Tucson Mortgages Home Loan News 2-11-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of February 4, 2019
  • Economic Calendar – week of February 11, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock and bond markets both realized modest gains with the major stock indexes recording their seventh consecutive weekly gain.  The main driver of investor sentiment this week seemed to be news centering on the trade dispute between the U.S. and China.

Expectations for a deal with China before a March 1 trade deadline were diminished after National Economic Council Director Larry Kudlow stated trade negotiators had “miles to go before we sleep.”  Kudlow was not only paraphrasing poet Robert Frost, but also Commerce Secretary Wilbur Ross who had commented earlier in late January about being “miles and miles” from an agreement.

Furthermore, President Trump confirmed it is unlikely he will meet with China’s President Xi Jinping before the trade deadline.  Unless the March 1 90-day tariff truce deadline is extended, the U.S. is scheduled to raise the tariff rate on Chinese goods to 25% from the current 10% rate.  However, CNBC also reported the U.S. was likely to keep the current 10% tariff rate in effect in the absence of a meeting.

The week’s domestic economic data were generally favorable.  The most significant report was one measuring U.S. service sector activity indicating solid expansion, but slightly below the consensus forecast and not quite at the record pace seen in prior months.  Also, weekly jobless claims declined from the prior week as was widely expected.  Manufacturing activity slowed somewhat with November factory orders retreating unexpectedly.

In housing, CoreLogic released their Home Price Index (HPI) and HPI Forecast for December 2018 this past Tuesday showing home prices increased year-over-year by 4.7%, the slowest price growth rate since August 2012.  Month-over-month, home prices increased by 0.1%.  After gazing into a crystal ball, the CoreLogic HPI Forecast predicts home prices will increase by 4.6% on a year-over-year basis from December 2018 to December 2019.

When comparing the annual average HPI and HPI forecast for 2018 and 2019, CoreLogic is forecasting average price growth to lose pace from 5.8% to 3.4%.

On a month-over-month basis, home prices are forecast to decline by 1% from December 2018 to January 2019.

CoreLogic’s chief economist Dr. Frank Nothaft commented “Higher mortgage rates slowed home sales and price growth during the second half of 2018. Annual price growth peaked in March and averaged 6.4% during the first six months of the year.  In the second half of 2018, growth moderated to 5.2%.  For 2019, we are forecasting an average annual price growth of 3.4%.”  CoreLogic president and CEO Frank Martell added “The slowdown in the rate of home price appreciation reflects the impact of inventory shortages and growing affordability issues in many markets.  On the positive side, if home-price growth continues to moderate, interest rates remain stable and household incomes rise in 2019, it could help renters and first-time buyers to take the plunge and realize the dream of owning a home.”

In the realm of mortgage data from the Mortgage Bankers Association (MBA), the weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 2.5% for the week ended February 1, 2019.  The seasonally adjusted Purchase Index decreased 5% from a week prior while the Refinance Index increased 0.3%.

Overall, the refinance portion of mortgage activity decreased to 41.6% from 42.0% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 7.8% of total applications from 7.9% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.69% from 4.76% with points decreasing to 0.45 from 0.47 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 25.0 basis points to close at $102.297 while the 10-year Treasury yield decreased 5.0 basis points to end at 2.634%.  The Dow Jones Industrial Average gained 42.44 points to close at 25,106.33.  The NASDAQ Composite Index added 34.33 points to close at 7,298.20.  The S&P 500 Index advanced 42.44 points to close at 2,707.88.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 7.63%, the NASDAQ Composite Index has gained 9.99%, and the S&P 500 Index has advanced 8.02%.

This past week, the national average 30-year mortgage rate fell to 4.44% from 4.53%; the 15-year mortgage rate decreased to 4.05% from 4.12%; the 5/1 ARM mortgage rate declined to 4.38% from 4.40% while the FHA 30-year rate decreased to 4.13% from 4.18%.  Jumbo 30-year rates decreased to 4.28% from 4.35%.

Economic Calendar – for the Week of February 11, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($102.297, +25.0) traded within a narrower 43.8 basis point range between a weekly intraday high of $102.297 on Friday and a weekly intraday low of 101.859 on Monday before closing the week at $102.297 on Friday.

Mortgage bond prices bounced higher after touching support on Monday near the 61.8% Fibonacci retracement level ($101.856) and continued toward resistance located at $102.469.  As the bond is not yet “overbought” and the technical chart appears more bullish than bearish in the short-term, we will likely see the bond’s price continue toward the resistance levels marked on the chart below.  There are a considerable number of potential market-moving economic reports scheduled for this week headlined by inflation and retail sales data and the bond market will likely direction from these reports.

From the technical chart, bond prices this coming week should trade between support found at the 61.8% Fibonacci retracement level ($101.856) and resistance at $102.469.  Trading between current support and resistance levels with a bias toward slightly higher prices should result in stable mortgage rates or rates moving slightly lower.

 

Tucson Mortgages Home Loan News 2-4-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of January 28, 2019
  • Economic Calendar – week of February 4, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock and bond markets both saw gains this week fueled by mostly favorable corporate earnings and economic reports plus an unexpectedly dovish monetary policy statement from Federal Reserve Chair Jerome Powell following the Fed’s two-day FOMC meeting.  The Fed decided to hold interest rates steady, as widely expected, but investors were encouraged by the policy statement that removed all reference to further rate increases, suggesting the Fed will likely wait at least until June before taking any further action with interest rates.

The policy statement also unexpectedly called into question whether or not the Fed would continue to allow its balance sheet to shrink by not reinvesting a portion of the proceeds of its holdings of long-term Treasuries and mortgage-backed securities.  This policy had been slowly removing liquidity from the financial system, but Fed policymakers stated they were “prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments.”

The week’s major piece of economic news was the January Employment Situation Summary (Jobs Report) and it widely exceeded analyst expectations.  January nonfarm payrolls increased by 304,000 versus a consensus forecast of 160,000.  December nonfarm payrolls were revised lower to 222,000 from 312,000, but November nonfarm payrolls were revised higher to 196,000 from 176,000.  Even with revisions that reduced total job gains in November and December by 70,000, job gains have averaged an impressive 241,000 per month over the last three months.

