November 2018 (What is going on with Interest Rates)

November 1st, 2018

Instructions on how to read this blog: Below is the news for the month when it happened and the market’s reaction.  For a full view of the month start at the bottom and work your way up. If want to know what just happened start at the top. All Times are Eastern Standard Time.  When the price of Mortgage Backed Securities (MBS) goes down rates go up, and when the price goes up rates come down. Remember in the bond market Bad News is Usually Good News and Good News is Usually Bad news. 

Views You Can Use updated monthly: http://www.mmgweekly.com/m/index.html?SID=78421a2e0e1168e5cd1b7a8d23773ce6

Newsletter updated weekly: http://www.mmgweekly.com/w/index.html?SID=

Friday - November 30  

MARKET WRAP:

Mortgage Bonds closed with modest gains as investors await the outcome of Saturday dinner meeting between President Trump and President Xi at G20 Leaders Summit. The Fannie mae 30-yr 4% coupon closed at 100.62, +12bp. Stocks closed higher on positive comments out of the G-20. The Dow gained 199.62 points to 25,538.46, the S&P 500 rose 22.40 poijts to 2,760.16 while the NASDAQ rose 57.45 poijnts to end at 7,330.53. WTI oil was last seen at $50.71/barrel, -$0.73. 10-yr yield closed at 2.99%. Next week the big report will be the November Jobs Report, set to be released on Friday. But Monday morning the headlines will have already come out for the G-20 meeting for the U.S. and China. Be sure to be tuned in Monday morning. Have a great weekend!

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Late Morning Review:

Freddie Mac released its Economic & Housing Forecast for November revealing that it expects modest housing market growth in 2019. Freddie Mac expects home sales to increase 1% to 6.08 million units in 2019 and rise 2% in 2020 to 6.20 million units. Home prices are expected to rise 4.3% in 2019 and 2.9% in 2020. Freddie Mac expects GDP growth to average 3% in 2018, 2.4% in 2019 and 1.8% in 2020. The 30-year fixed-rate mortgage is forecasted to average 5.1% in 2019 and 5.6% in 2020.

The G-20 meeting kicks off today in Buenos Aries, Argentina and runs through the weekend. The big meeting will be between U.S. President Donald Trump and China's President Xi Jinping as the two leaders try to hammer out a trade deal after both sides recently slapped tariffs on imported goods. This morning, U.S. Trade Representative Lighthizer said he would be surprised if the dinner between President Trump and China's Xi Jinping "wasn't a success."

Thursday - November 29  

MARKET WRAP:

Mortgage Bonds opened higher today and pushed further into positive territory but gave up most of the modest gains after the fed minutes were released. The minutes revealed that fiscal stimulus and a strong consumer could produce upside risks to inflation, which knocked Bond prices off their highs. The Fannie Mae 30-yr 4% coupon closed at 100.47, near unchanged after hitting 100.69 earlier in the session. After bouncing around for much of the session, Stocks closed slightly lower. The Dow fell by 27.59 points to 25,338.84, the S&P 500 closed at 2,737.80, -5.99 points, while the NASDAQ fell by 18.51 points to end at 7,273.08. WTI oil closed at $51.45/barrel, +$1.16. 10-yr yield 3.03%. Economic data tomorrow is limited to the Chicago PMI.

 

Late Morning Review:

The National Association of REALTORS® reports that Pending Home Sales unexpectedly declined in October by 2.6% from September, well below the gain of 0.5% expected. On an annual basis, sales fell 6.7%, the seventh straight month of annual decreases. Sales declined in the South, Midwest and the West with gains seen in the Northeast. Lawrence Yun, NAR chief economist, said that ten straight months of decline certainly isn’t favorable news for the housing sector. “The recent rise in mortgage rates have reduced the pool of eligible homebuyers,” he said.

Mortgage rates were unchanged this week and have stabilized in the past couple of months as interest rate sensitive sectors such as new auto and home sales softened the outlook for the economy. Freddie Mac reports that the 30-year fixed-rate mortgage remained at 4.81% with an average 0.5 in points and fees. Freddie Mac went on to say, "Homebuyers pounced on the stability in rates as purchase mortgage applications increased, which indicates that despite higher mortgage rates this year there are buyers on the fence waiting for the right time to buy."

Fed Chair Jerome Powell spoke at the New York Economic Club yesterday and he delivered a somewhat dovish stance on future interest hikes. Mr. Powell said that the benchmark Fed Funds Rate is just below its neutral policy and that future interest rate moves will be data dependent. Mr. Powell went on to say that he doesn’t see any dangerous excesses in the Stock markets while inflation remains contained. The Fed is expected to raise the benchmark interest next month but there may only be one hike in 2019, down from three that was previously expected.

