Tucson Mortgages Home Loan News 10-17-2016

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of October 10, 2016
  • Economic Calendar – week of October 17, 2016
  • Mortgage Rate Forecast with Chart

Weekly Review

The stock and bond markets both struggled this past week.  Stocks fell for the second consecutive week as some encouraging domestic economic news was offset by a China Trade Balance report showing a 10% drop in exports and a 2% decline in imports during September.  This report renewed investor worries of a possible slowdown in global growth.  Also, the third quarter corporate earnings season got off to a disappointing start when Alcoa reported lower than expected revenue and profits in addition to softer earnings guidance.

Favorable economic news included continued strength in the job market with Weekly Jobless Claims falling to 246,000, a decline of 9,000 below the consensus forecast of 255,000 claims.  The underlying trend remains consistent with healthy labor market conditions as claims have now been below the 300,000 level for 84 consecutive weeks.  The four-week moving average of claims fell by 3,500 to 249,250 claims last week.  Furthermore, the Commerce Department reported Retail Sales were robust in September, rebounding from disappointing sales in August.  Retail Sales increased 0.6% in September while Retail Sales excluding autos increased 0.5%.  Both readings matched their respective consensus forecasts.  The Retail Sales numbers eased investor concerns over the current status of discretionary spending and its potential impact on 3rd quarter GDP.

The Wednesday release of the minutes from the Federal Reserve’s September FOMC meeting triggered some bond market volatility with the yield of the benchmark 10-year Treasury note rising to 1.80%, its highest level in four months.

The minutes showed “Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected.  It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.”  Among the participants who supported awaiting further evidence of continued progress toward the committee’s objectives, several stated that the decision at this meeting was a “close call.”  Based on the current prices of fed funds futures, the market is now pricing in a 64.3% chance of a rate increase by the Fed’s December 14 FOMC meeting.  The bond market was also hit with some selling pressure on Friday when Fed Chair Janet Yellen remarked in a speech that she was comfortable with the Fed “overshooting” their inflation target.

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 7th showing the overall seasonally adjusted Market Composite Index decreased 6.0%.  The seasonally adjusted Purchase Index fell 3.0% from the prior week, while the Refinance Index decreased 8.0%.  Overall, the refinance portion of mortgage activity decreased to 62.4% of total applications from 63.8% in the prior week.  The adjustable-rate mortgage share of activity decreased to 4.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.62% to 3.68% with points increasing to 0.35 from 0.32.

For the week, the FNMA 3.0% coupon bond lost 54.7 basis points to end at $102.98 while the 10-year Treasury yield increased 6.9 basis points to end at 1.8048%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 102.11 points to end at 18,138.38.  The NASDAQ Composite Index dropped 78.25 points to close at 5,214.16, and the S&P 500 Index lost 20.76 points to close at 2,132.98.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.93%, the NASDAQ Composite Index has added 3.97%, and the S&P 500 Index has advanced 4.17%.

This past week, the national average 30-year mortgage rate increased to 3.58% from 3.53% while the 15-year mortgage rate increased to 2.89% from 2.85%.  The 5/1 ARM mortgage rate rose to 2.91% from 2.90%.  FHA 30-year rates increased to 3.40% from 3.35% and Jumbo 30-year rates increased to 3.73% from 3.68%.

Economic Calendar – for the Week of October 17, 2016

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

Report Table

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($102.98, -54.7 basis points) traded within a  53 basis point range between a weekly intraday high of $103.47 on Tuesday and a weekly intraday low of $102.94 on Friday before closing the week at $102.98.  The potential breakout pointed out in last week’s newsletter took place this week, and unfortunately it was a downward rather than an upward breakout despite the stock market losing ground.  The bond appears to be settling into a new trading range between technical resistance at its 23.6% Fibonacci retracement level and support at the 200-day moving average at $102.73.  A continuing move toward support this coming week will result in slightly higher mortgage rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

Report Stats

Tucson Mortgages Home Loan News 10-10-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of October 3, 2016
Economic Calendar – week of October 10, 2016
Mortgage Rate Forecast with Chart

Weekly Review

The stock and bond markets both suffered moderate losses for the week after being buffeted by news from Great Britain and the European Union (EU) in addition to domestic economic news that heightened prospects for a Fed interest rate hike in December.

Great Britain released a timeline for negotiations for leaving the EU triggering a steep plunge in the value of the British pound against other currencies including the dollar.  The stronger U.S. dollar then weighed down stock prices in the materials sector and in dollar-priced commodities.  The bond market, meanwhile, was subjected to selling pressure on rumors the European Central Bank will begin to cut back on its 80 billion euros per month asset purchase program before it officially concludes.  The rumored amount of the reduction was 10 billion euros per month but these rumors were denied later in the week by EU officials.

Taken as a whole, the week’s economic reports were generally viewed as constructive.  The Institute of Supply Management’s (ISM) Manufacturing Index for September showed expansion with a reading of 51.5 from August’s level of 49.4 showing economic contraction.  Further, the ISM’s September Services Index jumped to its highest level in a year with a reading of 57.1.

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 30th showing the overall seasonally adjusted Market Composite Index increased 2.9%.  The seasonally adjusted Purchase Index fell 0.1% from the prior week, while the Refinance Index increased 5.0%.  Overall, the refinance portion of mortgage activity increased to 63.8% of total applications from 62.7% in the prior week.  The adjustable-rate mortgage share of activity increased to 4.5% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.66% to 3.62% with points decreasing to 0.32 from 0.33.

To highlight the week, the Department of Labor’s monthly Employment Situation Summary (jobs report) triggered some “knee-jerk” reactions within the financial markets before settling down as traders tried to digest and interpret the data.

