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Mortgage Rates Exceptionally Flat

Mortgage Rates were unchanged today, ending a month without much movement in general.  In fact, the most prevalently quoted conventional 30yr fixed rate on top tier scenarios remained in a range of 3.375-3.5% for more than 45 days!  That's the sort of absence of volatility that greatly decreases the need to stress out about locking or floating your rate, but as always, the question is whether or not that will continue to be the case.

Near-term volatility in rates can come from the economic data over the next two days.  Markets are anxious to see if it will support the Fed's case for hiking rates in the upcoming meeting.  In general, the stronger the economic data, the greater the probability that the Fed hikes.  Although the Fed doesn't directly control mortgage rates, if the probability of a hike increases, mortgage rates would likely increase as well.

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Pending Home Sales Second Highest in 10 Years

Despite some predictions that pending home sales would fall in July, they actually rose modestly to reach their second highest level in over a decade. The National Association of Realtors® reported that its Pending Home Sales Index (PHSI) was up 1.3 percent to 111.3 from a downwardly revised (from 111.0) 109.9 in June and was up 1.4 percent compared to July 2015. 

The index had reached its highest level since February 2006 this past April when it hit 115.0.  The July index was second only to that number. NAR pronounced the increase in purchase contracts as broad-based; only the Midwest failed to improve on its June numbers.

Analysts surveyed by Econoday had projected the index could be in the range of a 1.8 percent decline to a 1.4 percent gain.  The consensus was a positive move of 0.6 percent.  

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Mortgage Apps Eke Out Small Gain

The volume of applications increased slightly during the week ended August 26 as mortgage rates made minor changes and moved in both directions. The Mortgage Bankers Association (MBA) reported that its Market Composite Index, a measure of application activity, was 2.8 percent higher on a seasonally adjusted basis than during the week ended August 19, and rose 2.0 percent unadjusted.

After two weeks of decreasing volume the Refinancing Index rose 4.0 percent.  The share of applications for refinancing increased from 62.4 percent the prior week to 63.5 percent.  It was the fourth straight week that the share of refinancing increased.

The Purchase Index increased 1 percent on a seasonally adjusted basis from one week earlier but fell by 1 percent when unadjusted.  Purchasing applications were up by 5 percent compared to the same week in 2015.

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Mortgage Rates Back in Familiar Range For Now

Mortgage Rates did one of two things today, depending on the lender in question.  Some lenders simply held in line with yesterday's latest levels (in other words, they were 'unchanged' on the day).  Other lenders had some ground to make up because they maintained more conservative pricing.  

This second group kept rates a bit higher yesterday even as most of their peers were offering mid-day price improvements due to big gains in bond markets.  In these cases, the lenders used this morning's calm bond market environment to bring their rates back in line with the rest of the pack.  After all was said and done, today's rates look very much like last Thursday's.

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Mortgage Bank Profits Doubled in Q2

Mortgage originators surveyed by the Mortgage Bankers Association (MBA) saw production profits more than double in the second quarter compared to what had been a dismal Quarter One.  Independent mortgage banks and mortgage subsidiaries of chartered banks told MBA they had averaged a net gain of $1,686 on each loan originated during the quarter, up from $825 per loan during the previous period. 

Marina Walsh, MBA Vice President of Industry Analysis, commented in the company's Quarterly Mortgage Bankers Performance Report that "Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015. Mortgage lenders also benefited from higher loan balances that reached a series-high of $245,394 and drove production revenue to a series-high of $8,807 per loan." 

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Distressed Sales To Remain Elevated into 2019 -CoreLogic

The share of total home sales made up by distressed properties is now one-quarter the level it was in January 2009.  CoreLogic reports that in May the total of foreclosed homes and houses sold through a short sale was 8.4 percent with foreclosures accounting for 5.4 percent of the total.  On a month-over-month basis the distressed shares were down 1 percentage point from April and 2.1 points below the May 2015 level. 

At the peak, distressed homes sales, made up 32.4 percent of the residential market, with foreclosures accounting for a 27.9 percent share.  CoreLogic notes there will always be some level of distress in the housing market, with the pre-crisis share of sales generally running around 2 percent.  If the current year-over-year decrease in the distressed sales share continues, the company expects it will reach that "normal" 2-percent mark in mid-2019.  We believe this is the first time CoreLogic has pushed that projection out into 2019. Over the last year it has variously predicted a return to pre-crash levels by mid-2017 or mid-2018.

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Price Gains Moderating, But Some Metro Areas Stand Out

Results are in for the final two of the four major home price indices for June. Both the S&P CoreLogic Case-Shiller Indices and Black Knight Financial Services' Home Price Index (HPI) show continued price appreciation throughout the country with Case-Shiller reporting the appreciation tended to be greatest in two regions, the South and the West.

Case-Shiller's U.S. National Home Price Index, which covers the nine U.S. census divisions, was up 5.1 percent compared to June 2015, the same year-over-year increase that was posted in May. The non-seasonally adjusted national index posted a month-over-month gain of 1.0 percent and was up 0.2 percent after adjustment.

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Mortgage Rates Battle Back From Recent Highs

Mortgage Rates were briefly at their highest levels in several weeks on Friday afternoon.  This followed comments from the Fed's Jackson Hole symposium.  Markets interpreted those comments as the Fed being more likely to hike rates in 2016--possibly even twice!  While mortgage rates are based on MBS (mortgage-backed-securities), as opposed to the Fed Funds Rate (the thing the Fed is talking about hiking), if investors think the Fed is more likely to hike, MBS tend to lose some ground.

Friday was made all the more "spooky" by the fact that much of the drama was transpiring in the afternoon on a summertime Friday.  That may not sound too spooky, but for investors who are used to having lots of other investors to trade/buy/sell with, the comparative ghost town of a summertime Friday afternoon can result in markets getting a bit carried away.  Much like a scientific study: a smaller sample size can make for some less reliable results.  

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Non-Conventional Financing Continues its Presence in New Home Market

A large contingent of new homes started in 2015 were purchased using non-conventional financing according to a new analysis by the National Association of Home Builders (NAHB).  The association's Assistant Vice President for Housing Policy Research, Natalia Siniavskaia writes that more than a third (34.4 percent) of newly constructed homes started last year did not use conventional financing.  This includes purchases using all cash, FHA, VA, and Rural Housing Service (USDA) loans.

Siniavskaia used the U.S Census Bureau Survey of Construction (SOC) data and found that the use of non-conventional financing varied widely across census divisions, from a low of 16 percent of new home purchases in the East South Central division (Alabama, Mississippi, Tennessee, and Kentucky) to 40 percent in both the West South Central (Texas, Oklahoma, Louisiana and Arkansas) division and the South Atlantic division which includes coastal states from Delaware south and West Virginia. 

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Mortgage Rates Unfazed By Yellen

Mortgage Rates were unchanged to slightly lower this morning following the much-anticipated Jackson Hole speech from Fed Chair Janet Yellen.  Markets were looking for clues about upcoming rate hikes, but true to form, Yellen played things close to the vest.  Underlying bond markets initially indicated higher rates due to Yellen's comment about the case for rate hikes having strengthened in recent months, but ultimately, this isn't anything markets didn't already know.  As such, bonds swung back in the other direction, thus providing a drama-free backdrop for mortgage rates.

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