Discussing this week’s reports on mortgage rates, the Fed’s latest Beige Book, mortgage data for March 2018 and how the rise of rentals could be very profitable!
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 4.47% with an average 0.5 point
- This is up from last week when it averaged 4.42%
- Last year at this time, 30-year fixed-rate mortgages averaged 3.97%
- 15-year fixed-rate mortgages averaged 3.94% with an average 0.4 point
- This is up from last week when it averaged 3.87%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.23%
This is the highest 30-year fixed-rate mortgage that Freddie has reported in 4 years!
Len Kiefer, Freddie Mac’s Deputy Chief Economist, said:
Treasury yields rose ahead of the release of the Fed’s Beige Book and speeches from New York Fed President William Dudley and Fed Governor Randal Quarles. According to the Beige Book pdf, economic activity in March and early April continued to expand at a moderate pace, however there is concern from various industries surrounding tariffs. Following Treasurys, mortgage rates soared. The U.S. weekly average 30-year fixed mortgage rate rose 5 basis points to 4.47 percent in this week’s survey, its highest level since January of 2014 and the largest weekly increase since February of this year.
Not good but let’s look at what the MBA reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) remained unchanged at 4.66%, with points unchanged at 0.46 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) remained unchanged at 4.53%, with points increasing to 0.38 from 0.31 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.08%, with points decreasing to 0.47 from 0.50 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
At least the news from the MBA is better than the increases reported by Freddie. What we can expect mortgage rates to do may depend greatly on the Fed’s Beige Book that was released this week…
The Beige Book
Highlights from the latest Beige Book:
Economic activity continued to expand at a modest to moderate pace across the 12 Federal Reserve Districts in March and early April. Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs.
Consumer spending rose in most regions, with gains noted for nonauto retail sales and tourism, but mixed results for vehicle sales. Manufacturing activity grew moderately, and demand for nonfinancial services was mostly solid.
Residential construction and real estate activity expanded further, although low home inventories continued to constrain sales in several Districts.
Widespread employment growth continued, with most Districts characterizing growth as modest to moderate. Upward wage pressures persisted but generally did not escalate; most Districts reported wage growth as only modest.
Prices for building materials continued to rise briskly, especially for lumber, drywall, and concrete.
A positive report overall but remember that good economic news usually leads to increases in mortgage rates.
It is interesting that the Fed mentioned being concerned about the tariffs multiple times. I admit that I used to think that tariffs were a good idea but all the criticism has changed my mind somewhat.
Will the tariffs cause the economy to slow down? If the economy does hit the skids, it should help mortgage rates BUT how many people are going to be confident about buying a home if the economy sucks?
76.3% of Purchase Mortgage Applications Closed in March
Highlights from Ellie Mae’s Mortgage Origination Insight Report for March 2018:
- Closing time for all loans dropped to 41 days in March
- Time to close a refinance held at 37 days for the second consecutive month
- Time to close a purchase dropped to 43 days
- The average 30-year rate for all loans increased to 4.69%
- Closing rates for all loans decreased slightly to 69.6% in March
- The closing rate on refinances decreased slightly to 64.9% in March
- The closing rate on purchases increased slightly to 76.3% in March
- 69% of all closed loans had FICO scores over 700
- 71% of purchase loans had FICO scores over 700
- 66% of refinances had FICO scores over 700
- The average FICO score on all closed loans increased one point to 722 in March
- The average FHA mortgage purchase FICO dropped to 677 in March
Ellie Mae President and CEO Jonathan Corr said that the purchase market is gaining momentum due to the rising interest rates. I would point out that home prices are rising as well.
But it isn’t just the mortgage rates or home price you need to consider. If you missed yesterday’s post, you need to consider the cost of a home as well as the price.
The Rise of Single-Family Rentals
From Terner Center:
Tenants living in single-family homes in the United States represent the fastest growing segment in the housing market today, but neither academic literature nor public policy has kept pace with their growing importance. Today, the Terner Center is releasing a new study seeking to better understand this group of renters, the homes and neighborhoods they occupy, and the policies that might better support their success.
So what did they find out?
In the wake of the foreclosure crisis, however, the share of single-family rentals grew quickly. Between 2006 and 2016, more than 3.8 million additional households became renters of single-family homes. By 2015, nearly one in five single-family homes was occupied by a renter, and today, single-family rentals comprise the fastest growing segment of the housing market.
While the decrease in the home ownership rate is not a good thing, it does present an opportunity. Anyone interested in building wealth and a good income can invest in rental homes.
They found that the reason for renting often has nothing to do with the limited inventory of homes for sale. It may be that renting helps them to deal with jobs changes or getting married/divorced.
Another reason cited was the flexibility that renting offers. Whether it is due to their career or pursuing higher education, many people know they will not be in one specific area for very long.
Another reason for renting is that many do not want to deal with long-term maintenance. This is a very important consideration and not properly maintaining a home will have a negative impact on a home’s value.
The final reason that many chose to rent is their view about owning a home changed after the foreclosure crisis and the way that home prices crashed. This was a very small portion of those that responded to this survey.
I think the main takeaway from this study is that the outlook for owning rental homes is very good. Being a landlord and owning rentals is not without risks or headaches but the profits are very nice.
Well that is it for today! I hope you will share this article if you enjoyed it and will consider signing up for free email notifications of new posts by subscribing!