade war. They expressed that their rate was close to if not at neutral and that they were solidly in the "data dependent" camp now.

Small Business Optimism: The December NFIB Small Business Optimism Index remains very high, coming in at 104.4 which is very close to November's reading of 104.8. Plans to increase employment rose 1 point to a net 23 percent, while a record 39 percent of small business owners reported job openings they could not fill in the current period, up 5 points from November.

Jobs, Jobs, Jobs: The November Job Openings and Labor Turnover Survey (JOLTS) showed that there were 6.888M unfilled jobs. The market was expecting 7.063M. October was revised upward from 7.079M to 7.131M. Once again, the trend continues of having more open positions vs those looking for work.

What to Watch Out For This Week:

Homeowners looking to add personality and individuality to their home are more likely to undertake a do it yourself remodel than hire a professional, according to the National Association of Realtors®’ 2019 Remodeling Impact Report: DIY. The report also shows that cash-strapped millennials are the most likely of any generation to take on a DIY project.

Respondents indicated that the number one reason for undertaking a project was to increase functionality and/or livability of their home (35 percent for DIYers and 41 percent for those hiring a professional). That is followed by increasing the home’s beauty and aesthetics (19 percent and 18 percent, respectively) and adding durable and long lasting materials and appliances (15 percent and 18 percent). Projects which were designed to add personality to a home were twice as popular among DIYers than among those hiring a professional (10 percent and 5 percent).

Nearly three-fourths of Generation Y and Millennial consumers (73 percent,) over half of Generation X (51 percent) and 50 percent of Younger Boomers choose to DIY home projects. Seventy percent of the Silent Generation indicated that they hired a professional to complete their project – the highest of any generation.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained +23 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower compared to the previous week.

Overview:  We had a holiday-shortened week (New Years) with only three full trading sessions that saw lighter volumes until Friday.  MBS were on the move upward (and therefore mortgage rates were on the move downward) over concerns about the unknown duration of the partial government shutdown and the transition of the House of Representatives to Democratic control and what that might mean for future tax and regulatory policies.  But MBS sold off (and mortgage rates rose) after a very robust jobs report on Friday.

Jobs, Jobs, Jobs: We had a very strong jobs report!
Tale of the Tape:
Jobs.
- December Non-Farm Payrolls (NFP) was much higher than expectations 312K vs est of 177K.
- November NFP revised higher from 155K to 176K
- October NFP revised higher from 237K to 274K.
- The more closely watched 3 month rolling average increased to a staggering 254K
Wages.
- December Average Hourly Earnings increased to $27.48. That is a YOY gain of 3.2% vs expectations of a 3.0% gain.
- Average Hourly Earnings on MOM basis improved by 0.4% vs est of 0.3% and is double the 0.2% pace in November.
Unemployment:
- The Unemployment Rate increased from 3.7% to 3.9%. The market expected 3.7%.
- The Participation Rate increased from 62.9% to 63.1%

The Talking Fed:
Fed Chair Jerome Powell and former Fed Chairs Janet Yellen and Ben Bernanke had a cozy panel meeting for the press. Powell made it clear that he would not resign if he were asked to step down and that all Fed Chairs have met with the President during the tenure and he expects to as well but the Fed will remain independent from political influences. He also emphasized that their is no "preset path" for raising rates or adjusting the balance sheet and that they are data dependent. Currently, the economy and labor market are in strong shape.

Manufacturing: The December national ISM Manufacturing Index was a big miss. Coming in at only 54.1 vs est of 57.9. While this is still well above 50.0 which is expansionary, it is much lower than expected. ISM Prices Paid dropped to 54.9 vs 60.7 in November showing little to no inflationary pressure on the manufacturing side.

What to Watch Out For This Week:

The costs associated with home-ownership vary across the U.S.  The US Census Bureau recently released statistics from the 2017 American Community Survey, an annual program that asks millions of Americans each year about several social, economic, and demographic attributes. The Bureau publishes figures for each of the 50 states and Washington DC. Using Census information, Insider, Inc has compiled how much the average homeowner pays each month in each state to own a home.

One of the measures on the survey is a set of selected monthly housing costs for homeowners with a mortgage. The costs include mortgage payments, real estate taxes, insurance, utilities and fuel, and, when applicable, condominium or mobile home fees.