The January unemployment rate was 4.0% versus expectations of 3.9% but this was a reflection of more people entering into the workforce.  The labor force participation rate was 63.2% in January versus 63.1% in December.

January average hourly earnings were up 0.1% after increasing 0.4% in December.  Over the last 12 months, average hourly earnings have risen 3.2% versus 3.3% for the 12 months ending in December.

In housing, the National Association of REALTORS® (NAR) released their December Pending Home Sales Index (PHSI) showing Pending Home Sales fell at year-end with contract signings lower by 2.2% from November and down 9.8% from the same period a year ago.  On an annual basis, contracts have been on the decline for 12 months straight.

According to NAR’s chief economist Lawrence Yun, “The stock market correction hurt consumer confidence, record-high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December.  The longer-term growth potential is high.  The Federal Reserve announced a change in its stance on monetary policy.  Rather than four rate hikes, there will likely be only one increase or even no increase at all.  This has already spurred a noticeable fall in the 30-year, fixed-rate for mortgages.  As a result, the forecast for home transactions has greatly improved.”

Thursday, the Census Bureau released their New Home Sales report showing a sales decline of 8.9% month-over-month in October to a seasonally adjusted annual rate of 544,000.  September sales were revised higher to 597,000 from 553,000.  Regionally, New Home Sales were down

18.5% month-over-month, and 46.3% year-over-year, in the Northeast, and were down 22.1% month-over-month, and 16.7% year-over-year, in the Midwest.  Sales were down 7.7% month-over-month and 11.6% lower year-over-year in the South, and were down 3.2% month-over-month and 1.3% lower year-over-year, in the West.

At the October sales rate, there is a 7.4 months’ supply of new homes for sale, which is the highest supply level since January 2011.  The median sales price in October was down 3.1% year-over-year to $309,700 while the average sales price was up 0.3% to $395,000.

As for the latest mortgage data from the Mortgage Bankers Association (MBA), the weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 3.0% for the week ended January 25, 2019.  The seasonally adjusted Purchase Index decreased 2% from a week prior while the Refinance Index decreased 6%.

Overall, the refinance portion of mortgage activity decreased to 42.0% from 44.5% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 7.9% of total applications from 8.3% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.76% from 4.75% with points increasing to 0.47 from 0.44 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 37.5 basis points to close at $102.047 while the 10-year Treasury yield decreased 7.4 basis points to end at 2.684%.  The Dow Jones Industrial Average gained 326.69 points to close at 25,063.89.  The NASDAQ Composite Index added 99.01 points to close at 7,263.87.  The S&P 500 Index advanced 41.77 points to close at 2,706.53.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 7.44%, the NASDAQ Composite Index has gained 9.47%, and the S&P 500 Index has advanced 7.97%.

This past week, the national average 30-year mortgage rate fell to 4.53% from 4.61%; the 15-year mortgage rate decreased to 4.12% from 4.17%; the 5/1 ARM mortgage rate remained unchanged at 4.40% while the FHA 30-year rate decreased to 4.18% from 4.20%.  Jumbo 30-year rates decreased to 4.35% from 4.39%.

Economic Calendar – for the Week of February 4, 2019

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($102.047, +37.5) traded within a wider 82.9 basis point range between a weekly intraday high of $102.438 on Thursday and a weekly intraday low of 101.609 on Monday before closing the week at $102.047 on Friday.

Mortgage bond prices traded higher Monday through Thursday before encountering resistance and selling off on Friday following a much stronger than expected January jobs report on Friday.  A dovish monetary policy statement by the Federal Open Market Committee and Fed Chair Jerome Powell on Wednesday was a catalyst for a decline in longer-term bond yields, with the yield on the benchmark 10-year Treasury note falling to its lowest level in nearly a month on Thursday.

From the technical chart, bond prices this coming week should trade between support found at the 61.8% Fibonacci retracement level ($101.856) and resistance at $102.469.  The bond is not overbought so we could see a rebound toward resistance levels following this past Friday’s reaction to the jobs report.  Trading between current support and resistance levels with a bias toward slightly higher prices should result in mortgage rates holding steady or moving slightly lower.

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Tucson Mortgages Home Loan News 1-28-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of January 21, 2019
  • Economic Calendar – week of January 28, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock and bond markets leveled off and traded mostly flat during a holiday-shortened trading week as investors worried over evidence of slowing global economic growth.  The International Monetary Fund lowered its forecast for global growth in the coming year from 3.7% to 3.5% while China reported its economy only grew 6.4% year-over-year in the final quarter of 2018 – its slowest growth rate in almost 10 years.

As far as trade negotiations with China are going, on Thursday Commerce Secretary Wilbur Ross commented the U.S. and China are “miles and miles away” from a trade agreement.  One of the major sticking points seems to be compensation for China’s theft of U.S. intellectual property.

In housing news, Existing Home Sales were reported to have fallen 6.4% month-over-month in December to a seasonally adjusted annual rate of 4.99 million.  This was below the consensus forecast of 5.25 million and lower than an upwardly revised 5.33 million reported for November. Also, total sales were 10.3% lower than the same period from a year ago.

The median existing home price for all housing types increased 2.9% year-over-year to $253,600, achieving the 82nd consecutive month of year-over-year gains.  The median existing single-family home price rose 2.9% year-over-year to $255,200.

Regionally, Existing Home Sales fell 6.8% in the Northeast; were 11.2% lower in the Midwest; fell 5.4% in the South; and declined 1.9% in the West.

Meanwhile, median home prices rose 8.2% in the Northeast to $283,400); were unchanged in the Midwest at $191,300; increased 2.5% to $224,300 in the South; and advanced 0.2% to $374,400 in the West.

Single-family home sales were lower by 5.5% month-over-month to a seasonally adjusted annual rate of 4.45 million, and year-over-year they were down 10.1%.  The inventory of homes for sale at the end of December dropped to 1.55 million from 1.74 million with inventory up 6.2% from a year ago.  Unsold inventory was reported at a 3.7-month supply at the current sales rate versus 3.9 months in November.

Wednesday, the Federal Housing Finance Agency (FHFA) released its latest House Price Index (HPI) for November 2018 showing house prices rose 0.4% from October.

