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Aging Americans, Aging Housing Stock Driving Remodel Boom

March 14,2019
by admin

Nearly 80 percent of America’s housing stock is at least 20 years old and twice that share of homes were built 50 or more years ago. With new construction still well behind its pre-recession levels Americans have been remodeling these older homes in huge numbers.

The Joint Center on Housing Studies says there was $425 billion spent nationally on maintenance and improvement, a 10 percent increase from 2015 and more than a 50 percent gain from the 2010 low. In fact, that spending, by both owner occupants and landlords, has been the dominant share of residential investment in the years since the recession and generated 2.2 percent of total economic activity in 2017.

Spending for improvements on rental properties are a larger share of spending than the historic average of 25 percent. A surge in renting during the Great Recession drove a boom in multifamily construction, but rising construction costs put rents on new units out of reach for many so owners of existing rentals invested in significant upgrades to their properties to capture some of this demand, driving the rental share of residential improvement from about 20 percent in 2007 to over 30 percent in 2016 and 2017.

The foreclosure crisis left many homes vacant for extended periods and there was also widespread conversion of owner-occupied housing to rentals. As homeownership demand started to recover, the number of vacant or rental homes moving back into owner occupancy has grown, increasing from 5.0 million in 2010 and 2011 to more than 6.6 million in 2016 and 2017. With home construction lagging homebuying demand, these units make up a growing part of the owner-occupied stock.

Spending by owners of these newly converted homes increased from $33 billion in 2010-2011 to $50 billion in 2016-2017, while average per owner spending rose from $6,500 to $7,500. Owners spent more than double on homes that had been vacant than where they had been rented ($10,400 versus $4,500) Spending on homes that remained owner occupied averaged only $5,500. Spending for kitchen and bath remodels and room additions were especially high among the conversions.

Improvements to owner-occupied homes accounted for 55 percent of total expenditures in 2017. The Joint Center analyzed data from the most recent American Housing Survey (AHS) for its recent publication, Improving America’s Housing 2019. It shows that 22 million US homeowners completed at least one home improvement project that year. These ranged from a relatively simple window or door replacement, to HVAC replacement, to a complete kitchen remodel or room addition.

Most projects were small; 40 percent reported spending less than $2,500 and three-quarters spent less than $10,000. Even so, owners spending $50,000 or more contributed one-third of the total $233 billion spent by homeowners in 2017 while those spending at least $25,000 accounted for more than half.

Spending on replacement projects has historically matched spending on discretionary fixes such as additions or bath remodels with about a 40 percent share. Since the recovery however the replacement share has grown to almost 50 percent. This increase in replacements and system upgrades probably reflects necessary work deferred during the recession as well as the aging of the housing stock. With lagging homebuilding, the median age of owner-occupied homes has grown from 29 years in 1997 to 39 in 2017.

Homeowners spent $68 billion or 29 percent of the market total on improvements increase the energy efficiency of their homes; replacing roofing and windows, adding insulation. Over 17 percent of homeowners cited energy efficiency as the motivation for their projects, up from 11 percent in 2013. This was especially true in metros with older homes and harsh winters.

Spending on disaster recovery is also growing, both in absolute terms and as a share of expenditures. Outlays for disaster-related improvements exceeded $27 billion in 2016-2017, nearly double the two-year average of $14 billion two decades earlier. This spending growth has been especially strong in the South and Midwest. While insurance payouts covered most of disaster repair costs, homeowners paid out of pocket for more than four in ten projects in 2016-2017. Where there were insurance payouts owners spent $20,000 on average for restoration projects in 2016-2017, but just $12,000 if they paid for the repair of disaster damages on their own.

The share of spending on do-it-yourself (DIY) projects, which includes only the material costs, fell steadily from 25 percent in 1997 to just 18 percent in 2017. The aging of the US population explains at least part of this long-term decline. In 2017, 88 percent of improvement money spent by homeowners age 65 and over was for professionally installed projects compared with 69 percent by owners under age 35. The younger groups DIY share of outlays has also trended down, from 35 percent in 1995-2005 to 31 percent in 2017.

The increase in replacements also tilt spending away from DIY. Even talented DIYers are likely to hire professionals for electrical, plumbing, and roofing upgrades. Indeed, 86 percent of spending on replacement projects in 2017 was for professional installation, significantly more than the 76 percent share for discretionary projects.

