Monday Market Update – 11/12/2019

What does a Self-Employed First-Time Home Buyer, $1,000,000 and 24 Days have in common?

A new home! This week I closed a loan over one million dollars for a self-employed first-time home buyer and we did it in 24 days. They had five businesses and were getting ready to start number six. For those unfamiliar, this is a monumental accomplishment. Ordinarily, these borrowers get pretty banged up during the underwriting process and timelines can and usually do stretch out as the underwriter combs through the business documents. The team at LaSalle Mortgage and our operations staff at American Pacific Mortgage got it done in 24 days (16 business days). Got a borrower that doesn’t fit the box and needs to close quick? Send them my way. Please.

Product of the Week – Alliance-Unison

American Pacific Mortgage recently launched the Alliance-Unison HomeBuyer’s Program. Here’s how it works:

  • Your client qualifies for a mortgage and Unison pre-qualifies the property based on our guidelines.
  • We add to your client’s down payment—from 5-20% of the home’s value—so they can buy the home they love. This home co-investment agreement is based on an option contract. (See the additional details for more specifics.)
  • It’s not a loan, so there’s no interest, added debt or monthly payments. Other than a one-time, 2.5% transaction fee on our co-investment, your client won’t make any payments to Unison until they sell their home, up to 30 years later. They can buy us out any time after three years.
  • When the home is sold, we share in its change in value, whether it increases or decreases. If, for example, our share is 33% and the home value increases by $100,000, we get a payment equal to $33,000 plus our initial investment. Your client gets the remaining $67,000. We don’t share in the equity.
  • The home is entirely your client’s and they enjoy all the benefits of home ownership. Unison is a co-investor and has no occupancy rights.

The Alliance-Unison HomeBuyer program may be especially valuable for aspiring homeowners who:

  • Have good credit and enough income, but haven’t been able to qualify for a mortgage because of their debt-to-income ratio (DTI)
  • Qualify for a mortgage, but only have a 5% or 10% down payment saved
  • Don’t want to use all their savings for a down payment
  • Want to avoid private mortgage insurance (PMI)
  • Would benefit from lower monthly mortgage payments

Have a client that you think would be a good fit for this program? Call me today!

Your Weekly Review Begins Here:

The major stock market indices ended the week at all-time closing highs, while Mortgage Bonds moved much lower, sending rates higher. Propelling Stocks and dragging on Bonds were reports that an initial trade deal with China could be signed within weeks. The initial deal will include soybean purchases, currency parameters, and the opening up of the Chinese financial industry. The additional tariffs that were supposed to go into effect on December 15th will no longer happen, but there are still tariffs on $360b of Chinese goods. There is really nothing of substance within the initial deal, besides the additional tariffs being removed. There is no talk on some of the more important matters, like intellectual property protection.

Adding to the optimism on Tuesday was a report that said the US was considering rolling back the September 1st tariffs on $110b worth of consumer goods. On Thursday, Gao Feng, a ministry spokesperson for China’s Commerce Ministry, said that both sides had agreed to simultaneously cancel some existing tariffs on one another’s goods in phases and in the same proportion. After this release, Stocks rallied to all-time highs, while Bonds moved to their lowest levels since September 13th. Finally, on Friday, President Trump came out and denied that the US agreed to remove additional tariffs, tempering some of the optimism, but did say that things still looked on track for a phase one deal.

In housing news, CoreLogic reported that home prices rose 0.4% in September and 3.5% year over year. The year over year reading dropped slightly from 3.6% in August but remains at a sustainable and meaningful level for wealth creation.  Remember that on a $300,000 home, an annual appreciate rate of 3.5% would translate to a gain of $10,500. The states with the highest increases year-over-year were Idaho (11.8%), Utah (8%) and Maine (8%).

In the year going forward, CoreLogic forecasts that home prices will appreciate by a very strong 5.6%, which is slightly lower pace from the 5.8% forecasted in the previous report.

Frank Martell, the President and CEO of CoreLogic said that “All 50 states posted positive home price trends in September with the average price nationally rising 3.5%,” said Frank Martell, president and CEO, CoreLogic. “As a group, more millennials are entering the home-buying market and they report spending more money than they anticipated.”

HousingWire echoed Frank Martell’s thoughts, posted an article citing that more millennials are going to be entering the housing market over the next few years than we have seen in a long time. And it’s not something that is up for debate, it’s a fact and is based on birth rates. The median age of a first-time homebuyer is 33 years old. In order to figure out how many individuals will be turning 33 years old each year and coming to market to either rent or buy a home, you have to look at the birth rates 33 years ago. The chart below shows how over the next several years, the number of individuals turning 33 will be increasing, leading to more demand for housing. This should continue to fuel an already strong housing market. Additionally, it’s supportive of strong appreciation, as there will be more demand.

The Mortgage Bankers Association reported that overall Mortgage Application volume was essentially unchanged week over week, down 0.1%. Applications to purchase a home were down 3% for the week but are still up 6.8% from this time last year. Refinances were up 2.0%, and they are up 144% year over year.

The average 30-year mortgage decreased from 4.05% to 3.98% week over week, bringing rates about 117 bp or about 1.1/8% lower than this time last year. But don’t let this confuse you – Rates rose last week. This report was for the previous week, where there was a decline.

Economic Calendar – for the Week of November 11th, 2019

Date Time ET Event /Report /Statistic For Market Expects Prior
Nov 12  6:00 NFIB Small Business Optimism Index Oct   101.8
Nov 13 07:00 Mortgage Applications 11/8    
Nov 13 08:30 Consumer Price Index (CPI) Oct   1.7%
Nov 13 08:30 Core Consumer Price Index (CPI) Oct   2.4%
Nov 14 08:30 Initial Jobless Claims  11/9   211k
Nov 14 08:30 Producer Price Index (PPI) Oct   1.4%
Nov 14 08:30 Core Producer Price Index (PPI) Oct   1.7%
Nov 15 08:30 Retail Sales Oct   -0.3%
Nov 15 08:30 Empire State Mfg Survey Nov   4.0
Nov 15 08:30 Industrial Production Oct   -0.4%  

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

Volatility is likely to continue next week. A look at the Bond chart shows that Mortgage Bonds are now trading in a very wide range, where they are susceptible to big price swings. President Trump is scheduled to speak on Tuesday, and if he talks optimistically on trade relations with China, Stocks will likely rally at the expense of Mortgage Bonds and interest rates. Another very important news item next week will be the Consumer Price Index inflation report. If inflation is muted, it will help Mortgage Bonds move higher. But if inflation is surprisingly high, Bonds will be pressured lower.

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