The previously reported 0.3% increase in October was revised to reflect a 0.4% increase.  From November 2017 to November 2018, house prices were up 5.8%.

For the nine census divisions, seasonally adjusted monthly price changes from October 2018 to November 2018 ranged from -0.8% in the Pacific division to +1.1% in the South Atlantic division.

The 12-month changes were all positive, ranging from +4.5% in the West South Central division to +7.4% in the Mountain division.

As for the latest mortgage data from the Mortgage Bankers Association (MBA), the weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 2.7% for the week ended January 18, 2019.  The seasonally adjusted Purchase Index decreased 2% from a week prior while the Refinance Index decreased 5%.

Overall, the refinance portion of mortgage activity decreased to 44.5% from 46.8% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 8.3% of total applications from 9.2% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.75% from 4.74% with points decreasing to 0.44 from 0.45 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond remained unchanged to close at $101.672 while the 10-year Treasury yield decreased 3.0 basis points to end at 2.758%.  The Dow Jones Industrial Average gained 30.85 points to close at 24,737.20.  The NASDAQ Composite Index added 7.63 points to close at 7,164.86.  The S&P 500 Index lost 5.95 points to close at 2,664.76.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 6.04%, the NASDAQ Composite Index has gained 7.98%, and the S&P 500 Index has advanced 6.30%.

This past week, the national average 30-year mortgage rate rose to 4.61% from 4.60%; the 15-year mortgage rate increased to 4.17% from 4.16%; the 5/1 ARM mortgage rate remained unchanged at 4.40% while the FHA 30-year rate increased to 4.20% from 4.18%.  Jumbo 30-year rates increased to 4.39% from 4.34%.

Economic Calendar – for the Week of January 28, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.672, Unchanged) traded within a narrower 29.7 basis point range between a weekly intraday high of $102.875 on Thursday and a weekly intraday low of 101.578 on Wednesday before closing the week at $101.672 on Friday.

Mortgage bond prices traded in a sideways direction while encountering a dual band of technical resistance at the 61.8% Fibonacci retracement level ($101.856) and the 25-day moving average ($101.789).  Support levels are found at the 200-day moving average ($101.325) and the 50-day moving average ($101.145).  The stock market may see some strength early in the week in response to the deal to end the partial government shutdown for at least the next three weeks, and this could pressure bond prices a little lower unless traders sell into strength.  Also, there are a substantial number of significant economic reports scheduled for release this coming week highlighted by the Employment Report for January on Friday.  We could see a stronger than expected report that could initially send stock prices higher and bond prices lower, but market reactions may be tempered by concerns about future inflationary pressure and the Federal Reserve’s view of a strong jobs report.

From the technical chart below it appears bond prices will trade between resistance and support levels with a bias toward lower prices and this should result in mortgage rates holding relatively steady or moving slightly higher.

 

Tucson Mortgages Home Loan News 1-21-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of January 14, 2018
  • Economic Calendar – week of January 21, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock market recorded its fourth consecutive weekly gain to drive the S&P 500 Index and Dow Jones Industrial Average to within 10% of their recent highs although the NASDAQ Composite Index has yet to regain this threshold.  Longer-term bond and Treasury yields increased during the week as a consequence of the gains seen in stocks and favorable economic data.

Investor sentiment continues to be influenced by rumors surrounding trade negotiations between the U.S. and China.  Thursday, the Wall Street Journal reported U.S. Treasury Secretary Steven Mnuchin proposed the lifting of tariffs on some, or all, Chinese imports during negotiations as a sign of good faith bargaining.  Although this news was later refuted by the White House, investors were encouraged by the softening in tone of negotiation rhetoric.  Friday, Bloomberg reported China had made an offer earlier this month during trade negotiations to increase the amount of U.S. imports resulting in a balance of trade with the U.S. by 2024.  However, U.S. officials rejected this target date and demanded quicker results.

The week’s economic data seemed to grow more favorable as the week unfolded.  Tuesday, the New York Empire State Manufacturing Index showed a sharp slowdown in activity in January with a reading of 3.9 compared to December’s value of 11.5 and an estimate of 12.2 for January.  This was offset by Thursday’s release of the Philadelphia Fed Manufacturing Index covering the larger mid-Atlantic region.  The Philadelphia Fed Manufacturing Index came in at 17.0 for January compared to December’s value of 9.1 and a consensus forecast calling for a reading of 10.5.  Friday’s release of Industrial Production was also favorable and a Federal Reserve index of manufacturing output recorded its largest gain in December in almost a year.

In housing news, the National Association of Home Builders (NAHB) released their Housing Market Index (HMI), a measure of builder opinion on the relative level of current and future single-family home sales.

The latest reading for January came in at 58, up two points from December’s number and the consensus forecast.  A value above 50 indicates a favorable outlook on home sales while a number below 50 signifies a negative outlook.

NAHB Chairman Randy Noel remarked “The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment.  Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months.”

Current sales conditions rose two points to 63 while sales expectations over the next six months increased three points to 64.  Buyer traffic through new home models increased by a point to 44. According to the report, the three-month moving averages for regional HMI scores all slipped lower.  The Northeast fell five points to 45; the Midwest declined three points to 52; the South slipped three points to 62; and the West region decreased by a point to 67 in January.

As for the latest mortgage data from the Mortgage Bankers Association (MBA), the weekly mortgage applications survey showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 13.5% for the week ended January 11, 2019.  The seasonally adjusted Purchase Index increased 9% from a week prior while the Refinance Index increased 19%.

Overall, the refinance portion of mortgage activity increased to 46.8% from 45.8% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 9.2% of total applications from 8.4% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.74% with points decreasing to 0.45 from 0.47 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond lost 29.7 basis points to close at $101.672 while the 10-year Treasury yield increased 8.9 basis points to end at 2.788%.  The Dow Jones Industrial Average gained 710.40 points to close at 24,706.35.  The NASDAQ Composite Index added 185.75 points to close at 7,157.23.  The S&P 500 Index advanced 74.45 points to close at 2,670.71.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 5.91%, the NASDAQ Composite Index has gained 7.87%, and the S&P 500 Index has advanced 6.54%.