Per-owner spending on home improvements in 2017 averaged $3,000 and half of all individual project spending was under $1,200. Households typically (77 percent) pay for these small projects out of pocket. The rest was paid for through credit or retail store charge cards (5 percent), home equity loans or lines of credit and cash from mortgage refinancing (5 percent), and insurance settlements (4 percent). Nine percent came from “other” sources such as contractor financing or personal loans.

The share paid with cash steadily shrinks on larger projects, from 78 percent of projects under $10,000 to 60 percent for those costing $10,000 to $49,999, 54 percent for those costing $50,000 or more. Financing is more likely to come from home equity loans or cash out refinances as well as insurance settlements.

Financing varies as well by type of installation. Owners paid cash for 84 percent of DIY projects compared with 72 percent of work done by professional contractors. Landscaping, security systems and walkways/driveways are most likely to be paid out of pocket while roofing, siding, and additions are financed from other sources. The cost of a project tends to be higher where financing is used instead of savings.

The steady increase in home prices since 2011 has been good news for the remodeling market. Knowing that their homes are increasing in value incentivizes owners to invest in them, and the growing equity can provide the funds to do so. This relationship is clear at the metropolitan area level. In metros with strong home price growth in the last decade, areas like Boston, Dallas, San Antonio, San Jose, San Francisco, and Seattle, owners have typically spent substantially more on home improvements than owners in metros where prices have not yet fully recovered like Las Vegas, Miami, Phoenix, and Riverside.

However, there are limits to this relationship. Home prices have outpaced income growth for several years and when coupled with rising mortgage interest rates are making homeownership increasingly unaffordable especially to many younger households-the demographic most critical to long-term growth of the home remodeling market.

Other factors may mitigate against the remodeling market as well. Mobility, the rate at which the population changes residences each year, has declined by almost half over the past four decades and homeowners typically spend 25-30 percent more on remodeling projects in the first few years after relocating than do those who stay put. This slowdown is due in part to the aging of the population, the decline in household size, and advances in technology that have made telecommuting an alternative to relocation.

Another potential problem is the depressed homeownership rate among younger households. Homeowners under age 35 have accounted for only 8-9 percent of home improvement spending annually since 2012, about 5 percentage points less than their average share over the 1995-2011 period. An exception is areas where homeownership is relatively affordable. There younger households do contribute significantly to home improvement spending.

While homeowners aged 35-54 have the highest per capita spending on home improvement, their share of market spending has declined from more than 50 percent in 1995-2005 to just 41 percent in 2015 with the leading role taken by homeowners over age 55. Their numbers have grown from 26 million to more than 42 million between 1997 and 2017 and their share of all homeowners increased from 40 to almost 55 percent.

These older homeowners are living longer and are willing and able to spend on improvements that allow them to remain safely in their homes as they age. Their average spending increased by 57 percent during that period, to nearly $2,800. In aggregate these changes have increased spending among older owners by 150 percent to $117 billion. By comparison, total market spending was up just 9 percent among owners under age 35 and 12 percent among owners aged 35-54 over this period.

The growth in spending by those over age 65 was especially strong, up nearly 80 percent to $2,500 in the 20 years. Spending by those aged 55 to 65 increased 33 percent while spending among those 35-54 was only 20 percent higher after 20 years.

Older homeowners tend to devote a larger share of their improvement dollars (51 percent) to replacing home components and systems than younger homeowners (43 percent) and are increasingly focused on making their homes more accessible. More than 72 percent of those over 55 reported undertaking at least one project to improve accessibility for the elderly or disabled. These are likely to be more expensive such as bathroom and kitchen remodels or room additions to allow single-floor living.

Older homeowners are dominating the market in part because of the low homeownership rate of younger households since the Great Recession. But the number of homeowners under age 35 did rise 6 percent to 7.3 million between 2015 and 2017. Improvement spending among this age group grew even faster, climbing 20 percent in real terms over this period to about $22 billion and average per owner improvement spending rebounded 38 percent from $2,100 to $2,900 between the 2013 low and 2017. Per owner spending among younger owners in 2017 nearly matched the prior peak of $3,000 in 2007. In part this is because younger homeowners have higher incomes than those than the older cohort who were more impacted by the Great Recession.

What does the report see for the future? The Joint Center says household growth alone should lift the number of homeowners over the next two decades. But as more lower- and middle-income households move into homeownership the recent jump in per owner improvement spending among the youngest cohort is likely to slow to a more sustainable pace. Still, the expected growth in their sheer numbers should more than offset slower spending and keep expenditures on the rise. Nonetheless, the report says, the ability of younger households to make the transition to homeownership is ultimately the key to the remodeling market outlook.

