Economy Settles Into Mortgage Nirvana As Fed Remains On Pause

Market Update February 25, 2018

Reading Time: 3 minutes

Right now we are in what I like to call nirvana for the mortgage market. We are seeing low mortgage rates, no volatility, moderate growth and no inflation. In addition, this week Freddie Mac reported that the 30-year fixed-rate mortgage fell again to a one-year low of 4.35 percent (see chart below). Equities continue the slow climb northward, the number of people filing for unemployment is fairly steady and inflation is still right around the sweet spot of 2 percent.

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Because of all that, patience is still the strategy of choice for the Federal Reserve. The minutes from January’s Federal Open Market Committee meeting were released this week and they confirm an emphasis on patience, citing slower growth domestically and internationally as well as softer inflation.

With rate hikes on hold for now (only one hike is expected in 2019), the next big issue for the Fed is its $4 trillion balance sheet. The Fed started growing its balance sheet after the financial crisis, and stocks and bonds responded. From 2009 to 2012, the Fed was slowly growing its balance sheet and stocks were moving higher as the interest rate moved lower. In late 2012, the balance sheet expansion grew dramatically. The balance sheet is mostly comprised of Treasuries and mortgage-backed bonds.

You can see in this chart below from CNBC how much the Fed’s balance sheet has grown since 2008, and you can see how it has started to dip ever so slightly in the last few months.

Feds Balance

At the January meeting, committee members discussed selling off the assets a little more aggressively. So far, the Fed has reduced its balance sheet by about $400 billion. After the release of the minutes, analysts believe there will be an announcement at the March meeting that the runoff will stop at the end of the third quarter. After that, it’s expected the reserves will slowly be reduced.

This week’s report on US jobless claims does hold a slight indication that the labor market is also cooling off. The number of Americans filing for unemployment benefits dropped, but the four-week average is up to a one-year high. That suggests a more moderate pace in job growth, mirroring what we are seeing in overall economic growth.

US and China pushing for March 1st deal

News is slowly trickling out about the potential for a trade deal between the United States and China on or before the March 1 deadline. CNBC reported that the two countries “have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war.”

According to CNBC’s article, there are reportedly six major issues being negotiated: Forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers.

The deadline is exactly a week from today and President Trump has threatened to increase tariffs on Chinese goods should no agreement be reached.

Slow January enriches home inventory

The exciting news for potential homebuyers right now is that inventory is at a 10-year high over 54 metro areas, according to the latest national housing report from RE/MAX. The report also shows that January was the fourth-consecutive month for inventory growth. Obviously, the other side of the situation is rough for those selling homes.

Existing home sales data released on Thursday backs up the inventory data. The National Association of Realtors report shows US home sales fell to a 3-year low. Home prices are still going up, but definitely continuing to slow down their pace. At January’s sales pace, the existing inventory would be exhausted in just under four months. That’s better than where we were in December, but a six to seven month supply is viewed as a healthy balance.

As we inch closer to the spring buying season we are already seeing mortgage applications pick up. Data from the Mortgage Bankers Association shows that, after four straight weeks of decline, applications are up by 2 percent week-over-week and up 2.5 percent from a year ago.

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ABOUT THE AUTHOR:

GREG RICHARDSON

Greg Richardson is Movement’s Senior Advisor of Capital Markets & Strategy and a contributing author to the Movement Blog. His weekly market update is a must-read commentary on financial markets, the mortgage industry and interest rates. Greg is an industry veteran who knows how to read the financial tea leaves and make complex industry data easy for loan officers, real estate agents and homebuyers to understand.

Running

Run Your Own Race By Charis Moreno

“65% of kindergartners today will end up in careers that don’t even exist yet.”

I couldn’t help but share this piece from our very own V.P. of Sales – Charis Moreno. Enjoy!

