Scottsdale Real Estate Update | March 4th, 2018

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Realtor Report

First time homebuyers ruled in 2018

First time home buyers appear to have fueled the real estate market in 2018. According to a Hanley-Wood report, a total of 2.07 million first-time home buyers purchased single-family homes in 2018, up less than 1% from 2017 but the most since recessionary 2006, according to a report from Genworth Mortgage Insurance, an operating segment of Genworth Financial, Inc.

The report said that first-timers again outperformed the broader housing market, recording its best purchase year since 2006 and regaining its pre-Housing Crisis level, according to Genworth’s Chief Economist Tian Liu. “At the same time, first-time home buyers are not immune to declining affordability, as their number declined nationally and in 35 states in Q4. First-time home buyers responded to declining affordability by taking a wait-and-see approach and opportunistically looking for lower-priced properties.”

Liu predicts that some first-time home buyers may be in fear of overpaying during the slowdown which could prolong the slowdown. But improved housing affordability over the past few months (if sustained) has the capacity to boost momentum by the 2019 spring selling season. “In the longer term, the current slowdown should serve to remind the housing industry and policymakers of the importance of housing affordability,” the article said. “The housing industry should also take note of the resilience of the first-time home buyer market in the downturn and offer more products and services to meet their needs.”

Also of note looking back, first-time home buyers accounted for 99% of the growth in home sales between 2014 and 2018, reshaping the demographics by moving from states such as California, Illinois, Massachusetts, Michigan, Louisiana, New York and Texas, and into states such as Arizona, Florida, Georgia, Delaware, Idaho and Nevada.

 

This Week’s Mortgage Rate Summary

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways to very slightly lower so far today.  Last week the MBS market worsened by -33bps.  This was enough to worsen mortgage rates or fees. Rates experienced moderate volatility through much of the week.

This Week’s Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Central Bank, 2) Jobs and 3) Trade War

1) Central Bank: The spotlight will be on Thursday’s European Central Bank Interest Rate Decision and Policy statement as well as a live press conference with the ECB President Mario Draghi. While the markets are not expecting any real policy change at this juncture, they are looking for more commentary/direction on the winddown of their massive bond-buying program and economic contraction. We will also get the Bank of Canada’s rate decision which comes after last week’s negative MOM GDP report. Our own Federal Reserve will release their Beige Book which contains the reports from all 12 Fed districts and is used as the basis for this March’s Federal Reserve meeting. We also get an interest rate decision out of Australia.

2) Jobs: We get a ton of jobs related data (ADP Private Payrolls, ISM Services, Challenger Grey Job Cuts, Unit Labor Costs, Initial Weekly Claims, Unemployment Rate, Non-Farm Payrolls, and Average Hourly Wages). Off all of those reports, it will be Friday’s YOY Average Hourly Wages that gets the most attention from long bond traders. It is expected to rise again, this time to 3.3%. Once you start getting close to 3.5%, it becomes VERY dangerous for bond prices/ rates.

3) Trade War: Whether it is from leaks, legitimate sources or just speculation, the “buzz” is that the U.S. and China are in the “final stages” of talks which could result in a joint signing in Florida by the end of March. The bond market will react negatively (worse pricing) to any confirmed stories of progress and positively if there appears to be no deal for a while.

This Week’s Potential Volatility: Average

While rates are still in a reasonably tight channel, they’re starting to trend slightly higher. If events unfold as expected by many and China deal comes together, and wages continue to tick higher, we could see rates move higher for the week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.