The growing number of older homeowners coupled with older homes that are not configured for accessibility will continue to drive aging-in-place accommodative spending. This will be especially true in slower-growing areas of the Northeast and Midwest where building of new homes, more likely to have accessibility features, is more constrained.

The share of replacement projects is likely to remain high as the housing stock ages and the number of older homeowners grows. Since these are projects generally requiring professional installation, the DIY share of spending is expected to remain relatively low.

Low energy costs of late has reduced the payback from those types of upgrades. If prices remain subdued the motivation to undertake further energy retrofits may also be limited.

At the same time, disaster recovery spending is likely to climb. The Joint Center says recovery from an event is usually spread over two or three years so there may already be a backlog of work from the 2016-2018 spate of hurricanes and wildfires. If the trend of stronger and more frequent events continues, so will related expenditures increase.

Financing home improvement is a promising growth opportunity. Heavy reliance on savings limits homeowners’ options. Expanding the types and availability of new financing alternatives-especially those tied to home equity- would likely lead to more growth in remodeling while helping to preserve and modernize the nation’s housing stock.

Mortgage Rates Lowest in More Than a Year

March 13,2019
by admin

Mortgage ratesheld steady today, despite moderate weakness in underlying bond markets. This occurred for two reasons. First, yesterday saw bond markets improve, but not by enough for lenders to adjust rates lower in the middle of the day. Second, today’s bond market weakness happened gradually throughout the day and was thus not big enough to prompt a mid-day rate change from lenders. The implication is that rates would likely be very slightly higher tomorrow if bond markets were to hold steady overnight.

By remaining in current territory, rates are also remaining at the lowest levels since January 2018. The average lender can now offer conventional 30ry fixed rates of 4.375% on top tier scenarios. FHA rates are a quarter point lower (or more, depending on the lender), but they carry mandatory mortgage insurance (so the payment could be higher for the same loan amount).

Without meaningful motivation from economic data or news headlines, rates will have a hard time moving much lower. The first major scheduled event with the power to shake things up is next week’s Fed Announcement on Wednesday afternoon.


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.375%
  • FHA/VA – 4.0-4.125%
  • 15 YEAR FIXED – 4.0 – 4.125%
  • 5 YEAR ARMS – 4.25 – 4.625% depending on the lender



Ongoing Lock/Float Considerations

  • Headwinds that had plagued rates for most of the past 2 years began to die down in late 2018. A rapid decline in the stock market certainly helped drive investors into bonds (which helps rates) Highest rates in more than 7 years in Oct/Nov. 8-month lows by the end of the year

  • This is a bit of a crossroads. The rising rate environment could flare up again. We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain.

  • Either way, late 2018 was a sign that rates are willing to take opportunities presented to them. From here, it will be up to economic data, fiscal policies, and the stock market to decide on the next set of opportunities. The rougher the overall outlook, the better interest rates tend to do.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

MBS RECAP: Small Scale Volatility Lost in Big Picture Shuffle

March 13,2019
by admin

In the bigger picture, we’ll look back at today’s intraday trading range and it will be completely meaningless–among the narrower days of 1st quarter of 2019. That’s because, like yesterday, nothing interesting happened to motivate any meaningful movement. If that’s all the more you’d like to know about today, feel free to go about your business and check back in tomorrow. You won’t be missing much.

For those of you that noticed the intraday mini-spike in bond yields, I’m afraid I don’t have much more for you. We discussed this in detail in MBS Live and I spent most of the Huddle video time discussing it as well. Ultimately, there was no good case to be made for correlation with British markets, news, data, events, or the stock market (even though I saw several other analysts say otherwise. Watch the video if you think you might agree with them).

The best explanations involve boring things like technical stop loss levels for curve traders (i.e. trading programs with triggers based on the gap between two flavors of US Treasury Note/Bond, such as 5yr vs 30yr Treasuries). The net effect around the noon hour was a bit of a snowball sell-off that took 10yr yields 1bp higher in 10 minutes, or 3bps higher over the course of 3 hours. Neither milestone is overly impressive, but the weakness was notable on an otherwise boring day.

Surge of New Home Sales in West Salvage January Numbers

March 13,2019
by admin

It seems like only yesterday that we were looking at the December new home sale numbers – well actually it was 6 days ago. Now we have the January sales numbers as the Census Bureau and the Department of Housing and Urban Development continue to catch up from the shutdown’s data drought.

