May 14th, 2018 12:59 PM by Richard Sardella MLO.100007700/NMLS 233568
Wage growth helps to boost housing affordability
If the adage about rising tides lifting all boats is true, then it comes as no surprise that rising incomes have been helping to offset recent increases in mortgage rates, offering a boost to housing affordability in the first quarter of this year, the National Association of Home Builders/Wells Fargo Housing Opportunity Index shows.
With an increase of 59.6 percent of homes sold that were affordable to median income earners, the index showed that 61.6 percent of new and existing homes sold between the beginning of January and the end of March were affordable to families earning the U.S. median income of $71,900. That median income mark reflects an increase of 5.7 percent in 2018. According to a news article in Realtor Magazine, the NAHB chief economist Robert Dietz reports that this wage growth has helped to boost housing affordability. He goes on to say that a growing economy, along with tight inventories and increasing household formations, will lift housing production in the year ahead. This prediction is dependent, of course, on the fate of mortgage rates as the year progresses.
According to the article, of the 237 metro areas analyzed in the first quarter, the index showed 167 markets experiencing an increase in affordability compared to the fourth quarter of 2017.
While we aren’t expecting you to scramble to an area based solely on affordability, if you’re looking for the nation’s most affordable major housing market, look no further than Youngstown-Warren-Boardman, OH-PA metro area, where 90.9 percent of all new and existing homes sold in the first quarter were affordable to families earning the area’s median income of $60,100. Other affordable major housing markets (in order) were Indianapolis-Carmel-Anderson, Ind.; Scranton-Wilkes Barre-Hazleton, PA.; Toledo, OH; and Harrisburg-Carlisle, PA.
If you prefer small-town living, the most affordable small market is Cumberland, Md.-W.Va., where 98.5 percent of the homes sold in the first quarter are affordable to families earning the median income of $55,500.
The most unaffordable place to live if you fall in the median income slot? It’s still San Francisco, CA, which remains the most costly major housing market, and where only 9.2 percent of homes sold in the first quarter of 2018 were affordable to families earning the area’s median income of $119,600. California continues to dominate the least affordable markets, with Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Diego-Carlsbad falling closely behind them.
Source: Realtor Mag, NAHB,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 sideways to slightly higher this morning. Last week the MBS market worsened by -22bps. This moved mortgage rates slightly higher last week. Mortgage rates have been moving mostly sideways the last week
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest potential to impact mortgage rates this week. 1) Across the Pond, 2) Fed and 3) Geopolitical
1) Across the Pond: We get some economic releases that have some real "heft" to them from world's top economies this week. Generally, the stronger these reports are, the worse it is for mortgage rates and vice versa. China - Retail Sales, Industrial Production. Japan - GDP, Industrial Production, CPI. Germany - GDP, CPI, PPI. Eurozone - GDP, CPI, and a Non-Monetary ECB Meeting. We actually will hear from quite a few voting members of the ECB this week. We started off with ECB member and Bank of France governor, Francois Villeroy de Galhau. He insisted that despite sluggish inflation, the governing council is set to stick with the plan and end QE over the near term, citing September or December as the likely cutoff point and warning that the first rate hike could come quarters, not years after the end of asset purchases.
2) Fed: We will get a lot of speeches from both voting and non-voting members of the FOMC. The aggregate tone of their speeches can shape markets.
3) Geopolitical: NAFTA will get the bulk of attention from bond traders as the May 17th deadline imposed by Speaker Paul Ryan is fast approaching. Italy will continue to be a concern for the Eurozone/ECB. Trade with China continues to be closely watched as President Trump said he is working with the Chinese President, Xi to start to ease up on exports to ZTE. Also, China's Vice Premier Lie He is traveling to Washington to continue talks with Treasury Secretary Steven Mnuchin.
This Week's Potential Volatility: Average
Mortgage rates could see some volatility from overseas economic data this week. If those numbers are in line with expectations, look for rates to once again move sideways with relatively low volatility.
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.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
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.
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