 

Wednesday - November 28  

MARKET WRAP:

Rather dovish talk from Fed Chair Powell sent Stocks skyrocketing today as the Dow closed with a 600 point gain. Fed Chair Powell said that rates are just below neutral which could slow the pace of rate hikes in 2019. New Home Sales declined in October from September though the September numbers were revised higher. The Fannie Mae 30-yr 4% coupon gained 12bp to end at 100.44 and managed to close above the 50-day Moving Average. Stocks blasted off on Powell's words as the Dow had its biggest rally in eight months. The Dow gained 617.70 points to 25,366.43, the S&P 500 rose 61.61 points to 2,743.78 while the NASDAQ was up a whopping 208.89 points to end the session at 7,291.59. WTI oil closed at lows seen in October 2017 settling at $50.29/barrel, -$1.27. 10-yr yield 3.06%. Big economic data point out tomorrow is the Core PCE, the Fed's favorite inflation gauge. The minutes from the November FOMC meeting will be released at 2:00 p.m. ET.

 

Late Morning Review:

The Commerce Department reported this morning that New Home Sales fell 8.9% in October from September to an annual rate of 544,000, below the 575,000 expected. However, sales in September were revised higher to 597,000 from 553,000. Sales were down 12% from October 2017. Across the country, sales fell in the Northeast, Midwest and the South with gains seen in the West. There was a 7.4 month supply of homes for sale on the market in October, above six months that is seen as normal. The median sales price fell 3.1% from a year ago, to $309,700.

The Mortgage Bankers Association reports that its Market Composite Index, a measure of total mortgage loan application volume, rose 5.5% for the week ended November 23. The refinance index increased 0.5% while the purchase index increased 8.9% from one week earlier. The 30-year fixed-rate conforming mortgage fell to 5.12% from 5.16%, with points decreasing to 0.46 from 0.48. The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.

Economic growth remained strong in the third quarter of 2018 fueled in part by last year's tax cuts. The Bureau of Economic Analysis reports that the second read for the third quarter of 2018 was unchanged from the first read at 3.5%. That is down from 4.2% in the second quarter. Within the report, it showed that key inflation components declined from the previous reading. Consumer spending fell to 3.6% from 4%.

Tuesday - November 27  

MARKET WRAP:

Not much action in the Mortgage Bond markets again today as prices hovered near opening unchanged levels. Today's solid home price gains from Case Shiller and near all-time levels for Consumer Confidence had little impact on the markets. The Fannie Mae 30-yr 4% coupon closed at 100.28, +6bp. Stocks started out lower on negative trade issues and traded near those levels but rallied late afternoon on positive trade headlines out of the White House. The Dow closed up 108.49 points to 24,748.73, the S&P 500 rose 8.75 points to 2,682.20 while the NASDAQ closed near unchanged at 7,082.70. WTI closed at $51.56/barrel, near unchanged. 10-yr yield 3.05%. Tomorrow, the second read on Q3 GDP will be released along with New Home Sales.

Late Morning Review:

The September Case-Shiller 20-City Index rose 5.1% from September 2017, just below the 5.3% expected and down from 5.5% in August. Month-over-month was unchanged. The slower pace of gains is to be expected and with faster-rising wages, it represents a healthier market. “Home prices plus data on house sales and construction confirm the slowdown in housing with one factor contributing to the weaker housing market is the recent increase in mortgage rates,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

Home price gains keep coming this morning as the FHFA reported solid numbers from the sector. U.S. house prices rose 1.3% in Q3 2018. House prices rose 6.3% from Q3 2017 to Q3 2018. Month over month prices rose 0.2% from August to September. “Home prices continued to rise in the third quarter but their upward pace is slowing somewhat," said Dr. William Doerner, Supervisory Economist. “Rising mortgage rates have cooled down housing markets - several regions and over two-thirds of states are showing slower annual gains."

The sales numbers are in for holiday sales over the five-day period from Thanksgiving Day until the end of Cyber Monday and they were impressive. On Cyber Monday, consumers spent a record $7.9 billion online, a jump of nearly 20% from last year. Black Friday produced e-commerce sales of $6.22 billion while online sales totaled $3.7 billion on Thanksgiving Day. Overall holiday sales are expected to increase between 4.3% and 4.8% this season from 2017 to a dollar amount between $717 billion and $720 billion, reports the National Retail Federation. Holiday sales totals could top $1 trillion for the first time ever, according to eMarketer, due in part to a strong U.S. economy and an extra day of shopping this season.