This past week, the national average 30-year mortgage rate rose to 4.60% from 4.57%; the 15-year mortgage rate increased to 4.16% from 4.14%; the 5/1 ARM mortgage rate fell to 4.40% from 4.42% while the FHA 30-year rate increased to 4.18% from 4.17%.  Jumbo 30-year rates increased to 4.38% from 4.34%.

Economic Calendar – for the Week of January 21, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.672, -29.7 bp) traded within a wider 45.3 basis point range between a weekly intraday high of $102.078 on Monday and a weekly intraday low of 101.625 on Friday before closing the week at $101.672 on Friday.

Mortgage bond prices were unable to hold above technical support at the 61.8% Fibonacci retracement level ($101.856) on Thursday, and then continued lower to test the next level of support at the 25-day moving average ($101.688) on Friday.  The 61.8% Fibonacci retracement level ($101.856) now reverts back to become the closest resistance level.

There was a sell signal last Wednesday from a negative stochastic crossover, and since the bond is not yet “oversold,” prices could continue to move lower toward secondary support at the 200-day moving average ($101.340).  However, the major stock indexes remain overbought so we could see some weakness in stocks unless a positive catalyst emerges like favorable news regarding trade negotiations with China or the partial government shutdown.

From a purely technical viewpoint, bond prices could trade between their 200-day moving average and resistance at the 61.8% Fibonacci retracement level with mortgage rates holding steady or moving slightly lower.

 

Tucson Mortgages Home Loan News 1-14-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of January 7, 2018
  • Economic Calendar – week of January 14, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock market recorded its third consecutive weekly gain to push the major indexes out of bear market territory while the Treasuries and mortgage bond markets slipped marginally lower.  So far, investors and economists have not shown much concern over the partial federal government shutdown that has entered into its third week.

Most of the week’s gains in stocks were attributed to optimism surrounding trade negotiations between the U.S. and China.  Three days of mid-level trade talks began last Monday in Beijing with the surprise attendance of China’s Vice Premier Liu He, China’s top economic official.  Liu reportedly will be visiting Washington in late January to continue trade talks.  China’s Ministry of Commerce said in a statement that “Although no breakthrough was achieved, the talks laid the foundation for the resolution of issues of mutual concern,” adding that the talks were “extensive, in-depth and detailed.”  President Trump also provided a boost to investor sentiment after tweeting trade talks were “going very well.”

The week’s economic reports were generally reassuring.  Weekly Jobless Claims fell below the consensus forecast to 216,000 from the prior week’s 233,000, and the NFIB Small Business Optimism Index fell less than expected in December to 104.4 from 104.8.  Friday, the Labor Department reported inflation as measured by the Consumer Price Index (CPI) had fallen in line with forecasts at -0.1% for December, with the Core CPI (which excludes food and energy costs) increasing by 0.2% for the month and 2.2% versus a year ago.

Wednesday, the Fed released its minutes from its December FOMC policy meeting.  The minutes revealed the path for U.S. monetary policy is “less clear” than before, and a contention the Fed can “afford to be patient” about future rate hikes.  Thursday, Fed Chairman Jerome Powell pointed to low inflation as one factor that will allow the Fed to “be patient in raising interest rates further.”  This rhetoric is currently fueling the fed funds futures market’s belief that there won’t be another interest rate hike in 2019.

In housing news, CoreLogic released its monthly Loan Performance Insights Report last Tuesday. The report shows 4.1% of mortgages were in some stage of delinquency nationally in October 2018, representing a 1 percentage point decline in the overall delinquency rate compared with October 2017, when it was 5.1%.  This was the lowest for the month of October in at least 18 years.

 

As of October 2018, the foreclosure inventory rate, measuring the share of mortgages in some stage of the foreclosure process, was 0.5%, down 0.1 percentage point since October 2017.  The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.9% in October 2018, down from 2.3% in October 2017.  The share of mortgages that were 60 to 89 days past due in October 2018 was 0.7%, down from 0.9% in October 2017.  The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure, was 1.5% in October 2018, down from 1.9% in October 2017.  Frank Martell, president and CEO of CoreLogic, remarked “Despite some regional spikes related to hurricane and fire impacted areas, overall delinquency rates are near or at historic lows.”

As for mortgages, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 23.5% for the week ended January 4, 2019.  The seasonally adjusted Purchase Index increased 17% from a week prior while the Refinance Index increased 35%.

Overall, the refinance portion of mortgage activity increased to 45.8% from 42.7% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 8.4% of total applications from 7.6% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.74% from 4.84% with points increasing to 0.47 from 0.42 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond lost 9.4 basis points to close at $101.969 while the 10-year Treasury yield increased 3.1 basis points to end at 2.699%.  The Dow Jones Industrial Average gained 562.79 points to close at 23,995.95.  The NASDAQ Composite Index added 232.62 points to close at 6,971.48.  The S&P 500 Index advanced 64.32 points to close at 2,596.26.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 2.87%, the NASDAQ Composite Index has gained 5.07%, and the S&P 500 Index has advanced 3.57%.

This past week, the national average 30-year mortgage rate rose to 4.57% from 4.54%; the 15-year mortgage rate increased to 4.14% from 4.11%; the 5/1 ARM mortgage rate rose to 4.42% from 4.40% while the FHA 30-year rate held steady at 4.17%.  Jumbo 30-year rates increased to 4.34% from 4.32%.

Economic Calendar – for the Week of January 14, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.969, -9.4 bp) traded within a narrower 39.1 basis point range between a weekly intraday high of $102.188 on Monday and a weekly intraday low of 101.797 on Wednesday and Thursday before closing the week at $101.969 on Friday.

Mortgage bond prices moved lower to test technical support at the 61.8% Fibonacci retracement level ($101.856) and this level has held with Friday’s close.  The bond is no longer “overbought” so we could see bond prices lift for a bounce higher off of support, especially if the stock market pauses its recent advance or struggles this week.  The major stock indexes are currently slightly overbought and we could see some weakness in stocks this week for the benefit of the bond market.  Look for bonds to trade between support and resistance with mortgage rates holding steady or moving slightly lower.

