Entries by Debbie Patella

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:

According to TransUnion, household home equity is currently nearing $15 trillion and has surpassed its prior housing bubble peak in the first quarter of 2006 by more than $1 trillion. Home equity levels have been rising at a rapid rate each year since hovering around the $6 trillion mark in 2011.

And that means Home Equity borrowing is poised to see a large increase as homeowners use a portion of that equity to pay bills, make home improvements, travel, etc.

Joe Mellman, senior vice president and mortgage business leader at TransUnion said “There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster.” and that an “increasing consumer debt makes debt consolidation an appealing option and home equity can be the most economically attractive path to do just that. The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education. We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.”

TransUnion said the home equity loan market may accelerate given these new market dynamics, noting that HELOCs represented the greatest number of home equity originations in 2017 at 1.2 million. With a 2.3% year-over-year growth from 2016, HELOCs present a market opportunity for lenders. TransUnion also noted that HELOCs have extremely low vintage default rates and that an estimated 70 million homeowners are likely to qualify for a home equity product.

“With rising interest rates and increases in home prices outpacing wage growth, homeowners are more likely to stay in their current homes, rather than ‘move up.’ This leads to a higher likelihood of improving their existing home and home equity can be great tool for that,” Mellman said.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -25 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher.

Overview:  After a brief pause in the sell-off of Mortgage Backed Securities (MBS) two weeks ago, they resumed their downward trend last week which continued to push fixed mortgage rates upward.  The FOMC Minutes gained the most attention of long-bond traders last week and it's consistently "hawkish" tone did provide a little more pressure to pricing.

Taking it to the House: September Existing Home Sales were a little lighter than expected (5.15M vs est of 5.30M). But there were some bright spots. The median sales price reached another new high and is now $258,100 which is up 4.2% from this time last year. Total sales are now up 4.1% on a yearly basis. Inventories got a little relief with 4.4 months of supply vs 4.2 months last year. Weekly Mortgage Applications hit a 17 year low. Mortgage Applications dropped by -7.1% overall, led by a steep drop of -9.0% in Refinance Applications. Purchase Applications dropped by -6.0%. New Housing Starts were lighter than expected (1.201M vs est of 1.237M). Building Permits were also light (1.241M vs est of 1.280M).

The Talking Fed: Former Fed Chair Alan Greenspan said that the 50 year low Unemployment Rate coupled with record number of job openings (JOLTS) will force up wages and inflation. He also said that "This is the tightest market, labor market, I've ever seen."

We got the Minutes from the last FOMC meeting where they raised their Fed Fund rate by 25 basis points and released their economic projections. 
Overall, the tone of Minutes was "hawkish" which really wasn't a surprise given Fed Chair Powell's recent comments since the last FOMC meeting. Here are some key highlights from the Minutes.
• A few participants expected that policy would need to become modestly restrictive for a time
• A number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee's 2 percent inflation objective or the risk posed by significant financial imbalances
• "Economic activity rose at a strong rate,'' household spending and business fixed investment "grew strongly,'' and a few participants saw recent data reflecting a stronger economy than they expected
• "Tightening resource utilization and an increasing ability of firms to raise output prices were cited as factors that could lead to higher-than-expected inflation"
• "Some participants commented that trade policy developments remained a source of uncertainty for the outlook for domestic growth and inflation."
• "With regard to upside risks, participants variously noted that high consumer confidence, accommodative financial conditions, or greater- than-expected effects of fiscal stimulus could lead to stronger-than-expected economic outcomes."

What to Watch Out For This Week:

Homeowners love their homes, and they would rather upgrade than leave their love nest and purchase a different home.

Given a choice between spending a fixed amount of money on a down payment for a new home or using that same money to fix up their current home, 76 percent of Americans will choose to renovate, according to the new Zillow Housing Aspirations Report.

For people who are 55 years or older, the share is even higher: 87 percent. And retirees are higher still, with 91 percent saying they’d stay put and upgrade rather than use the same money toward a down payment.