Overall, the September jobs report showed continued strength in the labor market despite the headline Nonfarm Payrolls number coming in at 156,000 compared to the consensus forecast of 176,000.  August’s Nonfarm Payrolls number was revised higher to 167,000 from 151,000.  Nonfarm Private Payrolls were reported at 167,000 versus the consensus forecast of 171,000 while the numbers for July and August were revised higher by a net 14,000 jobs.

The Unemployment Rate ticked higher to 5.0% from 4.9% in August indicating more people began looking for work as those unemployed for 27 weeks or more accounted for 24.9% of the unemployed versus 26.1% in August.

September Average Hourly Earnings rose by 0.2% to match the consensus estimate following a 0.1% gain in August.  Average Hourly Earnings have grown 2.6% versus 2.4% over the 12-month period ending in August.

The Average Workweek increased 0.1 to 34.4 hours to match the consensus forecast while the September manufacturing workweek increased 0.1 hour to 40.7 hours.  The labor force participation rate increased very slightly by 0.1% to 62.9% compared to 62.8% in August.

My analysis is this… Fed officials will take particular notice that the increase in the unemployment rate resulted from the improvement seen in the labor force participation rate.  They will also be acutely aware of the fact that the year-over-year Average Hourly Earnings growth of 2.6% is nearly the strongest it has been over the last seven years.  The data almost guarantees an interest rate hike in December (it is unlikely the Fed would raise rates just ahead of the Presidential election in November).  Indeed, the Fed Funds futures market is now reducing the odds of an interest rate hike at the November 2nd  FOMC meeting to 8.3% from 14.5% on Thursday while increasing the probability of a hike at the December 14th FOMC meeting to 64.0% from Thursday’s 55.1%.

For the week, the FNMA 3.0% coupon bond lost 43.8 basis points to end at $103.53 while the 10-year Treasury yield increased 11.74 basis points to end at 1.7234%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 67.66 points to end at 18,240.49.  The NASDAQ Composite Index dropped 19.59 points to close at 5,292.41, and the S&P 500 Index lost 14.53 points to close at 2,153.74.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 4.47%, the NASDAQ Composite Index has added 5.39%, and the S&P 500 Index has advanced 5.10%.

This past week, the national average 30-year mortgage rate increased to 3.53% from 3.39% while the 15-year mortgage rate increased to 2.90% from 2.84%.  The 5/1 ARM mortgage rate rose to 2.90% from 2.84%.  FHA 30-year rates increased to 3.35% from 3.25% and Jumbo 30-year rates increased to 3.68% from 3.53%.

Economic Calendar – for the Week of October 3, 2016

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

Economic Calendar - for the Week of October 3, 2016

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.53, -43.8 basis points) traded within a  69 basis point range between a weekly intraday high of $104.02 on Monday and a weekly intraday low of $103.33 on Friday before closing the week at $103.53.  The bond traded down to support and bounced slightly higher on Friday, and is setting up for a potential breakout from the angle created by its upper and lower trend lines which should take place this coming week.  An upward breakout through resistance would lead to an improvement in mortgage rates while a downward breakout would lead to slightly higher rates.  At this point in time, the chart below suggests a slightly higher probability for an upward breakout.

Chart:  FNMA 30-Year 3.0% Coupon Bond

Chart:  FNMA 30-Year 3.0% Coupon Bond

 

Tucson Mortgages Home Loan News 10-3-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of September 26, 2016
Economic Calendar – week of October 3, 2016
Mortgage Rate Forecast with Chart

 

Weekly Review

The stock market finished slightly higher following a week of volatile trading that saw a rally on Friday that wiped away most of the steep losses recorded on Thursday while the bond market managed to eke out modest gains with the yield on the 10-year Treasury note falling by just one basis point.

The volatility seen in the stock market was due to several factors including investor concerns about the financial integrity of Germany’s Deutsche Bank, increasing concerns over the terms of Great Britain’s exit from the European Union, and political uncertainty surrounding the first presidential debate.  A rebound in oil stocks helped to put a floor of support under the stock market following an agreement by OPEC to cut oil production for the first time in eight years beginning in November.

In housing, New Home Sales were reported for August showing a decline of 7.6% that was in line with analyst expectations.  While the mainstream financial media largely reports this as “disappointing,” they often do not tell the whole story.  July’s figure, which was the best figure in nine years, was revised even higher from 654,000 to 659,000.  This accounts for some of the decline reported for August, and naturally, we would expect a bit of a pullback for this month from such high levels reported for July.  For perspective, sales are now up over 20% on a year-over- year basis.  The Median Home Price fell 5.4% to $284,000, which is still strong but helps entry level buyers.  It should be noted that New Home Sales make up about 10% of the market, but overall this was a very strong report.

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Pending Home Sales, which measures signed contracts on existing homes, were also reported for the month of August and fell 2.4%.  This was a disappointing number and lower than the 0.5% gain expected.  For context, it should be noted that last month’s figure was twice as strong as analyst expectations and the second best number over the past 12 months.  With that being said, contracts on existing homes were slower, likely due to the low inventory levels we have been seeing.  Although this will negatively affect the amount of sales, it is very supportive of home prices.

Last Wednesday, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 23 showing the overall seasonally adjusted Market Composite Index decreased 0.7%.  The seasonally adjusted Purchase Index increased 1.0% from the prior week, while the Refinance Index decreased 2.0%.  Overall, the refinance portion of mortgage activity decreased to 62.7% of total applications from 63.1% in the prior week.  The adjustable-rate mortgage share of activity remained unchanged at 4.4% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.70% to 3.66% with points decreasing to 0.33 from 0.38 for 80 percent loan-to-value ratio loans.

