New Home Sales on the Rise 4.3% in January

New home sales continued the turnaround, started in
December, that ended three straight months of slowing sales. The U.S. Census
Bureau and Department of Housing and Urban Development said newly constructed
homes were sold in January at a seasonally adjusted annual rate of 923,000
units. This is an increase of 4.3 percent compared to the upwardly revised
(from 842,000) rate of 885,000 in December and 19.3 percent above the estimate
of 774,000 units in January 2020.

Analysts polled by Econoday had projected sales to be
flat compared to the December estimate, in a range of 809,000 to 905,000 units.
Their consensus was 855,000 annualized sales.

Robert Dietz, chief economist for the National
Association of Home Builders, said “Housing affordability headwinds are rising
for 2021, due to supply-side challenges such as elevated lumber costs and
prospects for increased regulatory burdens associated with land development and
building. The median sales price in January was $346,400, a 5.3% gain from a
year earlier.
Price discipline will be key for 2021 volume growth, given rising
material costs.”

Sales for the month were estimated at 70,000 homes on
a non-seasonally adjusted basis. The estimate for December was 59,000 units.

The median price of a home sold during the month, as Dietz
said, was $346,400 and the average was $408,800. In January 2020, the respective
prices were $328,900 and $384,000.

The report estimates there were 307,000 new homes
available for sale at the end of January. This is estimated at a 4.0-month
supply at the current sales pace compared to a 4.1-month supply in December and
5.0 months of inventory the prior January.

Sales in the Northeast fell 13.9 percent compared to
December and were 8.8 percent below their level a year earlier. The Midwest saw
increases of 12.6 percent and 10.3 percent from the two earlier periods. There
was a 3.0 percent month-over-month gain in the South and sales jumped 40.4
percent on an annual basis. The West had 6.8 percent more sales than in
December, but 6.3 percent fewer year-over-year.


Mortgage rates climb higher to 2.97%

The average mortgage rate for a 30-year fixed loan is now just 3 basis points away from 3%, after a 16 basis point jump last week pushed mortgage rates to 2.97%, according to Freddie Mac’s Primary Mortgage Market Survey.

The average mortgage rate hasn’t risen this high since the end of July 2020, but Sam Khater, Freddie Mac’s chief economist, noted higher rates signals an economy slowly regaining its footing.

“Though rates continue to rise, they remain near historic lows,” said Khater. “However, when combined with demand-fueled rising home prices and low inventory, these rising rates limit how competitive a potential homebuyer can be and how much house they are able to purchase.”

Rising rates didn’t slow new home sales in January though, after the U.S. censes bureau reported sales of new single-family houses in January were at a seasonally adjusted annual rate of 923,000 — 4.3% above December’s rate.

“However, recent increases in mortgage interest rates threaten to exacerbate existing affordability conditions. Builders are exercising discipline to ensure home prices do not outpace buyer budgets,” said National Association of Home Builders Chief Economist Robert Dietz.

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While purchase demand hasn’t shown any sign of decline, the refi wave is showing more vulnerability. As rates rose, refi activity fell 11% according to data from the Mortgage Bankers Association.

For many potential borrowers, the opportunity to refinance is lost before the chance even arises, while other prospective borrowers are caught in a clogged loan pipeline and don’t get the opportunity to lock in that low rate.

According to HousingWire’s lead analyst Logan Mohtashami, a one-eighth to a quarter turn in mortgage rates (high or low) can move the market substantially.

“There are people who had a 4.00% rate that refinanced to 3.25% and then said, ‘Oh well now that rates are low, I’ll refinance again to 2.75%.’ But if that rate sneaks up a quarter it’s no longer ideal and it’s lost its appeal. They are going to wait for it to come back down, right? And then it doesn’t,” Mohtashami said.


Even with high lumber prices, new home sales beat

Extreme increases in lumber prices have caused some people to go bearish on new home sales. Not this one! If we play a version of rock, paper, and scissors with lumber prices and mortgage rates, mortgage rates will win. Mortgage rates have a much more significant influence on the new home sales market than lumber prices, even at their current highs.