Monday -  November 26th

MARKET WRAP:

Not much movement for Mortgage Bonds today due to a big rebound in the Stock markets. Stocks rose on holiday shopping optimism and as the tech sector produced gains. The Fannie Mae 30-yr 4% coupon closed at 100.22, unchanged. There were no economic reports released today. The Dow rose 354.29 points to 24,640.24, the S&P 500 jumped 40.89 points to 2,673.45 while the NASDAQ closed higher by 142.86 points to end at 7,081.85. WTI oil closed at $51.63/barrel, +$1.21. 10-yr yield 3.05%. Tomorrow's data includes the Case-Shiller 20-city Home Price Index and Consumer Confidence.

Ellie Mae released its Origination Insight Report revealing that closing rates in October rose to their highest percentage in 2018. Closing rates for all loans rose to 72.2% in October, the highest this year, up from 71.7% in September. Closing rates on refinanced loans remained at 76.4%. In addition, the percentage of borrowers using adjustable rate mortgages rose 8.2% in October, up from 7.2% in September. “As interest rates continue to rise, the percentage of adjustable rate mortgages is increasing as homebuyers are looking to take advantage of the best rates from their lenders,” said Jonathan Corr, president and CEO of Ellie Mae.

Mortgage debt has been steadily increasing over the past year and is set to rise above totals from 10 years ago, right before the housing crash. The Federal Reserve reports that total outstanding mortgage debt rose to $10.2 trillion in the second quarter of 2018, up 2.7% from the same period in 2017. Non-mortgage related debt has also been rising for loans such as borrowing money for new cars and to pay college tuition with student loans. Non-mortgage related debt rose 6.4% from the second quarter of 2017. Total combined household debt was at an all-time high of $15.7 trillion in the second quarter of 2018.

Late Morning Review:

Fannie Mae released its November 2018 Economic and Housing outlook last week revealing that while economic growth has increased slightly, a strong labor market is not enough to boost housing. Fannie Mae forecasts 3.1% Gross Domestic Product for the full year 2018, up a tenth from the last forecast in October. Fannie Mae predicts that economic growth to slow to 2.3% in 2019. Fannie Mae reports, "The housing sector is also expected to continue to face challenges despite the strong economy and job market. Ongoing affordability constraints stemming from further home price appreciation and a lack of for-sale inventory will likely remain headwinds for housing through 2018 and into 2019."

Wednesday - November 21  

MARKET WRAP:

Not much action in the Mortgage Bond market today as prices traded near unchanged levels for most of the session. This morning's mixed economic data had little impact on Bond prices. The Fannie Mae 30-yr 4% coupon closed at 100.16, near unchanged. Stocks rebounded after the plunge on Monday and Tuesday though the Dow gave up its gains near the close. The Dow closed near unchanged at 24,464.69, the S&P rose 8.04 points to 2,649.93 while the NASDAQ was up 63.42 points to end at 6,972.25. WTI oil settled at $54.63/barrel, +$1.20. 10-yr yield 3.06%. All U.S. markets will be closed tomorrow for Thanksgiving. On Friday, the Stock markets close at 1:00 p.m. ET while the Bond markets close at 2:00 p.m. ET. Normal hours will be seen on today. 

Late Morning Review

The National Association of REALTORS® reports that Existing Homes Sales rebounded in October after six straight months of declines. Existing Homes Sales rose 1.4% from September to an annual rate of 5.22 million units, just above the 5.20 million expected. However, sales were down 5.1% from October 2017. The median sales price for all housing types in October was $355,400, up 3.8% from October 2017.

There was a 4.3 month supply of existing homes on the market, up from 3.9 in October 2017. Gains were seen in the Northeast, South and West with a decline in the Midwest. Lawrence Yun, NAR’s chief economist, says increasing housing inventory has brought more buyers to the market. “After six consecutive months of decline, buyers are finally stepping back into the housing market,” he said.