However, while December sales surprised everyone with a 16.9 percent increase to 621,000 units (now revised to 652,000) January took back a lot of those gains. Sales were at a seasonally adjusted rate of 607,000 units, a 6.9 percent reversal. This puts sales down 4.1 percent year-over-year. That the January numbers were not worse was solely due to a surge in sales in the West. They fell by double digit percentages in the other three regions.

The January estimate was still solidly within the 590,000 to 640,000 range of predictions from analysts polled by Econoday. Their consensus was 612,000 units.

On a non-adjusted basis there were 45,000 newly constructed homes sold during the month compared to 47,000 in December. Only 17,000 of the homes sold were completed at sale and construction had not started on half of the remaining 28,000 units.

Sales during 2018 totaled 627,000, up from 613,000 for all of 2017.

The median price of a home sold in January was $317,200, down from $329,600 in January 2018. The average price was $373,100, also a slight decline from $377,800 a year earlier.

At the end of the reporting period there were an estimated 341,000 homes for sale, about 9,000 more than at year’s end. This is estimated at a 6.6-month supply at the current rate of sales, a full month’s improvement from the inventory in January 2018.

Sales in the west rose 27.8 percent from December although they remain lower than a year earlier by 3.2 percent. In the Northeast sales fell below both the previous month and the prior January by 11.4 percent.

The Midwest’s sales were down 28.6 percent and 41.9 percent for the month and the year while sales in the South declined by 15.1 percent compared to December. The region did manage a year-over-year gain of 6.2 percent.

Housing Market OK to Weather an Economic Downturn

March 13,2019
by admin

Folks who follow real estate might be getting a little nervous. Since that category includes almost everyone who owns a home, wants to own a home, or makes money buying, selling, building, or furnishing a home, that could be a lot of edgy people.

And not without reason. Ralph Mclaughlin points out in CoreLogic’s Insights blog that is seems lately as though the roof of the housing market might cave in. There has been a lot of volatility as of late. He cites as examples, a seven straight month decline in the S&P CoreLogic Case-Shiller Home Price Index, a whopping 12 percent plunge in new home at the end of last year, and rising inventories of available homes. Plus, the country is only six month’s short of the longest economic expansion in history. So, he says, “It is understandable why some might think that the housing market and broader cycle is coming to an end.” However, Mclaughlin says, even though there are troubling signs, there are also reasons that the housing market is in good shape to weather a downturn.

The housing market usually does fairly well in a recession he says, and broad and deep troughs in home prices are the exception. During the last five recession only two have resulted in price declines. Prices grew 6.6 percent during the Dot-Com recession in 2001 and by 6.1 and 3.5 percent in the 1980 and 1981 recessions. The two exceptions were a small 1.9 percent dip in 1991 and, of course, the 19.7 percent plunge during the Great Recession

Second, there is a lot of unmet demand. The total inventory of both new and existing homes is only 15.7 units per 1,000 households, up slightly from the record low of 14.9 units in December 2017. This puts the country in a very different supply environment than what existed before the onset of the Great Recession when there was a massive run-up in inventory. This means that prices are unlikely to fall far, if at all, should there be a recession.

And the nation’s demographic outlook means that demand is not likely to abate. Currently about 46 percent of the population is under age 35 and we should expect them to form new households as they enter into the peak marrying and child-bearing years. The Harvard Joint Center for Housing Studies estimates Millennial households will increase by 32 million over the next twenty years. That’s a lot of new homes that will be needed, regardless of whether they buy or rent. Mclaughlin says this household growth should continue to put upward pressure on the housing market until at least 2040.

Digital Products; Loan Package for Sale; Fee and Pricing Changes

March 13,2019
by admin

Happy pi day, 3.14… Did you hear about the three statisticians that went out hunting? They spotted a rabbit. The first shot too high. The second shot too low. The third cried out, “We got it!” Statistics are tricky things (are sales of new homes down because of high prices or lack of inventory?), and real estate agents love stats for their neighborhoods. Their role is certainly changing, however, as spelled out in this report.


Lender Products and Services

Galton Funding has made it easier than ever to qualify your Prime Credit self-employed borrowers. In addition to recent pricing enhancements, Galton has made major upgrades to its 12- and 24-month bank statement programs. Galton now allows the use of a P&L Statement along with the business bank statements to determine qualifying income; the P&L can be prepared by the borrower, CPA or tax preparer. Galton’s Bank Statement programs (both personal and business) are designed for self-employed borrowers that own at least 25% of a business. The Bank Statement programs allow up to 90% LTV on a purchase and rate/term refinance, and up to 85% LTV on a cash out refinance, and offer 30- and 40-year Interest-only options for primary, second homes, and non-owner-occupied properties. Galton will also now consider short-term lease income such as Airbnb on the 24-month bank statement program. For more info on Galton’s programs or becoming an approved Galton Correspondent, please contact a Business Development Manager.