 

Tucson Mortgages Home Loan News 1-7-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of December 31, 2018
  • Economic Calendar – week of January 7, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

Significant stock market volatility continued this past week with sharp swings lower and higher, most notably on Thursday and Friday.  The stock market began the week to the upside on Monday, December 31 after President Trump released a tweet he and President Xi Jinping of China had made “big progress” in trade talks.  However, some weak economic data out of China ignited investor concerns to send stock indexes sharply lower when trading opened on Wednesday.  The downward move was temporary though as the market rallied during the afternoon to close modestly higher.

Pronounced market volatility continued on Thursday and Friday.  After Wednesday’s market close, Apple CEO Tim Cook warned investors in a letter that the company was lowering its quarterly revenue guidance for the first time in 15 years.  The company lowered its sales forecast from earlier estimates of $89 billion to $93 billion to $84 billion for the quarter ended December 29.  In response, Apple shares plunged as much as 10% on Thursday, pulling the large-cap indexes sharply lower.

Friday, a blockbuster Jobs Report for December and favorable commentary from Federal Reserve Chairman Jerome Powell reversed investor sentiment sparking a strong rally in stocks while pushing bond prices lower and yields higher.  However, despite surging Friday in response to the Jobs Report and Powell’s commentary, Treasury yields ended the week lower as investors pursued safe-haven assets in light of the continued volatility in equity markets.

Wednesday in housing news, CoreLogic® released its Home Price Index (HPI) and HPI Forecast for November 2018, showing home prices increased both year-over-year and month-over-month.

Home prices increased nationally by 5.1% year-over-year from November 2017.  On a month-over-month basis, prices increased by 0.4% in November 2018.

As for the future, the CoreLogic HPI Forecast predicts home prices will increase by 4.8% on a year-over-year basis from November 2018 to November 2019.

On a month-over-month basis, home prices are forecast to decrease by 0.8% from November to December 2018.

Price gains in metropolitan cities show Las Vegas continues to surge with a gain of 11.7% followed by Denver with a gain of 6.6%.  The Western Region from the Rockies to the West Coast show the largest gains compared to the remainder of the country.

As for mortgages, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.

The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 9.8% for the week ended December 28, 2018.

The seasonally adjusted Purchase Index decreased 8% from two weeks prior while the Refinance Index decreased 12%.

Overall, the refinance portion of mortgage activity decreased to 42.7% from 43.6% of total applications from the prior week.  The adjustable-rate mortgage share of activity was unchanged at 7.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.84% from 4.86% with points decreasing to 0.42 from 0.47 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 26.6 basis points to close at $102.063 while the 10-year Treasury yield decreased 5.0 basis points to end at 2.668%.  The Dow Jones Industrial Average gained 370.76 points to close at 23,433.16.  The NASDAQ Composite Index added 154.34 points to close at 6,738.86.  The S&P 500 Index advanced 46.20 points to close at 2,531.94.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 0.45%, the NASDAQ Composite Index has gained 1.56%, and the S&P 500 Index has grown 1.00%.

This past week, the national average 30-year mortgage rate dropped to 4.54% from 4.63%; the 15-year mortgage rate declined to 4.11% from 4.19%; the 5/1 ARM mortgage rate fell to 4.40% from 4.59% while the FHA 30-year rate dropped to 4.17% from 4.22%.  Jumbo 30-year rates decreased to 4.32% from 4.39%.

Economic Calendar – for the Week of January 7, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($102.063, +26.6 bp) traded within a wider 75.0 basis point range between a weekly intraday high of $102.469 on Thursday and a weekly intraday low of 101.719 on Monday before closing the week at $102.063 on Friday.

Mortgage bond prices surged above resistance Monday through Thursday (excluding New Year’s Day on Tuesday when the markets were closed) then backed off on Friday when the stock market reversed direction with a sharp rally.  Mortgage bonds remain extremely overbought and susceptible to a slide lower toward former resistance that is now nearest technical support at the 61.8% Fibonacci retracement level ($101.856).  If the stock market can continue to regain its footing this week, mortgage bond prices could be pressured lower as money flows out of bonds and back into stocks.  There was a sell signal on Friday from a negative stochastic crossover and if this signal proves accurate bond prices will move lower toward support.  Should this scenario play out, mortgage rates could move slightly higher.

 

Tucson Mortgages Home Loan News 12-31-2018

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of December 24, 2018
  • Economic Calendar – week of December 31, 2018
  • Mortgage Rate Forecast with Chart

Weekly Review

Extreme stock market volatility permeated the Christmas holiday trading week prompting many investors to seek relative safety in US Treasuries.  The flow of money into treasuries pushed the yield on the benchmark 10-year Treasury note down to its lowest level in almost nine months.  The CBOE Volatility Index (VIX) soared to a new 10-month high during the abbreviated Christmas Eve trading session, although on thin volumes.

Wednesday, trading volumes increased creating wide price swings in the major stock indexes.  The Dow oscillated by 1,186 points to record its first one-day 1,000-point gain in history and its largest percentage gain since 2009.  This was likely due to end-of-year position rebalancing by large institutional investors and pension funds.

Other factors for the surge in the stock market included rumors of a resumption in U.S.-China trade negotiations and reports of corporate insiders purchasing their companies’ stock reaching an eight-year high.  Also, a report on holiday retail spending from MasterCard showing the largest sales increase in five years (+5.1%) helped to restore and invigorate investor confidence.

In Housing news, home prices continued higher in October, rising 0.3% from the previous month, according to the Federal Housing Finance Agency (FHFA) seasonally adjusted monthly House Price Index (HPI).

The previously reported 0.2% increase in September remained unchanged.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

From October 2017 to October 2018, house price were 5.7% higher.

For the nine census divisions, seasonally adjusted monthly price changes from September 2018 to October 2018 ranged from -0.6% in the South Atlantic division to +1.4% in the Pacific division.

The 12-month changes were all positive, ranging from +3.3% in the Middle Atlantic division to +8.5% in the Mountain division.

Friday, the National Association of Realtors (NAR) reported Pending Home Sales, which measures signed contracts on existing homes, declined 0.7% to a reading of 101.4 from 102.1 in November, a four-year low.

This was below the consensus forecast calling for a 1.5% increase.  However, this report was written before a sharp decline in interest rates during the past month that have made mortgages more affordable.

Regionally, pending sales were 2.8% higher in the West and up 2.7% in the Northeast, but they fell 2.7% in the South and 2.3% in the Midwest.  However, sales were lower in all four regions when compared to the same time frame from a year ago.

