Archive for category: Blog

September 23, 2020, 2:08 pm By David Stevens

Published in Housingwire

Let me be contrarian: Get ready, because mortgage rates are going to rise in 2021. Now before you respond, just read the rest as to why.

The Mortgage Bankers Association in its most recent forecast sees two things that stand out. First, 2020 will prove itself to be the second biggest mortgage year in history. Topping $3 trillion will put it only behind 2003 in single family mortgage production history.

Second, the MBA joined the GSEs and other economists who forecast a significant drop in mortgage production in 2021, with most estimating declines in the range of $700 – $800 billion year over year.

Some will try to argue, “but wait, Powell said the Federal Reserve would keep rates low for the foreseeable future! You must be wrong.” There is a difference here. Yes, the Fed will likely keep short rates low, but mortgage rates and some longer-term Treasuries likely won’t enjoy the same ride.

Here are the reasons why upward pressure on mortgage rates could stall the refinance wave and cut overall national originations volume in 2021:

1. The Fed: The Federal reserve is the single biggest buyer of agency mortgage backed securities (MBS) in the world. According to the Urban Institute, “In March the Fed bought $292.2 billion in agency MBS, and April clocked in at $295.1 billion, the largest two months of mortgage purchases ever; and well over 100 percent of gross issuance for each of those two months. After the market stabilized, the Fed slowed its purchases to around $100 billion per month in May, June and July. Fed purchases in July were $104.6 billion, 35 percent of monthly issuance, still sizable from a historical perspective.”

The question is what happens after a covid vaccine and a normalization of economic activity which is expected next year. The Fed is already being very careful not to commit to MBS purchases after the end of this year, a lack of commitment very different to their clear stance on fed funds. If the fed continues to slow or stop, something which is inevitable, the supply imbalance will force rates higher as MBS prices drop in search buyers to take up the excess.

2. The Debt: The national debt is now at 100% of GDP, the highest level since WWII. Per CBO’s September paper, “By the end of 2020, federal debt held by the public is projected to equal 98% of GDP. The projected budget deficits would boost federal debt to 104% of GDP in 2021, to 107% of GDP (the highest amount in the nation’s history) in 2023, and to 195% of GDP by 2050.”

The CBO’s projections for the U.S. deficits looking forward and the mounting debt load threaten the nation’s ability to do many things, as the majority of spending will be to mandatory expenditures that include interest on the growing debt load. Inflationary pressure will result from the need to finance these deficits through new issuance of treasuries, thus putting upward pressure across the stack of interest rates, a far different outcome than what the Fed may do to keep short rates low.

3. The GSE Capital Rule: The FHFA just closed off the comment window on the proposed capital rule for Fannie and Freddie. This rule is a critical component to FHFA’s plan to release the GSEs from conservatorship. The proposed rule is considered onerous by many with the consensus view stating in comment letters that rates would rise between 20-30 bps. Former Freddie Mac CEO Don Layton, former Arch MI CEO Andrew Reppert, and Fannie Mae each stated the same in their comment letters.

4. The Adverse Market Fee: This arbitrary add-on for most refinance mortgages from the GSEs of 50 bps equates to roughly an increase in rate of .125. This goes into effect on Dec. 1 of this year.

5. Release from Conservatorship: FHFA Director Calabria is working feverishly to release Fannie and Freddie from conservatorship and moving at a pace to lock in as much of this as possible quickly given the risk of an administration change. There have been outcries from MBS investors, including some of the largest buyers.

As reported, in a letter to Mark Calabria, director of the Federal Housing Finance Agency, PIMCO said freeing the companies by executive fiat would be interpreted by investors as an end to the government’s guarantee of the MBS. “That would boost mortgage rates and force some investors to sell the bonds,” the PIMCO executives said. Investors would demand a higher return for the increased risk. “Mortgage rates will increase, homeownership will likely suffer and the national mortgage rate will no longer exist,” the executives wrote.

For those in the mortgage industry, it doesn’t take all of these things to result in the forecasted 700-800 billion drop next year. Frankly just the slowing of MBS purchases and the implementation of the capital rule alone would do it. In fact, MBA’s forecast of the volume decline assumes only the slightest increase in mortgage rates, remaining in the low 3% range next year. In my conversations with economists, the view is that we will end the year with a good first quarter in 2021 simply based on year end overflow.

The second quarter may start off well, but the general sense is that by the third and fourth quarters the market will reflect the impact of coupon burn out and any of these events above beginning to take shape. One thing for certain is that the Fed does not like being in this deep, we saw that following QE activities during the Great Recession.

As MBA’sFratantoni states in his recent Housing Wire article, “2020 has been a banner year for mortgage originators and the millions of households who have benefitted from record-low rates through refinancing. The industry will enjoy this boom for a while longer, but our expectation is that the refi wave is cresting.”

“Make hay while the sun shines” is an old expression. The sun is clearly shining on our industry this year. But it’s important for mortgage banking executives to not misread the statements of Chairman Powell as a commitment to anything more than short rates. The rally you are experiencing this year is due to interventions in the market due to a pandemic recession. Normalization will take out buyers, eliminate the supply “short,” and inflation will ultimately do its thing on rates just enough to cut the market by 25%-30% in 2021 and a bit more in 2022.

Planning ahead for that environment is critically important as market contractions will reduce spreads as well as volume. Thinking about the appropriate right sizing and forward-looking market strategies now will separate the winners from the rest.

Is the market frenzy coming to an end? According to Zillow’s Weekly Market Report for the week ending Sept. 26, “tapering pending sales and minimal recent growth in list prices point to an overdue seasonal market slowdown.”