Those median monthly costs vary widely across the states and DC. On the lower end are states in Appalachia like West Virginia, with a median homeowner cost of $984, and Arkansas, at $1,025. Coastal states like California, Hawaii, and New Jersey are on the higher end of the scale, and Washington, DC's median homeowner cost of $2,432 was the highest in the country. 

How does your state stack up?  Check out the map above to see the median costs for your state and then check out the surrounding states.  Its easy to see why states like Nevada and Arizona are experiencing a huge influx of people relocating from California with average monthly savings of close to $1,000.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained +20 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower compared to the previous week.

Overview:  We had a holiday-shortened week (Christmas) with only three full trading sessions that saw lighter volumes.  Overall, the economic data was one again very strong which is normally negative for mortgage rates but geo-political concern and end-of-year positioning continued to provide plenty of support for our long bonds and kept mortgage rates very low.

Manufacturing: The December Chicago PMI reading was very robust and was much stronger than market expectations (65.4 vs est of 62.0). Any reading above 50 is expansionary and this is yet another reading above 60.0 which is very, very strong and shows that there is no slow down in manufacturing growth.

Taking it to the House: The FHFA Home Price Index for October showed a 0.3% gain vs est of 0.2%. The YOY gain in home prices is now 5.7%. November Pending Homes Sales matched market expectations with a MOM pull back of -0.7%. The October YOY Case-Shiller 20 metro city home price index hit 5.0% vs est of 4.9%.

Consumer Confidence: The December Consumer Confidence report was lighter than expected (128.1 vs est of 134.0) November was revised upward from 135.7 to 136.4. Overall, it is the lowest survey response since July but just about every reading since July has been a new record high or just off of it.

What to Watch Out For This Week:

A man who illegally demolished a San Francisco house designed by modernist architect Richard Neutra was ordered this week to rebuild it exactly as it was.

The city Planning Commission also ordered Ross Johnston to add a sidewalk plaque telling the entire saga of the house's origins in the 1930s, its demolition and replication.

At first glance, this might be perceived as a local planning commission going too far with telling a homeowner what to do with their property...but in this case, the owner tried to pull a fast one.

Johnston purchased the 1936 residence, known as the Largent House, in 2017 for $1.7 million.

Johnston had planned to remodel the 1,300-square-foot home in the Twin Peaks neighborhood and submitted his plans for the two-story house to the city, which mostly kept the first floor intact. His permit was approved.  But that is not what he did.  

Instead, he just simply demolished his home with the goal of rebuilding on the lot with a 4,000 square foot, $5 million dollar home (which the city would have never approved).  After being "caught" by his neighbors that were shocked to see the landmark house demolished, he applied for a retroactive demolition permit which was denied and instead was ordered to rebuild the house, just as it was!

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained +19 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower compared to the previous week.

Overview:  It was a whirlwind of a week with our own Fed raising rates and the never ending speculation on what the dot-plot signals really mean, as well as the a partial government shutdown and another round of economci seemlingliless long bond market was light on volatility as it was on "pause" ahead of the Federal Reserve meeting on December 19th as there is less certainty/consensus over what the Fed will do at that meeting.  Overall, our economic data was once again solid but concern over Brexit, France and Trade Wars kept money seeking safe-harbor in U.S. based bonds.

Inflation Nation: The Fed's main inflation gauge Personal Consumption Expenditures (PCE) for November YOY matched expectations with a 1.8% reading which is back below the 2.0% pace in October. The Core (ex food and energy) YOY matched expectations with a 1.9% rate but that was an increase over October's pace of 1.8%. Spending was way up. Personal Spending MOM hit 0.4% vs est of 0.3%, however October was revised upward significantly from 0.6% to 0.8%. Personal Income looked flat but did see a small 0.1% gain.

Central Bank Palooza: Russia raised their rates 1/4 point, the U.S. raised their rates 1/4 point. Japan (number 3 economy), kept their main interest rate at -0.1% and Great Brittan (number 5 economy), kept their main interest rate at 0.75%.