Chief economist for NAR, Lawrence Yun, remarked “The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates.”  Yun predicts solid growth potential for home sales in the long-term as “Home sales in 2018 look to close out the year with 5.3 million home sales, which would be similar to that experienced in the year 2000.  But given the 17 million more jobs now compared to the turn of the century, the home sales are clearly underperforming today.  That also means there is steady longer-term growth potential.”  However, short-term, an “extended federal government shutdown could reduce sales by as many as 40,000 homes a month because federal flood insurance is temporarily unavailable.”

For the week, the FNMA 4.0% coupon bond gained 34.4 basis points to close at $101.797 while the 10-year Treasury yield decreased 7.0 basis points to end at 2.718%.  The Dow Jones Industrial Average gained 617.03 points to close at 23,062.40.  The NASDAQ Composite Index added 251.53 points to close at 6,584.52.  The S&P 500 Index advanced 69.12 points to close at 2,485.74.  Year to date on a total return basis, the Dow Jones Industrial Average has declined 6.70%, the NASDAQ Composite Index has dropped 4.62%, and the S&P 500 Index has lost 7.03%.

This past week, the national average 30-year mortgage rate dropped to 4.63% from 4.65%; the 15-year mortgage rate declined to 4.19% from 4.21%; the 5/1 ARM mortgage rate fell to 4.59% from 4.61% while the FHA 30-year rate dropped to 4.22% from 4.24%.  Jumbo 30-year rates decreased to 4.39% from 4.41%.

Economic Calendar – for the Week of December 31, 2018

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.797, +34.4 bp) traded within a slightly narrower 59.4 basis point range between a weekly intraday high of $101.828 on Friday and a weekly intraday low of 101.234 on Wednesday before closing the week at $101.797 on Friday.

Mortgage bond prices dipped lower to test support last Wednesday before bouncing higher the remainder of the week to approach overhead resistance on Friday.  Mortgage bonds remain “extremely overbought” and have amazingly been “overbought” since November 20 – an exceedingly long and unusual time period.  This situation suggests bond prices will be susceptible to a sharp downward correction likely created by a sustained rebound in the stock market should such a rebound take place at the beginning of the New Year.  There are many negative factors already priced into the stock market so any good news that comes along could initiate a rally in stocks that would pressure bond prices lower.

In the short-term, we could see bond prices getting trapped between resistance at the 61.8% Fibonacci retracement level ($101.856) and support at the 200-day moving average ($101.368).  Should this happen, mortgage rates would remain relatively stable, fluctuating within a narrow range.

 

 

Tucson Mortgages Home Loan News 12-24-2018

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of December 17, 2018
  • Economic Calendar – week of December 24, 2018
  • Mortgage Rate Forecast with Chart

Weekly Review

To say the stock market had another rough week is a huge understatement.  The major U.S. indexes set new yearly lows, and globally the eight largest stock exchanges entered into bear market territory after falling 20% or more from their 52-week highs.  U.S. equity markets are being battered by a multitude of concerns including rising interest rates, the ongoing trade fight with China, a fear the Federal Reserve could trigger a major recession by needlessly raising interest rates amid signs of slowing economic growth, and political turmoil in the US (“partial government shutdown”) and Great Britain (“Brexit”).  These concerns led to a flight to safety in U.S. Treasuries and bonds during the week pressuring yields lower.

Wednesday, the Federal Reserve’s Federal Open Market Committee (FOMC) decided to raise the target range for the fed funds rate to 2.25% to 2.50%, an increase of 25 basis points.  While this policy decision was widely expected, the financial markets were disappointed with Fed Chair Jerome Powell’s commentary during his press conference when he stated monetary policy does not need to be accommodative now and that the current policy is restrictive.  He further stated he doesn’t see the Fed changing its approach to balance sheet normalization and sees the preferred policy method being use of the fed funds rate.  However, the Fed in its economic projections reduced its forecast for the fed funds rate to 2.9% by the end of 2019 with two rate hikes and to 3.1% by the end of 2020 with one additional rate hike.

The latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 5.8% for the week ended December 14, 2018.  The seasonally adjusted Purchase Index decreased 7% from the week prior while the Refinance Index increased 2%.

Overall, the refinance portion of mortgage activity increased to 43.5% from 41.5% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 7.9% from 7.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.94% from 4.96% with points decreasing to 0.43 from 0.48 for 80 percent loan-to-value ratio (LTV) loans.

In Housing Monday, the NAHB Housing Market Index fell to a reading of 56 in December from 60 in November and well below the consensus market forecast of 61.  This is the lowest Index reading since May of 2015.

The sub-index for current single-family home sales slumped to 61 from 67.

The measure for home sales over the next six months went down to 61 from 65, and prospective buyers edged down to 43 from 45.

Historically, the NAHB Housing Market Index in the United States averaged 50.19 from 1985 until 2018, reaching an all-time high of 78 in December of 1998 and a record low of 8 in January of 2009.

Tuesday, the Housing Starts and Building Permits Report for November was reported stronger than forecast overall, but showed little to no growth for single-family units in both permits and starts.

Total starts increased 3.2% to a seasonally adjusted annual rate of 1.256 million units, but starts for single-family units dropped 4.6% to 824,000, the lowest since May 2017.  Total permits increased 5.0% to a seasonally adjusted annual rate of 1.328 million; however permits for single-family units were only 0.1% higher to 848,000.

Regionally, permits for single-units were 16.1% lower in the Northeast, 1.7% lower in the Midwest, 3.0% higher in the South, and 0.5% lower in the West.  Single-unit starts were 9.5% lower in the Northeast, 3.2% lower in the Midwest, 6.8% higher in the South, and 24.4% lower in the West.

Wednesday, Existing Home Sales were reported to have increased 1.9% month-over-month in November to a seasonally adjusted annual rate of 5.32 million, exceeding the consensus forecast of 5.20 million.  Total sales were down 7.0% from the same period a year ago.

The median existing home price for all housing types increased 4.2% year-over-year to $257,700.  The median existing single-family home price was up 5.0% year-over-year to $260,500.