For the week, the FNMA 3.0% coupon bond gained 9.4 basis points to end at $103.97 while the 10-year Treasury yield decreased 1.00 basis point to end at 1.6060%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 46.70 points to end at 18,308.15.  The NASDAQ Composite Index gained 6.25 points to close at 5,312.00, and the S&P 500 Index rose 3.58 points to close at 2,168.27.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 4.82%, the NASDAQ Composite Index has added 5.73%, and the S&P 500 Index has advanced 5.73%.

This past week, the national average 30-year mortgage rate decreased to 3.39% from 3.42% while the 15-year mortgage rate decreased to 2.73% from 2.78%.  The 5/1 ARM mortgage rate fell to 2.84% from 2.85%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates decreased to 3.53% from 3.58%.

 

Economic Calendar – for the Week of October 3, 2016

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

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Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.97, +9.4 basis points) traded within a narrower 40 basis point range between a weekly intraday high of $104.23 on Tuesday and a weekly intraday low of $103.83 on Friday before closing the week at $103.97.  After rising above the $104.02 resistance level early in the week, the bond had a tough time staying above this level and closed beneath it on Friday in volatile trading following a negative stochastic crossover sell signal on Thursday.  This sell signal suggests weaker prices will follow in the short-term this coming week that could result in slightly higher mortgage rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

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Tucson Mortgages Home Loan News 9-26-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of September 12, 2016
Economic Calendar – week of September 19, 2016
Mortgage Rate Forecast with Chart

Weekly Review

Mortgage bond and U.S. Treasury prices finished the week close to where they began, although the yield curve steepened somewhat as shorter-term yields declined slightly.  Early in the week, Treasury yields increased, but then dropped when weaker economic data provided investors more assurance the Fed will not raise interest rates until their December 14 FOMC meeting.

Weaker economic data released during the week included Retail Sales falling 0.3% in August while Industrial Production for August showed a 0.4% decline as did manufacturing, which accounts for 80% of total industrial output.

Still, the Labor Department reported inflation edged higher at the consumer level with the August Consumer Price Index (CPI) rising 0.2% compared to the consensus forecast of a 0.1% gain.  Rising rents (+0.3%) and healthcare costs (+1.0%) were cited as reasons for the unexpected increase in the CPI.  On an annual basis through August, the CPI has increased 1.1%.  When excluding volatile food and energy costs, the so-called Core CPI increased 0.3%, the largest increase since February.  The consensus forecast had called for only a 0.2% increase in the Core CPI.  The Core CPI has now increased 2.3% during the past 12 months through August.

However, the financial markets have virtually rejected a rate increase next week as the Fed Funds Futures market is now showing the implied probability of a rate hike has only increased to 15.0% on Friday from 12.0% on Thursday.  Many economists now expect the Fed will hike interest rates by 25 basis points in December as the probability of a rate hike at the December FOMC meeting has increased to 45.4% from 39.6% on Thursday.

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 10th showing the overall seasonally adjusted Market Composite Index increased 4.2%.  The seasonally adjusted Purchase Index rose 9.0% from the prior week, while the Refinance Index increased 2.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

For the week, the FNMA 3.0% coupon bond lost 3.1 basis points to end at $103.47 while the 10-year Treasury yield increased 1.94 basis points to end at 1.6943%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 38.35 points to end at 18,123.80.  The NASDAQ Composite Index gained 118.66 points to close at 5,244.57, and the S&P 500 Index rose 11.35 points to close at 2,139.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.86%, the NASDAQ Composite Index has added 4.52%, and the S&P 500 Index has advanced 4.45%.

This past week, the national average 30-year mortgage rate increased to 3.47% from 3.46% while the 15-year mortgage rate increased to 2.82% from 2.80%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.90%.  FHA 30-year rates increased to 3.30% from 3.25% and Jumbo 30-year rates increased to 3.62% from 3.60%.

Economic Calendar – for the Week of September 19, 2016

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

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Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.47, -3.1 basis points) traded within a narrower 56 basis point range between a weekly intraday high of $103.61 on Monday and a weekly intraday low of $103.05 on Tuesday before closing the week at $103.47.

The bond bounced higher off of support provided by the 100-day moving average at $103.23 and advanced toward overhead resistance located at the 25-day moving average at $103.64.  The slow stochastic oscillator is continuing to trend higher after showing a positive crossover buy signal this past Wednesday.  If stocks continue to show weakness this coming week, the bond should challenge resistance early in the week.  A break above resistance would result in a slight improvement in rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

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Tucson Mortgages Home Loan News 9-19-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of September 12, 2016
Economic Calendar – week of September 19, 2016
Mortgage Rate Forecast with Chart

Weekly Review

Mortgage bond and U.S. Treasury prices finished the week close to where they began, although the yield curve steepened somewhat as shorter-term yields declined slightly.  Early in the week, Treasury yields increased, but then dropped when weaker economic data provided investors more assurance the Fed will not raise interest rates until their December 14 FOMC meeting.

Weaker economic data released during the week included Retail Sales falling 0.3% in August while Industrial Production for August showed a 0.4% decline as did manufacturing, which accounts for 80% of total industrial output.

Still, the Labor Department reported inflation edged higher at the consumer level with the August Consumer Price Index (CPI) rising 0.2% compared to the consensus forecast of a 0.1% gain.  Rising rents (+0.3%) and healthcare costs (+1.0%) were cited as reasons for the unexpected increase in the CPI.  On an annual basis through August, the CPI has increased 1.1%.  When excluding volatile food and energy costs, the so-called Core CPI increased 0.3%, the largest increase since February.  The consensus forecast had called for only a 0.2% increase in the Core CPI.  The Core CPI has now increased 2.3% during the past 12 months through August.

However, the financial markets have virtually rejected a rate increase next week as the Fed Funds Futures market is now showing the implied probability of a rate hike has only increased to 15.0% on Friday from 12.0% on Thursday.  Many economists now expect the Fed will hike interest rates by 25 basis points in December as the probability of a rate hike at the December FOMC meeting has increased to 45.4% from 39.6% on Thursday.

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 10th showing the overall seasonally adjusted Market Composite Index increased 4.2%.  The seasonally adjusted Purchase Index rose 9.0% from the prior week, while the Refinance Index increased 2.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

For the week, the FNMA 3.0% coupon bond lost 3.1 basis points to end at $103.47 while the 10-year Treasury yield increased 1.94 basis points to end at 1.6943%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 38.35 points to end at 18,123.80.  The NASDAQ Composite Index gained 118.66 points to close at 5,244.57, and the S&P 500 Index rose 11.35 points to close at 2,139.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.86%, the NASDAQ Composite Index has added 4.52%, and the S&P 500 Index has advanced 4.45%.

This past week, the national average 30-year mortgage rate increased to 3.47% from 3.46% while the 15-year mortgage rate increased to 2.82% from 2.80%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.90%.  FHA 30-year rates increased to 3.30% from 3.25% and Jumbo 30-year rates increased to 3.62% from 3.60%.

 

Economic Calendar – for the Week of September 19, 2016

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

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Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.47, -3.1 basis points) traded within a narrower 56 basis point range between a weekly intraday high of $103.61 on Monday and a weekly intraday low of $103.05 on Tuesday before closing the week at $103.47.

The bond bounced higher off of support provided by the 100-day moving average at $103.23 and advanced toward overhead resistance located at the 25-day moving average at $103.64.  The slow stochastic oscillator is continuing to trend higher after showing a positive crossover buy signal this past Wednesday.  If stocks continue to show weakness this coming week, the bond should challenge resistance early in the week.  A break above resistance would result in a slight improvement in rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

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Tucson Mortgages Home Loan News 9-12-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of September 5, 2016
Mortgage Rate Forecast with Chart
Economic Calendar – week of September 12, 2016

Weekly Review

Bond and stock prices saw an increase in volatility this past week, rising early in the week before plunging over Thursday and Friday.  Treasury yields jumped on expectations for higher rates. The yield on the 10-year Treasury note reached its highest level since June as prices fell.

A surprising contraction in the Institute for Supply Management’s (ISM) Services Index propelled both bond and stock prices higher on Tuesday as traders felt the disappointing report would make the Federal Reserve less likely to raise interest rates at its upcoming meeting on September 21.

The ISM reported their Services Index retreated to 51.4 in August from July’s reading of 55.5.  The August ISM Services Index was the lowest since February 2010.  Digging a little deeper into the report showed the Business Activity Index falling considerably lower to 51.8 in August from 59.3 in July.  The New Orders Index also fell substantially to 51.4 from 60.3 in July and the Employment Index slipped to 50.7 in August from 51.4 in July.  The services sector of the economy is becoming more important as over 80% of Americans are employed in service-oriented businesses.

Near the end of the week, the stock and bond markets were hit with selling following the European Central Bank’s (ECB) decision to maintain its zero interest rate policy while leaving its quantitative easing program at its current level.  The ECB left its deposit rate unchanged at -0.40%; its main refinance rate unchanged at 0.0%; the marginal lending rate unchanged at 0.25%; and its asset purchase program unchanged at 80 billion euros per month.  Traders were disappointed the ECB decided not to extend the program’s asset purchases beyond its March 2017 expiration date.

Also weighing heavily on investor sentiment were “hawkish” comments made by Boston Fed President and FOMC voting member Eric Rosengren, who is traditionally seen as a prominent Fed “dove.”  Rosengren said a rate hike may be necessary as a preventative measure so certain sectors of the economy won’t overheat.  Rosengren noted the labor market continues to “gradually tighten” and “the combination of the relatively strong domestic demand and the restocking of inventories should provide a basis for growth to exceed 2% over the next two quarters.”

Rosengren also said he would be in favor of gradual interest-rate hikes, saying waiting too long risks some asset markets, like commercial real estate, becoming “too ebullient.”  These comments coming from a Fed official normally seen as “dovish” increased the belief that the Fed seems determined on hiking interest rates even if the economic data continues to be inconsistent and not that supportive for a rate hike.  The 30-day Fed Funds futures prices are currently predicting the probability for a September 21 rate hike at 24.0%.

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 2nd showing the overall seasonally adjusted Market Composite Index increased 0.9%.  The seasonally adjusted Purchase Index rose 1.0% from the prior week, while the Refinance Index also increased 1.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

For the week, the FNMA 3.0% coupon bond lost 12.5 basis points to end at $103.50 while the 10-year Treasury yield increased 6.74 basis points to end at 1.6749%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 406.51 points to end at 18,085.45.  The NASDAQ Composite Index dropped 123.99 points to close at 5,125.91, and the S&P 500 Index lost 52.17 points to close at 2,127.81.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.65%, the NASDAQ Composite Index has added 2.31%, and the S&P 500 Index has advanced 3.94%.

This past week, the national average 30-year mortgage rate increased to 3.46% from 3.42% while the 15-year mortgage rate increased to 2.80% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.90% from 2.85%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.60% from 3.53%.

 

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.50, -12.5 basis points) traded within a wider 63 basis point range between a weekly intraday high of $104.08 on Wednesday and a weekly intraday low of $103.45 on Friday before closing the week at $103.50.

A sell signal on Thursday from a three-day Evening Star candlestick pattern forecast market weakness on Friday and turned out to be accurate as the bond continued to decline, falling below a dual level of support provided by the 50-day and 25-day moving averages at $103.74 and $103.72 respectively.  These moving averages will now revert to overhead resistance levels.  The next level of support is found at the 38.2% Fibonacci retracement level at $103.15.  Also, the slow stochastic oscillator now shows a negative crossover sell signal suggesting further market weakness lies ahead.  If this signal proves to be reliable we could see a slight worsening in mortgage rates this week.

Chart:  FNMA 30-Year 3.0% Coupon Bond

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Economic Calendar – for the Week of September 5, 2016

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

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Tucson Mortgages Home Loan News 9-6-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of August 29, 2016
Mortgage Rate Forecast with Chart
Economic Calendar – week of September 5, 2016
Federal Reserve FOMC Meeting Schedule & Current Rate Hike Probability

Weekly Review

Bond and stock prices recorded modest gains for the week when investors realized the week’s economic data was not that supportive for a 25 basis point rate hike at Federal Reserve’s September FOMC meeting despite several Fed officials suggesting such a rate hike could take place.

To start the week, the Commerce Department reported Personal Income rose 0.4% in July following a 0.3% increase in June.  Subtracting personal current taxes from Personal Income to calculate disposable personal income showed an increase in disposable personal income of 0.4%.  After adjusting for price changes, Real Spending grew 0.3% in July following a rise of 0.4% in June.  Both Personal Income and Spending matched their consensus forecast.  With Disposable Income increasing 0.1% more than Real Spending, the personal savings rate edged higher to 5.7% in July from 5.5% in June.

Also, the Federal Reserve’s favorite measure of inflation, Core PCE prices, increased by 0.1% in July to match the consensus forecast and June’s increase of 0.1%.  The annual rate of growth in Core PCE prices, which exclude food and energy prices, held steady at 1.6% for the fifth straight month.   Inflation is not advancing toward the Fed’s stated target of 2.0% at least as measured by Core PCE prices and the stock and bond markets both responded with a relief rally.

The week’s most anticipated economic data arrived Friday in the form of the monthly Employment Situation Summary totaling payroll gains for August.  Investors appeared to be relieved that employers only added 151,000 Nonfarm Payroll jobs in August, missing the consensus forecast of 180,000 by 29,000 jobs.  Furthermore, June’s Nonfarm Payrolls number was revised lower by 21,000 while July’s number was revised higher by 20,000 for a combined two-month revision of 1,000 lower.  The miss in payroll gains will likely prevent the Federal Reserve from raising rates at their September and November FOMC meetings.

In housing, the National Association of Realtors (NAR) reported their Pending Home Sales Index rose more than expected in July with a reading of +1.3% to 111.3, the second highest reading in over a decade.  Analysts had forecast an increase of just 0.7%.  June Pending Sales were downwardly revised to a decline of 0.8% from an initial reading of +0.2%.  Year-over-year, the Pending Home Sales Index is 1.4% higher than it was in July 2015.  NAR chief economist Larry Yun remarked there would be even greater Pending Home Sales activity right now if there were more affordable listings on the market.

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As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 26th showing the overall seasonally adjusted Market Composite Index increased 2.8%.  The seasonally adjusted Purchase Index rose 1.0% from the prior week, while the Refinance Index increased 4.0%.  Overall, the refinance portion of mortgage activity increased to 63.5% of total applications from 62.4%.  The adjustable-rate mortgage share of activity fell to 4.5% from 4.6% of total applications the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 3.67% with points paid decreasing to 0.33 from 0.34.

For the week, the FNMA 3.0% coupon bond gained 10.9 basis points to end at $103.63 while the 10-year Treasury yield decreased 2.04 basis points to end at 1.6075%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 96.56 points to end at 18,491.96.  The NASDAQ Composite Index advanced 30.98 points to close at 5,249.90, and the S&P 500 Index gained 10.94 points to close at 2,179.98.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 5.77%, the NASDAQ Composite Index has added 4.62%, and the S&P 500 Index has advanced 6.24%.

This past week, the national average 30-year mortgage rate decreased to 3.42% from 3.43% while the 15-year mortgage rate decreased to 2.76% from 2.77%.  The 5/1 ARM mortgage rate fell to 2.85% from 2.86%.  FHA 30-year rates held steady at 3.25% as did Jumbo 30-year rates at 3.53%.

 

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.63, +10.9 basis points) traded within a slightly wider 50 basis point range between a weekly intraday high of $104.00 on Friday and a weekly intraday low of $103.50 on Monday and Thursday before closing the week at $103.63.

The two largest intraday market moves by the bond took place on Monday with the release of the July Personal Income and Spending report and Friday with the August Employment Situation Summary.  In both instances, bond prices shot higher immediately following the economic news.  However, bond prices held on Monday but retreated on Friday when the stock market gained traction after traders realized there was less risk of a rate hike at September’s Federal Reserve FOMC meeting due to soft employment data.

Friday’s trading action resulted in an initial move well above the 50 and 25-day moving average (MA) resistance levels located at $103.69 and $103.71 respectively.  This move then failed as the bond’s price fell back below these levels creating a weak candlestick and a negative stochastic crossover sell signal suggesting a possible further decline.  The 38.2% Fibonacci retracement level at $103.15 continues as the nearest support level.  If the stock market continues higher this week and pressures the bond market lower, we could see a slight deterioration in mortgage rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

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Economic Calendar – for the Week of September 5, 2016

The economic calendar shrinks this coming week with only a few reports of any significance. Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

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** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.
* Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairman. 

Tucson Mortgages Home Loan News 8-29-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of August 22, 2016
Mortgage Rate Forecast with Chart
Economic Calendar – week of August 29, 2016
Federal Reserve FOMC Meeting Schedule & Current Rate Hike Probability

 

Weekly Review

Bond prices fell and yields rose, predominately on Friday, as a greater number of investors came to the realization that the Federal Reserve’s Federal Open Market Committee (FOMC) could raise interest rates as soon as their next meeting on September 20-21.  The financial markets essentially “tread water” during the week in anticipation of what Fed Chair Janet Yellen would say about future monetary policy during the Fed’s annual Jackson Hole symposium late Friday morning.

While Yellen didn’t specify when the FOMC might raise interest rates, she stated the FOMC “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.  Indeed, In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”  She also commented that the Fed still believes future rate increases should be “gradual” and data dependent.

Speaking of data dependency, Fed Vice Chair Stanley Fischer previously said the August Employment Situation Summary (Jobs Report) would be a major factor in determining the FOMC’s decision on whether or not to raise rates at their September meeting on September 21.  As a result, the next jobs report scheduled to be released on Friday, September 2 will take on added significance for investors.

In housing news, New Home Sales reached their highest level in almost nine years during July by climbing an extremely robust 12.4% to a seasonally adjusted annual rate of 654,000 units.  The consensus forecast had been for a reading of 580,000 homes.  June’s sales rate was revised lower to 582,000 units from the previously reported 592,000 units.  On an annual basis, New Home Sales were 31.3% higher than a year ago.  New home inventory fell 2.9% to 233,000 units, the lowest level since November 2015 and at July’s sales pace it would only take 4.3 months to clear the current supply of new houses on the market.  The median sale price for a new home was reported at $294,600, a 0.5% decline from a year ago.

Additionally, the US Federal Housing Finance Agency (FHFA) released their Housing Price Index for June showing a 0.2% increase following a 0.2% gain in May.  Economists had expected a slightly stronger gain of 0.3%.  According to the FHFA, housing prices have gained 5.6% from the second quarter of 2015.

Furthermore, the National Association of Realtors reported Existing Home Sales fell 3.2% in July to a seasonally adjusted annual rate of 5.39 million units.  Existing Sales were 1.6% lower than the year ago period and were below the consensus forecast of 5.54 million but still remain strong.  The median home price increased to $244,100, a 5.3% gain from the year ago period.  The dip in sales in July may be temporary however as there may have been a bottleneck in the sales process due to delays with appraisals.  Many real-estate agents have complained about delays with appraisals so if this problem gets resolved, sales going forward could pick up.

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As for mortgage lending, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 19th showing the overall seasonally adjusted Market Composite Index decreased 2.1%.  The seasonally adjusted Purchase Index fell 0.3% from the prior week, while the Refinance Index decreased 3.0%.  Overall, the refinance portion of mortgage activity increased to 62.4% of total applications from 62.6%.  The adjustable-rate mortgage share of activity was unchanged from 4.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.64% to 3.67% with points increasing to 0.34 from 0.31.

For the week, the FNMA 3.0% coupon bond lost 1.5 basis points to end at $103.52 while the 10-year Treasury yield increased 4.81 basis points to end at 1.6279%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 157.17 points to end at 18,395.40.  The NASDAQ Composite Index dropped 19.46 points to close at 5,218.92, and the S&P 500 Index fell 14.83 points to close at 2,169.04.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 5.28%, the NASDAQ Composite Index has added 4.05%, and the S&P 500 Index has advanced 5.77%.

This past week, the national average 30-year mortgage rate decreased to 3.41% from 3.42% while the 15-year mortgage rate decreased to 2.75% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.86% from 2.85%.  FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.51% from 3.53%.

 

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.52, -1.50 basis points) traded within a wider 44 basis point range between a weekly intraday high of $103.88 on Friday and a weekly intraday low of $103.44, also on Friday, before closing the week at $103.52.

The bond initially moved higher ahead of Janet Yellen’s speech Friday morning and continued to trade a little higher immediately afterward.  However, when traders heard subsequent comments made by Vice Chair Stanley Fischer during an interview on CNBC two hours later, they felt there was increased “hawkish” sentiment among Fed officials.  Fischer said the comments in Yellen’s speech “were consistent with the idea there could be a rate hike in September and again later in the year,” and this helped to trigger a sell-off in bonds Friday afternoon.

The day’s action resulted in move below the 25 and 50-day moving averages (MA) located at $103.696 and $103.61 respectively.  The 50-day MA reverts to closest resistance while the 38.2% Fibonacci retracement level at $103.15 becomes the next support level.  The slow stochastic oscillator now shows a solid negative crossover sell signal with the %K line falling below the %D line suggesting a continuing move lower in bond prices that may result in slightly higher rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 8-29b

 

Economic Calendar – for the Week of August 29, 2016

The economic calendar features several reports on the labor sector highlighted by the August Employment Situation Summary (Jobs Report) on Friday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

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** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

* Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairman.
 

Tucson Mortgages Home Loan News 8-22-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of August 15, 2016
Mortgage Rate Forecast with Chart
Economic Calendar – week of August 22, 2016
Federal Reserve FOMC Meeting Schedule & Current Rate Hike Probability

 

Weekly Review

Bond prices slipped lower during the week and yields increased slightly while the major stock market indexes ended mixed and little changed.

Investors primarily focused their attention on comments made by Federal Reserve officials throughout the week who said they would like to see a rate hike ‘sooner rather than later.”  The potential negative implications a rate hike would have on both stocks and bonds prompted investors to “take some money off of the table” in both stocks and bonds.

After the close of trading on Thursday, San Francisco Fed President John Williams echoed the case made earlier in the week by colleagues William Dudley (New York Fed President) and Dennis Lockhart (Atlanta Fed President) for an interest rate hike presumably sometime during the fourth quarter of this year.

Williams stated in remarks to the Anchorage Economic Development Corporation “In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.  If we wait until we see the whites of inflation’s eyes, we don’t just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark,” he said.  “And that creates its own risks of a hard landing or even a recession.”

Although Williams is not an FOMC voter this year, his opinions are highly respected by voting FOMC members due to his longstanding and close relationship with Fed Chair Janet Yellen, his former boss at the San Francisco Fed.  Investors were also cautious ahead of next week’s annual Jackson Hole Symposium hosted by the Federal Reserve Bank of Kansas City where it is anticipated Fed Chair Janet Yellen will present a rationale for gradually increasing interest rates.

The week’s economic news continued to provide a mixed view of the economy.  Housing Starts and Industrial Production were reported higher than forecast in July while the New York Empire State Manufacturing Index and the Philadelphia Fed Manufacturing Survey for August disappointed investors.  Inflation measures were benign with the Consumer Price Index (CPI) for July showing inflation growth of 0.0% while the Core CPI, which excludes volatile food and energy prices, grew at a 0.1% pace to come in below the consensus forecast of 0.2%.  However, the shelter sub-index increased 0.2% in July following a 0.4% rise in May and a 0.3% increase in June.  The sub-indexes for rent and owners’ equivalent rent both increased 0.3% in July, while the index for lodging away from home turned lower, falling 2.4% after increasing in May and June.

In housing, the National Association of Homebuilders (NAHB) reported homebuilder sentiment improved in August with a reading of 60.0 in their monthly housing market index.  The reading topped the consensus forecast of 59.0 and was above a downwardly revised reading of 58.0 for July.  There were improvements in two of the three index components.  The Current Sales Index climbed two points to 65 and the Future Sales Index, a measure of six-month sales outlook rose to 67 from 66.  The measure of prospective buyer traffic slipped one point to 44 from 45.

Elsewhere, the Census Bureau reported Housing Starts reached an annual rate of 1,211,000 homes in July, a 2.1% increase from June’s 1,186 million homes under construction and the highest level since February.  Housing Starts have been above the one million annualized pace for more than a year. The Northeast region led the way with a 15.5% surge in Starts while smaller gains were recorded in the Midwest and Southern regions.  Additionally, Building Permits were little changed in July, coming in just 1,000 less than June’s reading of 1,153K on an annualized basis.  Permits are a more forward-looking metric than Starts and the strength and steadiness seen in Permits attests to the staying power of this long and impressive recovery by the core housing sector.

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As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 12th showing the overall seasonally adjusted Market Composite Index decreased 4.0%.  The seasonally adjusted Purchase Index fell 4.0% from the prior week, while the Refinance Index decreased 4.0%.  Overall, the refinance portion of mortgage activity increased to 62.6% of total applications from 62.4%.  The adjustable-rate mortgage share of activity decreased to 4.6% from 4.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.65% to 3.64% with points decreasing to 0.31 from 0.34.

For the week, the FNMA 3.0% coupon bond lost 25.0 basis points to end at $103.53 while the 10-year Treasury yield decreased 6.97 basis points to end at 1.5798%.  Stocks ended the week mixed with the Dow Jones Industrial Average losing 23.90 points to end at 18,552.57.  The NASDAQ Composite Index advanced 5.48 points to close at 5,238.38, and the S&P 500 Index fell 0.18 of a point to close at 2,183.87.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 6.08%, the NASDAQ Composite Index has added 4.41%, and the S&P 500 Index has advanced 6.41%.

This past week, the national average 30-year mortgage rate increased to 3.42% from 3.37% while the 15-year mortgage rate increased to 2.76% from 2.73%.  The 5/1 ARM mortgage rate rose to 2.85% from 2.80%.  FHA 30-year rates increased to 3.25% from 3.15% while Jumbo 30-year rates increased to 3.53% from 3.47%.

 

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.53, -23 basis points) traded within a narrower 36 basis point range between a weekly intraday high of $103.81 and a weekly intraday low of $103.45 before closing at $103.53 on Friday.

Chart:  FNMA 30-Year 3.0% Coupon Bond

 8-22b

The bond has displayed a sideways consolidation over the past three weeks characterized by choppy trading in and around the 25-day moving average as it converges with the 50-day moving average.  The 25 and 50-day moving averages define closest resistance and support respectively and the bond is getting squeezed between the two to set up the potential for a strong breakout in one direction or the other.

The direction of the pending breakout is currently unclear but may be triggered by economic news next week, especially news from the annual Jackson Hole Symposium hosted by the Federal Reserve Bank of Kansas City.  The theme of this year’s conference is “designing resilient monetary policy frameworks.”  The Jackson Hole Symposium is widely seen as a prime stage for Fed chairs to deliver important messages, and the speech next Friday from Federal Reserve Chairwoman Janet Yellen could result in a significant market move.

 

Economic Calendar – for the Week of August 22, 2016

The economic calendar features several reports on housing on Tuesday and Wednesday in addition to Durable Goods Orders and the 2nd estimate of GDP for the second quarter on Thursday and Friday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

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** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

* Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairman.
 

Tucson Mortgages Home Loan News 8-15-2016

By Todd Abelson NMLS #180858 on .

Weekly Review: week of August 8, 2016
Mortgage Rate Forecast with Chart
Economic Calendar – week of August 15, 2016
Federal Reserve FOMC Meeting Schedule & Current Rate Hike Probability

Weekly Review

Bond prices improved and yields declined with 10-year Treasury note yields falling to their lowest level since the beginning of August after the release of economic news on Friday morning showing flat retail sales in July and the largest drop in producer prices in almost a year.

Also, the major stock market indexes – the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ Composite Index, all set record highs on Thursday, a conjunction that hasn’t happened since December 31, 1999.  Before we cheer this occurrence, within three months after the last time it happened in 1999, the stock market began a free-fall through September 2002.  By then, the NASDAQ ended up losing nearly 80% of its value, the S&P 500 ended up losing 43% of its value and the Dow Jones Industrial Average ended with a 27% decline.

On Tuesday, what little economic news there was wasn’t particularly encouraging.  The Labor Department reported 2nd quarter Preliminary Productivity, measured as the output of goods and services produced by American workers per hour worked, fell at a 0.5% seasonally adjusted annual rate as hours worked increased faster than output.  This is the third consecutive quarter of declining Productivity, the longest such string of declines since 1979.  Productivity was also down 0.4% from the year ago period, the first annual decline in three years and just the sixth year-over-year decline recorded since 1982.  The dismal Productivity report suggests worker income could stagnate along with economic growth in coming years.

Wednesday, equity markets were generally lower on a drop in crude oil prices while weaker economic news in Europe helped to send bond prices higher and yields moving lower as investors continued to try and acquire the best yielding sovereign bonds globally.

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 5th showing the overall seasonally adjusted Market Composite Index increased 7.1%.  The seasonally adjusted Purchase Index rose 3.0% from the prior week, while the Refinance Index increased 10.0%.  Overall, the refinance portion of mortgage activity increased to 62.4% of total applications from 60.7%.  The adjustable-rate mortgage share of activity was unchanged at 4.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.67% to 3.65% with points decreasing to 0.34 from 0.30.

Thursday, bond prices tumbled following a sharp 4% bounce higher in oil prices, solid economic data, and a lackluster Treasury auction of 30-year bonds.  The Treasury also conducted a $15 billion 30-year bond auction having a high yield of 2.274% with a bid-to-cover ratio of 2.24 that was less than the 12-auction average of 2.36 indicating tepid demand.  Indirect bidders (foreign central banks) bought 61.5% of the supply while direct bidders took 10.9% of the issue.  Bond prices fell following the auction.

Friday brought disappointing economic news out of China, and here domestically, to put a damper on the stock market despite higher crude oil prices, allowing a rebound to take place in the bond market with the yield on 10-year Treasuries falling during the morning to their lowest level since August 1.  Bond prices then subsequently pulled back from their best levels during afternoon trading.  Weaker than forecast industrial production, retail sales, and fixed-asset investment in China helped to curb investor enthusiasm while softer-than-expected readings on U.S. Producer Prices and Retail Sales suggested U.S. inflation may not be gaining enough steam to meet the Federal Reserve’s stated target of 2%.

Producer prices as measure by the Producer Price Index (PPI) recorded their largest decline in nearly a year in July on declining costs for services and energy products.  The PPI easily missed the consensus forecast of a flat 0.0% with a reading of -0.4%.  Also, when excluding costs for food and energy, the so-called Core PPI fell 0.3% versus a forecast of +0.2%.

Meanwhile, the Commerce Department reported Retail Sales were at a flat 0.0% for July, missing the consensus forecast calling for a 0.4% increase, as consumers cut back on purchases of clothing and other goods.  Retail Sales excluding auto and truck sales declined 0.3% compared to expectations for a +0.2% increase.  Overall, Retail Sales have risen 2.3% on a year-over-year basis.

Bond investors savored the sour PPI and Retail Sales news because economists who had been predicting a surge in third-quarter growth might have to trim their forecasts.  Bond investors also know this data feeds into the equation where lower inflation plus lower economic growth equals lower interest rates.  This latest batch of economic data could also give the Federal Reserve pause to raise interest rates.  The latest readings from the CME Group’s FedWatch tool shows investors have reduced their expectations the Fed would raise rates before the end of the year.  Traders now see a 40% chance the Fed will hike interest rates by its December 14 meeting, versus a 44.9% chance on Thursday.

For the week, the FNMA 3.0% coupon bond gained 14.0 basis points to end at $103.78 while the 10-year Treasury yield decreased 7.2 basis points to end at 1.5101%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 32.94 points to end at 18,576.47.  The NASDAQ Composite Index advanced 11.78 points to close at 5,232.90, and the S&P 500 Index gained 1.18 points to close at 2,184.05.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 6.20%, the NASDAQ Composite Index has added 4.31%, and the S&P 500 Index has advanced 6.42%.

This past week, the national average 30-year mortgage rate decreased to 3.37% from 3.41% while the 15-year mortgage rate decreased to 2.73% from 2.75%.  The 5/1 ARM mortgage rate fell to 2.80% from 2.85%.  FHA 30-year rates dropped to 3.15% from 3.25% while Jumbo 30-year rates decreased to 3.47% from 3.55%.

 

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.78, +14 basis points) traded within a narrower 40 basis point range between a weekly intraday high of $103.95 and a weekly intraday low of $103.55 before closing at $103.78 on Friday.

Chart:  FNMA 30-Year 3.0% Coupon Bond

 8-15a

Choppy, see-saw trading was evident Wednesday through Friday when most of the week’s economic news was released.  Thursday’s substantial downward move was partially erased when the bond shot 23 basis points above the 25-day moving average located at $103.72 on Friday only to pull back 15 basis points by the close of trading.  This pullback on Friday from the intraday high price resulted in a weak “shooting star” type of candlestick with a long upper shadow or wick calling into question the ability of the 25-day moving average to hold as support when trading resumes on Monday.

If the bond can bounce higher from the 25-day moving average and continue toward resistance located at the 23.6% Fibonacci retracement level this coming week, mortgage rates should improve.  If the 25-day moving average fails to hold as support and the bond continues to decline from that point, mortgage rates would slightly increase.

 

Economic Calendar – for the Week of August 15, 2016

The economic calendar features a couple of reports on regional manufacturing and housing that will be of interest to traders including the New York Empire State Manufacturing Index on Monday; the Philadelphia Fed Manufacturing Survey on Thursday; and Housing Starts and Building Permits on Tuesday.  Inflation at the consumer level as measured by the Consumer Price Index will also be of interest on Tuesday as will the latest set of minutes from the Federal Reserve’s July 27 FOMC meeting on Wednesday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

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** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

* Meeting associated with a Summary of Economic Projections and a press conference by the Chairman.