This November marked my 14th year attending the National Association of REALTORS® Conference and Expo. I spent the first 11 as one of the 1,000+ vendors peddling product as REALTORS® go from booth to booth, trick or treating for tchotchkes and the next shiny piece of technology that promises to change their business forever. It is only the last three years I have been on the franchisor side, searching for speakers who inspire and share the latest real estate trends. Attending usually results in lots of lobby meetings, networking with today’s influencers and reminiscing of yesterday’s newsmakers. It’s also interesting to see the many real estate legislators, councils, and state reps debating and lobbying for their own political gain and the protection of those they were elected to serve. While it is an exhausting five days, NAR Annual is guaranteed to be anything but boring!

What I found most fascinating is we, as an industry, seem to be reacting to our fear of people, companies, and technology rather than moving our industry forward. The world around us is changing and evolving at a pace that we are scientifically not able to adapt with. This is a fact. It is said that 65 percent of kindergarteners today will end up in careers that don’t even exist yet. Ten years ago, the title “Social Media Manager” or “Mobile App Developer” would have been an imaginary job. Today, we cannot imagine waking up without checking our notifications or snapping photos for social media or using apps that remind us when to stand up at work, how to get places, how our stocks are doing, and so much more! As a society, we have become dependent on technology to do the simplest things. So why do we as an industry keep circling and repurposing the same topics and fears year after year?

We are all consumers. I would even go as far as saying 10:10 of us could not go one week without internet/WiFi connection. And find me one REALTOR® in our industry who is not happy about the progression of things like email, paperless contracts, UBER, Netflix, iTunes, Alexa, 3D tours, or Amazon. Why do we accept and welcome change and progress in every aspect of our life but fight it in our own industry? As if the buyers and sellers of real estate are not the same?

So while the real estate industry is still sorting out some version of “How do we take our data back? When will Zillow become a brokerage? Are iBuyers the next disruptors? Should we consolidate the MLSs (or remain 690 too many)? Does responding to leads in under 5 minutes result in more business?” and so on… NextHome will celebrate the fact that we are opening an average of almost 3 offices and adding more than 50 NextHomies each week. We will continue to refine our systems to make them better and more competitive. We will continue to expand beyond the boundaries of what everyone says is possible while delivering the very best experience to our franchisees, so they can extend it to their agents who can then extend it to their clients.

What was my greatest takeaway from this year’s NAR Annual? Run your own race, love those running it with you, and do not get lost in the noise. Do not become complacent or stagnant and stop worrying about what your competition is doing. This is a journey with a lot of pit stops and the scenery is changing fast. If you keep pressing forward and moving your business to the next destination, you will open yourself to a world you never knew was possible.

Ready to take your journey to the NEXT level?

Charis Moreno

11/28/18

NextHome Office

Brick & Mortar Real Estate Office: A Thing Of The Past?

There’s no doubt that the real estate industry is undergoing a dramatic shift. And what’s driving this shift you ask?

You guessed it: Millennials.

According to the National Association of Realtors, 36% of all home purchases were executed by millennials. That’s over 1/3 of all homes sold in the U.S. (link found HERE). These buyers are tech-savvy, increasingly reluctant to rely on brick & mortar face-to-face interactions and value speed which technology easily provides. These buyers and sellers start and end their search online, they don’t rely on a listing board in some 250 agent office to get their information which devalues the model of the big-box chains currently dominating the industry.

“As technology continues to bring us closer together, leveraging that technology is fundamental in optimizing a workplace that fosters collaboration and speed across multiple levels. In our opinion, the days of having large offices filled with staff is too cost prohibitive”, says CEO Matthew Gilbert with NextHome Leeward & Company.

Many companies offer a hybrid model that has a small boutique meeting space while the vast majority of their agents work remotely in the field. Others offer a full virtual experience where agents can come together online to discuss their agenda. One thing is for certain with so much emphasis on technology the real estate office will continue to adapt to the market’s needs and owners are more than willing to accommodate. Brick & mortar store fronts are expensive to operate and a large portion of revenue has to be diverted to cover those costs. Besides, without an office to pay for, commissions could become more flexible as more and more adopt this model. What do you think?

Oh, one more thing: NextHome was just featured in THIS article by RISMedis regarding this very topic. Check it out if you have a moment.