Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
With the first major snowstorm hitting our area this week, most expect a slowdown in activities, preparing to be locked down in their homes. However, there is certainly no slowdown expected in the markets, as a myriad of economic reports and news came out this week, which may significantly impact rates and housing activity in the future.
The Mortgage Market
The Mortgage Bankers Association released its Mortgage Application Data for the week ending 12/11, showing that overall application volume increased by only 1.1% from the previous week. Applications to purchase a home were up 2.0%, and Refinances increased by 1.0%. Refinance applications are 105% higher year-over-year, and purchase volume is 27% higher than last year. Per the report, mortgage rates decreased from 2.90% to 2.85%, which is the lowest in the MBA’s 30-year history. This is also 114 basis points, or 1 and 1/8th lower than this time last year.
Consumer Spending
Retail Sales fell 1.1%, which was much worse than the 0.3% drop that was expected. Additionally, last month’s prior figure was revised lower from +0.3% to a loss of 0.1%. In November, “Core Retail” sales fell by 0.5%, which was much lower than the 0.2% gain expected. Adding to the weakness, October numbers were revised down by 0.2%. The Control Group, which strips out autos, gas, and building materials, was down 0.9%, below expectations of a 0.1% increase. The PMI Composite flash for December decreased to 55.7 from November’s previously revised report of 58.6. With these numbers, we can now expect a decrease in the Q4 GDP forecasts, which will weigh on the markets.
Homebuilder Confidence
This week, we also saw a pullback in December for homebuilder confidence after reaching a record high in November. The NAHB Housing Market Index decreased by 4 points from last month’s revised figure of 90 to 86 in December. Current Sales decreased 4 points to 92, Sales Expectations decreased 4 points to 85, and Buyer Traffic decreased 4 points to 73. “The issues that have limited housing supply in recent years, including land and material availability and a persistent skilled labor shortage, will continue to place upward pressure on construction costs,” said NAHB chief economist Robert Dietz. “As the economy improves with the deployment of a Covid-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes.”
The Federal Reserve
The Fed released their Federal Open Market Committee minutes this week, followed by a live Q & A session by Chairman Powell. Of course, the Fed left rates unchanged, as expected. The Fed stated that they would keep the Fed Funds Rate at zero until at least 2023. They also reiterated that they would not jump the gun on raising rates, even if there are some heightened inflation signs due to COVID and demand returning faster than supply.
Fundamentally speaking, signs point to a weakening economy, and some fear there will be more state lockdowns similar to California, despite the vaccine launch. A $900 billion federal stimulus is in the works, which might be agreed upon before year-end. While this often means a low-rate environment, the bond markets are implying otherwise. We are close to 1.00% on the 10year U.S. Treasury, with many industry experts predicting another 25-50 basis point rise over the next few months. While the Fed did say they would continue to purchase MBS and Treasuries at the current levels, they did not expand their Bond buying program. Nor did they buy more longer-dated maturity Bonds, as was being whispered in the marketplace by some experts.
Absent more aggressive measures to pull rates lower, it is likely that mortgage rates might trickle higher in the coming months. There is still so much uncertainty with COVID, lockdowns, and the vaccine, but it is undoubtedly still an excellent time to make choices that will leave you with a long-term certainty with your mortgage.
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