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Home buying heats up as the new decade begins, led by the West

New home sales numbers are coming out as we begin 2020, and they’re encouraging ones. According to Realtor’s Jacob Passy, the index of pending home sales increased 1.2% in November from the previous month, as reported to the National Association of Realtors.

“The index records transactions that have not yet closed but where a contract has been signed,” says Passy. “As a result, the index serves as an indicator for existing-home sales reports in the coming months.” This means as compared to November of 2018 contract signings were up 7.4%.

The wild West is where sales increased substantially, bumping the increase to 5.5%, while contract signings only saw marginal changes in the Northeast (down 0.1%), South (down 0.2%), and Midwest (up 1%). When compared with last year, sales were up in all four regions.

Passy says the inventory of homes for sale will remain a challenge, quoting NAR’s chief economist Lawrence Yun: “Despite the insufficient level of inventory, pending home contracts still increased in November. The favorable conditions are expected throughout 2020 as well, but supply is not yet meeting the healthy demand.”

In the homebuilding arena, most economists expect things to pick up next year, but not enough to fully meet the demand. That means home prices should continue to increase at healthy — if somewhat slower — pace.

“Mortgage rates are anticipated to remain at their current, historically-low levels in 2020, but that may not be enough to make buying a home affordable for would-be buyers struggling to get enough money together to make a purchase,” says Passy.

Source: Realtor, TBWS

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 slightly higher so far today.  Last week the MBS market improved by +5bps.  This caused rates and fees to remain mostly unchanged. We saw moderate rate volatility throughout most of the week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that can move rates this week 1)Trade Wars, 2) Geopolitical, and 3)Domestic.

1) Trade Wars: It is expected that the U.S. and China will sign the Phase 1 trade deal on Wednesday. At that point, the markets should have all of the final details of exactly what is in (and what is not in) the trade deal.

2) Geopolitical: Brexit is very much on the bond market's mind as the January 31st deadline is fast approaching. While the Brexit deal has made it out of the lower chamber, Monday kicks off with the House of Lords beginning debates on Brexit Withdrawal Agreement Bill. On the Iranian front, military escalation seems to have abated, but that could turn on a dime, and bonds will continue to be very reactive to any action(s).

3) Domestic Flavor: Retail Sales and CPI will get the most attention. The stronger these reports are, the worse it will be for pricing.

The Fed: Here is the Fed's schedule this week:

• 01/13 Eric Rosengren, Raphel Bostic
• 01/14 John Williams, Esther George
• 01/15 Patrick Harker, Robert Kaplan, Fed's Beige Book
• 01/16 Michelle Bowman, Fed's Balance Sheet
• 01/17 Randal Quarles

This Week's Potential Volatility: Average

We have some domestic economic data this week that can move rates and spike volatility. For rates to move significantly lower, it will take something unforeseen on the geopolitical front, mainly from Iran. Short of something unexpected, look for rates to trial slightly higher on moderate volatility.

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.

Matt McGuire is a Mortgage Loan Originator with Edge Home Finance, specializing in residential home loans for real estate purchase and refinances. He enjoys making his clients happy while helping them achieve their dreams and goals. Matt has spent the last 10 years in the mortgage and banking industries, gaining valuable experience in loan origination, loan processing, underwriting, post-closing/loan servicing, and management. This unique blend of skills and knowledge helps Matt walk all of his customers through each step of the loan process with the care and guidance they deserve. Matt was born in Florida, is a proud Richfield Spartan, and currently resides in Lakeville with his wife, two dogs, and two cats. Matt is a huge sports fan and also enjoys traveling, fishing, and boating.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

Matt McGuire (NMLS 1535656) - A Member of Edge Home Finance Corporation (NMLS 891464)