Proof of this is the recent new home sales report released by the Census Bureau. New home sales beat expectations by a lot, and all the revisions to the last report were positive.

Last month, I wrote that we should have expected new home sales to moderate after their parabolic rise.

Sales are still working to find a sustainable trend after the massive distortion in all housing data lines due to COVID-19. This recent report, especially regarding the positive revisions to the last report, tells a solid story for new home sales in 2021 as long as rates stay low.

From Census:  “Sales of new single-family houses in January 2021 were at a seasonally adjusted annual rate of 923,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.3% (±18.1%)* above the revised December rate of 885,000 and is 19.3% (±19.5%)* above the January 2020 estimate of 774,000.

When reviewing new home sales data, it is wise to keep an eye on the monthly supply. When the monthly supply is 4.3 and below, builders will have the confidence to continue building. This is especially true when the 3-month average is 4.3 months or below. Currently, inventory is at four months with a three-month average of 4.06 months of supply, so it’s looking pretty good. The revisions on this report showed a lower monthly supply than in the previous month.

The low monthly supply is why builders’ confidence is high, despite the massive spike in lumber prices. As a high school basketball coach in my previous life, I know that sometimes all that matters is that you shoot better than your opponents. Don’t overthink it. Better sales plus lower inventor equals increased builder confidence.

Today, the MBA’s purchase application data was also positive by 7% year over year, even with the President’s Day holiday and the Texas snowstorm — two factors that typically hurt applications. Positive year-over-year growth is a good thing. 

So far this year, our year-over-year comparisons have been against a “pre-covid” housing market. March 18 is almost here, which means year-over-year comparisons of housing data are going to get funky. If you see scorching year-over-year growth – don’t be fooled that it will be a sustainable trend. 

Purchase applications in 2021 have exceeded my estimated peak rate of growth of 11%. I expected to see a trend growth rate between 1%-11% year over year, up until March 18.  We are currently trending at 12.375%. The substantial purchase application growth speaks well for housing sales 30 to 90 days out.

The take-home message is that sales are strong, which will contribute to hotter home prices. Right now, we want the rate of growth to cool down.

Next week for HousingWire, I will explain why we should expect to see some purchase application data show weaker year-over-year data in the second half of 2021. There is more to this story than higher mortgage rates.


MBS Week Ahead: Battle to Find a Rate Ceiling Continues

Bond yields have been surging higher in February with last week bringing the sharpest losses so far.  The move has surprised more than a few market participants.  To be sure, the pace of selling doesn’t seem to fit with the economic reality at first glance.  Moreover, the higher yields have gone, the more expectations have increased for a technical correction.  In other words, we have to find a ceiling soon, even if it’s only temporary.  It looked like we found that ceiling in the middle of last week, but Friday saw yields break to new highs.  Now as the new week begins, we have more new highs (overnight) and more new hope for a ceiling bounce as bonds are rallying early.

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On the data front, this week’s headliners include Durable Goods, Core PCE, and the 5/7yr Treasury auctions.  With the exception of Wednesday’s 5yr auction, all of that happens on the last 2 days of the week.  Incidentally, those are also the last 2 trading days of the month.  That means we could see a glut of trading momentum in one direction or the other, depending on how the rest of the week trades and how much “month-end” trading is left to be done.  

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.