The Talking Fed: The Federal Reserve raised their Fed Fund rate 1/4 point to the 2.25 to 2.50% range.
Here are some key highlights:
• They added the word 'some' to the `further gradual increases' clause that has been a staple in the last several statements.
• The "dot plot" chart shows 2 rate hikes next year instead of 3 the last time that they were published.
• Household Spending has continued to grow strongly
• Inflation is expected to remain near their target rate of 2.00%
• 2018 median 2.375% (range 2.125% to 2.375%); prior 2.375%
• 2019 median 2.875% (range 2.375% to 3.125%); prior 3.125%
• 2020 median 3.125% (range 2.375% to 3.625%); prior 3.375%
• 2021 median 3.125% (range 2.375% to 3.625%); prior 3.375%
• Longer run Fed funds median at 2.8% compares to previous forecast of 3.0%
• Fed sees 2019 GDP growth 2.3% vs 2.5% in prior est.
• Fed sees unemployment rate 3.5% end-2019, unch vs prior est.
• The NAIRU - the lowest level the unemployment rate can drop without sparking inflation - was cut again, from 4.5% to 4.4%. (note currently we are at 3.7%).

Government Shutdown: The House passed a Bill that included border security but that Bill did not have enough support in the Senate so we have a "partial" government shutdown as a result.

What to Watch Out For This Week:

Housing juggernaut, Fannie Mae says that unlike the past two years that were mostly a seller's market, 2019 is looking to be a more balanced market.

The housing market should see stability in 2019 as a moderation in higher home prices combined with continued strength in the labor market according to Fannie Mae.

"We expect full-year 2018 economic growth to come in at 3.1% – an expansion high – before slowing markedly to 2.3% in 2019 and 1.6% in 2020," said Fannie Mae Chief Economist Doug Duncan. "Fading fiscal policy, worsening net exports, and moderating business investment all contribute to our projection that GDP growth will begin to slow in 2019.

Duncan added that there could be some good news ahead for homebuyers, although first-time buyers could still face challenges.

“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” he said. “We also expect residential fixed investment to resume a positive growth trajectory amid continued rising housing starts and stabilizing home sales. However, affordability is likely to remain an industry concern, particularly among first-time homebuyers."

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -19 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly higher compared to the previous week.

Overview:  The long bond market was light on volatility as it was on "pause" ahead of the Federal Reserve meeting on December 19th as there is less certainty/consensus over what the Fed will do at that meeting.  Overall, our economic data was once again solid but concern over Brexit, France and Trade Wars kept money seeking safe-harbor in U.S. based bonds.

Retail Sales: The November data at first glance was just a little stronger than expected, but when you take into account the major upper revisions to October, the month-to-month comparison is actually quite good. The Headline monthly gain was 0.2% vs est of 0.1%. But October was revised upward from 0.8% to 1.1%. When you strip out Autos, the MOM gain was 0.2% vs est of 0.2% but October was revised upward from 0.7% to 1.0%. The Control Group really beat estimates with a 0.9% vs 0.4% expectation.

Inflation Nation: The November Consumer Price Index was exactly as expected with the Core (ex food and energy) YOY number hitting 2.2% vs est of 2.2%, and a slight increase from October's 2.1% level. When you look at the Headline PPI YOY, it matched expectations with a 2.2% reading which is much lower than October's 2.5% pace. The Atlanta Fed Business Inflation Expectations rose from 2.2% in November to 2.3% in December.

Jobs, Jobs, Jobs: The Job Openings and Labor Turnover Survey (JOLTS) once again showed over 1 million more jobs waiting to be filled then there are people that are unemployed in the U.S. During the financial crisis, our economy had 2 million job openings (still a lot)....now we have been trending at seven million (more than three times that amount)! This October reading is the second highest on record.

Trade War: China will drop tariffs on Autos for 3 months. Basically they are suspending their new 25% tariff that had increased from 15% to a 40% rate.

What to Watch Out For This Week:

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.

The maximum conforming loan limit for mortgages being acquired by Fannie Mae and Freddie Mac will be going up in most parts of the country in 2019, the Federal Housing Finance Agency has announced.

As a result of rising home prices, the maximum conforming loan limit will be higher in 2019 in all but 47 counties in the US, according to the FHFA. In most of the US, the maximum conforming loan limit for one-unit properties will be hiked to $484,350 in 2019, up from 2018’s $453,100.

The Housing and Economic Recovery Act (HERA) requires that the FHFA adjust the baseline conforming loan limit each year to reflect changes in the average US home price. According to the FHFA’s House Price Index (HPI) for the third quarter of 2018, house prices increased an average of 6.9% over the last 12 months.

