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New Home Sales Continue to Improve on Annual Basis

New home sales dipped in April, a reversal that was expected by many analysts. The U.S. Census Bureau and the Department of Housing and Urban Development said sales of newly constructed homes during the month were at a seasonally adjusted annual rate of 662,000 units.  This is 1.5 percent below the revised rate of 672,000 units in March.  The March estimate was revised down from 694,000 units, erasing much of that month's reported 4 percent gain. Despite the downturn, sales are now running 11.6 percent above the April 2017 estimate of 593,000 sales.  

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Freddie Mac to Address Origination Barriers for Young Buyers

Reams of data have been gathered about what appear to be significant changes in the profile of younger homebuyers and consequently mortgage borrowers.  This usually means the Millennial generation, but recently Gen Z, those born in 1995 and later have begun moving into homeownership as well.  A recent report by Freddie Mac says the Millennials came of age after the housing crisis and since home prices bottomed out, rents have increased an average of 20 percent.  "It's not easy to save up for a down payment when you're pouring you money into rapidly escalating rents."

 

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Refinance Applications Near 18-Year Low

Mortgage rates surged significantly during the week ended May 18, sending mortgage activity skidding for the fifth straight week.  The Mortgage Bankers Association (MBA) says its Market Composite Index, a measure of mortgage loan application volume, dropped by 2.6 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis there was a 3 percent decline.

The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week but remained  3 percent higher than the same week in 2017.

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Mortgage Rates Super Flat So Far This Week

After quite a bit of volatility and a move up to 7-year highs last week, mortgage rates have managed to avoid any semblance of drama so far this week.  In fact, each of the past 2 days has seen the average lender keep 30yr fixed rates perfectly in-line with Friday's latest levels.  The worst that could be said of these rates is that they're very close to last week's highs. 

The second worst thing that could be said of these rates is that they're the latest in a series of gradual moves higher over the past few years.  The general expectation is that rates can continue to move higher as long as the economy continues to tolerate higher borrowing costs.  Mortgage lenders know that we are now in a rising rate environment.  That means they're less likely to offer huge improvements on rate sheets unless we see a sustained and substantial improvement in bond market levels.  Until that kind of improvement shows up (we'll definitely be talking about it when it happens), it makes sense to remain defensive in terms of locking vs floating.

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Increasing Number of Homes Built as Rental Property

As if the new home inventory wasn't tight enough, the National Association of Home Builders (NAHB) say a higher proportion of those homes are being built as rentals rather than owner occupancy.  Robert Dietz, writing in NAHB's Eye on Housing blog says the numbers are small, but the increase has continued for several recent quarters. From the first quarter of 2017 through the first three months of 2018, construction starts for homes built specifically as rental property rose from 33,000 to 37,000.  Seven thousand of those starts were in the first quarter of this year.

 

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Nullification of Auto Loan Rule Has Broad Implications

It only impacts auto lending, but if Mick Mulvaney, acting director of the Consumer Financial Protection Agency (CFPB) keeps his word, a Congressional resolution signed by the President on Monday is likely to have an eventual impact on mortgage and other lending as well.  The Joint Resolution, S.J. Res. 57, sponsored by Senator Jerry Moral (R-KS) and Rep Lee Zeldin (R-N.Y.) used the Congressional Review Act (CRA) to formally disapprove a rule from CFPB relating to "Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act"(ECOA).  This causes that rule to "have no force or effect."

 

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Mortgage Rates Unchanged to Begin Week

Mortgage rates held steady today, which is better than what could be said for most of last week when rates shot up to the highest levels in 7 years.  Friday was the only day of improvement, but it was scarcely enough to undo the damage from the previous 4 days.  That said, it did raise questions.  Specifically, was Friday some sort of indication that the worst was behind us in terms if upward rate momentum?

Answering that question is tricky business because the time frame matters greatly.  In the short term, there's always a possibility that a prevailing trend toward higher rates will cool-off and reverse course.  While that's also technically possible over longer time horizons, we can begin to talk more about probabilities and less about random chance.  With that in mind, we've be discussing the general momentum toward higher rates for many months now.  Rest assured it will be big news when and if it changes.

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Will “Freeing” Fannie/Freddie Improve Housing Finance?

In a prior article we summarized the options the Trump Administration might utilize to reform the residential mortgage financing system should Congress continue to drop the ball.  Two noted economists, Jim Parrott and Mark Zandi, writing for the Urban Institute, address the notion of shrinking Fannie Mae and Freddie Mac's (the GSEs) footprints and eliminating their cross-subsidy of higher risk borrowers.  This article summarizes their alternatives for ending the 10-year government conservatorship of the two companies.  

The director appointed to replace Melvin Watt when his term as director of the Federal Housing Finance Administration (FHFA) expires next year will undoubtedly reflect the attitudes of the Administration including their claimed commitment to changing the GSEs' status. The authors say one way may be to put the GSEs entirely back into private hands.

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Lenders: Income Verification Needs for “Gig” Economy

Late last year Fannie Mae included questions in one of its National Housing Surveys about working in the "gig" economy.  About a fifth of respondents claimed they earned at least some of their income through such employment.  Gig-economy workers tend to have flexible work arrangements, working on single projects or tasks preforming on-demand services such as transportation (Uber, Lyft) lodging rental (Airbnb and VRBO) food/goods delivery, and personal tasks (TaskRabbit). Because of its "on-demand" nature, the income stream from gigging can be less stable and its source less reliable.  

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Automated Construction – Robot Frames Small Home in Two Days

Last week the National Association of Home Builders (NAHB) reported that severe shortages of construction tradespeople were slowing homebuilding and increasing costs. The shortages, as reported by NAHB's new home builder members, affected all trades from rough carpenters to plumbers and masons.  Now, from Australia, comes news that brick masons at least may not have as much job security as that NAHB report would suggest.

The Hadrian X, developed by Perth-based Fastbrick Robotics, can lay more than 1,000 bricks an hour and, in tests, has framed a small home in two days.  Hadrian, essentially a long robotic arm that can be mounted on a track, crane, or barge, uses a 3-D model of the house, cuts its own bricks, applies adhesive, then conveys them to the arm which puts them in place.  The plumbing and electrical systems, windows, doors, and other finish work is performed by human hands.

The machine grinds and mills its own bricks so the building is not constrained by standard sizing. Leanne Garfield, writing in Business Insider, says it can handle bricks up to 2,000 cubic inches while a standard brick, at least in Australia, is 115 cubic inches.

She quotes Fastrbrick's director of corporate affairs, Kiel Chivers, that the company's machine, which is not yet commercially available, could shake up the global construction market as it promises to build houses and other structures faster than any human can.  While there is already a shortage of brick layers, the U.S. Bureau of Labor Statistics forecasts that those jobs will increase 15 percent by 2025.

The Hadrian X will build its first house later this year.  It will include three bedrooms and two bathrooms.

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