December 23rd, 2019 2:32 PM by Richard Sardella MLO.100007700/NMLS 233568
Buildable land in the most desirable areas is in short supply
The sky may be infinite, and the oceans are vast. But land is finite, and there is a shortage of it to build homes on, accord to a recent NAHB/Wells Fargo Housing Market Index report.
The survey asked a panel of single-family builders to categorize the supply of lots in their market areas as “very high,” “high,” “normal,” “low,” or “very low,” as well as giving them an option to say they didn’t know or were not sure. NAHB’s Paul Emrath says, “In response, 58 percent of builders said the supply of lots was low (40 percent) or very low (18 percent). This is down somewhat from the all-time peak of 65 percent in September of 2018, but higher than it had been at any time before 2013 (NAHB has been asking the same lot supply questions on its HMI survey periodically since 1997).”
Housing starts, after averaging 1.5 million from 1960-2007 and hitting a peak of 2 million in 2005, has recovered only to about 1.2 million a year. If you compare the boom period in August of 2005, the share of builders characterizing lot supply as low or very low was 53 percent — 5 percentage points below the latest number.
According to Emrath’s article, in September of 2019, the lot shortages tended to be especially acute in the most desirable locations — not a surprise. That shortage tends to increase lot prices and reduce lot sizes. Visit any new subdivision in a desirable area, and the most affordable homes are increasingly on smaller lots. Census data show that the median size of new home lots remains near a record low, while the median price of new home lots is at a record high. All of this is a huge reason for the lack of affordable housing. And no one we know is creating more buildable land.
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 this morning. Last week the MBS market worsened by -17 bps. This caused rates to move very slightly higher for the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact rates this week, 1) Christmas, 2) Trade and 3) Domestic
1) Christmas: Merry Christmas! Since Friday afternoon, bond traders have been heading out for the holiday season. Look for very "thin" volumes all week. The bond market will close early on Tuesday and then reopen on Thursday.
2) Trade Wars: China has announced a series of tariff cuts on basically everything that they are needing (pork, cell phone parts, etc.) and are spinning it as a trade concession. There are no scheduled nor expected official announcements on trade as the two sides try to make it to an early January signing.
3) Domestic: There are no significant economic releases that are likely to impact rates.
Treasury Dump: Treasury Auctions this week.
This Week's Potential Volatility: Low
With the holiday and shortened trading week, rates are likely to move sideways on low volatility. It will take something unforeseen on the trade war to move rates out of the existing channel.
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.