The FHFA is also increasing loan limits for high-cost areas – areas in which 115% of the local median home value exceeds the baseline conforming loan limit. Under HERA, the maximum loan limit in those areas is a multiple of the area median home value, with a ceiling on that limit of 150% of the baseline loan limit.

According to the FHFA, median home values increased in most high-cost areas in 2018. The new ceiling loan limit for one-unit properties in most high-cost areas will be $726,525, which is 150% of the baseline conforming loan limit of $484,350.

The FHFA uses different loan-limit calculations for Alaska, Hawaii, Guam, and the US Virgin Islands. In these areas, the baseline loan limit for 2019 will be $726,525.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained +39 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower compared to the previous week.

Overview:  We had very strong manufacturing data but tame inflation.  The bond market made their gains on the back of the Federal Reserve as the top 3 Fed members (Powell, Clarida and Williams) made a point of telling the markets that the Fed's viewpoint is closer to their neutral rate than previously thought.  That caused a shift in trader sentiment to expect fewer rate hikes next year.

The Talking Fed: The Minutes from the last FOMC Meeting were released. Here are a couple of key highlights:
- Almost all Fed officials saw another rate-hike "warranted fairly soon." But The Fed discussed modifying language on "Further Gradual" hikes while expressing its greater reliance on incoming data.
- Only a "couple" (less than many, less than several, less than a few) participants noted that the federal funds rate might currently be near its neutral level.
- Members also noted that they are worried that companies might struggle to pass on rising input costs, from current or proposed tariffs, onto consumers and create detrimental inflation. 
Fed Chair Jerome Powell spoke at  the Economic Club of New York.  The markets zeroed in on his phrase that interest rates (the Fed Fund Rate) is "near" a Neutral rate.
Vice Chair Richard Clarida said that the Fed want's the smallest balance sheet possible but thinks it will remain above the pre-crisis size of less than $1 trillion. He also said that there is still room to hike rates before hitting their target "neutral" rate but that we are not far from it.
NY Fed President John Williams (the number 3 guy at the Fed) said that the Fed Funds rate is "not far" from the Neutral rate.

What to Watch Out For This Week:

Fewer loans that use real estate as collateral will need an appraisal under a new proposal.

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) wants to increase the threshold from $250,00 to $400,000.

In a news release, FDIC said it believes raising the threshold could provide meaningful burden relief from the appraisal requirements, without posing a threat to the safety and soundness of financial institutions. The threshold was last increased in 1994.

Under the proposed rule, residential real estate transactions exempted by the threshold would be required to obtain an evaluation consistent with safe and sound banking practices, instead of an appraisal which would speed up the loan process while lowering the costs to consumers.

Evaluations, which have been required for transactions exempted from the appraisal requirement by the current residential threshold since the 1990s, would provide an estimate of the market value of real estate but could be less burdensome than appraisals. The FDIC's appraisal regulations do not require evaluations to be prepared by state licensed or certified appraisers.  In addition, evaluations are typically less detailed and costly than appraisals.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -18 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly higher compared to the previous week.

Overview:  We had another holiday-shortened week (Thanksgiving's day) with really only 2.5 days of trading last week.  We had a very light week for economic data and there was not any real change in trade negotiations or other geo-political issues that could impact rates.  As a result, MBS moved in a very narrow and tight pattern with low volatility.

Taking it to the House:  October Existing Home Sales beat out estimates with a 5.22M vs 5.20M annualized rate. The median home price moved up again and is now $255,400. Inventory remains VERY tight with only a 4.3 month supply.  New Housing Starts basically matched expectations (1.228M vs 1.230M) and Building Permits just edged out estimates (1.263M vs est of 1.260M). While both of these readings look fairly good....the problem is that the strength is in Multi-family which is where you do not want it to be. For example, multi-family units jumped by 10.3 percent to a 363,000 rate but single-family starts slipped by -1.8 percent to an 865,000 rate. 

Durable Goods: The preliminary (will be revised) October headline reading was much weaker than expected (-4.4% vs est of -2.5%) which was dragged down by a decrease in defense spending. The Ex-transportation number showed a small gain of +0.1% vs est of 0.4%.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims hit 224K vs est of 215K. The more closely watched 4 week moving average ticked up a bit to 218,500 which is still extremely low.

