First-time Home Buyers More Optimistic

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Published Date 10/16/2017

Realtor Report

First-time Home Buyers More Optimistic

A nationwide shortage of housing inventory has been pushing prices ever higher. First-time buyers have often found themselves competing with two, three or more other buyers when they make an offer on a home. They are often outbid in the “auction” atmosphere of multiple offers. The frustration of losing out to competing buyers with larger down payments and higher offers has caused many to suspend off their home search indefinitely.

Recently, a survey conducted by home mortgage giant Fannie Mae found new optimism amount these first-time buyers. The survey found that fewer buyers think home prices will spiral up to unattainable levels, and that now is a good time to buy.

This new positive sentiment is somewhat puzzling; at the end of August, housing inventory was down by 6.5% from the same time last year, according to the National Association of Realtors.

One factor could be the increasing inventory of newly-built homes. Many builders are concentrating on the higher end of the price spectrum rather than the traditional “starter” homes, but millennials, who are driving much of the buying activity today, have been renting for a longer period, and have been established in their careers for a longer time. Simply put, many millennials can qualify for more expensive homes than first-time buyers in the past.

The Fannie Mae survey also found a higher level of consumer confidence. More of the people responding feel secure in their jobs, compared to the prevailing dismal sentiments during the Recession beginning in 2008.

There is also a general perception that lending standards have loosened, making mortgage finance more accessible. Although hard data suggests that lending standards for conventional, FHA and VA loans have remained essentially the same since 2008, many potential buyers have attempted to seek qualification for a mortgage, believing they would be turned down. This was a classic case of the self-fulfilling prophecy.

For real estate and lending professionals, this comparatively rosy outlook is good news. Buyers who were reticent last year out of fear of rejection now may need just the slightest encouragement to come back into the market.

Source: TBWS

This Week's Mortgage Rate Summary

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.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways to moderately higher so far today. Last week the MBS market improved by +24bps. This was enough to slightly improve mortgage rates or fees. Mortgage rate volatility was high last week.

This Week's Rate Forecast: Neutral

Three Things: These Three Things have the greatest ability to move mortgage rates this week. 1) Geopolitical, 2) Across the Pond and 3) Fed

1.) Geopolitical: Domestically, the bond markets will continue to pay close attention to movement in Tax Reform and Health Care. Overseas, North Korea is still a hot spot but so is Israel (recent military action) and Iran (Trump decertified deal and sent back to Congress). Catalonia is also on the radar with it's attempted split with Spain.

2) Across the Pond: The economic data this week with the gravitas to move markets is coming from overseas this week. We have already received higher than expected inflationary data out of China and stronger production data out of Japan. For the rest of the week, we will be focusing on Brexit negotiations which appear to be going the wrong direction for Great Brittan and may lead to PM May being ousted as a result. China's Retail Sales and GDP will get a lot of attention this week.

3) Fed: We have a few speeches this week, but the bond market will focus on the Beige Book on Wednesday which is prepared specifically for the use in the next Fed meeting in two weeks.

10/16 Neel Kashkari
10/18 Stanley Fischer, William Dudley, Robert Kaplan, Atlanta Business Inflation and the Beige Book
10/19 Philly Fed Business Outlook
10/20 Loretta Mester

This Week's Potential Volatility: Low

There's not a lot of market moving news due out this week. Mortgage rate volatility will be mostly impacted by geopolitical events noted above.

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.

Source: TBWS

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