Mortgage rates moved convincingly higher for the second straight day, bringing them back near the highest levels of 2015. Rates are dictated primarily by bond market trading, and traders are currently in a defensive stance ahead of the week's most significant events beginning tomorrow. "Defensive" in this context, means more willing to sell than to buy. Increased selling pressure causes prices to fall for the mortgage-backed securities that lenders rely on to generate rate sheets. The lower those prices, the worse rate sheets look for consumers.
Over the past two days, that defensiveness in the bond market has been exacerbated by some of the housekeeping-type trading associated with big corporate bond issuance. This is a bit of an esoteric concept when it comes to connecting it to mortgage rates, but what's important to understand is that unexpectedly large, new corporate bond issuance indirectly hurts rates as well. The net effect is a firm move to 3.875% as the most prevalent conventional 30yr rate for top tier borrowers, up from 3.75% last week....(read more)
Home prices, including sales of distressed properties, continued to appreciate on both an annual and a monthly basis in January. CoreLogic said that its Home Price Index including sales of foreclosed property and short sales, increased 5.7 percent in January compared to one year earlier. On a monthly basis the increase was 1.1 percent.
Including distressed sales, only Maryland and Connecticut showed negative home price appreciation at -0.3 percent and -1.9 percent respectively. The five states with the highest home price appreciation were Colorado (9.1 percent), Michigan (9.0 percent), Texas and Wyoming (8.3 percent each), and Nevada (7.6 percent.)
The multifamily market outperformed many predictions in 2014; vacancy levels, despite a flood of new properties, declined by 10 basis points from 2013 to a 13-year low of 4.2 percent. Revenue per unit rose, continuing the pattern that has led to a 20 percent increase over the last five years.
Freddie Mac's economists are predicting that, while easing a bit from 2014, this year will be another strong one for the sector. Its 2015 Multifamily Outlook projects that demand, driven by the millennial generation, will remain strong but construction of units in buildings with five or more will continue to trend upward so vacancies will rise.
Supply, they say, could actually outpace demand this year and the vacancy rate will probably rise by 60 basis points to 4.8 percent by year-end. This however is still below the historic average of 5.4 percent. This negative is tempered by an unknown; how much pend-up demand will be unleashed as households form that would have been formed earlier were it not for the recession.
Mortgage rates rose fairly sharply to begin the new month as a large corporate bond sale indirectly hurt the bonds that dictate mortgage rates. When a company (in today's case, pharmaceutical giant Actavis) issues debt, it can hurt mortgage rates in two ways. First, and most basically, mortgages are ultimately "debt" as well. Although there are many nuances, generally speaking, after mortgages are packed into securities, investors buy those securities in order to earn interest. Quite simply, if mortgage debt has more competition from other debt (like this big corporate bond offering), prices and demand can fall as investors are enticed to buy the other offerings. Lower prices on mortgage debt mean higher rates for consumers.
The Federal Housing Finance Agency (FHFA), conservator of Fannie Mae and Freddie Mac (the GSEs), released guidelines for their sales of non-performing mortgage loans. FHFA earlier approved sales as a mechanism to reduce the investment portfolios of the two enterprises and to transfer some of the risk of their delinquent loans to the private sector. FHFA said it believes that the sale of severely delinquent loans through non-performing loan (NPL) sales will both reduce GSE losses and improve borrower and neighborhood outcomes.
Bulk sales of delinquent debt is done on a substantially discounted basis and in the case of secured debt investors generally bid on the basis of the value of the underlying collateral. With rising home prices the attractiveness of such debt has increased as has demand for it and there has been concern that investors will fast-track foreclosures once they own the debt....(read more)
Both publicly and privately funded construction dipped slightly in January from February levels the Census Bureau said today, although both total construction and the publicly funded segment did remain above January 2014 levels. Construction put in place in all categories during the month was at a seasonally adjusted annual rate of $971.4 billion, 1.1 percent lower than the estimated $982.0 billion spent in December. The number was 1.8 percent higher than the January 2014 estimate of $954.6 billion.
On a non-seasonally adjusted basis spending in January was estimated at $67.3 billion compared to 76.0 billion in December and 66.5 billion a year earlier. This was an annual increase of 1.2 percent.
Mortgage rates managed to scrape together modest gains for today's month-end session. In terms of the financial markets that dictate mortgage rates, the last day of the month can be a volatile day that shuns the normal cause and effect relationships between data and market movement. Today's example thankfully bucked that trend (perhaps because the rest of the month had already given us plenty of volatility). Trading levels were stable to stronger all day, allowing many lenders to drop rates in the middle of the day.
3.75% remains intact as the most prevalently-quoted conventional 30yr fixed rate for top tier scenarios, though 3.875% is still fairly common. Lenders erred on the side of caution, in general, in that they didn't quite keep pace with the improvements in underlying markets. In other words, they'll have some extra improvement to pass along if markets hold their ground to start next week.
While its ultimate focus is the future of the construction equipment business, Wells Fargo's Equipment Finance division has some predictions for residential construction as well. The company's 2015 Construction Industry Forecast, presents results of a survey it has conducted for the last 19 years of industry executives representing large and small contractors as well as equipment distributorships and equipment rental companies.
Wells Fargo's survey attempts to track industry optimism using what it calls the Optimism Quotient (OQ). John Crum, National Sales Manager for the Equipment Finance Construction Group said that, after tumbling to an all-time low of 42 in January 2009, the OQ has climbed steadily, reaching new highs in three of the last four years and landing this year at 130, up six points from 2014.
Even though sales of existing homes dropped by 4.9 percent in January buyers were apparently out shopping and seriously so. The National Association of Realtors® said that its Pending Home Sales Index (PHSI) climbed to 104.2 in January, a 1.7 percent increase from December and the highest level for the index since August 2013.
The January PHSI was 8.4 percent higher than the one for January 2014. It was the fifth consecutive month of year-over-year gains and NAR said that each month has accelerated the annual gain from the prior month. In addition the December number was revised upward from 100.7 to 102.5, erasing about half of the previously reported 3.7 percent November to December loss.
Mortgage rates were slightly higher today, undoing the modest gains seen yesterday, but leaving the more significant drop from Tuesday intact. 3.75% remains the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios, though a few lenders will have drifted up to 3.875% with today's weakness.
Today's losses were a factor of both data and events. This morning's economic data was mixed, but higher Durable Goods and Real Wages overshadowed higher Jobless Claims. The data started the ball rolling in a negative direction for the markets that affect mortgage rates this morning, and from there, several month-end trading dynamics made for steady losses throughout the day. Particularly, companies issued corporate bonds at a rapid pace this afternoon, and that issuance process can indirectly put some upward pressure on rates.