Consumer Sentiment Index: The final November reading changed the preliminary release of 98.3 down to 97.5 which is a good reading but the lowest since August

What to Watch Out For This Week:

Real estate auctions, once used for foreclosures and distressed sellers, is moving upmarket.

The number of multi-million-dollar homes being sold at auction has nearly doubled in the past year, according to real estate analysts and auction companies.

Concierge Auctions, the biggest player in high-end real estate auctions, said it will sell at least 20 homes this year that were listed for more than $10 million — double last year's total. And next year is already looking even stronger.

"The trend for high-end real estate going to auction is definitely on the rise," said Laura Brady, CEO of Concierge. "We're seeing more sellers across the country more than ever before, especially in the $10 million, $20 million-plus and even $100 million-plus category.

The reason for the surge in high-end auctions is simple supply and demand. Developers and investors have built a vast supply of massive homes aimed at wealthy buyers with sky-high price tags. But the market for those homes remains relatively small, especially since Russian, Chinese and Middle East buyers have faded from the U.S. market.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained +65 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move to their lowest levels not seen since October 2nd.

Overview:  We had a holiday-shortened week (Veteran's day), our domestic economic data was strong with a good beat in Retail Sales that would have "normally" pressured rates higher.  But concern over the Brexit deal falling apart had money flowing into U.S. bonds as investors moved their cash into safety.  The added demand for long bonds drove our mortgage rates lower for the week.

Retail Sales: The October data was much stronger than expected. The headline Retail Sales number came in at 0.8% vs est of 0.5% and Ex-Autos, they were 0.7% vs est of 0.5%.

The Talking Fed:
Fed Chair Jerome Powell said that he is content with the current state of the economy, and was quick to take credit for the ongoing expansion: "I'm very happy about the state of the economy. Our policy is one reason the economy's in such a good place right now." He also confirmed that the tightening process will go on at a "gradual pace", saying that the Fed is avoiding "hiking too slowly or too fast" and is taking "both sides seriously so is gradually raising rates."

The number 2 person at the Fed, Vice Chair Richard Clarida said that rates are nearing the Fed estimates of a "neutral" rate and hinted that a predefined flight path towards a fixed number of rate hikes may not be what the Fed wants and that the Fed is moving back to a "data dependent" view towards the timing of any future Fed action.

Brexit:  The process of Great Brittan separating from the European Union, has been long and arduous.  It also is a major concern for investors as the type of exit (dubbed Brexit) will shape trade, banking, migration and more in Europe for decades.  The British Prime Minister, Theresa May submitted a 585 page plan to her cabinet and then basically suffered a mutiny afterwards as it was an awful deal.  Multiple key committee heads resigned their position and there were at least 22 letters written from parliament members of her party asking for a "no confidence" vote putting her time as their leader into question.

What to Watch Out For This Week:

The newly released National Delinquency Survey by the Mortgage Bankers Association's (MBA) showed that that delinquent mortgage payments were down by 41 basis points compared to a year ago.

The delinquency rate for mortgage loans on one- to four-unit residential properties rose to a seasonally adjusted rate of 4.47% of all loans outstanding at the end of the third quarter. The rate was up 11 basis points from the previous quarter but down 41 basis points from one year ago.

"The healthy economy is overall supporting low mortgage delinquencies and foreclosure inventories," said Marina Walsh, vice president of industry analysis at MBA. "Unemployment is at its lowest level since 1969, wages have grown 3.1% year-over-year – the biggest jump in almost a decade – and job growth is averaging over 212,000 jobs per month thus far."

Meanwhile, foreclosure actions were started on just 0.23% of loans during the quarter, a one-basis-point drop from the last quarter to its lowest level since the fourth quarter of 1985.

Walsh noted that natural disasters are a major factor in determining whether borrowers make timely mortgage payments, adding that it will likely take several quarters for the effects of the most recent storms on the survey results to dissipate.

MBA noted that significant delinquency increases were recorded in states adversely impacted by Hurricane Florence and Tropical Storm Gordon, including North Carolina, South Carolina, Mississippi, Arkansas, and Alabama.

