Hugh Van Horn

Monday, January 5, 2015

Primary Pulse 1/5/2015

Good evening and Happy New Year,

And what a great way to start off 2015!!! MBS’s have closed above 107:00 and more specifically above 107:01.5 which was set back on April 29^th, 2013. Yes that date is correct, today we are seeing MBS prices which exceed those set over a year and half ago! Is 2015 going to offer the lowest interest rates in modern history? Will these low interest rates reignite a smoldering housing market? Will we see a burst of refinancing? Whichever way it does go, 2015 will prove to be exciting!

Starting this week we can look to the employment data to move markets. We start Wednesday with ADP, then Thursday with Jobless Claims and finally Friday’s release of the Unemployment Rate.

4 reasons buying a home in 2015 will be easier

Chris Birk, Credit.com

4:31 AM, Jan 1, 2015

9:21 AM, Jan 1, 2015

Housing economists and would-be homebuyers are finding reasons for optimism as 2015 nears. To be fair, the bar’s set pretty low after a tough year for housing.

However, there are some genuinely encouraging signs that next year will be better for prospective buyers. Economic recovery and an improving job market will go a long way to boosting affordability for buyers in many markets.

Here’s a look at four reasons why the upcoming year might be a difference-maker for would-be homebuyers.

1. Looser Mortgage Credit

After years of hyper-cautious lending, more mortgage lenders are starting to relax credit and underwriting requirements, which are also known as “overlays.”

A big push in that direction came earlier this month when new guidelines from Fannie Mae and Freddie Mac took effect. These government-sponsored mortgage giants purchase about two-thirds of all new home loans.

The new policies were aimed at clearing up confusion about when lenders must buy back loans that go sour. Economists and industry insiders expect the newfound clarity will lead to broader access to mortgage credit.

“I’ve been told with absolute confidence that some lenders are lifting almost all of their overlays,” David Stevens, president of the Mortgage Bankers Association, told the Wall Street Journal.

The Urban Institute estimates more “normal” lending requirements could mean an additional 1.2 million home loans every year.

2. Lower Down Payments

Prospective buyers have another reason to high-five Fannie and Freddie: They’ve recently agreed to get behind loans with just 3 percent down. That lower benchmark, coupled with loosening credit standards, will likely help more first-time buyers enter the market.

Buyers will need at least a 620 FICO score and be on the hook for private mortgage insurance. Requirements for the 3 percent option vary between the two agencies. Depending on their path, buyers may need to complete a homebuying education program or show they haven’t recently owned a home.

“Our goal is to help additional qualified borrowers gain access to mortgages,” Andrew Bon Salle, a Fannie Mae executive vice president, said in a statement. “We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.”

FHA loans currently feature a 3.5 percent down payment requirement, but the accompanying mortgage insurance premiums have become increasingly expensive for many low- and middle-income borrowers. On a typical $200,000 loan, an FHA buyer might pay an extra $200 per month in mortgage insurance costs.

3. Cooling Home Prices

Some housing markets are still hotter than others. But the overall pace of housing price growth has slowed considerably. Freddie Mac’s housing price index soared 10 percent from September 2012 through September 2013.

Over the last year, the index is up just 5 percent, and Freddie Mac economists expect only a 3 percent increase for 2015.

Increases in housing inventory may also help to push down prices in some places.

4. Rates Still Low

Heading into 2014, most economists and housing wonks expected mortgage rates to top 5 percent by year’s end.

Last week, the average rate on a 30-year fixed mortgage didn’t even top 4 percent, according to Freddie Mac’s weekly lender survey. The 3.89 percent average rate marked an 18-month low.

A host of economic and geopolitical factors combined to keep rates lower than anticipated this year. They’re almost certainly going to rise in 2015, maybe even into that long-predicted 5 percent range, but they’ll still remain far below historical averages.

Capital Markets

Primary Residential Mortgage, Inc.

