Home Sales Hit 8 Year High:

Mortgage backed securities (FNMA 3.50 MBS) gained +35 basis points (BPS) from last Friday's close which caused fixed mortgage rates to improve slightly.

It was a week of very slow gains as our domestic data weighed on pricing but international events provided terrific support and even some upper momentum.

Domestically, we had a very light economic calendar and no major Treasury auctions.  Existing Home Sales were much stronger than expected and reached an eight year high.  Weekly Jobless Claims fell to their lowest level since 1973.  And  the Leading Economic Indicators were  three times stronger than market expectations.  This wave of positive economic news provided pressure on pricing  but this was more than offset by international events.

International Flavor: While the Chinese stock market continues to be a huge concern, we also go news that their PMI (manufacturing data) just hit a 15 month low.  Greece remained front and center as two more votes were passed and they used their new bridge loan to make some payments back to the ECB and IMF.  "hair cut" creditors would have to take on Greek debt has the market worried that Germany will scuttle the deal and it is this fear that caused the upward movement in pricing for the week. 

New Construction Hampered by Labor Shortage:

Existing Home Sales have been on a tear, and would be even higher if it were not for inventory shortages.  New Homes are also facing headwinds from a shortage - a labor shortage.

Builders claim there is good demand, but they complain they're handcuffed by a lack of skilled labor to build new homes. The builders' industry trade group calls the incidence of labor shortages nationwide "surprisingly high."

"In fact, the 9-trade shortage is now substantially higher than it was at the peak of the 2004-2005 boom, when annual starts were averaging around 2 million, compared to current rates of about one million," economist Paul Emrath of the National Association of Home Builders wrote in a recent report. Nine-trade refers to the various skills required for home building, such as concrete pouring and carpentry.

"The last time builder-reported labor shortages were as widespread as now was just before 2001 during a prolonged period of strong GDP growth with overall unemployment as low as 4 percent," he added.

Unemployment in the construction industry fell in June to the lowest level since 2001, according to an analysis by the Associated General Contractors of America. That's because contractors are having a hard time finding enough qualified workers to meet growing demand, association officials said.

"Expanding job opportunities throughout the economy make it increasingly difficult for contractors to find experienced construction workers," said Ken Simonson, the association's chief economist. "This scarcity shows up in record workweeks for craft workers and flattening of employment totals despite higher construction spending." 

Distressed Sales Drop to Lowest Level Since 2007:

In yet another sign of strength in our housing market, sales of distressed homes (REO real estate owned by banks) has dropped to their lowest level since April 2007.

The most recent readings from CoreLogic show that distressed home sales made up just 11.1% of total home sales in April, down 3 percentage points from April 2014 and down 1.5 percentage points from March.

Broken up, REO sales accounted for 7.4% and short sales made up 3.7% of total home sales in April. Additionally, the short sales percentage fell below 4% in mid-2014 and has remained stable since then.

At its peak in January 2009, distressed sales totaled 32.4% of all sales, with REO sales representing 27.9% of that share.

“The ongoing shift away from REO sales is a driver of improving home prices since bank-owned properties typically sell at a larger discount than short sales. There will always be some level of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2%,” the CoreLogic report said.

“If the current year-over-year decrease in distressed sales share continues, the distressed sales share would reach that ‘normal’ 2-percent mark in mid-2017,” it continued. 

What is the new "must have" room in your house?

With mobile technology, it’s easy to work in any room of a house. And yet, according to designers and home builders, the home office is becoming one of a home’s must-have features.

Dedicated office space might not always be a full room. In fact, it might be a nook with desk space on the landing of a staircase or a corner of a bedroom or family room. But as people do more work away from the office and kids do more work outside of the library, the home office is growing in importance.

“That office or desk space is becoming as essential as the family room,” said Mollie Carmichael, who leads the consumer research team at John Burns Real Estate Consulting, based in Irvine, Calif. And that’s true no matter how large of a home it is, from a small apartment to a large single-family home, she added.

In fact, 77% of people surveyed by John Burns said that any additional rooms not dedicated as bedrooms would be used as an office in their next home — the most popular response. (Fifty-six percent said they’d use the extra space as a guest room, 25% said multipurpose room.)

There’s also some evidence that home offices can make a home more attractive to buyers. According to Remodeling Magazine’s 2014 Cost versus Value report, you can recover an average 48.9% of the cost of a home office remodel at resale, up from 43.6% in 2013 and 42.9% in 2012. A mid range office remodel, as defined by the report, is a $28,000 investment that involves installing custom cabinets that include 20 feet of laminate desktop, a computer workstation and wall cabinet storage, along with rewiring of the room for computer, fax machine, cable and telephone lines. 

New Fannie Mae Selling Guide Announcement

On June 30^th, Fannie Mae published an updated Selling Guide that includes a number of key policy changes that will simplify our requirements and result in less documentation from your borrowers.

Below are some of the key changes:

·         Removal of conversion of principal residence policy:  Fannie Mae removed the additional reserves and rental income overlays that were required when borrowers are selling or renting out their previous home. The 30% equity in the departing residence is no longer required to use rental income to qualify.

·         Verification of stocks, bonds, and mutual funds:  Borrowers using verified stocks, bonds and mutual funds to complete a transaction no longer need to document that the assets were liquidated when the verified amount is at least 20% more than is needed for the transaction. In addition, borrowers can now get 100% credit for the value of these accounts toward reserves (up from 70%), which means more assets can be factored into qualifying the borrower. 

·         Unreimbursed employee business expenses:  No documentation or deduction of 2106 expenses from monthly income is required for salary, bonus, overtime, or commission income of less than 25% of the monthly income.  This mirrors the existing Prospect Mortgage Policy.   

These changes are effective immediately and will be implemented in DU the weekend of August 15, 2015.

As a reminder, these changes apply to Fannie Mae loans only