"The impact of the August and September 2017 hurricanes on several states, particularly Texas and Florida, continues to retreat," Walsh said. "Primarily because of the declining effects of last fall's hurricane-related spike, the overall mortgage delinquency rate in the third quarter was down 41 basis points on a year-over-year basis."

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost just  -7 basis points (BPS) from last Friday's close which caused fixed mortgage rates to remain at their their highest levels of 2018.  

Overview:  We had three big events that shaped rates last week:  Election results, the Fed and Inflation.  Inflation has reared its ugly head with PPI at 3.3% in China and 2.9% in the U.S. As a refresher - inflation is Kryptonite to bonds and MBS sold off on Friday as a result. The election results were largely what the markets expected with the Senate remaining with the Republicans and the Democrats taking the house.  We would have seen a lot more volatility if either party won both. The Federal Reserve also did not surprise the markets with setting the stage for a rate hike at their December meeting.

The Talking Fed: The FOMC voted unanimously to keep rates unchanged at this meeting. The Fed seems largely unconcerned with the recent stock market volatility and is signaling "further gradual rate increases ahead" which did nothing to change market expectations for a rate hike in December.

Inflation Nation: The Producer Price Index data for October surged to their highest levels in 6 years. The Headline PPI YOY jumped by 2.9% vs est of 2.5% and the Core (ex food and energy) YOY PPI increased by 2.6% vs est of 2.3%. Margins in Machinery, equipment, parts and wholesale supplies saw a large rise.

Geo-Political: The Republicans picked up a couple of more seats in the Senate to maintain their majority and the Democrats picked up enough seats to claim the house but the house is still fairly evenly split 220 to 193.

What to Watch Out For This Week:

An expanding family often leads to needing more space, but it also means more expenses.  That is why there is a growing trend for growing families to seek housing in less-expensive areas to get more.

A recent study by Zillow found that families with newborns are moving to lower-cost housing.  Expecting mothers were found to be more likely to move in any given year than women that are note expecting, despite people generally moving less these days. Among women ages 18 to 50, those who have had a baby in the past year are a quarter more likely than women who did not have a baby to have moved during that year.

Zillow listed the following as possible reasons to explain the data: seeking more space for a growing family; moving closer to family, whether for help with parenthood’s extra responsibilities or for quality time with the grandparents; seeking better job prospects to support a family; or planning ahead to settle in a preferred school district.

The analysis also found that not only do women with newborns move more, they also tend to move to areas with lower housing costs. Zillow found that in 26 of the 35 largest US metro areas, women who both moved and had a baby in the past year tended to move to areas with less expensive homes than where they came from.

The typical new mother moved to an area where homes are valued $11,500 less than where they moved from. Similar-aged women without newborns moved to areas where home values were only about $9,000 less than where they moved from.

Zillow’s analysis found the phenomenon more pronounced in the largest 35 metro areas. New moms from these areas moved to areas where median-valued were $20,100 cheaper than where they moved from. Women from these areas without newborns moved to areas with home values only about $6,300 cheaper.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -50 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher compared to the prior week and actually hit their highest levels of 2018.

Overview:  MBS prices were under gradual pressure all week (higher rates) as we got a steady dose of very strong manufacturing and production data that showed good economic expansion (which causes rates to move higher).  But we saw a large spike in rates on Friday in direct reaction to very strong job growth and wage inflation which pushed mortgage rates to their highest levels of 2018.

Jobs, Jobs, Jobs: Big Jobs Friday showed that our labor sector was doing very well with big job gains and an increase in wages.
Tale of the Tape:
Jobs:
October Non Farm Payrolls 250K vs est of 190K.
September Non Farm Payrolls revised from 134K down to 118K.
August Non Farm Payrolls revised from 270K up to 286K.
The more closely watched rolling three month average is now 218K.
Wages:
Average Hourly Wages YOY moved upward from 2.8% to 3.1% which matched market expectations.
MOM, Average Hourly Wages increased by 0.2%.
The national average hourly wage is now $27.30
Unemployment:
The national Unemployment Rate remained at 3.7% which matched market expectations.
The Participation Rate increased from 62.7% to 62.9%.
The October ADP Private Payroll report showed a huge jump of 227K new jobs compared to estimates of 189K. September was revised downward from 230K to 218K. Still, October saw the largest increase in 8 months. Small businesses added the fewest with only 29K as they struggle to find talent and/or match higher total compensation from larger corporations. In a separate report, the Q3 Employment Cost Indexincreased by 0.8% (QoQ) which is the largest quarterly jump since Q4 2017.