Staying put makes sense when 83 percent of homeowners love their homes – a finding from the 2018 Zillow Group Report on Consumer Housing Trends. Indeed, most homeowners – 63 percent – have no plans to sell their homes. The top reasons for not moving are that they love their home and they don’t want to deal with the hassle of moving.

Rising mortgage rates also could be a factor. Since the beginning of the year, rates have risen and homeowners who have a low mortgage rate may not want a new mortgage at a higher rate even though by historical standards, fixed mortgage rates are well below normal.

The desire among homeowners to stay where they are could be contributing to an ongoing inventory shortage. Nationally, the number of homes for sale has fallen on an annual basis for 43 straight months, although the pace of its decline has slowed in recent months. It also can become a self-fulfilling cycle: If homeowners hesitate to sell because they see few options on the market, they stay in their current homes – and inventory remains low.

Among the 20 metros surveyed for the Zillow Housing Aspirations Report, residents of Boston and Detroit were most likely – 80 percent – to choose renovating over buying. In Los Angeles, the smallest share of respondents – just over two-thirds – prefer renovations.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +9 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week which was very welcome after 4 straight weeks of rising rates.  

Overview:  We had a holiday-shortened week but that didn't mean that we did not have any volatility.  MBS had a swing of 42 basis points from our best pricing of the week (lowest rates) to our worst pricing of the week (highest rates).

Inflation Nation: The September Consumer Price Index was a little lighter than expected with the Headline CPI YOY coming in at 2.3% vs est of 2.4% and Core PPI YOY at 2.2% vs est of 2.3%. Import Prices MOM were more than double market expectations (0.5% vs est of 0.2%) and YOY they rose by 3.5% vs est of 3.2%. Atlanta Fed Business Inflation Expectations, the October survey showed a slight increase in expected inflation from 2.2% in Sept to 2.3% in October.

Wholesale Inventories: The Final August Reading was revised upward from the preliminary release of 0.8% to 1.0%. This will cause many to increase their 3rd QTR GDP guestimates. 

Small Business Optimism: The September NFIB Index came in at a very robust 107.9 which is just off of August's all time high of 108.8 and is the third highest reading in history. 38 percent of business owners reported job openings they could not fill in the current period, while 61 percent reported hiring or trying to hire, with 87 percent of those reporting few or no qualified workers. A record net 37 percent of owners reported raising overall compensation, up 5 points from August and surpassing the previous record of net 35 percent set in May.

Economic Optimism: The Investor's Business Daily TIPP report jumped to a reading of 57.8 in October vs expectations of 54.6.

What to Watch Out For This Week:

The biggest issue with the housing market over the past couple of years is that it has been heavily slanted towards a "sellers' market with very low and in some cases, no inventory available in many areas of the country.

But, could this be the start of some relief for those that have been looking to buy a home?  A recent survey by the National Association of Realtors showed that more and more homeowners think now is a good time to sell.

The survey found that 77% of Americans think now is a good time to sell. Half of the respondents strongly believe now is a good time to sell, up from a 46% share in the second quarter, while 27% moderately believe this is the right time, down from 29% last quarter.

Homeowners in the West (85%) and those who currently own a home (82%) were most likely to have the sentiment. Only 22% believe that now is not a good time to sell, down from 29% in the previous quarter.

NAR Chief Economist Lawrence Yun said several consecutive years of strong home price growth are enticing homeowners to consider selling.

“Though the vast majority of consumers believe home prices will continue to increase or hold steady, they understand the days of easy, fast gains could be coming to an end. Therefore, more are indicating that it is a good time to sell, which is a healthy shift in the market,” he said.

Source: Housing Opportunities and Market Experience Survey - NAR

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -75 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week, they also reached their highest levels in over 7 years.

Overview:  Mortgage backed securities sold off (higher rates) due to a very "hawkish" tone from the Fed, very strong economic data (ISM Services) and very strong Jobs data - even with weather related (hurricane) headwinds.

