Tucson Mortgages Home Loan News 8-12-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of August 5, 2019
  • Economic Calendar – week of August 12, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indexes saw a sharp increase in volatility during the week enduring the worst trading day of the year on Monday.  The markets then spent the rest of the week trying to recover most of their losses with the Dow Jones Industrial Average only losing 0.8%, the Nasdaq Composite losing just 0.6%, and the S&P 500 only down 0.5%.

Last Monday’s sell-off was triggered by China’s devaluation of its currency the yuan, allowing it to weaken beyond seven yuan per dollar in an effort to counteract President Trump’s latest China tariff announcement.  Also weighing on stocks were plunging U.S. Treasury yields resulting in a further flattening of the yield curve along with an announcement by China they were suspending U.S. agricultural purchases.  China’s currency devaluation was the greatest in 10 years prompting the U.S. to label China as a currency manipulator.

The flattening yield curve narrowed the spread between the 2-year (1.63%) and 10-year (1.74%) treasury yields instilling a degree of fear among some investors.  The 2-year / 10-year yield spread narrowed to its lowest difference since 2007, and when this spread “inverts” with the 2-year yield greater than the 10-year yield it is widely viewed as an indicator for a pending economic recession.

However, interest rates are currently either zero or negative in many countries.  There are 21 countries with central banks having zero interest rates and the European Central Bank, Japan, Sweden, Denmark, Switzerland and a number of private German banks currently have negative interest rates.  Negative rates are about the only tool many central banks have left to use in an effort to stimulate their economies, so it is likely this low interest rate environment will persist globally.  Low or negative interest rates will likely lead to an increase or expansion in asset values of real estate and equities.

The week’s economic calendar was light.  Labor market indicators remained strong with June job openings exceeding expectations while weekly jobless claims were less than forecast.  Friday, the Labor Department reported core producer prices, which exclude food and energy prices, had dropped 0.1% July, marking the first decline since 2017.  This decline in wholesale inflation helps to support the view the Federal Reserve will continue to cut short-term interest rates.  Indeed, the Fed funds futures market is currently pricing in an 88% probability for at least two more quarter-point rate cuts by the end of this year.

In housing last Tuesday, CoreLogic released its Home Price Index (HPI) and HPI Forecast for June 2019 showing home prices rose both year-over-year and month-over-month.  From June 2018, home prices increased nationally by 3.4%.

On a month-over-month basis, prices in June increased by 0.4%.  Single-family home prices are at an all-time high and continue to increase on an annual basis with CoreLogic forecasting an annual price growth increase of 5.2% from June 2019 to June 2020.  On a month-over-month basis, CoreLogic is forecasting home prices to increase by 0.5% from June 2019 to July 2019.  CoreLogic’s chief economist, Dr. Frank Nothaft, had this to say about home prices “Tepid home sales have caused home prices to rise at the slowest pace for the first half of a year since 2011.  Price growth continues to be faster for lower-priced homes, as first-time buyers and investors are both actively seeking entry-level homes.  With incomes up and current mortgage rates about 0.8 percentage points below what they were one year ago, home sales should have a better sales pace in the second half of 2019 than a year earlier, leading to a quickening in price growth over the next year.”

Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased 5.3% from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) rose 5.3% for the week ended August 2, 2019.  The seasonally adjusted Purchase Index declined 2% from a week prior while the Refinance Index increased 12.0%.  Overall, the refinance portion of mortgage activity increased to 53.9% from 50.5% of total applications from the prior week.  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 to 4.01% from 4.08% with points increasing to 0.37 from 0.34 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 3.5% coupon bond finished 12.5 basis points lower to close at $102.578 while the 10-year Treasury yield decreased 11.04 basis points to end at 1.745%.  The Dow Jones Industrial Average fell 197.57 points to close at 26,287.44.  The NASDAQ Composite Index dropped 44.93 points to close at 7,959.14.  The S&P 500 Index lost 13.40 points to close at 2,918.65.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 12.69%, the NASDAQ Composite Index has gained 19.95%, and the S&P 500 Index has advanced 16.43%.

This past week, the national average 30-year mortgage declined to 3.64% from 3.70%; the 15-year mortgage rate decreased to 3.32% from 3.38%; the 5/1 ARM mortgage rate fell to 3.45% from 3.60%; and the FHA 30-year rate remained unchanged at  3.25%.  Jumbo 30-year rates decreased to 3.71% from 3.80%.

Economic Calendar – for the Week of August 12, 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 ($102.578; -12.50 bp) traded within a narrower 48.4 basis point range between a weekly intraday low of $102.50 on Thursday and Friday and a weekly intraday high of 102.984 on Monday before closing the week at $102.578 on Friday.

Mortgage bonds traded lower on a sell signal generated last Tuesday from a slow stochastic crossover while “overbought.”  The bond managed to pop above the horizontal consolidation zone highlighted in the chart below as a yellow rectangle last Monday.  However, it trended back into this zone during the remainder of the week and appears headed for a test of dual support located at $102.453 and the 38.2% Fibonacci level at $102.346.  We could see a bounce higher off of these support levels this coming week resulting in stable mortgage rates, but a breach of support could result in slightly worse rates.