June 21st, 2021 11:26 AM by Richard Sardella MLO.100007700/NMLS 233568
An uptick in new home starts is happening slower than building industry and homebuyers would like
It's the perfect storm. High demand, low inventory, and rising prices. And homebuilders can't build fast enough to keep up with demand. Rising material costs and supply chain delays are proving a challenge, making it more difficult to keep new homes within buyers' and builders' budgets.
Despite this, the construction of single-family homes rose 4.2% in May, poised to slow again as single-family permits—a gauge to future construction—declined to the slowest pace since September 2020, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau reported last Wednesday.
According to the National Association of Realtors (NAR), any type of slowdown in home building could prove problematic for the housing market, estimating that the nation faces a severe housing shortage (5.5 to 6.8 million homes). According to NAR, the industry is on track for only 1.6 million and 1.7 million new housing units this year and next, respectively. Still, "that would represent the best two-year performance in 15 years, yet it would still be inadequate," says Lawrence Yun, NAR's chief economist. "Therefore, expect both rents and home prices to outpace overall consumer price inflation in the upcoming years."
Overall, housing starts both the single-family and the multifamily sectors rose 3.6% in May compared to April and regionally, combined single-family and multifamily starts were 46.3% higher in the Northeast, up 37.2% in the Midwest, 26.4% higher in the West, and 19% higher in the South. The gains are comparative, however, coming off low activity levels compared to last spring, the onset of the pandemic.
The National Association of Homebuilders says policymakers need to help the industry's supply-chains to protect housing affordability but are also buoyed by the recent news that lumber prices are dropping fast.
Source: RealtorMag | NAR | 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: Higher
Rates are trending higher this morning. Last week the MBS market worsened by +46bps. This was enough to move rates higher last week. We saw high rate volatility through the week.
This Week's Rate Forecast: Higher
Three Things: These are the three areas with the greatest ability to move rates this week. 1) The Fed, 2) Inflation and 3) Central Bank
1) The Fed: Did the markets get the message that the Fed wanted them to have? More importantly, did the markets behave the way that the Fed intended with last week's FOMC message? This week the gloves are off, and we have a ton of talking feds that will spread the Fed's message of "inflation is not real, and the massive shifts in inflation is merely transitory...nothing to see hear folks....move along". Meanwhile, the focus by long bond traders will continue to be on the timing of a "taper" that likely will hit at some point in the next 3 to 6 months and move the Fed's monthly MBS purchases from $40B a month to slightly lower increments over a long period. Here is this week's schedule:
2) Inflation: We get the Fed's "preferred" key inflation measure on Friday with Headline PCE YOY expected to hit 4.0% and Core (ex-food and energy) YOY expected to top 3.4%.
3) Central Bank: We will get the Bank of England's interest rate decision and policy statement, but we also hear from a bevy of global Central Bankers, including the ECB President LaGarde.
This Week's Potential Volatility: High
This is a big week for rate markets, and we could see elevated rate volatility. The inflation data Friday will be a main focus. Rate markets will also be paying close attention to what the Fed Governors have to say about inflation and the tapering of treasury and MBS purchases. Rate markets have a high likelihood of volatility throughout the week.
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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