Housing Bright Spot: Construction Spending Rises

Construction Spending Rises

U.S. construction spending rose 0.3 percent in April as private residential construction increased at the fastest pace in six months. Overall construction spending was up 6.8 percent compared with April 2011.

Construction spending rose to an annual rate of $820.7 billion, the Commerce Department said on Friday, after an upwardly revised 0.3 percent increase in March.

Also on Friday, the Institute for Supply Management said its index of national factory activity slipped to 53.5 from 54.8 in April, just missing expectations for 53.9. But, while the pace of growth in U.S. manufacturing slowed modestly in May, according to the report, a gauge of new orders rose to its highest in over a year. A reading above 50 indicates expansion in the manufacturing sector.

What Happened to Rates Last Week?


Mortgage backed securities (MBS) gained +105 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to reach a new all-time low.
Mortgage rates moved lower throughout the week on heightened concerns over the banking issues in Spain and Italy as their bond yields soared to new all-time highs.  This made the quality and safety of U.S. bonds very attractive to foreign investors.  This added demand caused bond prices to increase and interest rates (which move in the opposite direction) to decrease.
Mortgage backed securities shot upward (causing mortgage rates to hit new all-time lows) on Friday in reaction to the much weaker than expected jobs data.  The Unemployment Rate increased from 8.1% to 8.2%, but the real story was the big miss in the Non-Farm Payroll data.  The market was expecting the economy to add around 150,000 new jobs but instead, it only added 69,000.
This much weaker than expected employment data caused a big-time buying spree of 10 year U.S. Treasuries and the higher yield paying Mortgage Backed Securities.

What to Watch Out For This Week:

The following 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.

Date Time (ET) Economic Release Actual Estimate Prior
4-Jun 10:00 AM Factory Orders 0.10% -1.90%
5-Jun 10:00 AM ISM Services 53.1 53.5
6-Jun 7:00 AM MBA Mortgage Index NA -1.30%
6-Jun 8:30 AM Productivity-Rev. -0.80% -0.50%
6-Jun 8:30 AM Unit Labor Costs-Rev 2.30% -2.00%
6-Jun 10:30 AM Crude Inventories NA 2.213M
6-Jun 2:00 PM Fed’s Beige Book
7-Jun 8:30 AM Initial Claims 375K 383K
7-Jun 8:30 AM Continuing Claims 3250K 3242K
7-Jun 3:00 PM Consumer Credit $12.7B $21.4B
8-Jun 8:30 AM Trade Balance -$49.7B -$51.8B
8-Jun 10:00 AM Wholesale Inventories 0.50% 0.30%

 

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The Housing Market Update – What to Look for

 

Consumer Sentiment Jumps to Four Year High:

While historically low mortgage rates and attractive home prices are important to make the housing market attractive, it is actually how a consumers feels about the economy and their own situation that drives demand.

U.S. consumer sentiment rose to its highest level in more than four years in May as Americans stayed optimistic about the job market, while higher income households expected to see bigger wage increases, a survey released on Friday showed. The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment rose to 79.3 from 76.4 in April, topping forecasts for 77.8 and an initial May reading of the same.

It was the highest level since October 2007.

Half of all consumers said the economy had improved during the past year, while buying plans for vehicles and household durables also improved. The gauge of buying plans rose to 132 from 126.

It looks like a strong season for housing now that we have strong consumer sentiment and historically low rates and excellent home prices.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) lost -18 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to increase slightly.
The highest rates of the week were on Wednesday and the lowest rates of the week were on Tuesday.
MBS traded in a fairly tight range, supported by continued fears of Greece leaving the EU and over Spain’s banks.
We received more good news in the housing market with both Existing Home Sales and New Home Sales rising and beating market forecasts.
We had luke warm Durable Goods Orders but saw a spike in Consumer Sentiment.
We also saw some very strong demand for our 5 year and 7 year Treasury auctions.

What to Watch Out For This Week:

The following 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.

Date Time (ET) Economic Release Actual Estimate Prior
29-May 9:00 AM Case-Shiller 20-city Index –2.6% -2.80% -3.50%
29-May 10:00 AM Consumer Confidence -64.9 69 69.2
30-May 7:00 AM MBA Mortgage Index NA 3.80%
30-May 10:00 AM Pending Home Sales -1.00% 4.10%
31-May 7:30 AM Challenger Job Cuts NA 11.20%
31-May 8:15 AM ADP Employment Change 145K 119K
31-May 8:30 AM Initial Claims 370K NA
31-May 8:30 AM Continuing Claims 3265K NA
31-May 8:30 AM GDP – Second Estimate 1.90% 2.20%
31-May 8:30 AM GDP Deflator – Second Estimate 1.50% 1.50%
31-May 9:45 AM Chicago PMI 57.5 56.2
31-May 11:00 AM Crude Inventories NA 0.883M
1-Jun 8:30 AM Nonfarm Payrolls 155K 115K
1-Jun 8:30 AM Nonfarm Private Payrolls 172K 130K
1-Jun 8:30 AM Unemployment Rate 8.10% 8.10%
1-Jun 8:30 AM Hourly Earnings 0.20% 0.00%
1-Jun 8:30 AM Average Workweek 34.5 34.5
1-Jun 8:30 AM Personal Income 0.30% 0.40%
1-Jun 8:30 AM Personal Spending 0.30% 0.30%
1-Jun 8:30 AM PCE Prices – Core 0.20% 0.20%
1-Jun 10:00 AM ISM Index 54 54.8
1-Jun 10:00 AM Construction Spending 0.50% 0.10%
1-Jun 2:00 PM Auto Sales NA 5.0M
1-Jun 2:00 PM Truck Sales NA 6

 

National Home Values

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Another year has passed, and while the last 5 of them have been rough for the housing market, we’ve now seen two consecutive quarters with most states showing incremental appreciation. Cause for celebration? Perhaps not, yet this is beginning to look like stabilization and that of course is the first step towards recovery.

