Jobs data, Trade Wars and IT’S STILL A GREAT TIME TO BUY!
Average rates for a 30-year fixed mortgage are down more that 1 percent from a year ago, home sales here in the East Bay continue to be weak and that makes for a great time to buy (you can’t negotiate if you don’t make an offer). According to Freddie Mac’s Primary Mortgage Rate Survey (see below), which provides weekly averages and longer-term evaluation of national market rates for 30-YR, 15-YR and 5/1-YR ARM products:
“This week the economy sent mixed signals, leaving mortgage rates unchanged. Survey data for manufacturing and service industries varied while construction spending fell modestly. However, homebuyer demand continued to improve, rising eight percent. Clearly homebuyers remain bullish on the real estate market.”
Again, when we review the number for the local markets here in the San Francisco Bay Area, home sales continue their softness, with fewer homes sold, longer days on market and generally lower sales prices relative to initial listing prices. That’s quite a different story from a year ago, when there were 20% more homes on the market and prices were slightly more stable. You can see more on your local market here.
What’s Driving the Mortgage Rate Market?
This week, it’s strong jobs data and trade war concessions. Truth is that we’ve been whipsawed back and forth on rates for weeks now and whatever your political leanings are, we appear to be no more than a tweet away from volatility in the rate market…on a daily basis. However, when you look at the national average for 30-YR fixed rate mortgages, since the beginning of July, we’ve seen a high of 3.81% (week ending July 18, 2019) and a low of 3.49% (week ending September 5, 2019).
That’s not a huge swing and on a $726,550 mortgage, it might result in a payment difference of about $125 per month. It’s not my money but if you want to buy something you love or even if you simply want to get into something, NOW IS THE TIME! That payment difference is minor compared to the cost of waiting, which could be somewhere between $45,000-$60,000 over the next 12-18 months depending on where and what you buy!
Want to Know the Best Way to Make a Purchase?
Simple! Get pre-approved. I can’t tell you how many times in the last year, I’ve had an agent call me the day before offers are due to get a pre-approval. Pre-qualification? Maybe. Pre-approval? Not happening overnight. 48 hours with a loan application and all the necessary docs and credit pull? For sure! We can even get the loan closed in 25 days or less, if needed. So, you or your clients want to buy? Good! Getting a fully underwritten pre-approval is absolutely the smartest thing you can do to put yourself in the best possible position to buy the home of your dreams. It also saves a lot of disappointment when you find out they can’t afford what you’ve shown them or they realize that the other offer already has a conditionally approved loan and is willing to remove the loan contingency to get the home.
Call me today! I’d be thrilled to help you or your client get through the underwriting process.
Product of the Week
Our Bridge Loan programs* can help you purchase a new home before your existing home is sold. If a seller is unwilling to consider purchase offers with sales contingencies, we have two programs to choose from:
Close with Confidence Bridge Loan
This loan program is designed for borrowers who are in contract for the sale of their existing property and want to make an offer on another property without a sales contingency. Under this program, you can take the equity from your current home (that is a pending sale) and use the funds to purchase a new home.
Debt Inclusive Bridge Loan
This loan program is designed for borrowers who want to take equity from their current home that is listed for sale and use the funds to purchase another home. All of the debts for the departing residence including any payments on the bridge loan (if any are required) are factored into the borrower’s total DTI (debt-to-income) when purchasing the new home.
*Please visit our Disclosures page for more details for all loan types.
Your Weekly Technical Review for the Week of November 25th Begins Here
Last week was an action-packed holiday week, with both the Stock and Bond Markets closed all day on Thursday and early on Friday for the Thanksgiving celebration. And speaking of Thanksgiving, we all have so much to be thankful for. It seemed fitting to share portion of this passage from our friends at The Garrett, McAuley Report:
How’s your health? Not so good? Give thanks you’ve lived this long. Are you hurting? Millions are hurting more. Visit a veterans’ hospital or a hospital for children to appreciate what you have.
When you woke up this morning, were you able to hear the birds sing, use your voice, walk to the breakfast table, read the paper? There are a lot of people today who are deaf, blind, paralyzed, or unable to speak.
How’s your financial situation? Not good? Most people on this planet have no welfare. No food stamps. No pensions. No health insurance. In fact, hundreds of millions of people in the world go to bed hungry every night.
Are you lonely? The way to have a friend is to be a friend. If nobody calls, call someone. Get out and do something nice for someone.
Are you unhappy? Go out of your way to smile at people you bump into during the day.
And be kind to everyone, for everyone you meet might be fighting a hard, lonely battle of some kind.