According to the report, pending listings were up 22.2 percent year-over-year for the week, but have fallen 4.6 percent month-over0month and 1.5 percent week-over-week. Days on market, however, has stayed the same as August at 13 days—15 days sooner than the same week in 2019.

Inventory now stands at 35 percent below 2019 levels—the largest YoY drop in total inventory in Zillow’s history of monthly inventory records, dating back to 2013. As for new for-sale listings, they are down 9.5 percent YoY and 6.9 percent month-over-month.

Prices are much higher compared to last year. Median sale price has increased 1.2 percent month-over-month and 9.3 percent YoY. The median list price increased to $345,000 (10.4 percent over last year’s figures)—the highest YoY increase in Zillow’s weekly data history through last year.

What about consumer confidence? September experienced the strongest MoM gain since April 2003, with the Conference Board’s Consumer Confidence Index increasing 15.5 points from August.

What’s in store for the future? Zillow expects sales to stay high but taper through 2021, remaining higher than pre-pandemic levels throughout this year and next. Additionally, home prices are expected to increase 1.2 percent from August to November, as well as increase 4.8 percent between August 2020 and August 2021.

When considering what to upgrade before you sell your home, it’s just as important to think through your home’s mechanical systems as it is your home’s aesthetic elements. After all, aesthetic elements are often easier and less expensive to change than mechanical systems.

One of your home’s most important mechanical systems is your HVAC system. Even though it’s not immediately visible, it can have an outsized impact on your home’s resale value. Here are different ways your HVAC system’s age can affect your home’s resale value:

Comfort During Home Tours

One of the most obvious things to keep in mind is that your HVAC system can provide comfort to potential buyers during home tours. If your system is too old to provide reliable comfort, potential buyers are sure to notice. While some buyers will be able to overlook this issue, it will be a turn-off for other buyers, meaning that you will have less competition for your home, which could then lower the eventual selling price.

Selling Disclosures

To avoid financial mistakes, the home-selling process is regulated to be transparent. One way this happens is through selling disclosures that must be presented to the buyer before the transaction closes. The age of HVAC systems is one component that appears on these seller disclosures, meaning that potential buyers will be fully aware of the age of your HVAC system. Therefore, even if your older HVAC system works well, it could still turn away some buyers once they see how old your system is.

Selling Concessions

Even if a buyer chooses to offer the original asking price for your home, you may still lose out on money when the details are worked out. That’s because the buyer may ask for concessions from you, which may include replacing all or part of your HVAC system. Considering the cost of a new HVAC system, this could significantly cut down on your sale proceeds.

Energy-Efficiency

While an older HVAC system could be a liability when it comes to the selling price, a newer one could prove to be an asset that could boost the selling price. This is because you can advertise the energy savings of your newer HVAC system when compared to other similar homes. For a buyer that’s looking for the total package, this could be the feature that convinces them to put an offer on your house.

It’s important to remember that just because you have an older HVAC system doesn’t mean that your home will be hard to sell. While it may affect the value of your home, there will still be buyers who are eager to have your home, even if it means that they’ll have to do some work on the HVAC system down the road.

(TNS)—With some gyms closed and a number of people working from home, the COVID-19 pandemic has made it more difficult for many people to get in their daily workout. Sedentary behavior, including sitting for long periods of time, can contribute to adverse health effects, including something referred to as “sitting disease.”

In this Mayo Clinic Minute, Dani P. Johnson, a wellness physical therapist with the Mayo Clinic Healthy Living Program, demonstrates how to integrate more movement into your daily life.

Whether you’re working in an office or from home, Johnson suggests taking breaks every 30-45 minutes throughout your day to perform some simple stretches.

“Our bodies can get stiff. You know, we’re always kind of in this hunched-over position when we’re at our desks and working, so we really want to open up our chest,” says Johnson.

“One way to do that is just by doing some simple shoulder rolls, so just bringing the shoulders back and down.”
“Another really great activity you can do using a wall is just coming to the wall, putting the back of your hands up on the wall, and just sliding your hands up and down nice and slow,” says Johnson.

Don’t worry if you don’t have access to gym equipment. Johnson says your desk can be a great exercise tool.

“Simply by putting your hands on the desk and stretching out, so you’re moving your bottom back, bringing your arms forward,” says Johnson.

Whether you try these stretches or take a break to go for a walk, all movement counts.

Let me preface this report by saying that due to the shortage of homes in the area and in certain price ranges, newly listed homes are under contract in less than 12 hours.  Sometimes the seller will ask for multiple offers in a “best and final” contract solicitation.  In order to be prepared for such an event, have at least a bank letter and be prepared to respond as quickly as possible.

Zillow: Buyer Demand Continues Outpacing New Supply

By RISMedia Staff

More sellers are making their way onto the market, but it’s still not enough to offset a supply shortage as a frenzy of buyers look to take advantage of low interest rates. According to Zillow’s most recent Weekly Market Report, buyer demand is still outpacing new supply.

For the week ending Aug. 22, newly pending sales were up 16.5 percent YoY—the biggest increase since mid-February. In addition, homes are selling faster—coming off the market in just 13 days, which is also 13 days sooner than last year.

While the inventory gap is narrowing, new for-sale listings were still down 10.6 percent YoY that week. And because of the quick market turnaround, total for-sale inventory has fallen further below last year’s level—as of last week, there were 29.8 percent fewer homes on the market than the same time last year.

This is causing prices to continue rising. For the week, the median U.S. list price was $345,255—8.3 percent higher YoY and the biggest annual change since the week ending July 13. The median sale price was $277,500—5.1 percent over last year’s number.