UMBS 2.0

101-17 : -0-06


10 YR

1.3470 : +0.0020

Pricing as of 2/22/21 10:13AMEST

Tomorrow’s Economic Calendar

Time Event Period Forecast Prior
Monday, Feb 22
10:00 Leading index chg mm (%) Jan 0.5 0.3
Tuesday, Feb 23
9:00 CaseShiller 20 yy (% ) Dec 9.9 9.1
9:00 CaseShiller 20 mm SA (%) Dec 1.3 1.4
9:00 Monthly Home Price yy (%) Dec 11.0
9:00 Monthly Home Price mm (%) Dec 1.0
10:00 Consumer confidence * Feb 90.0 89.3
Wednesday, Feb 24
7:00 MBA Purchase Index w/e 299.5
7:00 MBA Refi Index w/e 4337.0
10:00 New Home Sales (%) (%)* Jan 2.1 1.6
10:00 New Home Sales (ml) Jan 0.855 0.842
13:00 5-Yr Note Auction (bl)* 61
Thursday, Feb 25
8:30 GDP Prelim (%) Q4 4.2 4.0
8:30 Durable goods (%)* Jan 1.1 0.5
8:30 Core CapEx (%)* Jan 0.7 0.7
8:30 Jobless Claims (k) w/e 838 861
10:00 Pending Sales Index Jan 125.5
10:00 Pending Home Sales (%) Jan 0.0 -0.3
13:00 7-Yr Note Auction (bl)* 62
Friday, Feb 26
8:30 Core PCE Inflation (y/y) (%)* Jan 1.4 1.5
9:45 Chicago PMI * Feb 61.1 63.8
10:00 Sentiment: 5y Inflation (%) Feb 2.7
10:00 Sentiment: 1y Inflation (%) Feb 3.3
10:00 Consumer Sentiment (ip) Feb 76.5 76.2


Mortgage industry digital strategies sag under weight of COVID-19

It’s been a complicated 12-months for the mortgage industry. Mortgage professionals working through the COVID-19 pandemic have been faced with managing a complex duality as they’ve tried to balance the opposing forces of record low interest rates and record high levels of unemployment.

On one side: a 14-year high in new home sales and a 200% annual increase in refinancing volume driving new origination into the stratosphere. On the other: a 14.7% unemployment rate pushing legions of mortgage holders to modify terms and defer payments on existing loans. In the middle: mortgage lenders — themselves displaced from their offices — trying to manage a historic surge in customer volume with digital self-service tools that, more-often-than-not, directed customers to the phone.

This is not the recipe for a world class customer experience. Quite the opposite, it is a formula for slower loan processing times, overloaded and unprofitable call centers and declines in customer loyalty and advocacy.

Missing the mark on digital

Mortgage providers have been lucky that the halo effect of ultra-low interest rates and large scale federal relief efforts have kept most customers pacified during the pandemic. But the experience should serve as a wakeup call for an industry that has struggled to keep pace when it comes to digital self-service tools that meet customer expectations and streamline operational efficiency.

It’s a trend we see clearly across our studies evaluating customer satisfaction with mortgage originators and servicers during the pandemic. On the new mortgage origination side of the equation, customer satisfaction with the competitiveness of interest was the only attribute in our study to show improvement this year. Every other factor — loan processing time, ease of self-service interaction and helpfulness of customer service — showed marked declines. The average time to close a loan refinancing transaction also rose by three days in 2020. Given the significant demands on the industry this past year, that is not a huge gap, but it does illustrate that the increased reliance on digital did not speed things up, as it should have.

Things were worse on the servicing side, where servicers struggled to meet customer demand amid rising confusion and scattered resources. In the months leading up to and during the COVID-19 pandemic, more than three-fifths (62%) of mortgage customers visited their lender’s website for information, but just 28% said they found their servicer’s website to be the most effective channel to resolve an issue. Among those who could not resolve their issue on the lender’s website, 45% said their issues were only solved after picking up the phone to speak with a representative. All told, among all customers who called their mortgage servicer for help, 19% said they struggled to get a live agent on the phone.

A new formula for the new normal

The COVID-19 experience for the mortgage industry is certainly a case study in managing a very challenging set of external variables, but it is also a sign of things to come. Research from McKinsey Digital has already found that 75% of people using digital channels for the first time during the pandemic say they will continue to use them when things return to normal. That’s a really important stat when you consider how poorly mortgage originator and servicer digital channels are performing right now.

