July 1st, 2019 4:18 PM by Richard Sardella MLO.100007700/NMLS 233568
Investors are buying up a record number of homes
According to data release by CoreLogic, big private-equity firms, real-estate speculators and others that buy properties comprised more than 11% of U.S. home purchasers in 2018.
What does this mean? It means that with investor purchases of U.S. homes at an all-time high, rising home prices have done little to dampen demand for flipping homes or turning them into single-family rentals. The investor purchases are near twice the levels before the 2008 housing crash. While this can pose a challenge for millennials and other first-time buyers who are increasingly looking to buy starter homes but are forced to compete with deep-pocketed cash buyers, it also means demand is still high, and real estate remains healthy.
"Big commercial property owners like Blackstone Group LP and Starwood Capital Group began buying thousands of homes out of foreclosure during the housing bust," says realtor.com's Laura Kusisto. "Many economists credit investors with helping to stabilize the housing market in 2011 and 2012 by buying with cash when prices were low and mortgage credit froze."
But, she adds, analysts expected those purchases to slow as the market rebounded and properties could no longer be had for bargains. The reverse happened, and demand for properties has intensified. "While these purchases dipped slightly when the market started to recover in 2015 and 2016, they have rebounded to surpass the previous peak of six years ago," says Kusisto.
She explains how investors are an especially powerful force at the bottom of the market, where all-cash deals often dwell. CoreLogic discovered that investors purchased one in five homes in the bottom third price range in 2018, up 5 percentage points from the 20-year average of less than 15% — homes that first-time home buyers would logically be buying.
This isn't happening everywhere, however. "The biggest markets for investor purchases in 2018 were Detroit, followed by Philadelphia and Memphis, Tenn., where home prices are still low enough for investors to profit by renting them out," says Kusisto.
Source: Realtor, CoreLogic, TBWS
How Rates Move:
Conventional overnment (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 so far today. Last week the MBS market improved by +2bps. This caused rates to move sideways on relatively low volatility.
This Week's Rate Forecast: Neutral
Three Things: These are the three key areas that have the greatest ability to impact mortgage rates this week. 1) Geopolitical, 2) Trade War and 3) Jobs.
1) Geopolitical: Now that President Trump has made a historical physical visit to North Korea, negotiations are back in focus, but markets will give the most attention to European Union meetings and the potential disciplinary action against Italy. Tuesday's OPEC meeting will be important as well as rising escalation with protestors in Hong Kong, Iran, and Syria/Israel.
2) Trade War: The temporary "truce" with China over the weekend will stave off the next round of $300B in tariffs on consumer staples which was largely expected. Now the real work begins, and any real movement towards the toughest issues will get a lot of attention.
3) Jobs: We get a lot of jobs and income-related data this week that will culminate in Friday's Jobs Report. The bond market will give the most weight to the YOY Average Hourly Earnings report, which is expected to tick up from 3.1% to 3.2%. But the headlines will go the Non-Farm Payrolls data that is expected to move back towards the trend in the 150K to 160K range. It will also be interesting to see what type of revision is made to May's NFP reading of 75K.
Fed: Here is this week's schedule:
This Week's Potential Volatility: Average
With the July 4th holiday, we have an abbreviated trading week. The most crucial day for potential rate volatility will be Friday with the June jobs report. Until then, look for rates to move sideways at these low levels.
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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