Imagine increasing your borrower satisfaction by 25% in less than two months. That’s exactly what happened for a regional credit union that implemented Maxwell’s digital mortgage point-of-sale solution. Maxwell continues to be the leading digital mortgage solution for independent and regional lenders looking to improve their borrower experience and increase profitability. I’ve seen firsthand the results and impact Maxwell can have across many different organizations, from independent lenders to banks and credit unions. Their platform enables teams to easily launch an all-encompassing digital experience to their borrowers, while providing industry leading tools and integrations to help improve loan officer efficiency across the organization. To learn more about Maxwell visit www.himaxwell.com or request a demo here.

Texas Capital Bank, N.A. welcomes Madison Simm to its Mortgage Finance team. Madison is a highly regarded industry veteran, having previously served as CFO at a well-known independent mortgage banker based in Dallas. In this new leadership role, he will champion business optimization efforts throughout the Mortgage Finance group, which provides business solutions to mortgage lenders across the country. Reach out to Madison to congratulate him on his new role.

Are You Using the Right Doc Prep-LOS Integration? There are few system integrations in the mortgage industry as critical as the one between a lender’s LOS and document preparation platform. The type of connection between these two pieces of technology can have a dramatic impact on compliance, productivity and overall loan quality, yet many lenders lack a clear understanding of the variances between integration types (yes, there’s more than one!). As a result, lenders might opt for a type of LOS-doc prep integration that may not be the best fit for their organization and its needs. Learn more about this mission-critical connection and how to choose the right integration type for your company in this free white paper from IDS.

Would you like to do a better job of leveraging social media platforms like LinkedIn, Facebook, Twitter and Instagram to drive qualified leads and build awareness of your company, technology and services? Social media is effective for any of these goals and an important component of your overall strategy. Seroka Brand Development, specialists in mortgage and fintech marketing, will help you get beyond the vanity metrics and focus on the metrics that matter to ensure your social presence plays a substantial role in driving real business results. These platforms are changing and adding functionality at a constant pace. Seroka will help you stay on top of them, prioritize the platforms that matter most to you and develop a strategy that leverages everything they have to offer. Want to learn more? Reach out to Seroka and get ready to #TurnUpYourBrand!

There are two myths out there that need to be debunked. The market isn’t out of housing inventory, and lenders aren’t destined to have low volume this year. Both of these can be solved if lenders start to think outside the box. There’s an abundance of houses in existence that could benefit from a renovation loan, allowing borrowers to repair or remodel their current or future home. Start taking advantage of this hidden inventory. While these products are more complex, the right correspondent partner can provide expertise and efficiency to make these loans happen with no delays or problems. As a go-to resource and expert in renovation loans, TMS rolled out a new Fannie Mae HomeStyle program to help lenders lock in more business. Learn more about the product here.

Caliber Home Loans, Inc. is celebrating the one-year anniversary of launching its suite of mobile apps. Since launching the three apps in the App Store and Google Play, the relationships customers, agents, builders, and business partners have with Caliber has changed. With real-time information on everything from accounts to loans in-process, working with Caliber has never been easier. The Caliber Home Loans app has been downloaded over 110,000 times by customers and received half a billion dollars in mortgage payments! The CaliberH2O app has widely been adopted by Caliber Loan Consultants, Account Executives, and its Wholesale Business Partners and even has a five-star rating among Android users. Agents and builders have rated the Caliber MyPipeline app as five stars in both the App Store and Google Play. Caliber is celebrating its one year APPiversary today on social media, and invites you to say ‘Congrats Caliber’ with a LIKE.


Fee and Pricing News

Of course bond prices and servicing values fluctuate every day. But let’s take a random look at the some of the more “structural” prices changes that lenders are making out there.

Mortgage Solutions Financial has removed its underwriting fees. View its announcement for details.

Citi made additional updates to its Best Efforts rate sheet, effective Friday, February 1, 2019. These pricing changes will result in improvements for escrow waiver adjusters on pages 3, 7 and 8 of rate sheet (Excludes CA) – current (0.250), new (0.125). The Escrow Waiver (CA) current (0.125), new 0.000. Investment property adjusters (rate sheet page 3) will also reflect improvements.