Mortgage rates edged lower in the latest week due in part to lower oil prices and the volatility in the U.S. Stock markets. Freddie Mac reports that the 30-year fixed-rate mortgage fell 13 basis points this week to 4.81% with an average of 0.40 in points and fees. It was the largest weekly decline since January 2015. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

 

Tuesday - November 20  

MARKET WRAP:

Not much action in the Mortgage Bond market today with little movement seen and unable to mount a rally in the face of plunging Stock prices. The Fannie Mae 30-yr 4% coupon closed at 100.12, -9bp, the low for the session. Stocks closed lower on falling tech and energy shares. The Dow lost 551.80 points to 24,465.64, the S&P fell by 48.84 points to 2,641.89 while the NASDAQ was down 119.65 points to end the bearish session at 6,908.82. WTI fell to its lowest level since October 2017 closing at $53.43/barrel, -$3.77 due to rising supplies and fears of a global slowdown. 10-yr yield 3.06%. Tomorrow's economic data includes Durable orders, Existing Home Sales, Consumer Sentiment and Weekly Initial Jobless Claims. Note: All U.S. markets will be closed on Thursday for Thanksgiving. On Friday, the Stock markets close at 1:00 p.m. ET while the Bond markets close at 2:00 p.m. ET. Normal trading hours will be seen tomorrow.

Late Morning Review:

After the recent spate of sub-par housing news, October Housing Starts rose 1.5% from September to an annual rate of 1.228 million units while Building Permits beat expectations. However, single-family starts declined 1.8% from October while multi-family starts rose 6.2%. Annually, total Housing Starts were down 2.9%, single-family starts were lower by 2.6% while multi-family dwellings were off by 4.5%.

The Mortgage Bankers Association (MBA) reports that applications to purchase new homes (Builder Application Survey) fell 2.1% year over year in September though up month over month by 11% from September. The average loan size for a new home was at $332,000, the lowest since July 2017. As of October 2018, the MBA said that new single-family sales were at an annual rate of 673,000 units in October, a jump of 4.7% from the September rate of 634,000. The MBA's Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country.

Motor club AAA reports that due in part to higher wages and more disposable income, it expects 54.3 million Americans will travel 50 miles or more from their homes this Thanksgiving, the highest number recorded since 2005. Around 48 million of those travelers will be driving "over the river and through the woods" to Grandma's house. There will be 4.7 million traveling by train, a 5% increase from 2017. The Thanksgiving holiday period is defined as Wednesday, November 21 to Sunday, November 25.

Monday - November 19  

MARKET WRAP:

Not much action in the Mortgage Bond market today as prices traded near unchanged while Stocks sold off. The weak NAHB Housing Market Index, tech wreck and trade issues pushed Stocks lower while at least supporting Mortgage Bond prices. Treasury prices rose marginally. The Fannie Mae 30-yr 4% coupon closed at 100.22, -9bp. The Dow lost 395.78 points to 25,017.44, the S&P fell by 45.54 points to 2,690.73 while the NASDAQ was down a whopping 219.39 points to end the bearish session at 7,028.47. WTI oil was last seen at $56.76/barrel, +$0.71. 10-yr yield 3.06%. Tomorrow's data is limited to Housing Starts/Building Permits.

 

Late Morning Review:

Home builder optimism declined in November due in part to higher rates and weakening demand. The NAHB Housing Market Index fell to 60 in November, down from 68 in October and below the 68 expected. It was the lowest level in more than two years. “Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.

U.S. Stocks are lower to begin the week after the extreme volatility that has taken place over the past month. The Wall Street Journal reports that Apple has cut production orders in the past few weeks due to slowing demand for iPhones. The Apple news along with ongoing trade issues are weighing on Stocks. The U.S. capital markets will be closed on Thursday for Thanksgiving and will undergo abbreviated session on Friday.

A recent report revealed that rental prices across the U.S. fell for the second month in a row in October due in part to an overall slowdown that follows a seasonal trend, though the declines were meager. The average rental was $1,421 in October from $1,420 in September though up 3.3% year over year. The report went on to read that it sees full-year rent increases for 2018 will remain near the year-to-date figure of 3.3%.

 

 

Friday - November 16  

MARKET WRAP:

Mortgage Bonds were able to push higher today as Stocks seesawed once again and after signals from the Fed that they may have to rethink 2019 rate hikes. The Fannie Mae 30-yr 4% coupon closed at 100.28, +25bp. The Dow closed with a 123.95 point gain to 25,413.22, the S&P 500 rose 6.07 points to 2,736.27 while the NASDAQ lost a modest 11.15 points to end at 7,247.87. WTI oil closed at $56.46/barrel, near unchanged, down 6.2% this week and its 6th straight weekly loss. Next week is holiday shortened with all U.S. markets closed on Thursday, November 22 for Thanksgiving. On Friday the 23rd, the Stock markets close at 1:00 p.m. ET while the Bond markets close at 2:00 p.m. ET.

