Home sales are still going strong, and the National Association of Realtors says they could have been even higher if there were more homes for sale. It seems there is a critical shortage of listings, especially in higher price ranges. And out in the trenches, homebuilders are struggling to keep up with demand amid higher land prices and labor shortages.
Homes sales in the West, where prices are highest, are seeing the biggest gains. Nationally, sales of homes priced above $750,000 were up nearly 19 percent from a year ago. New tax laws limit the mortgage interest deduction. Borrowers can now deduct interest paid on up to $750,000 in mortgage debt. Previously, the limit was $1 million in mortgage debt.
Lower priced homes were down 16.5 percent compared with a year ago. This is where the supply shortage is worst. The paradox in a market like this is that Realtors are hearing very few concerns from buyers about rising mortgage rates or the new tax laws —even fewer concerns than in December when the tax laws were in final debate. Buyers who are afraid of rates heading higher are spurred to step up and lock in with a purchase and a funding rate, according to Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Shortage on the lower end is likely why first-time homebuyers have been pulling back as affordability and supply are weighing more heavily on them now.
According to the latest issue of Barron’s, the new home sales boom is far from over, citing how shares of several homebuilders look attractive as the U.S. housing market could strengthen further. The future behavior patterns of millennials are crucial in determining whether housing starts will close the gap between from 35% under the normalized trend. The resolution of the millennial question is important but hard to estimate: builders are a critical element and indicator for the economy.
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.
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -4bps. This wasn’t enough to move rates higher last week. Mortgage rate volatility has remained very stable while stocks have shown a great deal of volatility.
Three Things: These are the three areas that have the greatest ability to move rates this week:
- Geopolitical: The bond market will continue to give the majority of its focus on trade talks between China and the U.S. as well as “tweets” over the progress of those talks. Don’t forget about NAFTA as the deadline is fast approaching. The White House is also pushing to make some of the tax cuts permanent.
- Fed: We got the minutes from the last FOMC meeting where they raised their key interest rate on Wednesday.
- Inflation: We get a couple of key reports this week with Wednesday’s CPI getting the most attention of bond traders. We will also get PPI and Import Prices this week.
Source: Thomson/Reuters, Barron’s, NAR,TBWS
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