California’s Land Home Financial let clients know that it is pricing jumbo 30-year fixed-rate loans like high balance loans. “Delegated to $1,500,000, only 3 tradelines required for 12 months – closed accounts allowed with acceptable payment history, 1 appraisal to $1,500,000 with a desk review, 9 months PITI for Owner Occupied, FTHB allowed (additional requirements), minimum loan amount $484,351.

Effective January 1, 2019, for all loans disclosed on or after 1/1/2019, the following LHFS Admin Fee schedule will apply to all wholesale loan submissions: $995 for Conventional, FHA and USDA Loans. $1,145 for all Expanded Niche, GSFA and Within ReachTM Products. $595 for FHA Streamlines and $0 for VA Products, excluding the VA Within ReachTM.

In November Ditech Delegated clients began being charged $350 for all condominium reviews regardless of decision (approved, suspended or declined). For loans that fund, the fee will be deducted from purchase advice. For condo reviews that have been completed on loans that don’t fund, the $350 fee will appear on the clients monthly e-billing statement. Non-Delegated Clients will be charged condo fee on loans that fund with fee being deducted on purchase advice.

Mr. Cooper has expanded its Credit Policy and theenhancements are live with all Capital Markets executions. Applicable changes have been made to Feature Pricing Adjusters.

ClosingCorp has announced a new analytics tool that gives providers of settlement services better insight into market penetration, pricing trends and market potential. ClosingCorp’s Price Trends Market Analyzer enables users to see their market share on national, state and county levels; assess the addressable market for various products by evaluating volume and pricing trends on a national, state and county level.

Plaza recently adjusted its AUS Non-Conforming rate sheet effective for loans locked on or after Tuesday, January 29, 2019. Updates include: Purchase Transactions: a price improvement has been added. Reserves: a price improvement has been added for borrowers with greater than eight and greater than fifteen months in reserves. 3-4 units are now identified separately. LTV/CLTV: a price adjustment has been added for loans with an LTV/CLTV > 65%.

Effective Friday, March 1st, Banc of California reduced its margin from 3% to 2.5% on our Portfolio Prime Product. This applies to all owner occupied and second home transactions. Note, the margin will remain at 3% for Investment property transactions.


Capital Markets

MIAC is pleased to offer, on behalf of an asset manager, approximately $16mm of Puerto Rico-based residential whole loans. These loans are approximately 10 years old. Puerto Rican residential loans exhibit unique performance characteristics. Because of MIAC’s extensive activities in Puerto Rico, we are uniquely qualified to provide much data and analytics to participants in the Puerto Rico residential loan market. Bids are due EOD 3/19/19. For additional information, contact your MIAC sales representative at 212-233-1250 or Steve Harris.

Aside from some intra-day volatility in prices between coupons, security types, and maturities, rates didn’t move much in the bond market Wednesday, so I’ll try not to waste your time with details. You should know that in the U.S., PPI, Durable Goods Orders, and Construction Spending numbers supported “modest growth and moderating inflation” and growth concerns, a decent 30-yr bond auction, and a wait-and-see stance in front of the “no deal” Brexit vote after the close all contributed to the Treasury market’s resilience with the 10-year ending the day yielding 2.61%.

This morning, while much of the nation is gripped in weather-related problems, we’ve had weekly jobless claims (229k) and February import/export prices (both +.6%, ex-petroleum +.1%). Coming up are January new home sales (seen rising 9k to 630k on an annualized basis). The day begins with the 10- year yielding 2.62% and agency MBS prices are unchanged.

Jobs and Business Opportunities

A Colorado-based, successful Mortgage Broker/Banker “is looking to partner with a bank to facilitate expanding our footprint to other states. We originate all the traditional mortgage loan programs as well as a substantial amount of bridge loans, SFR construction loans, lot loans, and other portfolio type loans that we can offer to the right bank partner.” Interested parties should contact Anjelica Nixt for an introduction.

A heartfelt congratulations to Jeff Miller for joining Churchill Mortgage as VP of the Northwest Region. Serving borrowers and industry partners in one of the most competitive housing markets in the nation, Churchill’s Pacific Northwest expansion will ensure local borrowers have access to tools and strategies designed to help them make a smarter mortgage decision. A 19-year industry veteran, Jeff will support all dynamics of Churchill’s expansion in the area, including operations, marketing and overall strategy. “The Pacific Northwest’s housing market continues to demonstrate significant growth and opportunity for mortgage lenders and homebuyers alike,” said Matt Clarke, COO and CFO of Churchill Mortgage. “With our new team, Churchill will launch a significant expansion in the Pacific Northwest and serve as mentors to homebuyers as they look to achieve the true American dream of debt-free homeownership.”

