May 20th, 2019 11:10 AM by Richard Sardella MLO.100007700/NMLS 233568
Increased Chinese trade tariffs about to hit home
Builder confidence in the market for newly-built single-family homes remained unchanged in April at a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
Trade wars never happen without consequences to those down the line, and the latest increase in Chinese tariffs is hitting both homebuilders and remodelers where they live. Whatever project you have in mind, save a little more to get it done in 2019.
According to CNBC’s Diana Olick, from tile to countertops, laminates to lighting (about 450 types of items used in remodeling projects) worth approximately $10 billion a year in expenditures nationwide — are on the list that just went from 10% tariffs to 25%. The additional costs, therefore, rose from $1 billion to $2.5 billion, according to an analysis by the National Association of Home Builders (NAHB).
“The increase is on goods shipped starting last Friday, so the hikes will not hit U.S. shores likely until the start of June,” says Olick. “This buys negotiators a bit more time. Still, the tariffs are already hurting the remodeling business.” she quotes NAHB’s chief economist Robert Dietz: “NAHB’s forecast calls for slowing growth, given declining home price appreciation and existing home sales volume, combined with rising construction costs.”
Building experts are predicting that because the price of every project is going to go up, there would be no way remodelers could absorb those costs and survive. They estimate a 7-8% increase to the consumer no matter how they try to tweak it.
This comes as a double-whammy, with the homebuilding industry already struggling with a labor shortage. Nearly three out of four remodelers this year reported higher prices for customers due to higher costs for labor, according to a new survey from the NAHB.
“Higher costs for both materials and labor are causing some consumers to reconsider their renovations,” says Olick. “Case said the size of the average project went down dramatically last year, as consumers tried to cut the budget.” Increased tariffs in 2019 will only make it necessary to budget more before tackling your home remodeling dreams.
Source: CNBC, 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 improved by +20bps. This may've been enough to move rates or fees slightly lower last week. We saw moderate rate volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Fed, 2) Trade War and 3) Geopolitical.
1) Fed: We are fast approaching the June FOMC meeting, and the bond market will be focused intently on the collective message that this week's talking feds send out. We get the Minutes from the last FOMC meeting. We will also get the Minutes from the last ECB meeting and have a speech from ECB President Draghi. Here is the very packed schedule for the week:
2) Trade War: China says that it is in "no rush" to resume trade talks but has invited U.S. Treasury Secretary Mnuchin back to China. Meanwhile, on the Huawei front, Google's Alphabet has announced that it will cut off Huawei Mobile's access to most of its Android operating system offerings. Also, German chipmaker Infineon Technologies said it would suspend deliveries to Huawei.
3) Geopolitical: Tensions continue to escalate between the U.S. and Iran and will be closely watched. But it's Europe that may have a more immediate impact. The EU Parliament will start four days of elections on Thursday.
This Week's Potential Volatility: Average
The bond market will be paying close attention to the geopolitical events and the overall tone of the Fed speakers. We're not expecting rates to push out of the current tight range unless something unexpected happens geopolitically.
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.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.