Jobs, Jobs, Jobs:
Non Farm Payrolls (NFP) September 134K vs est of 185K
NFP August revised from 201K to 270K
NFP July revised from to 147K to 165K
The rolling three month average is now a healthy 190K
Wages:
Average Hourly Earnings YOY 2.8% vs est fo 2.8%
Average Hourly Earnings MOM 0.3% vs est of 03%
Unemployment:
The national Unemployment Rate is 3.7% vs est of 3.8%
The Participation Rate 62.7% is vs est of 62.7%

In a separate report, the September ADP Private Payrolls Employment Report showed a surge of 230K new jobs which beat out forecasts of 185K. August was revised higher from 163K to 168K.

The Talking Fed: 
Chicago Fed President Charles Evans said that he was comfortable with expectations in financial markets that the U.S. central bank will raise interest rates again in December. 
Richmond Fed President Thomas Barkin said that the U.S. economy appears strong but eventually might face shocks such as a “political crisis” or an abrupt and difficult exit by Britain from the European Union.

Fed Chair Jerome Powell spoke just one week after the Federal Reserve raised their Fed Funds Rate. He spoke at the 60th Annual National Association for Business Economics Annual Meeting in Boston. 
Overall, his tone remained "hawkish" as it has for all of his speeches since he became Fed Chair. Here are a few statements/takeaways:
• “Our best estimates, however, suggest that so long as inflation expectations remain anchored, a modest steepening of the Phillips curve would be unlikely to cause a significant rise in inflation or demand a disruptive policy tightening. Once again, the key is the anchored expectations.”
• "This historically rare pairing of steady, low inflation and very low unemployment is testament to the fact that we remain in extraordinary times. Our ongoing policy of gradual interest rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary times, so as to extend the current expansion, while maintaining maximum employment and low and stable inflation.”
• Powell expresses confidence that low unemployment won’t spur a takeoff in prices that would force the Fed to hike interest rates aggressively.
• One key quote: “The rise in wages is broadly consistent with observed rates of price inflation and labor productivity growth and therefore does not point to an overheating labor market"
• Another: "Our course is clear: Resolutely conduct policy consistent with the FOMC’s symmetric 2 percent inflation objective, and stand ready to act with authority if expectations drift materially up or down"
• And finally: "So long as inflation expectations remain anchored, a modest steepening of the Phillips curve would be unlikely to cause a significant rise in inflation or demand a disruptive policy tightening"
• Powell doesn't offer any hints at how high rates might go this cycle 

ISM Services: Can we say "blockbuster"? The September reading hit its highest level in 20 years!!! This report represents MORE than 2/3 of our economic engine.

What to Watch Out For This Week:

The housing market has many phases from the eager first time homebuyer to upgrading due to a larger family, then downgrading for empty nesters and finally, your last home purchase - retirement.  But where will that last purchase be?

AARP and Wallet Hub has published a list of the Top Ten Places to retire and here is what they found:

From cost of living to climate and health care, many factors go into deciding where to retire. WalletHub is out with a new list of best states for older Americans. The personal finance website looked into 41 key indicators of retirement-friendliness and ranked each of the 50 states.

Topping the list for best overall is Florida. While it ranked No. 1 in affordability and high in other areas, WalletHub ranked it 20th for health care.

There’s a new state in the No. 2 spot this year, Colorado. While it wasn’t in the top 20 for affordability, it ranked No. 2 for health care.

Rounding out the top 10:
3. South Dakota
4. Iowa
5. Virginia
6. Wyoming
7. New Hampshire
8. Idaho
9. Utah
10. Arizona

Breaking down the states into specific areas, Alaska had the highest percentage of people age 65 and older still in the workforce — followed by Vermont, South Dakota, Nebraska and North Dakota. Alaska also had the lowest percentage of residents over 65 of the 50 states. As for the highest percent of the population 65 and older: Florida, Maine, West Virginia, Vermont, Montana and Pennsylvania.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) gained just +9 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.  That's the good news.  The bad news?  For the month of September, MBS lost -68 BPS which pushed fixed conventional mortgage rats to their highest levels in seven years.

Overview:  We had a big week for economic data with big-hitting reports like GDP,  PCE and Chicago PMI -  all showing solid growth.  The Federal Reserve raised their key Fed Fund rate and reaffirmed that they will continue to raise rates on a gradual path until they get to a "neutral rate" (the theoretical rate where inflation and interest rates are balanced).

