Tucson Mortgages Home Loan News 8-19-2019

By Todd Abelson NMLS #180858 on .
  • Weekly Review: week of August 12, 2019
  • Economic Calendar – week of August 19, 2019
  • Mortgage Rate Forecast with Chart

Weekly Review

The major stock market indexes recorded their third consecutive week of losses as trade and economic growth concerns negatively impacted investor sentiment.  Some investors may have also been demoralized by a short-lived Treasury yield inversion that took place last Wednesday when the yield of the 10-year Treasury note fell below that of the two-year note.

Historically, such inversions have preceded a number of past economic recessions that have taken as long as two years to show up after an inversion.  However, the inversion was very short-lived as Thursday saw the 10-year Treasury yield climb back above that of the two-year note resulting in a slightly positive yield curve.  Furthermore, other factors including the current bond market environment where large central banks around the globe are holding vast quantities of government debt will likely make yield curve inversions a far less reliable indicator of future recessions.

Typically, what has happened in past yield curve inversions is short-term rates rise faster than long-term rates resulting in higher borrowing costs that reduce loan demand, squeeze lending margins, and reduce the supply of credit.  Yet in the current environment, both the 2-year and 10-year yields have been falling, lowering borrowing costs and increasing loan demand.  Indeed, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased 21.7% from the prior week as homeowners rushed to refinance.  Year-on-year, total mortgage applications jumped 81%, driven by a 196% increase in refinances and a 12% rise in mortgage purchases.

The MBA reported their overall seasonally adjusted Market Composite Index (application volume) rose 21.7% for the week ended August 9, 2019.  The seasonally adjusted Purchase Index increased 2% from a week prior while the Refinance Index increased 37.0% to the highest level since July 2016.  Overall, the refinance portion of mortgage activity increased to 61.4% from 53.9% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 6.0% 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 to 3.93% (the lowest since November 2016) from 4.01% with points decreasing to 0.35 from 0.37 for 80 percent loan-to-value ratio (LTV) loans.

In housing last Tuesday, CoreLogic released its latest Loan Performance Insights Report showing the nation’s overall mortgage loan delinquency rate was 3.6% in May 2019, down from 4.2% in May 2018.  This delinquency rate includes all home loans 30 days or more past due, including those in foreclosure.  However, the foreclosure inventory rate was the lowest for a May in more than 20 years.


The serious delinquency rate, defined as 90 days or more past due including loans in foreclosure, was 1.3% in May 2019, down from 1.8% in May 2018.  The serious delinquency rate for May was below the average of 1.5% for the 2000 to 2006 pre-housing crisis period.  The foreclosure inventory rate was 0.4% in May 2019, down from 0.5% in May 2018.  Rising home prices have led to record amounts of home equity mitigating the risk of foreclosure.  The share of mortgages that were 30 to 59 days past due (early-stage delinquencies) was 1.7% in May 2019, down from 1.8% in May 2018.  The share of mortgages 60 to 89 days past due was 0.6% in May 2019, unchanged from May 2018.

Friday, the Census Bureau released housing data for the month of July indicating the housing market continues to struggle even with lower mortgage rates.  Total housing starts fell 4.0% month-over-month to a seasonally adjusted annual rate of 1.191 million units.  This was below the consensus forecast of 1.245 million.  Although single-family housing starts increased 1.3% month-over-month to 876,000, starts for the volatile multi-family housing segment plunged 9.2% to a rate of 406,000 units in July.  Housing completions increased 7.2% to 1.250 million units.  Realtors estimate housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to fill the inventory gap.  Inventory of housing under construction fell 0.5% to 1.134 million units in July.

Meanwhile, total building permits increased 8.4% month-over-month to 1.336 million.  This was above the consensus forecast of 1.260 million and was primarily attributed to a 24.8% increase in permits for dwellings with five or more units.  Single-family permits rose 1.8% to 838,000.  Regionally, single-family starts were 22.9% higher in the Northeast, 1.6% higher in the Midwest, 3.9% lower in the South, and 8.1% higher in the West.  Single-family permits were 1.9% higher in the Northeast, 6.8% lower in the Midwest, 1.8% higher in the South, and 7.0% higher in the West.

The data from the report continues to show the supply of new single-family homes remains somewhat limited and will likely continue to curb overall housing sales due to supply and price constraints.  Thursday, a homebuilder confidence survey edged higher in August, but builders said they “continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots.”

For the week, the UMBS 3.0% coupon bond finished 32.8 basis points higher to close at $101.781 while the 10-year Treasury yield decreased 17.20 basis points to end at 1.562%.  The Dow Jones Industrial Average fell 401.43 points to close at 25,886.01.  The NASDAQ Composite Index dropped 63.15 points to close at 7,895.99.  The S&P 500 Index lost 29.97 points to close at 2,888.68.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 10.97%, the NASDAQ Composite Index has gained 19.00%, and the S&P 500 Index has advanced 15.23%.

This past week, the national average 30-year mortgage declined to 3.58% from 3.64%; the 15-year mortgage rate decreased to 3.25% from 3.32%; the 5/1 ARM mortgage rate fell to 3.40% from 3.45%; and the FHA 30-year rate remained unchanged at  3.25%.  Jumbo 30-year rates decreased to 3.69% from 3.71%.

Economic Calendar – for the Week of August 19, 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 ($101.781; +32.8 bp) traded within a wider 71.9 basis point range between a weekly intraday low of $101.250 on Tuesday and a weekly intraday high of 101.969 on Thursday before closing the week at $101.781 on Friday.

Mortgage bonds were range-bound this past week, dipping down to touch technical support on Tuesday before rebounding to reach technical resistance on Thursday.  The bond is currently trading on a buy signal from a positive slow stochastic crossover, but is “overbought” and susceptible to a pullback.  The technical chart below suggests the bond will challenge resistance located at the 23.6% Fibonacci level at $101.904.  A successful break above this level may propel the bond’s price toward the next level of resistance at $102.231.  However, a more likely outcome would be a pull-back into the trading range seen the past two weeks between support at $101.359 and resistance at $101.904.  Either way, mortgage rates are not expected to make any significant moves in either direction and should remain relatively stable.