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Diversity Not Destined to Dampen Homeownership

The final installment of a series of working papers produced by the University of Southern California (USC), in partnership with Fannie Mae, looks at the decade-spanning 10-point plunge in the homeownership rate of young Americans.  Homeownership has declined, starting even before the housing crisis, across nearly all age groups, but has been most notable for those aged 25 to 44.

Prior papers in the series have looked at the role two factors play in increasing young-adult homebuying; parental financial support, and receipt of a bachelor's degree.  A third paper found that the correlates of homeownership varied under different credit and economic conditions.

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New Home Sales Rebound; Prices Crush Previous Record

The report on May new home sales, released this morning, paints a much brighter picture than last month's release of April data. In that report, the U.S. Census Bureau and the Department of Housing and Urban Development said new home sales had dropped 11.4 percent from their March level, to a seasonally adjusted annual rate of 569,000 units.  Today that rate was revised up to 593,000.

May sales improved on that report.  They were up by 2.9 percent from April to a seasonally adjusted estimate of 610,000, cracking the 600,000 mark for only the fourth time since the housing crisis began.  Sales are now 8.9 percent higher than in May 2016 when the estimate was 560,000.  On a non-seasonally adjusted basis, sales in May were 1,000 units higher than in April, at 58,000.

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Mortgage Rates Sideways to Slightly Lower

Mortgage rates have been so little-changed in recent days that yesterday's coverage wouldn't need to be changed in order to apply perfectly today.  Indeed, the 3rd paragraph is a word-for-word repeat.  To be fair though, we would need to update yesterday's reference to "especially over the past 5 days."  That "5" would now be a "6," obviously.  

Any detectable difference in today's rate quotes would come in the form of slightly lower upfront costs versus yesterday.  The actual interest rate quote remains unchanged.  This sideways trend could easily continue for several more days.

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FHFA Home Prices Continue Strong Gains

April data from the Federal Housing Finance Agency (FHFA) indicates that, once again, there was no moderation in the pace of home price increases. FHFA's Housing Price Index (HPI), which is based on loans sold to or guaranteed by the two GSEs, Fannie Mae and Freddie Mac, increased 0.7 percent from March.  Further, the March Index, originally reported to have gained 0.6 percent from the previous month, was revised upward, also to 0.7 percent.

There was an even larger jump in the pace of appreciation on an annual basis.  The year-over-year HPI was up by 6.8 percent compared to 6.4 percent in March.

For the nine census divisions, seasonally adjusted monthly price changes from March 2017 to April 2017 ranged from an 0.1 percent decline in the East South Central division to a 1.6 percent gain in the West South Central division.  The 12-month changes were all positive, ranging from +4.7 percent in the West North Central division to +8.9 percent in the Mountain division.

The South Atlantic division has been particularly strong in recent months. Many of the states in that division, which includes Delaware, Maryland, District of Columbia, Virginia, West Virginia, both Carolina's, Georgia, and Florida, were particularly hard hit by the recession and the foreclosure crisis.  Month-over-month increases in that division gained by an average of 1.25 percent in March and April.

FHFA's HPI tracks changes in average home prices by analyzing changes in home values from Fannie Mae- and Freddie Mac-purchased and guaranteed mortgages originated over the past 42 years. The index has a base value of January, 1991=100 and currently stands at 248.2 compared to 246.6 in March.   

 

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Prepayment Rate and Refinanceable Population Have Both Soared

Prepayments, apparently spurred by the recent retreat in interest rates, soared in May. Black Knight Financial Services, in its "first look" at the month's mortgage performance data, said there was a 23 percent increase in prepayments, historically a good indicator of refinancing activity, from April to May, bringing the incidence to the highest so far in 2017, 1.06 percent.

The company said the first quarter of this year was a bad one for refinancing, with originations falling 45 percent from the fourth quarter of 2016 as interest rates took off.  However, the easing of rates over the last few months may change the outlook for the second and third quarters, a projection that seems to be confirmed by the increase in prepayments.

 

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Purchase Loans, Closing Rates Improved in May

Originations are increasingly tilted toward home purchase mortgages per the latest Origination Insight Report from Ellie Mae.  The May data show the share of those mortgages gained another three percentage points to represent 68 percent of all closed loans.  The share of refinance originations has dropped from 47 percent at the beginning of 2017 to a current level of 32 percent. The purchase share of Convention loans increased from 57 percent to 61 percent and the purchase share of FHA ticked up 1 point to 82 percent and VA's to 73 percent from 71.

The average 30-year note rate of closed loans was down for the first time this year, to 4.33 percent from 4.41 percent in April, but that average rate was still 27 basis points higher than in May 2016. The percentage of Adjustable Rate Mortgage (ARM) originations among Conventional loans continued its rise, ticking up to 7.5 percent in May, from 7.3 percent in April and 5.5 percent the previous May. ARMs remain a miniscule part of FHA and VA lending - less than one-half percent each.

 

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Mortgage Rates are Barely Budging (And That’s Great!)

Mortgage rates have been locked in an exceptionally narrow range for most of the month of June, but especially over the past 5 days.  Given that mortgage rates are determined by the bond market where trading levels move constantly throughout the day, it can be useful to consider what's been happening with those trading levels.  Long story short, they haven't been remotely close to moving any higher or lower than the highs and lows seen last Wednesday.

In other words, Wednesday's range set the boundaries of the current playing field for rates, and they haven't left the field since then.

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Existing Sales Rise, Prices Peak, Time-to-Sell at New Low

Existing home sales weren't expected to strengthen in May, in fact analysts were looking for a slight decline. Sales however did manage to recover from a significant April loss while inventories increased slightly and the median sales price rose to a new high. 

The National Association of Realtors® (NAR) said completed sales of existing single-family houses, townhouses, condos, and cooperative apartments rose 1.1 percent to a seasonally adjusted annual rate of 5.62 million.  This was a 2.7 percent year-over-year gain.

 

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Refis Take Another Step Toward 50% of All Mortgage Apps

The volume of applications for refinancing expanded for the third consecutive time during the week ended June 16.  The Mortgage Bankers Association (MBA) said the increase offset another down week for purchase mortgages, giving overall mortgage volume a slight uptick from a week earlier. 

The MBA's Market Composite Index, a measure of overall application volume, increased 0.6 percent on a seasonally adjusted basis from the week ended June 9.  On an unadjusted basis however, the Composite Index dipped 0.4 percent. The Refinance Index gained 2 percent from the week before, putting it at its highest level since last November.  The share of applications that were for refinancing rose to 46.6 percent from 45.4 percent.

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Rates Fall Slightly to Remain Near 8-Month Lows

Mortgage rates were steady to slightly lower today, with underlying bond markets essentially erasing the damage seen yesterday.  This was neither here nor there for the mortgage world as most lenders didn't adjust rates much higher yesterday (despite bond weakness).  Thus, they didn't have much to do today when bonds strengthened.  In general "bond market strength" = lower rates and vice versa.

There were no significant economic reports or major market-moving headlines today--at least not for rates.  Oil prices and political headlines might make the evening news, but neither were directly responsible for the bond market improvement.

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