The Talking Fed: You can read the official FOMC statement Here
You can read their Economic Projections here.
Here is an overview of their statement:
- Raised they key Fed Funds Rate from 2.00% to 2.25%
- Only meaningful change in FOMC's statement is removal of the sentence on maintaining "accommodative'' policy.
- The overview of the economy is basically the same as their August statement: labor market continues to strengthen, activity "strong.'
- Fed sees 2018 GDP growth at 3.1%, a noticeable upgrade from the 2.8% it saw in June, without any expected breakout in inflation.
- GDP growth of 2.5% in 2019, up from from 2.4%, suggesting the base case is that trade disputes and tariffs do not detract from growth much at all.
- The "dot plot" chart was relatively the same as June's projections:

• 2018 2.375% (range 2.125% to 2.375%); prior 2.375%
• 2019 3.125% (range 2.125% to 3.625%); prior 3.125%
• 2020 3.375% (range 2.125% to 3.875%); prior 3.375%
• 2021 3.375% (range 2.125% to 4.125%)

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.

Homeowners’ real estate holdings minus the change in mortgage debt rose by $320.1 billion (a positive number means that the value of real estate is growing at a faster pace than household mortgage debt).  That and other statistical findings were revealed in the latest Flow of Funds report published by the Federal Reserve.

Their report revealed that with $122.7 trillion in assets and a modest $15.7 trillion in liabilities, the net worth of US households rose to an all time high $106.9 trillion, increasing for 11 consecutive quarters and up $2.2 trillion as a result of an estimated $559 billion increase in real estate values, as well as a $1.7 trillion increase in various financial assets like corporate equities, mutual and pension funds, and deposits as the stock market soared to just shy of new all time highs.

In a separate report, the recent Existing Home Sales report published by the National Association of Realtors showed that August Existing Home Sales were right inline with estimates, hitting 5.34M vs estimates of 5.35M. July remained at 5.34M. Available inventory remained at 4.3 months of supply and the median sales price rose for the 78th straight month and is now $264,800.

The data from the Federal Reserve and the National Association of Realtors both show that owning a home is a great investment.

Source: Federal Reserve

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -17 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.  It was the fourth straight week of higher rates.

Overview:  We had a very light week for economic data, with the nothing on the calendar that could impact rates.  It was the "Trade War" that got all of the market attention.  MBS sold off (rates moved higher) on the prospect of higher consumer prices as a result of the latest rounds of tariffs announced by both the United States and China.  

Trade War: The White House finally unleashed their new $200B in tariffs that they have been dangling for well over a month. However, it was not as bad as the headlines would suggest. Here are some key points:
- Goes into effect today
- Will only be at a 10% rate and then in 2019, goes up to 25%
- 300 products were exempted/stripped out of the tariff package 

China's Response: $60B in tariffs that will go into effect on 09/24. It will impact 5207 U.S. Products and will be a measly range of 5% to 10%.

Taking it to the House: August Existing Home Sales were right inline with estimates, hitting 5.34M vs estimates of 5.35M. July remained at 5.34M. Available inventory remained at 4.3 months of supply and the median sales price rose for the 78th straight month and is now $264,800.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lower than expected (201K vs est of 210K). The more closely watched 4 week moving average dropped to 205,750 which is a fresh new 50 year low!

What to Watch Out For This Week:

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -37 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.  It was the third straight week of higher rates with MBS selling off a total of -76 basis points over the past three weeks.

Overview:  Across the board, we had strong economic data in just about every sector.  We saw inflation in the CPI release, a strong job market in the JOLTS report, a record reading in Small Business Optimism and a very strong Consumer Sentiment reading.  Even Retail Sales were solid when prior revisions were taken into account.  The bond market also shifted to put more probability of a Fed rate hike in September AND December despite the overhang of tariffs.  This combination of growth and inflation pressured long bonds and moved mortgage rates to the highest levels since May. 