Fortunately for the mortgage industry, there is a well-worn path of digital innovators that are proving that digital-first customer engagement can be done effectively. It’s not just Netflix and Amazon who’ve figured it out. Many of the nation’s retail banks, credit unions and direct banks have cracked the code on digital customer experience through their personal loans business lines. In fact, in our most recent analysis of consumer lending providers, we found that 34% of personal loan applications were digital-only, more than any other application channel. What’s more, the digital channel had significantly higher levels of overall customer satisfaction, outperforming face-to-face and phone-based application processes by a margin of ten points or more, on a 1,000-point scale.

What’s happening in personal loans that is not happening in traditional mortgages? The consumer lending providers are making it simple. “Two clicks or less” needs to become the mantra for the mortgage industry as it confronts the digital challenges that have kept it mired in the world of costly and cumbersome phone-based customer support. Servicers need to make basic information that is commonly searched by consumers — information on payment schedules, what to do if you can’t make a payment, information on late payments — easily accessible and complete. Originators need to make it simple to click through the application process without jumping through hoops. Then, this all needs to be tied together with frequent, proactive communication in the form of emails, text messages and updates on progress.

The industry has managed to survive one of the most difficult periods in history. If it wants to thrive, it needs to get serious about digital. Companies cannot afford to keep throwing stop-gap solutions and expensive work arounds at the problem; they need a sustainable digital formula that meets customers where they are.


Higher building material costs could push new home prices up

New home sales fell slightly at the end of 2020 due to higher prices offsetting the strong demand from buyers that was seen throughout the year, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Although sales of new homes grew 1.6% in December, we saw much stronger sales growth in the preceding months, the National Association of Home Builders said in a blog post.

Throughout 2020, new home sales rose by 18.8% compared to the year before.

“While the market remains solid, median home prices are increasing due to higher building material costs, most notably softwood lumber, and a shift to larger homes,” said Robert Dietz, chief economist of the NAHB.

The NAHB reported that the median sales price of a new home in December was $355,900, compared to a median sales price of $329,500 in the same month one year ago.

Moreover, NAHB Chairman Chuck Fowke said that the affordability of new homes could be negatively impacted by increased regulatory burdens in 2021, as well as more increases in the cost of building materials.

In any case, reduced sales will at least have a positive impact on the available inventory of new homes, which currently stands at just 4.3 months supply at the current sales pace, down 19% from where it was a year ago.

Across the country, new-home sales saw the largest gains for all of 2020 in the Midwest, up 24.2%, followed by a 21.2% gain in the Northeast, an 18.9% increase in the West, and a 17.6% increase in the South.


New Home Sales Recover Slightly After Losses, Still up 15% Annually

New homes sales managed a small increase in December
following three months of losses including a substantial downturn in November.
The U.S. Census Bureau and the Department of Housing and Urban Development reported
that sales of newly built homes were at a seasonally adjusted annual rate of
842,000 units. This is a 1.6 percent increase from the downward revision of the
November estimate.
The revision downgraded those sales from an annual rate of
841,000, a 11.0 percent decline, to 829,000. The December rate of sales represents
15.2 percent year-over-year growth.

Analysts had expected a better recovery from the
November loss. Those polled by Econoday had predicted sales would be in the
range of 822,000 to 934,000. Their consensus was 871,000 units.

On a non-adjusted basis there were 55,000 homes sold
compared to 59,000 the previous month. For the year, sales totaled 811,000, an
18.8 percent increase from the 683,000 sales in 2019.

The median price of a home sold during the month was
$355,900 compared to $329,500 in December of 2019. The average sales prices for
the two periods was $394,900 and $377,700, respectively.

Sales in the Northeast fell 6.1 percent compared to
the previous month and are down 20.5 percent on an annual basis. The Midwest
saw a month-over-month gain of 30.6 percent. This puts the annual sales growth
at 13.3 percent.

