All Things in Moderation

Vital Statistics:

Stocks are lower this morning after some disappointing earnings last night. Bonds and MBS are down.

New Home sales rose 12% MOM and 34% YOY to a seasonally adjusted annual rate of 759,000. The median sales price fell 12% YOY to $418,800, while the average sales price fell 5% to $503,900.

Mortgage applications fell 1% last week as purchases fell 2% and refis rose 2%. “Ten-year Treasury yields climbed higher last week, as global investors remained concerned about the prospect for higher-for-longer rates and burgeoning fiscal deficits. Mortgage rates followed Treasuries higher, with the 30-year fixed mortgage rate jumping 20 basis points to 7.9 percent – the highest since 2000. Rates have now risen seven consecutive weeks at a cumulative amount of 69 basis points,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Mortgage activity continued to stall, with applications dipping to the slowest weekly pace since 1995. These higher mortgage rates are keeping prospective homebuyers out of the market and continue to suppress refinance activity. The ARM share of applications inched up to 9.5 percent, its highest since November 2022.”

Homebuilder Pulte Homes reported third quarter earnings. Earnings per share rose 7.8% while revenues rose 3%. Gross margins came in at 29.5%. Despite rising rates, new orders rose 43%. On the subject of mortgages and incentives, Pulte CEO Ryan Marshall said:

We continue to use the permanent 30-year buy-down as probably our most powerful incentive. Right now, we’ve got national incentives that offer 5.75% on a 30-year fixed, so I think given rates today on the open market would be over 8%, to be able to get a new home in a great location of the quality and design features that we have at 5.75%, I think is pretty powerful.

I’ll remind everybody, what we’ve done is we’ve simply redistributed incentives that we’ve historically offered toward cabinets and countertops and things of that nature, we’ve redirected those to interest rate incentives, and I think that’s the–you know, that’s been the most powerful thing for that buyer group.

Pulte says that they have about $35,000 in incentives baked into the price, so if they are losing 5-6 points on the mortgage, that is well within the $35,000 limit.

MCM announced its new Artificial Intelligence Fallout Analytics Service: “CloseLytics Pro” MCM’s founder states: “The guessing game of what’s my mortgage pipeline exposure is over….” MCM’s AI based neural network software system “CloseLytics Pro” utilizes the latest data science techniques and AI to accurately predict which loans will close with or without renegotiations in all market conditions. The system is designed to be self-correcting with automatic back testing and reporting. MCM has over 29 years of experience with managing mortgage pipeline risk using state of the art OAS technology and proven statistically based fallout analytics and has been developing and using AI tools for over 10 years. CloseLytics Pro can be integrated with any Pipeline Risk Management System or hedge advisory service. The system not only can provide singular closing rate predictions on an individual loan basis it also provides forecasts by loan for any range of market movement. For more information , contact Dean Brown @ 858 483 4404 x101

Goldman released its 2024 housing outlook yesterday, which says that 2024 will look a lot like 2023, with mortgage rates stuck between 7% and 8%. They see home price appreciation more or less stagnating – rising only 1.3% for the year. They see housing starts falling next year, weighed down by a huge backlog of multi-family properties under construction with poor absorption rates. “While the sharpest declines in housing activity and prices are now long behind us, the recent jump in mortgage rates and the prospect that they are likely to remain elevated for the foreseeable future present headwinds to the economy’s most interest rate sensitive sector.” Existing home sales are expected to fall to the lowest level since the early 90s, at 3.8 million units.

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