Retail Sales: At first glance, the August data may look weaker than expected, but not really. The headline reading hit 0.1% vs est of 0.4%. So, it looks light. However, that is only due to the fact that July was much more robust than originally reported and revised upward to a gain of 0.7%. Ex-Autos...same story as the reading was 0.3% vs est of 0.5% but July was revised upward to 0.9%. Gas station sales, restaurants and ecommerce all had solid gains.

Industrial Production: Surged the most since 2010, rising by 0.4% in August. July had a major revision upward from 0.1% to 0.4%. Mining jumped (oil production) and utility usage jumped as the nation ran A/C units non stop during the hot months of July and August. 

Consumer Sentiment: The preliminary University of Michigan survey for September, jumped to 100.8 vs est of 96.6. It is the second highest reading this year.

Inflation Nation: The August Consumer Price Index (CPI) was lighter than expected but not as much as Wednesday's PPI miss. The headline YOY CPI showed a 2.7% increase vs expectations of an increase of 2.8%. The Core (ex food and energy) came in at 2.2% vs est of 2.4%.

The Talking Fed: They released their Beige Book. Overall, the report painted a very strong economic picture. Here are some key highlights:
• The word "tariff" was used 41 times compared to 31 times in July.
• Despite concern over tariffs, the U.S. economy is expanding at a "moderate pace" with tight labor market conditions.
• All 12 districts cited major labor shortages and a tight labor market among high-skill workers but also a number of districts noted shortages of lower-skilled workers at restaurants, retailers,etc.
• Wage growth was mostly characterized as modest or moderate, though a number of districts cited steep wage hikes for construction workers.

Small Business Optimism: The August NFIB Index jumped to 108.8 vs est of 108.1. This is now a new all-time record since this index was created 45 years ago. The survey saw gains in plans to increase inventories, to make more capital outlays and to increase employment.

Jobs, Jobs, Jobs: The Job Openings and Labor Turnover Survey (JOLTS) report hit another new all-time record high with a reading of 6.939M Jobs that are unfilled. It is the seventh straight reading above 6M.

What to Watch Out For This Week:

Home prices continue to reach new highs, with the most recent data showing prices for existing homes at a median of $276,900 in June; new homes are even more expensive at a median of $302,100. The annual increase in home prices has been outpacing income growth since 2012. As a result, homebuyers have been stretching more and more to purchase their dream homes. Low interest rates have masked this to some extent, as they have subdued the monthly payment, but the recent increase in interest has reduced this mitigating factor.

A well-known rule of thumb says that the home price should not exceed three times the buyer’s annual income. When a mortgage is used to buy a house, the ratio of amount borrowed to income is the extent to which a borrower is leveraged. In this study, we compared leverage ratios across cities to see where borrowers are stretching the most to purchase a home.

They used Home Mortgage Disclosure Act (HMDA) data that includes over 7 million mortgages originated in 2017 to calculate the leverage rate of borrowers in the 50 largest cities in America. The median amount borrowed was divided by the median borrower income for all purchases in the HMDA database for 2017.

Key findings

• California is known for its high home prices and high incomes. Unfortunately, the tech boom is not enriching everyone with cash, and 6 of the top 10 cities are in the Golden State, including the top four (Los Angeles, San Diego, San Francisco, and San Jose).
• Los Angeles leads the way for stretched buyers, with the median homebuyer with a mortgage borrowing 3.75 times their annual income.
• San Diego has similar income to Los Angeles, but cheaper homes give it the second highest leverage ratio of 3.62.
• Home prices are much higher in the Bay Area cities which rank 3 and 4 for stretched borrowers, but higher incomes provide some relief and leverage ratios are 3.52 and 3.50 for San Francisco and San Jose.
• The more affordable cities are clustered in the Rust Belt and southern U.S. states. Pittsburgh and Cleveland have the lowest leverage ratios at just 2.00 times annual income.
• Houston is the largest city in the bottom 10 and has the highest loan amounts of the affordable cities. High incomes driven by the energy and health care sectors helps it to a benign leverage ratio of 2.17.

