CHM Blog

Realtor Market Insider April 26, 2021

April 27th, 2021 9:59 AM by Richard Sardella MLO.100007700/NMLS 233568


Rates At a Glance
Mortgage Rates
Currently Trending
7 Day Mortgage
Rate Forecast
This Week's
Potential Volatility

Neutral

Neutral

Average
(by Sigma Research)
Realtor Report

The future of a new home purchase? When the price isn't really the price

You’ve finally made that fateful decision to buy a home, but your sparkling new dream home is still on paper. In other words, it’s not built yet. Still, in your mind, it’s a done deal. You’ve agreed to the price, and now it’s just a matter of waiting until the last nailed is hammered into place.

Not so fast. These days, with the price of lumber skyrocketing as your house is being built, you may have to pay for more than you bargained for when you signed on the dotted line. Realtor.com reports that more builders are adding escalation clauses to their sales or construction contracts to help protect themselves from ongoing price increases in the lumber market. “The rising and volatile costs of lumber continue to hamper the new-home and remodeling markets. Lumber prices nearly doubled over a four-month period in 2020 and have continued to reach new highs,” says Realtor, who adds that the price and availability of building materials have been cited as one of the top challenges that homebuilders face at a time when the real estate industry is calling for more housing inventory to meet surging buyer demand.

According to the most recent National Association of Home Builders’ Paul Emrath as well as the Wells Fargo Housing Market Index survey, 47% of builders said they were “including price escalation clauses in their sales contracts,” To boot, 10% are including shared price clauses in their contracts — similar to price escalation clauses in that they tie the final house price to the price of building materials. “The difference is that, in the typical shared price clause, the home builder agrees to absorb part of the material price increase, with the home buyer covering the rest,” he writes.

The complication with homebuilders covering their collective bottoms, however, is that price escalation clauses are likely to kick homebuyers in theirs since they may be unable to afford the escalated house prices. The result, according to Emrath? Lost sales. Builders may be betting on the market remaining crazy-strong, with multiple backup buyers lined up to make good on the fallout, but no one has a crystal ball.

While more builders are pre-ordering lumber to help avoid cost increases, a full 22% are obtaining price guarantees from suppliers. Those price guarantees, however, don’t often stretch past two months. It’s anyone’s ball game.

Source: Realtor | 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.  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 +27 bps.  This caused rates to mostly move sideways for the week. We saw low rate volatility through 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) Central Bank, 2) Domestic Flavor, and 3) Other

1) Central Bank: We get key Interest Rate decisions from the Bank of Japan and the Federal Reserve. The Fed, of course, will take center stage this week. While the market does not expect any real change in policy or guidance, a subtle change in just a few words will have bond traders speculating as to their timeline to begin tapering (yes, it will happen at some point) and increasing their key Fed fund rate (that will eventually happen too, but much further out than a taper).

2) Domestic: We have a ton of big-name domestic economic data with the gravitas to move rate markets this week. 1st QTR GDP, PCE (Fed's key measure of inflation), Chicago PMI, and Consumer Confidence will get the most attention from traders.

3) Other: Covid numbers (over 1M new cases in India over the weekend) and Biden's first address to Congress this week where he will discuss a bevy of spending programs and tax increases to pay for them will continue to garner market attention.

Treasury Dump: Here is this week's Treasury auction schedule:

  • 04/26 3 year and 5-year notes
  • 04/27 7 year note

This Week's Potential Volatility: Average

Rate markets have a lot to digest this week. This week's most significant economic data point is the PCE (a key measure of inflation for the Fed). The markets will also pay very close attention to the Fed meeting and its language about the economy. Look for rate volatility to be higher than last week, with all of the data due out this week.

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.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted by Richard Sardella MLO.100007700/NMLS 233568 on April 27th, 2021 9:59 AM

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