Shiny Trinket

Townhome construction on the rise nationwide:

Supply and demand are always a sticky wicket in real estate, especially in the new homes arena. Housing demand continues to outpace supply, and nowhere is that more keenly felt that in the entry-level category. Because of it, pressure has increased on builders to deal with the ongoing high cost of land, materials and labor cuts into profitability by building more attached and semi-attached housing, such as townhomes.

According to the National Association of Home Builders (NAHB), townhouse construction is increasing and is anticipated to grow in the coming years. According to a recent article in BUILDER Magazine’s online entity, from the third quarter of 2017 to the third quarter of 2018, townhouse construction starts totaled 123,000, which is 24 percent higher than the previous four quarters. The market share of new townhouses is now 1.8 percent of all single-family house starts, the highest share since the recession. The peak market share over the past two decades was during the first quarter of 2008 when 14.6 percent of all single-family house starts were townhouses.

The NAHB goes on to report, “On a one-year moving average, new townhouses make up 13.8% of all single-family starts. This marks the highest share of townhome starts since before the recession. The last peak market share was set in Q1 2008 at 14.6% of all single-family homes built.” They add that townhouse construction is likely to expand because of the large first-time buyer market looking for walkable neighborhoods and more city-close locations.

How Rates Move:

Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-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 sideways this morning.  Last week the MBS market improved by +40bps.  This was enough to move rates lower last week. We saw moderate to high rate volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to mover rates this week. 1) Geopolitical, 2) Central Banks and 3) Inflation.

1) Geopolitical: Brexit continues to be a big part of global uncertainty. The latest is the British PM May is going to delay a key vote that would cancel the Bexit agreement put forth by May. She instead will travel to Brussels to try to get more concessions which are unlikely and have caused traders to hedge more towards a "no deal" scenario. The next biggest story to continue to watch is China has issued a summons to the U.S. Ambassador over the Huawei. In France, the protestors have not been calmed with promises to "delay" a tax hike as they are the most taxed nation among the developed countries. The concern is rising that this will not only be a large economic drag on France and the EU but also shape a wave of elections that would flip several countries over to not supporting an EU at all.

2) Central Banks: The biggest event will be Thursday's European Central Bank's Policy Statement and Interest Rate Decision, followed up with a live press conference with ECB President Mario Draghi. The market is not expecting any major developments though. The Federal Reserve Bank meets next week, and while the markets still believe that there will be a rate hike at that meeting, nonstop speculation and reporting have the market shifting its consensus from as many as 3 rate hikes in 2019, down to zero rate hikes in 2019. Meanwhile, the Governor of India's Central Bank has resigned causing concern over stability in one of the largest countries in the world.

3) Inflation: We get key readings with PPI and CPI with Wednesday's Core YOY reading getting the most weight. We also get the Atlanta Fed Business Inflation Index. Over the weekend, China reported lower than expected inflationary data.

Treasury Auctions this Week:

• 12/11 3 year note
• 12/12 10 year note
• 12/13 30 year bond

This Week's Potential Volatility: High

Rates continue to slip lower. Fundamentally, there's a lot of fear in the markets on a geopolitical and economic front. Technically, rates continue to push the bounds. Look for rates to push lower as long as there's both geopolitical and economic uncertainty. When/if any of the above issues get resolved, look for rate volatility to spike and the current trend to reverse.

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.

Dona Knapp has over 20 years of experience, which is evidenced by her extensive knowledge of the lending industry, making her a great source of information for their clients. Her commitment to excellence has earned her a reputation of customer satisfaction and building relationships that last far beyond the original transaction. Her team was strategically designed to provide superior service, uninterrupted accessibility and extraordinary products to meet all your lending needs. Don't settle for less, when you can work with the best!

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.