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.