Built Technologies announced the addition of Ray Ritz as SVP of Technology, leading Built’s product and technology development, including software engineering, customer support, and implementations.

Summit Valuation Solutions announced that Jayson Dammen has joined the company’s team as VP of national accounts responsible for maintaining and expanding client relationships across the country, as well as for identifying strategic opportunities that Summit can offer clients.

Gateway Mortgage Group has hired Jacquelyn Pardue as the director of purchasing and vendor management to oversee vendor relationships for all business channels and service providers

MBS Day Ahead: How Much Do We Really Care About Brexit?

March 13,2019
by admin

Top line, bottom line: Brexit is a big deal. Without the Brexit referendum in mid-2016, US bond yields never would have revisited all-time lows. It’s important to remember that London is big player in financial market history. The London Stock Exchange was founded in 1571 or 1698, depending on how you look at it, and it became the first regulated exchange in history in 1801. With that date roughly coinciding with the proliferation of the telegraph, this was arguably the birthplace of modern financial markets.

To this day, London is ranked as the 2nd biggest financial center behind New York. It’s importance is only amplified due to the closer relationships between the two cities. The UK has long been the English-speaking base camp for US-based traders who participate in European markets. For all these reasons and more, what happens in London doesn’t stay in London when it comes to the market.

But Brexit waxed and waned in 2016, right? And now they’re just sort of sorting it out, aren’t they?

Yes and no… It’s true that 2016 was the biggest deal, but we’re still seeing episodes of correlation when we look at British pounds sterling vs US rates. In the medium term, this correlation is fleeting at best. Each market has plenty of other things to consider.

2019-3-14 open2

Correlation is easier to spot in the short term. For instance, Brexit news was a key source of strength on Tuesday, and very likely behind the bounce that followed.

2019-3-14 open3

When we look at British BONDS (as opposed to currency), it’s much easier to see correlation. But we have to be careful because there will always be a good amount of correlation between sovereign debt of the biggest players. The trick is to look for big spikes in one market that are definitely informed by Brexit news and then to see how the other market reacts. When we do this, we see that the mysterious sell-off in US bonds on Feb 27th was very likely a factor of Brexit news (Sterling was spiking around the same time, but the correlation was harder to see on a chart).

2019-3-14 open4

The past few days are informative as they logically show more volatility in British bonds while not abandoning the correlation we’d expect to see in the US. From here, the risk is that Theresa May wins over enough support to get MV3 through parliament (the 3rd compromise deal, designed to avoid the “no-deal” brexit that lawmakers voted down last night). If that happens, it will be “risk-on” for markets (i.e. bond yields will move higher). This will be a bigger deal for British financial markets, but US markets will definitely get some spillover.

Mortgage Rates Technically Lower, But Risk Rising Tomorrow

March 13,2019
by admin

Mortgage rateswere officially lower today, despite some weakness in the bond market. In general, bond market weakness coincides with rates moving higher. This time around, the weakness was minimal, and mortgage lenders had a bit of catching up to do with respect to yesterday’s bond market gains. The changes were very small for the average lender, but they technically result in yet another long-term low (best rates since January 2018).

Clouds began to roll in by the end of the day in response to a glut of news out of the UK. As expected, British politicians voted to avoid exiting the EU without some sort of deal. On a somewhat unexpected note, there seems to be a quickly growing consensus that a different brexit compromise deal has enough support to pass, or at least to come much closer than the just-defeated compromise deal. This is giving markets hope for a less uncertain outcome.

Interest rates tend to move lower when the global economic outlook is less certain. Because the late-day news clears up some uncertainty (or because it simply increases the chances of clearing up uncertainty), we’ve seen some upward pressure on rates at the end of the day. This pressure likely won’t make it onto mortgage lenders’ rate sheets today. That means tomorrow morning’s rates run an above-average risk of being slightly higher.


