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Mortgage Rates Knocking on 5% Ceiling

Mortgage rates are in bad shape.  At some point in the past 3 days (depends on the lender), top tier 30yr fixed rate offerings hit their highest level in 5 years, then 7 years.  For the first time since 2011, the most prevalent top tier rate is 4.875% (meaning a handful of lenders are at 4.75% or 5.0%).  If this trajectory holds, the average lender would be at 5% next week.

In order to make the past few days relevant for anyone who reads this, let's focus on the CHANGE between today's average rates and those seen less than a week ago.  From Friday the 14th, the average 30yr fixed quote is an eighth of a percentage point higher (.125%).  While we've seen moves that big in the past, with only 1 or 2 exceptions, we haven't seen anything like it in 2018.  And when we consider that it takes rates to their highest levels in 7 years, it's even more troubling.

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Home Starts Improve, but There’s a Catch

Both permits and starts were expected to pick up in August, at least holding on to their slight gains in July.  Housing starts did deliver, posting a strong increase, but permits, a leading indicator, were down sharply. The U.S. Census Bureau and Department of Housing and Urban Development report that permits fell by 5.7 percent in August to a seasonally adjusted annual rate of 1,229,000 compared to the July rate of 1,303,000.  The July number was a downward revision from the 1,311,000 units originally reported.  This knocks the rate of permitting below the August 2017 level of 1,300,000 units by 5.5 percent. 

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Mortgage Apps Gaining Ground Despite Higher Rates

Labor Day typically marks the end of summer and the resumption of business as usual.  Hopefully it also marked the beginning of a turnaround for mortgage applications, which increased across the board for the first time since mid-June. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage application volume, was up 1.6 percent on a seasonally adjusted basis during the week ended September 14.  On an unadjusted basis the volume increased 12 percent from the previous week which was shortened by the Labor Day holiday.

 

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Mortgage Rates Officially Highest in at Least 5 Years

Mortgage rates edged up to 4-year highs with yesterday's bond market losses and things went from bad to worse today.  Bond markets (which underlie and directly affect rates) are under extreme pressure today and have generally had a very bad September.  Weakness in bonds equates to higher rates.

So why are bonds weak?

In part, this is weakness that was expected way back at the beginning of the year as the tax bill came to fruition and as economic data continued to suggest ongoing expansion.  Given that the inflation/growth outlook was a whole lot worse in 2013 and early 2014 when 10yr Treasury yields briefly crested 3.0%, it stood to reason that those same yields would almost certainly need to move well over 3.0% this time around (inflation/growth are key factors in Treasury yields and rates in general).

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House-Hungry Millenials Help Keep Builder Confidence Solid

Builder confidence in the market for newly-built single-family homes stabilized a bit in September. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which has been wobbly in recent months, retained its August reading of 67 in September. The two months are tied at the lowest level of the index so far this year. "Despite rising affordability concerns, builders continue to report firm demand for housing, especially as millennials and other newcomers enter the market," said NAHB Chairman Randy Noel. "The recent decline in lumber prices from record-high levels earlier this summer is also welcome relief, although builders still need to manage construction costs to keep homes competitively priced."

 

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Mortgage Rates Match 7-Year Highs

Mortgage rates may have had a fairly bad day last Friday, but today was worse.  Today officially saw the average lender back at rates not seen since May 17th, 2018.  That date might not seem too far away, but at the time, it marked the highest rates since late April of 2011.  In other words, today's rates matched 7-year highs.

If there's a saving grace, it's the fact that underlying bond markets were able to improve throughout the day without most mortgage lenders adjusting rate sheets accordingly.  In other words, if bonds are in the same territory by tomorrow morning, the average lender would be offering slightly lower rates. 

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Fannie Thinks Economic Expansion Just Peaked

The robust growth in the economy in the second quarter may be the final peak of this expansion according to Fannie Mae's Economic Development Report for September.  Initial data indicates the 4.2 percent growth last quarter appears to be moderating to the estimated third quarter gain of 3.2 percent predicted in the August report.  All factors considered, including inventory restocking and increased government spending leads Fannie's Economic and Strategic Research Group (ESR) to expect full-year 2018 growth of 3.0 percent before a slowdown to 2.3 percent in 2019 as the fiscal stimulus runs its course.

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Downpayments Hit Record Levels

There were quite a few recent milestones, high and low, noted in the Quarter 2 Residential Property Loan Origination Report from ATTOM Data Solutions.  The report covers the 2.09 million 1 to 4 unit residential loans originated during the quarter, an increase of 15 percent from the first quarter but only 1 percent more than a year earlier. One striking finding was the increase in the size of downpayments during the quarter - a median of $19,900, a record high in data going back to the first quarter of 2000. This is a 19 percent increase from $16,750 in the previous quarter and 18 percent from $16,925 in the same quarter last year.  At a percentage, that represents 7.6 percent of the median sales price of the homes purchased with a mortgage during the quarter, compared to 6.6 percent in both of the two earlier periods.  

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Mortgage Rates Jump to 4-Month Highs

Mortgage rates had a bad day.  Even after a weaker reading on Retail Sales (something that normally helps), the bond market lost ground.  Unfortunately, that's consistent with the rest of the week as investors have largely shunned bonds.  Lower demand for bonds = higher rates.

Perhaps "shunned" isn't the perfect word.  Investors are indeed buying bonds, but there have been so many to buy this week that sellers have had to lower prices to get them out the door.  That's a bit of an oversimplification of the how things actually work, but the dynamic of higher supply driving higher rates is at the heart of the issue.  

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CoreLogic: Hurricane Florence Losses Estimated at $3 to $5B

Even as Hurricane Florence is pushing unprecedented levels of flood waters into North and South Carolina homes, CoreLogic is issuing estimates regarding the storm's dollar costs.  Their analysis shows that insured property losses for both residential and commercial properties will be between $3 and $5 billion. CoreLogic basis its estimates on the National Hurricane Center's 8 a.m. September 13 track of the storm and the cone of uncertainty.  Florence made landfall mid-morning on September 14 near New Bern, North Carolina and 250,000 homes in that state are projected to be affected by the hurricane. 

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