The South’s sales dipped 5.1 percent compared to
November but remain 21.7 percent higher than in December 2019. There was a monthly
increase of 8.8 percent in the West and 10.4 percent from the pace a year

At the end of December there were an estimated 302,000
new homes available for sale. This is a 4.3-month supply at the current sales
page. In December of 2019, the 322,000 available homes were estimated as
sufficient for 5.3 months.


New Home Sales Rebound to 842,000 in December

After a steep fall in November, new home sales increased in December to a seasonally adjusted annual rate of 842,000, according to Commerce Department data. So reports the Associated Press.

The December increase still fell short of analyst projections, while November’s skid was revised even lower, from 841,00 to 829,00.

The November rate was down 12.6% from October.

Read the full article from the Associated Press.


MBS Day Ahead: 1st Look at Q4 GDP as 10yr Hovers Near 1.0%

Bonds have rallied or held steady every day this week and the net effect is a visit to the 1.0% psychological floor for 10yr yields.  Psychology aside, the floor of the actual trend channel (a series of higher lows and higher highs that connect to form an ascending, parallel boundary for yields since August) is closer to 0.98%.  Today brings the first look at Q4 GDP for 2020.  While GDP isn’t typically a big market mover, this one could provide some food for thought as to how the economy digested the biggest short-term shock in modern economic history.

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Jobless Claims data is out at the same time and is expected to drop just a bit from 900k to 875k.  Later in the morning, we’ll get the final tally of 2020’s New Home Sales.  Finally, the week’s last Treasury auction hits at 1pm (these have been quite innocuous so far this week though).

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.


UMBS 2.0

103-15 : +0-01


10 YR

1.0110 : -0.0030

Pricing as of 1/28/21 8:29AMEST

Tomorrow’s Economic Calendar

Time Event Period Forecast Prior
Thursday, Jan 28
8:30 GDP Advance (%)* Q4 4.0 33.4
8:30 Jobless Claims (k) w/e 875 900
10:00 New Home Sales (%) (%)* Dec 1.9 -11.0
10:00 New Home Sales (ml) Dec 0.865 0.841
13:00 7-Yr Note Auction (bl)* 62


New home sales historically high in 2020

Sales of newly built homes in December occurred at a seasonally-adjusted rate of 842,000 – up 1.6% over the revised November rate of 829,000, according to the Census Bureau’s report on Wednesday. Even with inventory at record-low numbers, that’s still 15.2% higher than the same period last year.

The median sales price of new houses sold in December 2020 was $355,900, up from $335,300 in November. The average sales price was $394,900 in December.

John Pataky, executive vice president at TIAA Bank, said the historically high prices of lumber – pushing overall construction and lot costs up – is partly to blame for the lag in December sales. Indeed, construction continued to play catch-up in December, as new-home inventory rose to a 4.3-month supply.

“While demand is robust, supply is not, and the imbalance will inevitably harm affordability and dissuade buyers from buying,” Pataky said. “Unless we get more existing sellers in the market, I foresee this shortage to continue well into the new year.”

A slow December did not dampen what was a historically successful year for new home sales – the best since 2006, according to Zillow Economist Matthew Speakman. An estimated 811,000 new homes were sold in 2020, 18.8% above the 2019 figure of 683,000.

“Historically low mortgage rates and an ongoing shortage of existing homes for sale stoked demand for new homes in 2020, and it’s likely that the continued spread of COVID-19 also added to the allure of a brand new, never-lived-in home for many buyers,” Speakman said in a statement on Thursday. “The supply of new homes for sale has been picking up lately, but remains low compared to historic norms –– which is likely to incentivize builders to increase their activity, particularly when demand for housing remains solid. Expect the future permit and starts pipeline to be quite full this year. With a banner year in the books, today’s new home sales report set the stage for a solid start to 2021.”

Regionally, the Midwest saw a robust 30.6% increase in new home sales in December, while the West reported a modest 8.8% increase. The Northeast and South both saw declines, with drops of 6.1% and 5.1%, respectively.