Regionally, median home prices were +6.5% to $291,400 in the Northeast; +2.6% to $199,100 in the Midwest; +3.2% to $223,600 in the South; and +1.8% to $380,600 in the West.

Regionally, existing home sales were +7.2% in the Northeast; +5.5% in the Midwest; +2.3% in the South; and -6.3% in the West.

The inventory of homes for sale at the end of November fell to 1.74 million from 1.85 million but was 4.2% higher than a year ago.

Unsold inventory is at a 3.9-month’s supply versus 4.3 months in October and remains below the 6.0-month’s supply typically associated with a balanced market.

For the week, the FNMA 4.0% coupon bond gained 42.2 basis points to close at $101.453 while the 10-year Treasury yield decreased 10.1 basis points to end at 2.788%.  The Dow Jones Industrial Average lost 1,655.14 points to close at 22,445.37.  The NASDAQ Composite Index fell 577.68 points to close at 6,332.99.  The S&P 500 Index dropped 183.33 points to close at 2,416.62.  Year to date on a total return basis, the Dow Jones Industrial Average has declined 9.20%, the NASDAQ Composite Index has dropped 8.26%, and the S&P 500 Index has lost 9.61%.

This past week, the national average 30-year mortgage rate dropped to 4.65% from 4.72%; the 15-year mortgage rate declined to 4.21% from 4.28%; the 5/1 ARM mortgage rate fell to 4.61% from 4.70% while the FHA 30-year rate dropped to 4.24% from 4.25%.  Jumbo 30-year rates decreased to 4.41% from 4.46%.

Economic Calendar – for the Week of December 24, 2018

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.453, +42.2 bp) traded within a 68.8 basis point range between a weekly intraday high of $101.688 on Wednesday and a weekly intraday low of 101.000 on Monday before closing the week at $101.453 on Friday.

Mortgage bond prices moved higher Monday through Wednesday, rising above the 200-day moving average (MA) resistance level, before backing off on Thursday and Friday.  The move above the 200-day MA is usually considered a bullish sign and this level now reverts to closest technical support.  However, the bond remains extremely overbought and Thursday’s trading completed a three-day “Evening Star” candlestick pattern – a bearish signal.  There was also a bearish signal from a negative stochastic crossover.

If bond prices can remain above their 200-day MA, we could see an advance toward the next level of resistance at the 61.8% Fibonacci retracement level ($101.856) and a slight improvement in mortgage rates.  A move below the 200-day MA could result in a continuation lower toward support at the 76.4% Fibonacci retracement level ($100.914) and a slight worsening in rates.

Tucson Mortgages Home Loan News 12-17-2018

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of December 10, 2018
  • Economic Calendar – week of December 17, 2018
  • Mortgage Rate Forecast with Chart

Weekly Review

It was another volatile week for Stocks.  Headlines regarding relations between China and the US caused significant Stock fluctuations.  In aggregate, Stocks ended the week lower by roughly 30 points, as measured by the S&P 500.  A big chuck of these losses came on Friday, caused by weak economic data from China and Europe, inciting fears of a global economic slowdown.  As far as developments between China and the US, China has agreed to lower tariffs on US auto imports from 40% to 15% for the next 90 days.

In economic news, the Consumer Price Index report, which measures inflation on the consumer level, showed that overall headline inflation dropped from 2.5% to 2.2%.  When looking deeper into the numbers, this was all due to the recent drop in oil prices.  When stripping out the volatile food and energy prices, the core reading showed that inflation actually rose from 2.1% to 2.2%.  Overall, inflation remains relatively tame and in line with the Fed’s target.  Next week the Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE) will be released.  This will be an important report to follow.  A surprise move higher in inflation can cause rates to move higher.

Inflation is the arch-enemy of Bonds and interest rates.  Why? Inflation erodes the value of a Bonds fixed return.  Meaning, the fixed amount of money you receive in interest from a Bond can buy less if the cost of goods goes up.  For that reason, interest rates have to rise in a higher inflation environment to compensate the investor.

The Fed’s 2 day meeting will begin on Tuesday of next week, with a statement and decision on hiking interest rates to follow on Wednesday.  There will also be a press conference held by Fed Chair, Jerome Powell, after the statement.  The market is estimating that there is a 78% probability that the Fed will hike, but it’s almost certain that they will.  This will curb inflation further.  It will also normalize the Fed Funds Rate more and give the Fed more bullets in their chamber, should the US go into recession.  If the US were to fall into a recession, the Fed will be able to cut interest rates to stimulate the economy.  The catch 22 is that if the Fed hikes interest rates too much, they could hike the US into a recession.  The statement and press conference to follow the Fed’s decision will be important and can impact the markets, depending on their stance on inflation, the economy, and most importantly, future hike plans for 2019.

The European Central Bank announced that they will end their asset purchases program at the end of December, cutting their purchases from 15B Euros in Bonds per month to zero.  They will, however, continue to reinvest the proceeds from maturing Bonds for an extended period of time…sound familiar?  This is exactly what the Fed did after Quantitative Easing.  After being an outright buyer, the Fed continued to purchase roughly $50B/month before beginning to taper reinvestments in October 2017, ending their purchases altogether this past October.  As you remember, rates moved higher following the stop in purchases.  Because the global economy is so interconnected, we have to be mindful that these moves by the ECB could pressures global rates higher.  Even though the ECB will continue to buy Bonds through reinvestments, it will be a reduction.

Mortgage Application data improved once again this week, due to another decline in rates the previous week.  Applications to purchase a home are now up 3.6% year over year, while Refinances are down 34%, which is an improvement from the 40% a few weeks ago.  Interest rates were about ¾% higher than they were last year, which is down from 1% last month.  It’s a positive sign to see the purchase market remain strong, even with higher rates and a housing market that is beginning to slow.

It’s important to make the distinction between a slowing housing market and a depreciating housing market.  The housing market is still strong and homes are still appreciating, albeit not at the levels they were previously.  Think of driving down a highway – If you were going 80mph and you slow to 50mph, you are still moving forward, just at a slower pace.  The media would lead you to believe that the housing market is falling apart, do not be fooled.