What’s working in favor of prospective home buyers?

In a word – Affordability – Since 1963, it has cost an average of approximately 43% of “per capita” income to finance the cost of a median priced home (20% down payment and prevailing 30 year fixed rate mortgage). Right now it’s less than half that cost, and in many areas the monthly housing payments are less than an equivalent rental.

You can lock in your mortgage cost for life – Imagine if you could have locked in the price of gas back in 2001 when it was only about $1.50 per gallon or less? Think about that the next time you’re standing at the pump filling your tank with $4 gas. How smart would you feel if you knew your cost was forever lower? When it comes to a place to live, that same kind of opportunity is staring us in the face right now. Record low prices and record low rates are here now and plentiful. The beauty of a 30 year fixed rate loan is that it’s a 30 year fixed rate loan. If you lock it in now, it will never go up.

There is still uncertainty – yet there is also clarity that comes from knowing where things stand at present such as rates & prices. Above all else, the state of the market doesn’t change the fact that we need a place to live. Choosing to purchase is one of two options. The other one is to rent or to continue living with family if that’s where you are now.

The trouble is – renting amounts to little more than paying your landlord’s mortgage and in the end, there is nothing to show for that. Living at home gets old at the same rate as we do. The day comes when it’s time to leave and there’s never been a less expensive opportunity to do that than now. At some point, rates will rise and so too will prices. Being ahead of or behind that curve is all dependent on the action you choose to take today.

Here we go again.

Round and round we go.

The market is struggling to gain stability as market swings are the norm as of late. Mortgage bonds are now falling back off pushing rates higher.

Mortgage bond prices opened weaker this morning erasing the gains from yesterday afternoon but have recovered a bit near pricing to keep things in check.
Global equities brushed aside the Greek turmoil and posted gains overnight. US stock are higher with the DOW up over 40 points.
To repeat…. the roller coaster ride continues.
The data this morning was mixed. Factory orders up 0.3%, expected down 0.1%. Weekly jobless claims @ 397k, expected @ 400k, not rate friendly, Productivity up 3.1%, expected up 2.8%.
Yesterday the Fed made no rate changes and indicated:

 
-Growth strengthened somewhat in Q3
-Vote was 9-1, Evans wanted additional policy accomodation
-Household spending increased
-Signs point to continued weakness in labor market, elevated unemployment
-REPEATS significant downside risk to economic growth, notes strains from GLOBAL financial markets
-Inflation moderated
-Repeats the conditions likely warrant exceptionally low Fed Funds Rate at least through mid 2013
-Expects inflation to settle in coming quarters
-Will continue to reinvest principal payments of mortgage debt back into mortgage-backed securities

We still have the EMPLOYMENT REPORT FRIDAY.

YO-YO Market

Mortgage bond prices closed slightly below the levels where daily pricing was set applying upward pressure to mortgage rates. Trade was volatile all day tied to the movement in stocks. Equity and bond prices were yo-yoing with each snippet of news out of Europe.  Tomorrow brings weekly jobless claims and Q3 advanced GDP before lenders set pricing. Prepare yourself and your borrowers for a wild ride. Regardless of what happens in Europe stocks and bonds will most likely be EXTREMELY volatile.

REFINANCE UPDATE if your home is under water

This morning, FHFA announced their enhancements to the HARP refinancing program. Operational details of the plan are to be released on November 15. Only loans that were purchased or guaranteed by Fannie Mae or Freddie Mac on or before May 31, 2009 and have a current LTV over 80% are eligible. In addition, the loan must be current, no late payments in the last six months and no more than one late in the last 12 months. There are no restrictions on who may refinance these loans.

Program guidelines include:

–              No limit on LTV, if new loan is a fixed rate loan (current LTV must be above 80%)

 

–              Loans previously refinanced under HARP not allowed

 

–              Certain agency fees will be waived if new loan is a shorter term loan

 

–              Appraisals not required where Agency AVM is available

 

–              Certain originator Reps and Warrants will be  waived

Borrowers can determine if their loan is owned or guaranteed by Fannie or Freddie at http://www.fanniemae.com/loanlookup/ or http://www.freddiemac.com/corporate/

 

 

 

 

 

 

Buy the Ticket. Take the Ride.

Volatility dominated the capital markets today as Stock and Bonds flip flopped between negative and positive several times each with Stocks emerging as the winner when the trading day ended.

Fed Chairman Bernanke spoke on Capitol Hill today on the economy and said that the Fed would take necessary steps to grow the economy. The Dow was down 250 points at one point, then traded back to unchanged, then down 200 before closing up 150 points. Mortgage Bonds traded the opposite way of Stocks during the session but at one point Stocks and Bonds were both trading lower. But around 2:30 – 3:00pm ET, a report that EU finance ministers are looking at ways of coordinating to recapitalize European financial institutions pushed Stocks well into positive territory near the close.