Productivity: Non-Farm Productivity in the 3rd QTR hit 2.0% vs est of 2.2%. Unit Labor Costs matched market expectations with a 1.2% gain.

Manufacturing: The October ISM Manufacturing report was a smidge lower than expected (57.7 vs est of 59.0) but still at a very high level. Internally, the ISM Prices Paid spiked upward to 71.6 vs est of 65.0. The October Chicago PMI was a little lighter than expected (58.4 vs est of 60.0) but still came in at a very robust level. Both Employment levels and Production rose at a fast pace.

What to Watch Out For This Week:

According to the Real House Price Index released by First American Financial, consumers are still in a strong position to purchase a home but are getting squeezed on just how much home they can afford.

Real house prices increased 0.6% between July and August, while real house prices increased 11.3% year over year. Consumer house-buying power, how much one can buy based on changes in income and interest rates, decreased 0.2% between July and August and declined 4.7% year over year.

First American Financial Chief Economist Mark Fleming noted, however, that average household income increased 3.2% since August 2017.

“Rising mortgage rates, which increased from 3.9% to 4.6% over the last year, reduced consumer house-buying power by nearly $30,000,” Fleming said.

However, he said the figure does not factor in the change in household income since last August.

“Wage growth translates into rising household incomes, which were 3.2% higher in August compared to a year ago. That growth in household income contributed $11,000 to consumer house-buying power, which helped mitigate the negative effects of rising mortgage rates,” Fleming said. “While rising mortgage rates reduced house-buying power by $30,000 over the last year, rising incomes increased consumer house-buying power by $11,000. The net effect? Overall consumer house-buying power fell by $19,000 in August compared with a year ago.”

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained +35 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly lower compared to the prior week..

Overview:  Overall, the week's economic data was strong but basically matched expectations and provided no real surprises.  A "dovish" ECB and concern over Brexit, Italy and Mid-Terms had plenty of money seeking bonds and cause a very slight improvement in rates.

GDP: We got our first look at the 3rd QTR GDP (will be revised several times) and it was basically inline with estimates (3.5% vs est of 3.3%). Estimates on Monday hovered in the 3.1 to 3.2 range and have been gradually moved upward by today to the 3.3 to 3.4 range. Consumer Spending was the major driver and that is encouraging. The next biggest driver was government spending. The only weak spot was a pull back in business investment.

Central Bank Palooza: The European Central Bank kept their main interest rate at 0.0% and their deposit rate at -0.4% which was widely expected. The unknown was what ECB President Draghi would say about Italy and the end of QE. During his press conference, he did not have any major "bombshells". He did say that they have not been purchasing Greek bonds and have been purchasing Italian bonds. He cited Brexit and Italy as key risk areas but that risks to growth in the EU were "broadly balanced".

Taking it to the House: Pending Home Sales were stronger than expected, rising 0.5% in September vs market expectations of a pullback of -0.1% and a nice improvement over August's pace of -1.9%. The good news is that inventory has shaken loose as active listings on the NAR MLS has increased. Weekly Mortgage Applications bounced back 4.9% led by a big jump of 10% in Refinance Applications. Purchase Applications moved upward by 2.0%. September New Home Sales were lighter than expected (553K vs est of 625K) plus, August revised lower below the 600K mark. The August FHFA Home Price Index showed a MOM gain of 0.3% which matched market expectations.

The Talking Fed: We got their Beige Book which is prepared two weeks in advance of the next FOMC policy meeting.
Tariffs and Labor Shortages were the two biggest concerns among banking and business leaders in the Fed's 12 districts. Here are some key takeaways from the release:
- The word "tariff" was used 51 times vs 41 times in the September release and 31 times in the July release
- All 12 districts said that the U.S. economy in their region is expanding at either a "modest" or "moderate pace"
- Firms offered signing bonuses, flexible hours and more vacation time in order to attract and retain workers." Most businesses also expected wage gains to remain “modest to moderate” over the coming six months
- Many firms very concerned over the ongoing trade dispute with China.

What to Watch Out For This Week: