Tucson Mortgages Home Loan News 7-1-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of June 24, 2019
  • Economic Calendar – week of July 1, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

Stock market trading was rather restrained this past week with investors mostly biding time on the sidelines as world leaders met in Osaka, Japan at the G-20 Summit on Friday and Saturday.  Although the S&P 500 Index retreated 0.3% this week it still recorded a 6.9% increase for the month, its best June performance since 1955.

Investors anxiously waited for any news concerning international trade coming out of a scheduled meeting between President Trump and China’s President Xi Jinping during the G-20 after the market’s close on Friday.  Earlier on Wednesday, Treasury Secretary Steven Mnuchin stated he estimated trade negotiators were “90% of the way there” in reaching a trade deal.  Saturday morning, it was reported President Trump and President Xi Jinping had reached an agreement to restart trade negotiations.  President Trump stated the U.S. would not add tariffs on an additional $300 billion worth of Chinese imports and would continue to negotiate with China “for the time being.”  In what is being viewed as a significant concession to break a negotiation impass, Trump revealed he would allow U.S. companies to continue to sell electronics components to Chinese technology giant Huawei “where there’s no great national security problem.”  As a result, we might see the stock market open the week with a rally on Monday.

The week’s economic data was reported mostly lower than consensus forecasts.  Measures of manufacturing activity in the Chicago, Dallas, and Kansas regions unexpectedly fell into contraction with readings below “50,” and overall durable goods orders declined far more than forecast in May. Although personal spending and income data showed solid gains in May, weekly jobless claims climbed more than expected and consumer confidence fell sharply in June, reaching its lowest level in almost two years due to “a less favorable assessment of business and labor market conditions.”

In housing last Tuesday, the Federal Housing Finance Agency released its House Price Index (HPI) for April showing house prices rose 0.4% for the month from March.

The previously reported 0.1% increase for March 2019 remained unchanged.

From April 2018 to April 2019, house prices were up 5.2%.

For the nine census divisions, seasonally adjusted monthly house price changes from March 2019 to April 2019 ranged from -0.6% in the West North Central division to +1.2% in the Mountain division.

The 12-month changes were all positive, ranging from +4.0% in the Middle Atlantic division to +7.8% in the Mountain division.

Also Tuesday, the Commerce Department reported New Home Sales declined 7.8% month-over-month in May to a seasonally adjusted annual rate of 626,000.  This was just below the consensus forecast of 683,000 and lower than an upwardly revised 679,000 in April.  Sales were 3.7% lower from a year ago.

Weaker sales activity in the West region was a major contributing factor for the lower than expected results with sales there down 35.9% month-over-month.

Sales were also down 17.6% in the Northeast region.  However, sales were 6.3% and 4.9% higher in the Midwest and South regions respectively.

The inventory of new homes for sale increased to a 6.4-month supply from a 5.9-month supply in April.  Homes priced below $400,000 accounted for 70% of new homes sold versus 66% in April.  The median new house price declined 2.7% from a year ago to $308,000 in May.  Even though there was a decline in mortgage rates and the median sales price, demand for new homes was relatively soft in May.

Thursday, the National Association of Realtors (NAR) reported their Pending Home Sales Index rose 1.1% to 105.4 in May from 104.3 in April.  However, year-over-year contract signings fell 0.7%, marking the 17th straight month of annual decreases.

Regionally, the pending home sales index in the Northeast increased 3.5% to 92.0 in May and is now 0.5% below a year ago.  In the Midwest, the index rose 3.6% to 100.3 in May, 1.2% lower than May 2018.

Pending home sales in the South edged 0.1% higher to an index of 124.1 in May, which is 0.7% higher than last May.  The index in the West declined 1.8% in May to 91.8 and was 3.1% lower than a year ago.

NAR Chief Economist Lawrence Yun remains optimistic saying “Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers.  Buyers, for good reason, are anxious to purchase and lock in at these rates.  The Federal Reserve may cut interest rates one more time this year, but there is no guarantee mortgage rates will fall from these already historically low points.  Job creation and a rise in inventory will nonetheless drive more buyers to enter the market.  Home builders have not ramped up construction to the extent that is needed.”

Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased 1.3% from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) rose 1.3% for the week ended June 21, 2019.  The seasonally adjusted Purchase Index declined 1% from a week prior while the Refinance Index increased 3%.  Overall, the refinance portion of mortgage activity increased to 51.5% from 50.2% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 6.5% of total applications from 6.1%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.06% from 4.14% with points increasing to 0.35 from 0.38 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 3.5% coupon bond gained 6.3 basis points to close at $102.188 while the 10-year Treasury yield decreased 5.20 basis points to end at 2.007%.  The Dow Jones Industrial Average fell 119.17 points to close at 26,599.96.  The NASDAQ Composite Index dropped 25.47 points to close at 8,006.24.  The S&P 500 Index lost 8.70 points to close at 2,941.76.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 14.03%, the NASDAQ Composite Index has gained 20.66%, and the S&P 500 Index has advanced 17.35%.

This past week, the national average 30-year mortgage rate moved to 3.81% from 3.80%; the 15-year mortgage rate decreased to 3.61% from 3.62%; the 5/1 ARM mortgage rate fell to 3.66% from 3.72%; and the FHA 30-year rate was unchanged at 3.60%.  Jumbo 30-year rates decreased to 3.87% from 3.88%.

Economic Calendar – for the Week of July 1, 2019

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

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

The FNMA 30-year 3.5% coupon bond ($102.188; +6.3 bp) traded within a narrower 26.5 basis point range between a weekly intraday low of $102.016 on Wednesday and a weekly intraday high of 102.281 on Thursday before closing the week at $102.188 on Friday.

As last week’s technical chart suggested, mortgage bonds traded within a relatively narrow range between nearest support and resistance levels.  The 23.6% Fibonacci retracement level is becoming more formidable as technical resistance while the 25-day moving average serves as support.  As such, we could continue to see the bond trade sideways between these levels.

The bond is currently trading on a weak sell signal generated on Monday, June 24 from a negative crossover in the slow stochastic oscillator.  The week may start out with stocks rallying from news that trade negotiations with China are resuming, and if this happens we could see additional pressure on bond prices early in the week with the bond trading toward support and mortgage rates edging a little higher.  However, on Friday the June Jobs Report will be released.  If the payrolls numbers come in weaker than forecast, we could see a bounce higher in bond prices and slightly lower mortgage rates.  Either way, rates shouldn’t make a significant move in either direction.