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www.primaryresidentialmortgage.com capitalmarkets@primeres.com

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Economic Calendar

Date/Time(Central)	Indicator	Period	Est.	Actual	Prior	Revised
1/6/2015 9:00 AM	Factory Orders	NOV	-0.4%		-0.7%
1/6/2015 9:00 AM	ISM Non-Manf. Composite	DEC	58.0		59.3
1/7/2015 6:00 AM	MBA Mortgage Apps.	2-Jan	--		0.9%
1/7/2015 7:15 AM	ADP Employment Change	DEC	226K		208K
1/7/2015 7:30 AM	Trade Balance	NOV	-$42.0B		-$43.4B
1/8/2015 7:30 AM	Initial Jobless Claims	3-Jan	290K		298K
1/8/2015 7:30 AM	Continuing Jobless Claims	27-Dec	2360K		2353K
1/8/2015 2:00 PM	Consumer Credit	NOV	$15.000B		$13.226B
1/9/2015 7:30 AM	Change in Nonfarm Payrolls	DEC	243K		321K
1/9/2015 7:30 AM	Change in Manufact. Payrolls	DEC	15K		28K
1/9/2015 7:30 AM	Unemployment Rate	DEC	5.7%		5.8%
1/9/2015 7:30 AM	Avg. Hourly Earnings (MoM)	DEC	0.2%		0.4%
1/9/2015 9:00 AM	Wholesale Inventories	NOV	0.3%		0.4%
1/9/2015 9:00 AM	Wholesale Trade	NOV	0.0%		0.2%

Monday, December 8, 2014

Primary pulse 12/8/14

Good afternoon,

Fed Funds Futures Point to Quicker Rate Increase

by Craig Dismuke

The only economic report this morning is the Fed’s Labor Market Conditions index, an aggregation of 19 monthly labor market indicators. Increasingly, the Fed does not need to rely on the aggregated index to affirm that the jobs market is getting stronger (more on this below). Thursday will bring the most important release of the week, November’s Retail Sales report. November’s sales data is likely to be held back at the headline level because of less spending on gasoline. What will be more important to watch will be the core sales data, which is expected to show 0.5% MoM growth. With a lot of the holiday sales being pulled forward, November’s sales data will take on more importance this year.

Last Friday’s labor data has re-established the flattening-curve tone for the bond market. The report was very strong across-the-board with another 321k payrolls added in November, 44k added to the September and October figures, the best pace of annual job growth since 1999 through only 11 months of the year, an increase in hours worked, a 0.4% MoM increase in wages, and a 177k drop in those employed-part-time-for-economic-reasons. Certainly there are concerns about the structural shift that has taken place in the labor market with fewer and fewer people participating in the labor force, which has been largely attributable to the aging population. But for Fed policy purposes, the biggest question is the cyclical dynamic of wage inflation. With the unemployment rate dropping 1% per year, wage inflation appears to be on the horizon. It may still take some time to materialize, but the markets try to respond to things on the horizon. The expectation from the markets after such a strong batch of labor figures will be for a future rate hike by the Fed. Whether that is March, June, or July of next year is less relevant than the fact that there will likely be one (or at least the data supports there being an increase). This will push short yields higher in anticipation of a hike. Already on Friday, the 2-year Treasury yield rose from 0.55% to 0.64% as the market priced in a 70% chance for a rate hike in June. Recall that the 2-year had dropped all the way back down to 0.27% in mid-October. This is likely to be one of the themes of 2015, a flattening yield curve with short yields leading the curve higher.

Japan’s economy fared worse than initially expected in 3Q, contracting 1.9% versus initial estimates of a 1.6% contraction. According to Bloomberg, “Japan's recession was deeper than initially estimated, a blow to Prime Minister Shinzo Abe as he campaigns for re-election ... Weaker-than-expected business investment sapped the world's third-biggest economy, compounding damage from a slump in consumer spending after a sales-tax rise in April. With the main opposition party caught unprepared, Abe is on-track to win the Dec. 14 election, even as a decline in the yen cuts into people's spending power.”

WSJ: “Many of the world's top policy makers are rewriting their economic forecasts for the U.S., Europe, Japan and elsewhere, betting plummeting oil prices will lead to an overall boost in the global economy by delivering a windfall to consumers and manufacturers. Officials at the [IMF] ... U.S. Federal Reserve and [ECB] have in recent days shrugged off concerns that the tumbling cost of crude signals a global slowdown. … Instead, they project cheaper oil will be a shot in the arm for the world economy overall, especially countries with high energy tabs. Stanley Fischer , vice chairman of the U.S. Federal Reserve, called it a 'supply shock' that will help the U.S. 'It's more likely to increase GDP than reduce it,' he said. 'The effect is unambiguously positive,' [ECB] President Mario Draghi declared after the bank's monthly meeting last week. Some economists warn that the nearly 40 percent plunge in crude-oil prices in recent months is more a harbinger of gloom ... This time, though, a range of supply-boosting factors is shifting the calculus for many officials and economists - from advanced drilling techniques to a revival in Libyan oil supply and a bid by some Middle Eastern producers to price competitors out of the market.”