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.375 – 4.5%
  • FHA/VA – 4.125 – 4.25%
  • 15 YEAR FIXED – 4.0 – 4.125%
  • 5 YEAR ARMS – 4.25 – 4.625% depending on the lender



Ongoing Lock/Float Considerations

  • Headwinds that had plagued rates for most of the past 2 years began to die down in late 2018. A rapid decline in the stock market certainly helped drive investors into bonds (which helps rates) Highest rates in more than 7 years in Oct/Nov. 8-month lows by the end of the year

  • This is a bit of a crossroads. The rising rate environment could flare up again. We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain.

  • Either way, late 2018 was a sign that rates are willing to take opportunities presented to them. From here, it will be up to economic data, fiscal policies, and the stock market to decide on the next set of opportunities. The rougher the overall outlook, the better interest rates tend to do.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

MBS RECAP: Bonds Resilient Streak Under Threat

March 13,2019
by admin

For the most part, today was marked by the same sort of resilience seen on several recent occasions where bond yields have either held steady or fallen despite decent-to-strong economic data. In today’s case, it was a fairly healthy (depending whom you ask) improvement in durable goods (cap-ex +0.8 vs +0.1 forecast). The caveat is that was January data (government shutdown month), and thus taken with a grain of salt.

Producer prices were weaker than expected, and because that was a February report, may have been worth some bond market resilience in the morning. Either way, bonds were weaker to start the day, but didn’t weaken further after the early data.

Additional resilience came into play after the 1pm 30yr bond auction. The auction was weaker than expected, but bonds didn’t really sell-off. Perhaps traders were waiting to see what would happen with the expected brexit-related votes at 3pm.

While British politicians didn’t surprise anyone with their decision to avoid a “no-deal” brexit, it was somewhat surprising to see that 3rd draft of a compromise deal has suddenly gained traction. Additionally, the vote was closer to being in PM May’s favor this time vs last time. The implication is that Theresa May could get the requisite amount of votes by shifting to the 3rd compromise deal (referred to as “MV3”). When newswires suggested the same, British pounds sterling surged and pulled US bond yields higher late in the day.

Private and Public Construction Spending Increased

March 12,2019
by admin

Construction spending in ticked up in January to a seasonally adjusted annual rate of $1.280 trillion according to data released by the Census Bureau on Wednesday. The rate was 1.3 percent higher than the December estimate of $1.263 million and 0.3 percent higher than the pace in January 2018.

On a non-adjusted basis, the amount spent by both private and public entities was $88.086 billion compared to $95.191 billion in December and $88.504 billion the prior January, an annual decline of 0.5 percent.

Expenditures on construction throughout 2018 totaled $1.293 trillion compared to $1.246 trillion for all of 2017. This was an increase of 3.8 percent. The largest single non-residential expenditure during the year was for construction related to power, $100.180 billion.

Privately funded construction spending was at a seasonally adjusted rate of $966.041 billion in January, up 0.2 percent from December but lagging January 2018 spending by 2.0 percent. Residential spending was at a rate of $511.375 billion, down 0.3 percent and 5.6 percent month-over-month and on an annual basis. Non-adjusted residential spending was down 7.6 percent from a year earlier to $33.756 billion.

Single family spending was off 0.7 percent and 7.2 percent from the two earlier periods to an annual rate of $264.416 billion. On a non-adjusted basis, the month’s expenditures were $18.230 billion compared to $19.725 billion in December and $19.772 billion a year earlier, a -7.8 percent annual difference. Multifamily spending rose 1.4 percent from December to a seasonally adjusted rate of $65.651 billion which is a 12.8 percent year-over-year gain. On an unadjusted basis that spending rose 13.4 percent compared to January 2018.

Privately funded construction spending totaled $991.684 billion in 2018 compared to $962.780 in 2017, a 3.0 percent increase. Residential construction spending rose 2.6 percent from $531.657 billion in 2017 to $545.388 billion. Spending on single-family construction was $284.012 billion and multifamily was $60.253 billion. The 2017 numbers were $270.163 billion and $59.945 billion respectively for increases in 2018 of 5.2 percent and 0.5 percent.

Public construction spending was at a seasonally adjusted rate of $313.595 billion, a 4.9 percent increase from December and 8.0 percent higher than the prior January. Residential construction, estimated at $5.776 billion was 4.0 percent above the December number but down 12.7 percent year-over-year.

Public spending for all of 2018 was $301.571 billion compared to $283.220 billion the previous year, a gain of 6.5 percent. Residential spending totaled $6.378 billion versus $6.719 billion, a year-over-year decline of 4.9 percent.

The January construction spending report was the last of the data delayed by the partial government shutdown. The Census Bureau will resume the regular schedule with the February report published on April 1.