Economic Calendar – for the Week of December 17, 2018

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

Mortgage Bonds have been trapped in a wide range between a dual floor of support, formed by the 100.914 Fibonacci Level and the 100-day Moving Average, and overhead resistance at the 200-day Moving Average.  Essentially, there is a solid floor of support that will support prices from moving much lower.  On the other hand, there is a ceiling of resistance that is very strong at the 200-day Moving Average that will likely keep a lid on prices and cap gains.  When Bonds are in a wide range like this, price swings and fluctuations can occur.  There is, however, more upside potential than downside risk.  This can all change next week, depending on some of the data and mainly the Fed Statement and decision.  Stay tuned.  The chart below shows the current technical levels above and beneath where Bonds are trading.

 

Tucson Mortgages Home Loan News 12-10-2018

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of December 3, 2018
  • Economic Calendar – week of December 10, 2018
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock market was extremely weak and volatile this past week with investor sentiment focused on the ongoing trade negotiations with China.  Many investors sought a “safe-haven” in the bond market by selling stocks and buying bonds, resulting in lower bond yields.

Market participants are now not only worried we are in the last stages of an economic cycle, they are also concerned that a March 1, 2019 deadline to settle the trade dispute with China won’t be enough time to resolve those major trade issues that have been festering for a long time.  The possibility of the U.S. increasing the tariff rate to 25% from 10% on $200 billion of Chinese goods if an acceptable deal can’t be made by the deadline weighed heavily on investors sentiment.

Another factor weighing on stocks was a flattening of the yield curve in the Treasury market where the 2-year yield (2.70%) and 3-year yield (2.71%) closed higher than the yield on the 5-year Treasury note (2.69%) this past week.  Furthermore, the difference between the 2-year and 10-year yields narrowed to its thinnest margin since 2007, just before the last recession.  When the 2-year yield inverts by becoming greater than the 10-year yield, it historically has signaled the imminent onset of an economic recession.

In economic news, the November Employment Situation Report released on Friday disappointed as Nonfarm Payrolls increased by a weaker than forecast 155,000 jobs vs. 189,000 expected while Average Hourly Earnings only increased 0.2% when a 0.3% increase was forecast.  This report with its decrease in job and wage growth acceleration may prompt the Federal Reserve to become more cautious about raising interest rates in 2019.  Hopefully, the Fed will not want to be blamed for pushing the U.S. economy into a recession.

Tuesday, CoreLogic released their latest Home Price Insights monthly report showing U.S. home prices increased 5.4% in October 2018 compared with October 2017.

In September, home prices increased 5.6% year-over-year and 0.4% month-over-month.  The October index increase represents the slowest year-over-year growth in home prices since January 2017.

Month-over-month, October prices increased 0.5%, including sales of distressed homes.  CoreLogic is forecasting housing prices to rise by 4.8% year-over-year in October 2019 and to drop by 0.7% month-over-month in November 2018.

Since the housing market bottomed out in March 2011, the CoreLogic index has risen by 57.8%.  As of October, home prices were 5.8% higher than they were at the April 2006 pre-crash peak, but when adjusted for inflation, home prices were 13.5% below the April 2006 peak.  CoreLogic CEO Frank Martell commented:

Rising prices and interest rates have reduced home buyer activity and led to a gradual slowing in appreciation.  October’s mortgage rates were the highest in seven and a half years, eroding buyer affordability.  Despite higher interest rates, many renters view a home purchase as a way to build wealth through home-equity growth, especially in areas where rents are rising quickly.  These include the Phoenix, Las Vegas and Orlando metro areas, where the CoreLogic Single-Family Rent Index rose 6 percent or more during the last 12 months.

As for mortgages, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 2.0% for the week ended November 30, 2018.  The seasonally adjusted Purchase Index increased 1% from the week prior while the Refinance Index increased 6%.

Overall, the refinance portion of mortgage activity increased to 40.4% from 37.9% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 7.4% from 7.9% of total applications.

According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 5.08% from 5.12% with points decreasing to 0.44 from 0.46 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 60.9 basis points to close at $101.281 while the 10-year Treasury yield decreased 13.5 basis points to end at 2.858%.  The Dow Jones Industrial Average lost 1,149.51 points to close at 24,388.95.  The NASDAQ Composite Index retreated 361.29 points to close at 6,969.25.  The S&P 500 Index fell 127.08 points to close at 2,633.08.  Year to date on a total return basis, the Dow Jones Industrial Average has declined 1.34%, the NASDAQ Composite Index has gained 0.95%, and the S&P 500 Index has dropped 1.52%.

This past week, the national average 30-year mortgage rate dropped to 4.71% from 4.86%; the 15-year mortgage rate declined to 4.23% from 4.37%; the 5/1 ARM mortgage rate fell to 4.66% from 4.75% while the FHA 30-year rate dropped to 4.25% from 4.37%.  Jumbo 30-year rates decreased to 4.40% from 4.54%.

Economic Calendar – for the Week of December 10, 2018

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.281, +60.9 bp) traded within a wider 89.0 basis point range between a weekly intraday high of $101.328 on Friday and a weekly intraday low of 100.063 on Monday before closing the week at $101.281 on Friday.

Mortgage bond prices continued to climb during the week, breaking above a dual band of overhead resistance at the 76.4% Fibonacci retracement level and 100-day moving average on Thursday and Friday.  These levels now become closest technical support.  The next level of overhead resistance is found at the 200-day moving average at $101.4399.

Something quite remarkable took place this past week.  Due to extreme fear in the stock market, investors sought a safe haven in bonds (including mortgage bonds), driving up bond prices to achieve extremely overbought conditions on a technical basis.  Both the slow and fast stochastic oscillators continued to show both the %K and %D lines in the oscillators measuring perfect “100” readings for the entire week!

This is a condition not seen in many years, if ever.  As long as the stock market shows weakness, the bond market will likely remain extremely overbought, but susceptible to a sharp correction.  Consequently, if and when the trade situation with China gets straightened out, it will likely trigger a strong relief rally in the stock market resulting in bond market profit-taking that will push bond yields and rates slightly higher.  It is impossible to predict when this scenario might play out.

Currently, the chart shows bond prices trending higher toward the 200-day moving average where the next level of resistance is found.  A move above this line would be considered bullish with rates likely to decline.  If bond prices are pushed lower from this level, rates should remain relatively stable as long as prices hold above the first support level identified in the chart at 100.913.