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Residential Construction Lags Expectations, Except in the West

Contrary to expectations, all three of the residential construction measures from the U.S. Census Bureau and the Department of Housing and Urban Development fell in March.  Not only were they lower than in February, but they were down year-over-year, and both permits and housing starts are running behind 2018 on a year-to-date (YTD) basis.  The West was the only region to show any strength. Permits for residential units were at a seasonally adjusted annual rate of 1,269,000 units, a 1.7 percent decrease from the February estimate of 1,291,000.  That estimate was also revised lower from an original estimate of 1,296,000.   The March number was 7.8 percent lower than the rate a year earlier, 1,377,000 units.

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Mortgage Rates Recover Modestly After Big Losing Streak

Mortgage rates have generally been moving higher since March 28th after they bottomed out at the lowest levels in well over a year.  At the time, investors were tuned-in to the Fed's concerns about the global economy.  Granted, the US economy might not have been suggesting an imminent recession, but that was far more difficult to say about China and Europe.  Both economies were clearly decelerating by the end of 2018 and into the first few months of 2019.  That deceleration was the biggest risk factor for the global economy and the biggest boon for mortgage rates.

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Lower Rates Have Slight Impact on New Loan Stats

Continuing declines in interest rates had some impact along the margins of loan originations in March.  Ellie Mae's Origination Insight Report for March reports that 30-year fixed-rate mortgages originated during the month had an average interest rate of 4.77 percent, down from 4.86 percent in February and 5.01 percent in January. The company reported that the share of originations that were for refinancing ticked up 1 percentage point to 35 percent during the month while the share among FHA loans jumped 3 percentage points to 23 percent.  FHA's share of all originations also rose 1 point to 20 percent.  The share of conventional and VA loans remained at 64 percent and 11 percent of the total respectively.

 

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Lenders Manage Tiny Profits in 2018 Despite Rate Hikes, Inventories

Despite their fourth quarter loss reported last month, independent mortgage banks and bank mortgage subsidiaries still managed, albeit barely, to stay in the black last year.  The Mortgage Bankers Association (MBA) said that banks responding to its survey made an average profit of $367 on each loan they originated last year, down from $711 per loan in 2017.  They lost an average of $200 per loan in the last quarter of the year, only the third quarterly loss since MBA began collecting the data in 2008.

 

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Mortgage Rates Quickly Find Themselves at 1 Month Highs

Mortgage rates continued higher for the 5th day in a row today.  This brings the average lender to the highest levels in exactly one month. At issue: a series of stronger economic reports at home and abroad have eased concerns about global growth.  Not only is a strong economy associated with higher rates in general, but those "concerns" were a big part of the Federal Reserve's decision to be more bond-friendly back in March.  With concerns arguably lessened by recent data, investors may be assuming the Fed won't be quite as bond friendly going forward.  All that having been said, the Fed is NOT likely to make any big changes after one solid month of global economic data.

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Mortgage Rates Quickly Find Themselves at 1 Month Highs

Mortgage rates continued higher for the 5th day in a row today.  This brings the average lender to the highest levels in exactly one month. At issue: a series of stronger economic reports at home and abroad have eased concerns about global growth.  Not only is a strong economy associated with higher rates in general, but those "concerns" were a big part of the Federal Reserve's decision to be more bond-friendly back in March.  With concerns arguably lessened by recent data, investors may be assuming the Fed won't be quite as bond friendly going forward.  All that having been said, the Fed is NOT likely to make any big changes after one solid month of global economic data.

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New Tax Rules May Have Added to Housing Slowdown

Two New York Federal Reserve Bank economists are asking whether the tax reform act that went into effect at the beginning of 2018 is playing a role in the decline of home sales.  Richard Peach and Casey McQuillan, writing in Liberty Street Economics, say that the broad-based slowing in housing market activity coincided with a roughly 70 basis point rise, from 3.9 percent to 4.6 percent, in the thirty-year fixed-rate mortgage.  During the period in which rates were increasing, from the fourth quarter of 2017 to the third quarter of 2018, new home sales declined 7.6 percent and sales of existing homes dropped 4.6 percent.

 

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Purchase Volume Continues Higher Despite Rising Rates

It would appear that Refis' time in the sun is listing back towards purchases, as mortgage rates increased for the second straight week and application volume retreated further. The Mortgage Bankers Association's Market Composite Index, a measure of that volume, decreased 3.5 percent on a seasonally adjusted basis from the week ended April 5.  On an unadjusted basis, the Index was down 3 percent.  The Refinance Index decreased 8 percent from the previous week and the share of applications that were for refinancing dropped from 44.1 percent down to 41.5 percent. Falling interest rates had driven the refinancing share over 47 percent at the end of March.

 

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Mortgage Rates Highest in Nearly a Month

Mortgage rates rose again today, albeit at a slightly slower clip compared to yesterday.  Still, that's little consolidation considering this is the 4th straight day spent moving in that unfriendly direction.  The average lender is now back to levels not seen since March 19th.  On the bright side, March 19th's rates were the lowest in more than a year at the time.

So what's going on?

In general, the month of March saw the confluence of 2 great things for rates.  Not only was there a generally high level of concern/uncertainty surrounding the global economic outlook, but the Fed was also surprisingly helpful.  This was a bit of a double-edged sword because the Fed's helpfulness was predicated on that same sort of concern/uncertainty.  In other words, if events unfold in such a way as to ease that concern, not only would it push rates higher of its own volition, it also might result in the Fed being less helpful.

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Buyer Traffic Improves, Builders Still Leery of New Home Market

Builder confidence levels as reported by the National Association of Home Builders (NAHB) remained in the low 60s in April, a space it has now occupied for three months.  The NAHB/Wells Fargo Housing Market Index (HMI) a measure of confidence in the market for new homes, rose 1 point to 63, continuing to slowly recover from the three year low of 56 it reached in December. "Builders report solid demand for new single-family homes but they are also grappling with affordability concerns stemming from a chronic shortage of construction workers and buildable lots," said NAHB Chairman Greg Ugalde.

 

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