Source: LendingTree Study

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -23 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher for the week.  It was the second straight week of higher rates with MBS selling off a total of -39 basis points over the past two weeks.

Overview:  We had very strong economic data all week with big readings in Manufacturing (1/3 of our economy0 and Services (2/3 of our economy) and then ended the week with higher wage growth with the Year-over-year Average Hourly Earnings hitting 2.9%. 

Jobs, Jobs, Jobs: 
Non Farm Payrolls:
August was better than expected, 201K vs est of 191K.
July was revised lower from 157K down to 147K
June was revised lower from 248K down to 208K
The three month rolling average is now 185K
Wages:
The Average Hourly Earnings YOY rose by 2.9% vs est of 2.7%
Earnings on a MOM basis rose by 0.4% vs est of 0.2%.
Average Hourly Wages are now $27.16
Unemployment:
The Unemployment Rate was unchanged at 3.9%
The Participation Rate dropped from 62.9% down to 62.7%

Services: The ISM Non-Manufacturing (2/3 of our economy) was very strong and beat out forecasts with a 58.5 vs 56.8 estimate.

Manufacturing: The August ISM Manufacturing Index jumped to 61.3 vs est of 57.7. Its the best reading since January. Any reading above 60 is rare for this report and very robust. ISM Prices Paid 
hit 72.1 vs est of 70.2...a very lofty level and yet another report that shows pricing pressures (inflation).

The Talking Fed: NY Fed Pres John Williams (voting member) said that steady inflation and low unemployment have created an economy that is “as good as it gets” for the U.S. but that “we can continue to be relatively patient and allow this economy to continue to grow.”

What to Watch Out For This Week:

With the red-hot job market, millions are moving to a new city this year.  The cost of housing is a big consideration in deciding if taking that new job offer is really worth it.  But also, a person's commuting time is a growing consideration as people are focusing more on their quality of life.

The U. S. Census Bureau compiled the average daily round-trip commute times for almost 1,000 cities and the data is very alarming.  The average American worker spends 52.2 minutes a day commuting to and from work, or 4.35 hours a week. This translates to an average of 408 days of one's life commuting - and more in large cities.

This means that the time spent commuting is a major consideration on where to relocate and purchase the next  home, the longer the commuting time - potentially, the less desirable a city or neighborhood becomes.

Educateddriver.org put together a great interactive map that you can checkout to determine your local commute time: Click HERE for the interactive map.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -16 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move slightly higher for the week.

Overview:  We had strong GDP (4.2%), Inflation at 2.3% (Headline PCE), very strong Consumer data and very strong manufacturing data.  All that positive data means growth and that is always something that will pressure long bonds and increase interest rates.  While, Mexico and the U.S. appear to have a deal, the uncertainty of Canada joining in has provided some support for bonds which has diminished the downward pressure from the strong economic data.

PCE: The Fed's preferred measure of inflation hit a six year high as the Core PCE number FINALLY hit 2.0% (the Fed's target rate). The Headline PCE number continues to trend above 2.0% with a 2.3% vs est of 2.2% level. Spending picked up by 0.4% on a MOM basis and Income grew by 0.3%, both matched market expectations.

Manufacturing: The bell-weather Chicago PMI continues to deliver very robust readings. The August reading hit 63.6 vs est of 63.0. Any reading above 50 is good and readings above 60 are extremely positive for the economy.

Consumer Confidence: The August reading was very robust, coming in at 133.4 vs est of 126.5. This is the highest reading since 2000.

Consumer Sentiment: The August University of Michigan's Index was revised to 96.2 from 95.3, a very strong reading.

GDP: The 2nd QTR GDP was revised upward from the originally reported 4.1% to 4.2%, the market was actually expecting a downward revision from 4.1% down to 4.0%, so this was a fairly nice beat to the upside. 

The Talking Fed: The Senate confirmed Trump nominee Richard Clarida by a 69-26 vote as the Vice Chairman of the Federal Reserve. He replaced the void left by William Dudley. Clarida was a big fund manager at PIMCO at the time when PIMCO was the world's largest bond trader.

What to Watch Out For This Week: