Tucson Mortgages Home Loan News 12-2-2019

By Todd Abelson NMLS #180858 on .

Week of November 25th, 2019 in Review

Last week was an action-packed holiday week, with both the Stock and Bond Markets closed all day on Thursday and early on Friday for the Thanksgiving celebration.  And speaking of Thanksgiving, we all have so much to be thankful for.  It seemed fitting to share portion of this passage from our friends at The Garrett, McAuley Report:

“How’s your health?  Not so good?  Give thanks you’ve lived this long.  Are you hurting?  Millions are hurting more.  Visit a veterans’ hospital or a hospital for children to appreciate what you have.

When you woke up this morning, were you able to hear the birds sing, use your voice, walk to the breakfast table, read the paper?  There are a lot of people today who are deaf, blind, paralyzed, or unable to speak.

How’s your financial situation?  Not good?  Most people on this planet have no welfare.  No food stamps.  No pensions.  No health insurance.  In fact, hundreds of millions of people in the world go to bed hungry every night.

Are you lonely?  The way to have a friend is to be a friend.  If nobody calls, call someone.  Get out and do something nice for someone.

Are you unhappy?  Go out of your way to smile at people you bump into during the day.

And be kind to everyone, for everyone you meet might be fighting a hard, lonely battle of some kind.”

The above passage does a good job of reminding us that things could always be worse and to remember to try to live your life with gratitude.  Also remember that everyone has their own struggles they face and to be kind before passing judgement.

Onto the news of the week, which provided a Thanksgiving helping of data.  All of the reports were packed into Tuesday and Wednesday, due to the market being closed on Thursday…And the theme was stronger data.

The Housing Scoop

On the housing front, acceleration accelerated.  The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that homes appreciated 3.2% on a year over year basis in September.  The 3.2% gain was a slight increase from the previous annual figure of 3.1% reported for August.

Just how significant is 3.2% appreciation?  On a $300,000 home, a 3.2% gain in appreciation translates to a $9,600 gain over the course of the year…which is meaningful.

The FHFA (Federal Housing Finance Agency) released their House Price Index, which is another widely viewed measure of appreciation, but only on single-family homes with conforming loan amounts.  Because it’s measuring homes with conforming loan amounts, they are most likely homes under $500,000, which is the area of the market we have been seeing the strongest demand.  As a result, the appreciation figures are much stronger – Year over year homes appreciated 5.1%, up from 4.6% in the previous report.  Again, a sign of acceleration.

There were two other reports pertaining to housing, New Home Sales and Pending Home Sales.  New Home Sales, which measures signed contracts on new homes, were down 0.7% in October.  But because of the strong revision in September, in aggregate they were much higher and showed a lot of strength.  Perhaps of more importance, year over year sales increased from 15.5% in August to 31.6%.

Pending Home Sales, which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales, were down 1.7% in October.  This reading was weaker than expectations, but again, year over year sales rose 4.4% from 3.9% in the previous report.  Overall, Pending Home Sales remain at very strong levels, but the minor drop was due to a lack of inventory according to the National Association of Realtors.

Lastly, the Mortgage Bankers Association reported that Mortgage Application volume was up 1.5% last week.  Applications to purchase a home were down 1.0%, while Refinances were up 4.0%.  Year over year Purchases were up 55% and Refinances up 314%…which would normally seem fantastic.

Remember that data is not always what it seems, and you have to dig deeper than the headlines in many cases.  The year over year figures in this report were skewed heavily because last year the Thanksgiving holiday fell one week earlier, so these results are being measured against a holiday week and appear much greater.  Keep in mind that next week we will likely see the reverse occur and will need to wait a few weeks for these figures to smooth out.

How Strong is the Economy?

Let’s switch gears from housing and take a look at some of the economic reports released that show how the economy is fairing.  Judging by the data received last week, the economy appears to be on pretty solid footing.  The second look at Q3 GDP showed that it increased from 1.9% to 2.1% and was stronger than expectations of 1.79%.  Consumer Spending was up 2.9%, which was slightly stronger than the 2.8% expected.  Additionally, Durable Goods, which was expected to show a decline, surprised to the upside.  Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, dropped after two consecutive weeks of higher prints.  Overall, the economic data was strong and helped Stocks set several new all-time highs.

The Latest on Inflation

Inflation is something that we follow closely, as it has a direct correlation to interest rates.  Think about it – If you were to purchase a Bond, let’s say for 30-years, you would receive a fixed interest payment over that time period.  But if inflation is on the rise, that fixed payment could purchase less and less.  As a result, in a rising inflation market, the investor has to be compensated with a higher rate of interest.  As a result, when inflation is on the rise, interest rates rise.

The highly anticipated Personal Consumption Expenditures (PCE) Report, which is the Fed’s favored measure of inflation, showed that headline inflation remained very tame at 1.3%.  The Core rate, which strips out food and energy prices and is the most important reading that we focus on, was reported at 1.6%, which was lower than September’s reading of 1.7%.  There are other factors, but the low readings of inflation will help to keep rates low.

What to Look for This Week

It’s jobs week, which means we will be getting the ADP Jobs Report on Wednesday and BLS (Bureau of Labor Statistics) Jobs Report on Friday.  ADP will give us some clues as to what to expect on Friday, but the two don’t always correlate month to month.  The real market moving item here is Friday’s BLS Jobs Report.  There are there main components the market will be focusing on keenly – The overall job creation figure, the unemployment rate, and average weekly and hourly earnings.

There are always estimates that are released that set the bar for the level of job creations expected.  If that figure is beat heavily to the upside, usually the Stock market rallies at the expense of Bonds.  If the figure is much weaker than expected, the opposite is usually also true.  The unemployment rate is also very important, as it can be an early warning signal that the economy is slowing and a recession could be on the horizon.  Lastly, average weekly and hourly earnings will show if there is wage pressured inflation, which the Bond market will be watching closely…Remember Bonds hate inflation.

It’s always hard to handicap the Jobs Report figure, but job growth has been slowing.  It is not at a concerning level yet, but it’s something to keep an eye on.  When businesses slow, the first thing they do is stop hiring.  Next, they lay people off, which will show up in the Initial Jobless Claims figures.  And eventually, the unemployment rate will rise…which is probably the best recession indicator.

Tucson Mortgages Home Loan News 11-18-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of November 18, 2019
  • Economic Calendar – week of November 18, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indices ended the week at all-time closing highs, propped up on optimism of a US and China trade deal.  Mortgage Bonds also ended the week higher, recovering much of the downturn in the previous week.

Fed Chair Powell spoke on Wednesday and said, “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”  This translates to keeping the Fed Funds Rate where it is, unless the economy takes a big downturn.

There were several economic reports released this week, with the highlight being the Cass Freight Index and inflation data. The October Cass Freight shipments index is an extremely telling and important report, but it is little followed by those in the media and mainly by those “in the know”.

Their methodology eloquently describes what they’re measuring: “As we try to navigate the ebb and flow of the economy, we don’t pretend to have any ‘secret sauce’ or incredibly complex models that have exhaustively analyzed every data point available. Instead, we place our trust in the simple notion that the movement of tangible goods is the heartbeat of the economy, and that tracking the volume and velocity of those goods has proven to be one of the most reliable methods of predicting change because of the adequate amount of forewarning that exists.”

The October Cass Freight shipments index was down year over year for the 11th straight month, decreasing nearly 4%.  Cass Freight repeated what they have said for the past 5 months – That the shipments index has gone from warning of a potential slowdown to signaling an economic contraction.  Cass Freight thinks we can see a negative GDP print as soon as Q4.  We think there is a good chance of a recession in 2020.

On the inflation front – The Consumer Price Index (CPI), which measures inflation on the consumer level, showed that headline inflation increased from 1.7% to 1.8% year over year.

The Core rate, which strips out food and energy prices, decreased slightly from 2.4% to 2.3%.  In context the 2.4% reading was an 11-year high.  The Fed focuses on the PCE (Personal Consumption Expenditures) report, which we received last week and is running much lower.  Headline and Core PCE were 1.3% and 1.7% respectively.

Within the report, rents rose by 0.1% for the month and are increasing at a rate of 3.7% on a yearly basis, which is slightly lower than the 3.8% last month.  Medical care costs were up 1% for the month and are up 4.3% year over year.

The Producer Price Index, which measures inflation on the wholesale level, increased 0.4% month over month in October, which was higher than expectations of a 0.3% gain.  But on a year over year basis, headline PPI fell sharply from 1.4% to 1.1%.  The Core reading, which strips out the volatile food and energy prices, was up 0.3% month over month, also slightly higher than the 0.2% gain expected.  But once again, the year over year figure decreased significantly from 2.0% to 1.6%.

The Mortgage Bankers Association reported their Mortgage Application data for last week, as they do every Wednesday.  Overall, Mortgage Application volume rose by 10% to the highest level in over a month.  Applications to purchase a home were up 5.1% for the week and are up 15% from this time last year…a big jump from the 7% year over year gain last week.  Refinances were up 13% and are up 188% year over year.  The Refinance share of mortgage activity increased from 59.5% to 61.9%. ARM’s made up 4.9% of all applications while 13.1% of loans were FHA.

The average 30-year mortgage increased from 3.98% to 4.03% week over week, bringing rates 112 bp or about 1 1/8% lower than this time last year.

Economic Calendar – for the Week of November 18th, 2019

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

Mortgage Bonds made some nice gains this week, recovering much of the losses from the previous week.  Volatility is likely to remain in vogue, with the markets reacting sharply to every comment on the US and China trade relations.  Bonds have made some strong technical advances, breaking above their 25, 100, and 50-day Moving Averages.  Bonds will likely contend with the 101.46 ceiling, which is a falling trend line and will be an important level to watch.  If Bonds can break above 101.46, there is room for Bonds to move higher and rates to move lower.  If Bonds stall at this level, at least there are three floors of support beneath present levels.

 

Tucson Mortgages Home Loan News 11-11-2019

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

Weekly Review

The major stock market indices ended the week at all-time closing highs, while Mortgage Bonds moved much lower, sending rates higher.  Propelling Stocks and dragging on Bonds were reports that an initial trade deal with China could be signed within weeks.  The initial deal will include soybean purchases, currency parameters, and the opening up of the Chinese financial industry.  The additional tariffs that were supposed to go into effect on December 15th will no longer happen, but there are still tariffs on $360b of Chinese goods.  There is really nothing of substance within the initial deal, besides the additional tariffs being removed.  There is no talk on some of the more important matters, like intellectual property protection.

Adding to the optimism on Tuesday was a report that said the US was considering rolling back the September 1st tariffs on $110b worth of consumer goods.  On Thursday, Gao Feng, a ministry spokesperson for China’s Commerce Ministry, said that both sides had agreed to simultaneously cancel some existing tariffs on one another’s goods in phases and in the same proportion.  After this release, Stocks rallied to all-time highs, while Bonds moved to their lowest levels since September 13th.  Finally, on Friday, President Trump came out and denied that the US agreed to remove additional tariffs, tempering some of the optimism, but did say that things still looked on track for a phase one deal.

In housing news, CoreLogic reported that home prices rose 0.4% in September and 3.5% year over year.  The year over year reading dropped slightly from 3.6% in August, but remains at a sustainable and meaningful level for wealth creation.  Remember that on a $300,000 home, an annual appreciate rate of 3.5% would translate to a gain of $10,500.  The states with the highest increases year-over-year were Idaho (11.8%), Utah (8%) and Maine (8%).

In the year going forward, CoreLogic forecasts that home prices will appreciate by a very strong 5.6%, which is slightly lower pace from the 5.8% forecasted in the previous report.

Frank Martell, the President and CEO of CoreLogic said that “All 50 states posted positive home price trends in September with the average price nationally rising 3.5%,” said Frank Martell, president and CEO, CoreLogic. “As a group, more millennials are entering the home-buying market and they report spending more money than they anticipated.”

HousingWire echoed Frank Martell’s thoughts, posted an article citing that more millennials are going to be entering the housing market over the next few years than we have seen in a long time.   And it’s not something that is up for debate, it’s a fact based on birth rates.  The median age of a first-time homebuyer is 33 years old.  In order to figure out how many individuals will be turning 33 years old each year and coming to market to either rent or buy a home, you have to look at the birth rates 33 years ago.  The chart below shows how over the next several years, the number of individuals turning 33 will be increasing, leading to more demand for housing.  This should continue to fuel an already strong housing market.  Additionally, it’s supportive of strong appreciation, as there will be more demand.

The Mortgage Bankers Association reported that overall Mortgage Application volume was essentially unchanged week over week, down 0.1%.  Applications to purchase a home were down 3% for the week but are still up 6.8% from this time last year.  Refinances were up 2.0%, and they are up 144% year over year.

The average 30-year mortgage decreased from 4.05% to 3.98% week over week, bringing rates about 117 bp or about 1.1/8% lower than this time last year.  But don’t let this confuse you – Rates actually rose last week.  This report was for the previous week, where there was a decline.

Economic Calendar – for the Week of November 11th, 2019

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

Volatility is likely to continue next week.  A look at the Bond chart shows that Mortgage Bonds are now trading in a very wide range, where they are susceptible to big price swings.  President Trump is scheduled to speak on Tuesday, and if he talks optimistically on trade relations with China, Stocks will likely rally at the expense of Mortgage Bonds and interest rates.  Another very important news item next week will be the Consumer Price Index inflation report.  If inflation is muted, it will help Mortgage Bonds move higher.  But if inflation is surprisingly high, Bonds will be pressured lower.

 

Tucson Mortgages Home Loan News 11-4-2019

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

Weekly Review

The major stock market indexes ended higher, setting new all-time highs.  Mortgage Bonds were alsol higher for the week, suriving an action packed news week and strongr than anticipated Jobs Report.

The Bureau of Labor Statistics (BLS) reported that there were 128,000 jobs created in the month of October, which higher than the 90,000 expected.  Additionally, there were, 95,000 in positive revisions to the previous two months – August was revised higher by 51,000 and September was revised higher by 44,000.

The Unemployment Rate ticked up from 3.5% to 3.6%.  Let’s take a look at why – There are two different surveys within the Jobs Report – The Business Survey, where the headline jobs figure is derived from, and the Household Survey, where the Unemployment Rate comes from.  The Household Survey also has a job creation component, which said that there were 241,000 job creations.  But there is another component that goes into the Unemployment rate – The labor force increased by 325,000, and since the job creation component was smaller than the gains in the labor force, the unemployment rate increased.

Average hourly earnings increased from 2.9% year over year to 3.0%.  Average Weekly earnings, which is even more important, remained stable at 2.7% year over year.

In housing news, the Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that home prices were up 3.2% year over year in August.  Even though appreciation has moderated, 3.2% is still a meaningful level for wealth creation.  Remember – On a $300,000 home, a 3.2% gain in appreciation translates to $9,600 over the course of the year.

Pending Home Sales, which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales, were up 1.5% in September.  This reading was stronger than expectations of a 0.7% gain and the second-best number in the last 12 months.  The gains were broad based, with sales up in every region.  Pending Home Sales are now up 3.9% annually, up from 2.5%.  Housing data has been and remains very strong.

The advanced or first look at Q3 GDP showed that it dropped slightly from 2% to 1.9% but was stronger than expectations of 1.7%.  Consumer Spending was up 2.9%, which was slightly stronger than the 2.6% expected.

The Mortgage Bankers Association reported their Mortgage Application data, showing that overall Mortgage Application volume was up 0.6%.  Applications to purchase a home were up 2% for the week and are still up 10.0% from this time last year.  Refinances were down 1.0%, but they are up 134% year over year.  The Refinance share of mortgage activity decreased from 58.5% to 58.0%.  ARM’s made up 5.2% of all applications.  12% of loans were FHA.

The average 30-year mortgage increased from 4.02% to 4.05% week over week, bringing rates about 105 bp or about 1.0% lower than this time last year.  Remember that the rate the MBA cites typically has some fraction of points included.

The Fed cut rate by 0.25% for the third time this year. They removed the language that ‘The Fed will act as appropriate to sustain the expansion’ and replaced it with ‘Will assess the appropriate path of the Fed Funds Rate’. This means instead of certain future cuts, the Fed will be data dependent. The reasons for the cut were global developments and muted inflation. Powell also said that the 3 cuts this year were insurance cuts and he is not thinking about taking them back, which the markets really seemed to like.

Personal Income and Spending was released for the month of September, showing that incomes were up 0.3%, which was in-line with estimates.  Spending was up 0.2%, which was also in-line with expectations.

The highly anticipated Personal Consumption Expenditures (PCE) Report, which is the Fed’s favored measure of inflation, showed that headline inflation dropped from 1.4% to 1.3%, which was lower than estimates of 1.4%.

The Core rate, which strips out food and energy prices and is the most important reading that we focus on, was reported at 1.7%, which was lower than August’s reading of 1.8%.

Economic Calendar – for the Week of October 28, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

Mortgage Bonds ended the week higher, breaking above the 100, 25, and 50-day Moving Averages.  On Friday they moved lower after the strong Jobs Report, but were able to remain just above the dual floor of support, formed by the 50 and 25-day Moving Averages.  Bonds will try to remain above these levels, but may have some difficulty with optimism that an initial trade deal with China may be signed in the next few weeks.  As a result, Stocks will likely rally.  Keep a close eye to make sure support holds for Bonds, otherwise rates could move a bit higher.

 

 

Tucson Mortgages Home Loan News 10-28-2019

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

Weekly Review

The major stock market indexes ended higher for the week with the NASDAQ and S&P 500 trading above all-time closing highs on Friday.  It’s likely to believe that Stocks will continue to move higher and set new all-time closing highs with the progress in the US and China trade talks, as well as strong earnings data.  Bonds ended the week lower, closing beneath some very important technical levels.

The news of the week was focused around housing.  The Existing Home Sales report for September, which measures closings in that month and likely represents buyers shopping for homes in July and August, decreased 2.2%.  This is a pullback from last month…but last month was a 17-month high and this is the 2nd best number in that time span, so it’s still very strong.  The media would lead you to believe that this was a weak report, but don’t be fooled.  Sales were up 2.6% year over year last month, which has increased to 4% this month.

The Median Home Price was reported at $272,100, up 5.9% year over year.  Total inventory at the end of August was down 2.7% year over year.  At the current pace of sales, there is a 4.1-month supply, up from 4.0 months last month.  This also speaks to the strength of the housing market – Even with prices up and inventory down, sales are still at very solid levels.

First-Time Homebuyers represented 33% of sales, which is up from last month’s 31% and is a good sign.  Cash Transactions accounted for 17%, which was down from 19% last month.  Distressed sales accounted for 2% in September, which was unchanged from August.

Appreciation is Still Standing Strong according to the FHFA.  The FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts.  Today’s report showed that home prices rose 0.2% in August and 4.6% year over year.  This was slightly lower from the previous report, which was reported at 5.0%, but still a very strong number.

New Home Sales, which measures signed contracts on new homes, were down 0.7% in September.  But we have to remember that the August reading was the best number in 12 years.  CNBC’s Diana Olick said that this was a huge miss and there was a huge revision to August…Really?  The report was stronger than expectations and the August report was revised lower by 0.9%…hardly huge.

Today’s report, showing 701,000 New Home Sales, was still extremely strong and reading which was much stronger than market expectations.  Year over year sales are up 15.5%, but there is no mention of that.  Once again, don’t let the negative media fool you.

The Median Home Price was reported at $299,400, down 8.8%.  Most of the sales are happening in the lower end of the market…Prices are not going down.  The estimate of new homes for sale at the end of September was 321,000.  At the current pace of sales, there was a 5.5 month’s supply, which was unchanged.

Economic Calendar – for the Week of October 28, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

Mortgage Bonds broken beneath the 100-day Moving Average on Monday, which was a negative technical sign.  Bonds tested that level throughout the week, but failed to break back above it.  Unfortunately, it looks like Bonds will move lower before improving, as you can see there is significant downside risk until reaching the next level of support at 100.547.

 

Tucson Mortgages Home Loan News 10-21-2019

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

Weekly Review

The major stock market indexes ended “mixed” for the week with Dow Jones Industrial Average posting a minor loss while the others recorded modest gains.  Bonds traded relatively flat for the week despite some weaker than expected economic news that may have been offset by several upside surprises in corporate earnings reports as the third quarter earnings season got underway.

For example, UnitedHealth Group reported better-than-expected revenues on Tuesday and raised profit guidance for the year.  Earnings from JPMorgan Chase and Goldman Sachs exceeded analyst expectations and Netflix reported a larger-than-expected gain in international subscriptions, leading to a spike in that stock’s share price.  However, analysts polled by FactSet project overall earnings for S&P 500 corporations to have declined slightly for the third consecutive quarter.

Economic data wasn’t very positive during the week, but it did help strengthen the potential for another 25 basis point Fed rate cut at the October FOMC meeting.  Industrial Production fell more than anticipated (-0.4% vs. -0.3% forecast) in September and has now declined in five of the last nine months, although August’s strong increase was revised higher.  U.S. Retail Sales fell unexpectedly by 0.3% in September versus a consensus forecast of +0.3%, and China’s 3rd Quarter GDP was reported at +6.0% – its slowest year-over-year GDP growth in 27+ years.  Also of note, last Tuesday, the International Monetary Fund (IMF) cut its 2019 growth forecast for the global economy from 3.2% to 3.0%, citing the negative effects of rising trade tensions.

In housing news, the National Association of Home Builders (NAHB) reported last Wednesday their Housing Market Index increased to 71 in October 2019 from 68 in the previous month and above market expectations of 68.

It was the highest reading since February 2018.  The sub-index for current single-family rose to 78 from 75 in September; the sub-index for prospective buyers went up to 54 from 50 and the measure for home sales over the next six months surged to 76 from 70.

The NAHB Housing Market Index in the United States averaged 50.53 from 1985 until 2019, reaching an all- time high of 78 in December of 1998 and a record low of 8 in January of 2009.

Last Thursday, the Commerce Department reported Total Housing Starts unexpectedly fell by a disappointing 9.4% month-over-month in September to a seasonally adjusted annual rate of 1.256 million versus a consensus forecast of 1.306 million.  The weakness was due to a downturn in multi-unit dwellings as single-family Starts were up 0.3% to 918,000 while single-family housing permits were up 0.8% to 882,000.

Building Permits fell 2.7% to a seasonally adjusted annual rate of 1.387 million but this was above a consensus forecast of 1.350 million.

A breakdown by region shows single-family starts were down 1.6% in the Northeast; down 8.3% in the Midwest; up 7.1% in the South; and down 8.7% in the West.  Single-family permits were down 14.5% in the Northeast; up 13.6% in the Midwest; up 1.4% in the South; and down 3.3% in the West.  The number of units under construction at the end of September equaled 1.157 million leaving the third quarter average 1.6% above the second quarter average – a positive input for 3rd Quarter GDP forecasts.

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 0.5% for the week ended October 11, 2019.  The seasonally adjusted Purchase Index decreased 4% from a week prior while the Refinance Index increased 4%.  Overall, the refinance portion of mortgage activity increased to 62.2% from 60.4% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 5.5% from 5.3% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 3.92% from 3.90% with points decreasing to 0.35 from 0.37 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 6.02 basis points lower to close at $101.141 while the 10-year Treasury yield decreased 0.06 of one basis point to end at 1.754%.  The Dow Jones Industrial Average retreated 46.39 points to close at 26,770.20.  The NASDAQ Composite Index climbed 32.50 points to close at 8,089.54.  The S&P 500 Index added 15.93 points to close at 2,986.20.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 14.76%, the NASDAQ Composite Index has gained 21.92%, and the S&P 500 Index has advanced 19.12%.

This past week, the national average 30-year mortgage increased to 3.80% from 3.79%; the 15-year mortgage rate was unchanged at 3.38%; the 5/1 ARM mortgage rate decreased to 3.45% from 3.48%; and the FHA 30-year rate increased to 3.40% from 3.35%.  Jumbo 30-year rates increased to 3.82% from 3.80%.

Economic Calendar – for the Week of October 21, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

The UMBS 30-year 3.0% coupon bond ($101.141; -0.06 bp) traded within a far narrower 35.9 basis point range between a weekly intraday high of $101.375 on Tuesday and a weekly intraday low of 101.016 on Friday before closing the week at $101.141 on Friday.

There wasn’t much movement in the UMBS 30-year 3.0% coupon bond price during a holiday- shortened (Columbus Day) trading week for bonds.  The bond hugged the 100-day moving average ($101.0833) support line during the week while continuing to trade on a sell signal from the prior week.  The bond is still not yet “oversold,” but is closely approaching “oversold” status so we may continue to see some small degree of price weakness before seeing a bounce higher in price toward resistance levels at the 25-day ($101.338) and 50-day ($101.506) moving averages.

If the bond can manage to hold above the 100-day moving average, mortgage rates should remain close to current levels.  However, a break below the 100-day moving average could very well result in a continuation move lower toward the next support level at the 38.2% Fibonacci retracement level (100.376) resulting in a slight worsening in mortgage rates.  However, a bounce higher off the 100-day moving average toward the aforementioned resistance levels could slightly improve rates.

 

Tucson Mortgages Home Loan News 10-7-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of September 30, 2019
  • Economic Calendar – week of October 7, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indexes ended mostly lower but “mixed” for the week with the technology-laden NASDAQ Composite Index bucking the trend to record a modest gain.  Meanwhile, longer-date bonds and Treasuries saw their yields decline as the latest economic data pointed toward a slowdown in global economic activity.

Domestic economic data included the ISM Manufacturing Index, the ISM Non-Manufacturing Index, and the Employment Situation Report for September.  The ISM Manufacturing Index suffered its worst reading since June 2009 with a decline to 47.8% from 49.1% in August.  Economists had been expecting a reading of 50.2%.  Readings below 50% indicate economic contraction.  The ISM Non-Manufacturing Index (Service Sector) for September dropped to 52.6% from 56.4% in August with consensus expectations of 55.4%.  The September Employment Situation Report revealed  nonfarm payrolls increased by 136,000 versus a consensus estimate of 150,000.  However, there were healthy upward revisions in the August and July payrolls numbers.  The unemployment rate fell to 3.5%, which is the lowest since December 1969, but average hourly earnings came up flat when expectations called for a +0.3% increase.

This coming week a resumption of U.S. trade talks with China is scheduled to take place on October 10 and 11 with China’s chief trade negotiator, Vice Premier Liu He, leading the Chinese delegation.  These talks are taking place just ahead of U.S. preparations to hike tariffs on $250 billion in Chinese goods to 30% on October 15.  Speaking of tariffs, the World Trade Organization (WTO) ruled the U.S. can place tariffs on $7.5 billion of European Union (EU) imports in retaliation for government aid from certain EU countries to Boeing rival Airbus.  It was announced the U.S. will be placing 25% tariffs on a range of products imported from the EU, including cheese, olives, wine, single-malt whiskeys, and civil aircraft.  This is the largest award in WTO history, and U.S. officials have said the tariffs should be in place by October 18.  You might want to stock up on these EU products if in the market for them before the tariffs hit.

In housing news CoreLogic released its Home Price Index (HPI) and HPI Forecast for August 2019, showing home prices increased both year-over-year and month-over-month.  Home prices increased nationally by 3.6% from August 2018.  On a month-over-month basis, prices increased by 0.4% in August 2019.

 

Home prices continue to increase on an annual basis with the CoreLogic HPI Forecast projecting annual price growth will increase 5.8% by August 2020.  On a month-over-month basis, the forecast calls for home prices to increase by 0.3% from August 2019 to September 2019.

Dr. Frank Nothaft, chief economist at CoreLogic, remarked “The 3.6% increase in annual home price growth this August marked a big slowdown from a year earlier when the U.S. index was up 5.5%.  While the slowdown in appreciation occurred across the country at all price points, it was most pronounced at the lower end of the market.  Prices for the lowest-priced homes increased by 5.5%, compared with August 2018, when prices increased by 8.4%. This moderation in home-price growth should be welcome news to entry-level buyers.”

Frank Martell, CoreLogic president and CEO, added “The millennial cohort has now entered the housing market in force and is already driving major changes in buying and selling patterns.  Almost half of the millennials over 30 years old have bought a house in the last three years.  These folks are increasingly looking to move out of urban centers in favor of the suburbs, which offer more privacy and a greener environment.  Perhaps most significantly, almost 80% of all millennials are confident they will become homeowners in the future.”

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 8.1% for the week ended September 27, 2019.  The seasonally adjusted Purchase Index increased 1% from a week prior while the Refinance Index increased 14%.  Overall, the refinance portion of mortgage activity increased to 58.0% from 54.9% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 5.5% from 5.1% 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 3.99% from 4.02% with points unchanged at 0.38 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 53.10 basis points higher to close at $101.922 while the 10-year Treasury yield decreased 15.80 basis points to end at 1.529%.  The Dow Jones Industrial Average declined 246.53 points to close at 26,573.72.  The NASDAQ Composite Index gained 42.84 points to close at 7,982.47.  The S&P 500 Index fell 9.78 points to close at 2,952.01.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 13.92%, the NASDAQ Composite Index has gained 20.30%, and the S&P 500 Index has advanced 17.76%.

This past week, the national average 30-year mortgage decreased to 3.62% from 3.75%; the 15-year mortgage rate decreased to 3.25% from 3.39%; the 5/1 ARM mortgage rate decreased to 3.36% from 3.40%; and the FHA 30-year rate decreased to 3.25% from 3.44%.  Jumbo 30-year rates decreased to 3.64% from 3.75%.

Economic Calendar – for the Week of October 7, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

The UMBS 30-year 3.0% coupon bond ($101.922; +53.10bp) traded within a wider71.9 basis point range between a weekly intraday low of $101.281 on Tuesday and a weekly intraday high of 102.00 on Friday before closing the week at $101.922 on Friday.

Mortgage bonds stair-stepped their way higher throughout the week to move above nearest technical resistance levels.  The move higher coincided with investors taking profits in stocks and moving into less risky bond investments.  As a result, the bond is about to enter “overbought” territory while butting up against technical resistance located at the 23.6% Fibonacci retracement level ($101.904).  If the bond can manage to continue higher toward secondary resistance located at the September 4 intraday high price ($102.25), we should see a slight improvement in mortgage rates.  However, a failure at resistance would likely result in a move back toward support at the 25-day moving average ($101.445) along with a slight worsening in rates.

 

Tucson Mortgages Home Loan News 9-30-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of September 23, 2019
  • Economic Calendar – week of September 30, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indexes recorded moderate losses while the bond and U.S. Treasuries markets notched minimal gains and slightly lower yields as investors wrestled with political and China trade uncertainty.  The stock market would have had a relatively “flat” trading week if it were not for two events, one political and one trade-related.  First, House Speaker Nancy Pelosi officially announced the launch of what appears to be a rather unconvincing impeachment inquiry on President Trump last Tuesday.  Wall Street investors reacted in “knee-jerk” fashion, but they are more concerned about the uncertainty and impact the political drama might have on trade negotiations with China.  One concern is impeachment pressure might encourage the White House to strike a weaker trade deal with China before the November 2020 election.

The second event occurred Friday when Bloomberg reported a possible “leak” that the White House was considering restricting U.S. investment in China and forcing U.S. stock exchanges to delist the shares (in the form of American Depositary Receipts) of Chinese companies.  This rumored “news” may be a negotiating ploy engineered by the White House to get China to more readily strike a trade deal.  However, this news could also complicate trade talks set to resume on October 7 through October 11.

In housing news, the S&P CoreLogic Case-Shiller U.S. National Home Price Index was released last Tuesday showing home prices rose 3.2% annually in July, unchanged from the gain reported in June.  The 10-City Composite Index increased 1.6% annually, down from 1.9% reported in June. The 20-City Composite Index recorded a 2% annual gain, down from 2.2% in June.

The hottest cities for home price appreciation were Phoenix, Las Vegas and Charlotte, North Carolina.  Home prices in Phoenix increased 5.8% year-over-year.  In Las Vegas, home prices were up 4.7%, and they were 4.6% higher in Charlotte.  Seven of the 20 cities reported greater price increases in the year ending July 2019 versus the year ending June 2019.

Overall, home price gains are strongest in the Southwest (Phoenix and Las Vegas) and the Southeast (Charlotte and Tampa).  Elsewhere, other cities recorded solid gains including Minneapolis, up 4.2% annually, and Detroit, up 4.1%.  Seattle was the only city to show an annual price decline, down 0.6%.

Meanwhile, U.S. house prices rose in July, up 0.4 percent from the previous month, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI).  House prices rose 5.0 percent from July 2018 to July 2019.  The previously reported 0.2 percent increase for June 2019 remains unchanged.

For the nine census divisions, seasonally adjusted monthly house price changes from June 2019 to July 2019 ranged from +0.1 percent in the Middle Atlantic division to +1.2 percent in the Mountain division.

The 12-month changes were all positive, ranging from +3.6 percent in the Middle Atlantic division to +7.6 percent in the Mountain division.

Wednesday, the Commerce Department reported New Home Sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West.  July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units.  The consensus among economists had forecast New Home Sales increasing 3.5% to a rate of 660,000 units in August.

New home sales surged 7.1% month-over-month to a seasonally adjusted annual rate of 713,000 units from an upwardly revised 666,000 in July.

August trailed only June as the highest-paced sales month since October 2007.  Regionally, sales were down 5.9% in the Northeast; down 3.0% in the Midwest; up 6.0% in the South; and were up 16.5% in the West.  The median sales price increased 2.2% year-over-year to $328,400.  The average sales price increased 6.1% to $404,200. Based on the August sales rate, the inventory of new homes for sale stands at a 5.5-months’ supply versus 5.9 months in July.

Thursday, the National Association of Realtors (NAR) announced their Pending Home Sales Index increased more than expected in August by increasing 1.6% to 107.3, a 2.5% year-over-year increase.

Regionally, Pending Home Sales were led by the West Region with a monthly increase of 3.1% and an annual increase of 8.0%.

The Northeast increased 1.4% monthly and 0.7% higher than a year ago. The Midwest saw sales increase 0.6% monthly and 0.2% higher annually.  Sales in the South increased 1.4% monthly and 1.8% annually.

NAR’s chief economist Lawrence Yun remarked “It is very encouraging that buyers are responding to exceptionally low interest rates.  The notable sales slump in the West region over recent years appears to be over.  Rising demand will reaccelerate home price appreciation in the absence of more supply.  The NAR is forecasting home sales to increase 0.6% in 2019 and another 3.4% in 2020.  Housing starts are projected to increase by 2.0% in 2019 and soar an additional 10.6% in 2020, which in turn raises GDP to growth at 2.0% in 2020.

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) declined 10.1% for the week ended September 20, 2019.  The seasonally adjusted Purchase Index decreased 3% from a week prior while the Refinance Index decreased 15%.  Overall, the refinance portion of mortgage activity decreased to 54.9% from 57.9% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 5.1% from 5.0% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.02% from 4.01% with points decreasing to 0.26 from 0.29 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 4.70 basis points higher to close at $101.391 while the 10-year Treasury yield decreased 3.40 basis points to end at 1.687%.  The Dow Jones Industrial Average declined 114.82 points to close at 26,820.25.  The NASDAQ Composite Index dropped 178.04 points to close at 7,939.63.  The S&P 500 Index fell 30.28 points to close at 2,961.79.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 14.97%, the NASDAQ Composite Index has gained 19.66%, and the S&P 500 Index has advanced 18.15%.

This past week, the national average 30-year mortgage decreased to 3.75% from 3.79%; the 15-year mortgage rate decreased to 3.39% from 3.45%; the 5/1 ARM mortgage rate decreased to 3.40% from 3.43%; and the FHA 30-year rate increased to 3.44% from 3.42%.  Jumbo 30-year rates decreased to 3.75% from 3.81%.

Economic Calendar – for the Week of September 30, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

The UMBS 30-year 3.0% coupon bond ($101.391; +4.70 bp) traded within a narrower 48.4 basis point range between a weekly intraday high of $101.578 on Tuesday and a weekly intraday low of 101.094 on Wednesday before closing the week at $101.391 on Friday.

Mortgage bonds moved slightly higher to challenge technical resistance every day last week except Thursday and were unable to make a break above to gain additional upward momentum.  The bond is now trading on a sell signal, but is neither “overbought” nor “oversold.”  The bond appears to be “marking time” ahead of any breaking significant political, geopolitical, or economic news that may surface this coming week– whether it is impeachment rhetoric, Middle East troubles, China trade rumors or Friday’s September Employment Situation Report.

Regardless of the news, if the bond fails to break above the band of resistance highlighted in the chart below, we could see a subsequent move toward support at the 100-day moving average ($100.755).  Should this occur mortgage rates would edge slightly higher.  However, a break above resistance would lead to an improvement in rates.  At the moment though, the path of least resistance is a move toward support unless a catalyst appears to push investors toward risk-off, safer-haven investments such as bonds and Treasuries.

 

Tucson Mortgages Home Loan News 9-23-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of September 16, 2019
  • Economic Calendar – week of September 23, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indexes experienced modest declines while the bond and U.S. Treasuries markets enjoyed price gains and lower yields as some investors moved into perceived safe-haven assets in response to an increase in geopolitical risk in the Middle East.

Geopolitical risk in the Middle East spiked following the Saturday, September 14 missile and drone attack on major oil facilities in Saudi Arabia by Iran that temporarily halted about 5% of global oil production.  The attack sparked a 13% price increase in West Texas Intermediate crude oil last Monday, the largest increase since 2016.  Oil prices remained volatile finishing the week 5.9% higher.  Although the overall broad stock market did not react strongly to the attack, stocks in the transportation industry, including airlines, trucking companies, railroads, and other companies sensitive to commodity price swings, suffered the greatest losses.  The Dow Jones Transportation Average finished the week over 3% lower.

The week’s economic news took a back seat to Wednesday’s September FOMC Statement from the Federal Reserve.  The Fed decided on a 25 basis point fed funds rate cut (as widely expected) and lowered the interest on excess reserves (IOER) by 30 basis points to 1.80% in an attempt to encourage more lending in the overnight market by large banks and financial institutions.  The FOMC voted 7-3 in favor of Wednesday’s decision, with Boston Fed President, Eric Rosengren, and Kansas City Fed President, Esther George, voting in favor of keeping the fed funds rate range unchanged while St. Louis Fed President, James Bullard, voted for a 50 basis point cut.  The Fed’s dot plot showed seven out of 17 Fed officials expect another rate cut will be made in 2019, but the median projection does not point to any more rate cuts in 2019 or 2020.

In housing news, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) measuring builder sentiment on the relative level of current and future single-family home sales.  For this diffusion index, a reading above 50 indicates a favorable outlook on home sales while a reading below 50 indicates a negative outlook.  Builder confidence in the market for newly-built single-family homes rose one point to 68 in September from an upwardly revised August reading of 67 to match the highest level since last October.

The HMI sub-index measuring current sales conditions increased two points to 75 and the component measuring traffic of prospective buyers held steady at 50.  The measure charting sales expectations in the next six months fell one point to 70. Looking at the three-month moving averages for regional HMI scores, the Northeast posted a two-point gain to 59, the West was also up two points to 75 and the South moved one point higher to 70.  The Midwest was unchanged at 57.

NAHB Chairman Greg Ugalde remarked “Low interest rates and solid demand continue to fuel builders’ sentiments even as they continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor.”

Last Wednesday, the Commerce Department reported a strong 12.3% month-over-month increase in total Housing Starts during August to a seasonally adjusted annual rate of 1.364 million units.  This exceeded the consensus forecast of 1.255 million units.  Also, total Building Permits jumped 7.7% to 1.419 million exceeding consensus expectations of 1.300 million.

Single-family Housing Starts increased 4.4% month-over-month and were 3.4% higher year-over-year.  Regionally, single-family Starts were 1.7% lower month-over-month in the Northeast; 8.7% higher in the Midwest; 3.6% higher in the South; and 5.3% higher in the West.

Single-family Permits increased 4.5% month-over-month and were up 4.5% year-over-year. Regionally, August single-family Permits were unchanged in the Northeast; 2.8% higher in the Midwest; 7.4% higher in the South; and unchanged in the West.

Thursday, the National Association of Realtors (NAR) announced Existing Home Sales edged 1.3% higher month-over-month in August to a seasonally-adjusted annual rate of 5.49 million.  This exceeded the consensus estimate of 5.36 million, and was higher than the 5.42 million reported for July.  Total sales were 2.6% higher than the year ago time period and at their strongest level since March 2018.

The median existing home price for all housing types increased 4.7% year-over-year to $278,200.  The median existing single-family home price was $280,700, up 4.7% year-over-year.

Regionally, Existing Home Sales were 7.6% higher in the Northeast; 3.1% higher in the Midwest; 0.9% higher in the South; and 3.4% lower in the West.  Median home prices were 0.3% lower in the Northeast ($303,500); 6.6% higher in the Midwest ($220,000); 5.4% higher in the South ($240,300); and 5.7% higher in the West ($415,900).

Single-family home sales increased 1.2% month-over-month to a seasonally adjusted annual rate of 4.90 million, and were up 2.9% year-over-year.  The inventory of homes for sale at the end of August fell to 1.86 million from 1.90 million in July, down 2.6% from a year ago.  Unsold inventory stood at 4.1-month supply at the current sales rate, down from 4.2 months in July.

The NAR’s chief economist, Lawrence Yun, commented “As expected, buyers are finding it hard to resist the current rates.  The desire to take advantage of these promising conditions is leading more buyers to the market.  Sales are up, but inventory numbers remain low and are thereby pushing up home prices.  Homebuilders need to ramp up new housing, as the failure to increase construction will put home prices in danger of increasing at a faster pace than income.”

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) declined 0.1% for the week ended September 13, 2019.  The seasonally adjusted Purchase Index increased 6% from a week prior while the Refinance Index decreased 4%.  Overall, the refinance portion of mortgage activity decreased to 57.9% from 60.0% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 5.0% from 5.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.01% from 3.84% with points decreasing to 0.29 from 0.34 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 78.1 basis points higher to close at $101.344 while the 10-year Treasury yield decreased 18.0 basis points to end at 1.721%.  The Dow Jones Industrial Average declined 284.45 points to close at 26,935.07.  The NASDAQ Composite Index dropped 59.04 points to close at 8,117.67.  The S&P 500 Index fell 15.32 points to close at 2,992.07.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 15.47%, the NASDAQ Composite Index has gained 22.34%, and the S&P 500 Index has advanced 19.36%.

This past week, the national average 30-year mortgage decreased to 3.79% from 3.85%; the 15-year mortgage rate decreased to 3.45% from 3.52%; the 5/1 ARM mortgage rate decreased to 3.43% from 3.54%; and the FHA 30-year rate decreased to 3.42% from 3.50%.  Jumbo 30-year rates decreased to 3.81% from 3.89%.

Economic Calendar – for the Week of September 23, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

The UMBS 30-year 3.0% coupon bond ($101.344; +78.10 bp) traded within a narrower 62.5 basis point range between a weekly intraday high of $101.344 on Friday and a weekly intraday low of 100.719 on Monday before closing the week at $101.344 on Friday.

Mortgage bonds moved steadily higher during the week following a buy signal last Monday, bouncing higher from a deeply “oversold” position.  Friday, the bond closed above the 50-day moving average ($101.279) and remains far from “overbought,” so we should see a continuing advance to challenge resistance at the 25-day moving average ($101.536).  A break above the 25-day moving average could then lead to a test of resistance at the 23.6% Fibonacci retracement level ($101.904), and should this occur we should see slightly lower mortgage rates.

 

Tucson Mortgages Home Loan News 9-16-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of September 9, 2019
  • Economic Calendar – week of September 16, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indexes recorded a third consecutive week of solid returns as investor sentiment continued improve along with de-escalation in trade tensions between the U.S. and China.  China began last Wednesday when officials there publicized a small list of U.S. products that would be exempt from tariffs scheduled to take place on September 17.  President Trump promptly responded by announcing the U.S. would postpone a 5% increase on $250 billion worth of Chinese imports from October 1 to October 15.

China then took another step to defuse the trade war by announcing China’s customs bureau would exclude pork, soybeans, and other agricultural products from further tariffs while encouraging Chinese companies to buy U.S. agriculture products.  This gesture may be in response to sky-high pork prices in China as that country has battled a serious outbreak of African swine fever that has taken a serious toll on the country’s hog population.  Regardless, these first steps in defusing the trade war could lead toward improved trade relations between the world’s two largest economies.

The week’s economic news was generally favorable other than an uptick in inflation data.

Wednesday, the Core Producer (wholesale) Price Index (excluding food and energy) rose 0.3% vs. 0.2% expected, and Thursday’s Consumer Price Index (CPI) inflation number did the same with a 0.3% increase vs. 0.2% forecast.  Year-over-year, the CPI rose 2.4%, a bit more than expected and the most since mid-2018.  Friday, the Commerce Department reported Retail Sales increased by a greater than expected 0.4% in August while the University of Michigan’s preliminary Consumer Sentiment Index increased to 92.0 for September from 89.8 in August.  Overall, the week’s economic news favored investment in the stock market at the expense of the bond market.

In housing news, CoreLogic released their latest Loan Performance report for the month of June showing loans 30-days or more past due increased from 3.6% to 4.0%.

Seriously delinquent loans, defined as those loans which are 90-days or more in arrears, remained unchanged at 1.3%.  Seriously delinquent loans in foreclosure were unchanged at 0.4%.

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) rose 2.0% for the week ended September 6, 2019.  The seasonally adjusted Purchase Index increased 5% from a week prior while the Refinance Index increased 0.4%.  Overall, the refinance portion of mortgage activity decreased to 60.0% from 60.4% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 5.6% from 5.7% 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 3.82% from 3.87% with points increasing to 0.44 from 0.34 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 134.30 basis points lower to close at $100.563 while the 10-year Treasury yield increased 34.10 basis points to end at 1.901%.  The Dow Jones Industrial Average advanced 422.06 points to close at 27,219.52.  The NASDAQ Composite Index climbed 73.64 points to close at 8,176.71.  The S&P 500 Index gained 28.68 points to close at 3,007.39.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 16.68%, the NASDAQ Composite Index has gained 23.23%, and the S&P 500 Index has advanced 19.97%.

This past week, the national average 30-year mortgage increased to 3.85% from 3.55%; the 15-year mortgage rate increased to 3.52% from 3.25%; the 5/1 ARM mortgage rate increased to 3.54% from 3.38%; and the FHA 30-year rate increased to 3.50% from 3.25%.  Jumbo 30-year rates increased to 3.89% from 3.63%.

Economic Calendar – for the Week of September 16, 2019

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

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

The UMBS 30-year 3.0% coupon bond ($100.563; -134.30 bp) traded within a far wider 129.7 basis point range between a weekly intraday high of $101.844 on Monday and a weekly intraday low of 100.547 on Friday before closing the week at $100.563 on Friday.

Mortgage bonds moved decidedly lower throughout the week violating multiple support levels along the way.  There is a tight dual-band of support at the 100-day moving average (100.526) and the 38.2% Fibonacci retracement level (100.376).  Mortgage bonds are deeply “oversold” and primed for a bounce higher off of these support levels, but if they fail to hold, the next level of support is substantially lower at the 50% Fibonacci retracement level and 200-day moving average at $99.141.  The chart shows technical weakness with the bond trading on a sell signal – although extremely oversold.  If mortgage bonds can manage a bounce higher, we should see stable rates this coming week.  However, a continued move below current support levels would likely result in mortgage rates making a move higher.