The above passage does a good job of reminding us that things could always be worse and to remember to try to live your life with gratitude. Also remember that everyone has their own struggles they face and to be kind before passing judgement.
Onto the news of the week, which provided a Thanksgiving helping of data. All reports were packed into Tuesday and Wednesday, due to the market being closed on Thursday…And the theme was stronger data.
The Housing Scoop
On the housing front, acceleration accelerated. The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that homes appreciated 3.2% on a year over year basis in September. The 3.2% gain was a slight increase from the previous annual figure of 3.1% reported for August.
Just how significant is 3.2% appreciation? On a $300,000 home, a 3.2% gain in appreciation translates to a $9,600 gain over the course of the year…which is meaningful.
The FHFA (Federal Housing Finance Agency) released their House Price Index, which is another widely viewed measure of appreciation, but only on single-family homes with conforming loan amounts. Because it’s measuring homes with conforming loan amounts, they are most likely homes under $500,000, which is the area of the market we have been seeing the strongest demand. As a result, the appreciation figures are much stronger – Year over year homes appreciated 5.1%, up from 4.6% in the previous report. Again, a sign of acceleration.
There were two other reports pertaining to housing, New Home Sales and Pending Home Sales. New Home Sales, which measures signed contracts on new homes, were down 0.7% in October. But because of the strong revision in September, in aggregate they were much higher and showed a lot of strength. Perhaps of more importance, year over year sales increased from 15.5% in August to 31.6%.
Pending Home Sales, which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales, were down 1.7% in October. This reading was weaker than expectations, but again, year over year sales rose 4.4% from 3.9% in the previous report. Overall, Pending Home Sales remain at very strong levels, but the minor drop was due to a lack of inventory according to the National Association of Realtors.
Lastly, the Mortgage Bankers Association reported that Mortgage Application volume was up 1.5% last week. Applications to purchase a home were down 1.0%, while Refinances were up 4.0%. Year over year Purchases were up 55% and Refinances up 314%…which would normally seem fantastic.
Remember that data is not always what it seems, and you have to dig deeper than the headlines in many cases. The year over year figures in this report were skewed heavily because last year the Thanksgiving holiday fell one week earlier, so these results are being measured against a holiday week and appear much greater. Keep in mind that next week we will likely see the reverse occur and will need to wait a few weeks for these figures to smooth out.
How Strong is the Economy?
Let’s switch gears from housing and look at some of the economic reports released that show how the economy is fairing. Judging by the data received last week, the economy appears to be on solid footing. The second look at Q3 GDP showed that it increased from 1.9% to 2.1% and was stronger than expectations of 1.79%. Consumer Spending was up 2.9%, which was slightly stronger than the 2.8% expected. Additionally, Durable Goods, which was expected to show a decline, surprised to the upside. Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, dropped after two consecutive weeks of higher prints. Overall, the economic data was strong and helped Stocks set several new all-time highs.
The Latest on Inflation
Inflation is something that we follow closely, as it has a direct correlation to interest rates. Think about it – If you were to purchase a Bond, let’s say for 30-years, you would receive a fixed interest payment over that time period. But if inflation is on the rise, that fixed payment could purchase less and less. As a result, in a rising inflation market, the investor has to be compensated with a higher rate of interest. As a result, when inflation is on the rise, interest rates rise.
The highly anticipated Personal Consumption Expenditures (PCE) Report, which is the Fed’s favored measure of inflation, showed that headline inflation remained very tame at 1.3%. The Core rate, which strips out food and energy prices and is the most important reading that we focus on, was reported at 1.6%, which was lower than September’s reading of 1.7%. There are other factors, but the low readings of inflation will help to keep rates low.
What to Look for This Week
It’s jobs week, which means we will be getting the overall job creation figure, the unemployment rate, and average weekly and hourly earnings. See below for more on that front:
There are always estimates that are released that set the bar for the level of job creations expected. If that figure is beat heavily to the upside, usually the Stock market rallies at the expense of Bonds. If the figure is much weaker than expected, the opposite is usually also true. The unemployment rate is also very important, as it can be an early warning signal that the economy is slowing and a recession could be on the horizon. Lastly, average weekly and hourly earnings will show if there is wage pressured inflation, which the Bond market will be watching closely…Remember Bonds hate inflation.
Surprisingly with job growth slowing. the report came in strong. However, it is worth keeping an eye on. When businesses slow, the first thing they do is stop hiring. Next, they cut hours or pay or lay people off (the latter of which will show up in the Initial Jobless Claims figures). And eventually, the unemployment rate will rise…which is probably the best recession indicator. So far, despite all of the discussion in the news, we seem to be avoiding the R-word.
Have a great weekend!