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Late Morning Review:

U.S. Stocks are closing out the week the same way they came in ... with extreme volatility. The Dow Jones Industrial Average traded as high as 26,000 with a low of 24,787. Stocks were influenced this week by trade issues, Brexit, the Fed and somewhat tame inflation data. Next week, the U.S. markets are closed on Thursday for Thanksgiving and have an abbreviated session on Friday.

The Mortgage Bankers Association (MBA)reports that its Builder Application Survey increased 11% in October following declines in August and September. In addition, the MBA said that the average loan size for new homes fell to $331,732, its lowest since July 2017. The Builder Application Survey provides timely and detailed monthly metrics on loan application activity received directly from home builders for new single-family properties.

 

Thursday - November 15  

Late Morning Review:

As the holiday shopping season unfolds, retailers were giddy in October due in part to strong sales for motor vehicles and building materials. Retail Sales jumped 0.8% versus the 0.5% expected and were up from 0.1% in September. It was the largest increase since May's gain of 1.2%. The Core rate rose 0.7%, above the 0.5% expected. Consumer spending accounts for more than two thirds of U.S. economic activity.

Last night, Fed Chair Powell said that the U.S. economy is strong and "is in such a good place right now" but could face issues from a global slowdown in 2019 as the Fed weighs the pace of future interest hikes. Powell said the Fed's goal is to "extend the recovery, expansion, and to keep unemployment low, to keep inflation low," reports Bloomberg. The Fed is expected to raise the short-term Fed Funds Rate by 0.25% at next month's FOMC meeting bringing that benchmark rate to 2.50%. That will directly push the Prime Rate to 5.50% which is derived by Fed Funds Rate (2.50%) + 3 = 5.50%.

Mortgage rates remained unchanged in the latest week despite the volatility in the U.S. financial markets. A moderation in inflation due in part to lower oil prices along with somewhat subdued wage growth held rates steady. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged at 4.94% in the week ended November 15, with an average 0.5 in points and fees. Freddie Mac says average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Wednesday - November 14

MARKET WRAP:

Stocks continued their roller coaster ride today as the Dow was up 200 points early on only to close with a 200-point loss. The financial sector was hit by fears that regulations on the banking sector would tighten once the Democratic Party takes control of the House. The news pushed Bond prices higher, yields lower. This morning, CPI was reported somewhat tame. The Fannie Mae 30-yr 4% coupon closed at 99.88, +16bp. The Dow lost 205.99 points to 25,080.50, the S&P 500 fell by 20.60 points to 2,701.58 while the NASDAQ lost 64.48 points to close at 7,136.39. WTI oil rebounded closing at $56.25/barrel, +$0.56. 10yr yield topped out at 3.16% today, fell to 3.09 before closing at 3.12%. This evening, Fed Chair Powell will be speaking at the Dallas Fed on the current state of the U.S. economy and will also be speaking tomorrow. October Retail Sales, Weekly Initial Jobless Claims, Empire Manufacturing and the Philly Fed Index will be released will be released tomorrow morning.

Late Morning Review:

The October Consumer Price Index rose 0.3%, in line with estimates, though it was the largest increase since the 0.5% registered in January. The Core CPI was also in line at 0.2%. On a year-over-year basis, CPI rose to 2.5% from 2.3% in September and down from the 2018 high of 2.9% hit in June. The more important Core rate rose 2.1% from 2.2% year over year and down from 2.4% in July. Inflation data is a key metric for the Federal Reserve in its monetary policy outlook.

The Mortgage Bankers Association (MBA) reports that mortgage rates edged higher in the latest week due in part to a strengthening U.S. economy. The MBA reports that the 30-year fixed-rate mortgage rose two basis points to 5.17% with an average of 0.50 in points and fees. Within the report it showed that the Market Composite Index, a measure of total mortgage loan application volume, fell 3.2%. The refinance fell 4.3% while the purchase index declined 2.3%.

With Thanksgiving next week, here are some fun facts to share. Benjamin Franklin wanted the turkey to be the national bird, not the eagle. Americans eat 46 million turkeys each Thanksgiving. Californians consume the most turkey in the U.S. on Thanksgiving Day! The average turkey for Thanksgiving weighs 15 pounds. The Macy's Thanksgiving Day Parade began in 1924 with 400 employees marching from Convent Ave to 145th street in New York City. Modern Thanksgiving was first officially called for in all states in 1863 by a presidential proclamation of Abraham Lincoln.

Tuesday - November 13  

MARKET WRAP:

Volatility continued today in the equity markets as Stocks went from positive to negative several times before closing in mixed fashion. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 99.72, +12bp. Lower oil prices pushed energy related shares lower in today's session. The Dow lost 100.69 points to 25,286.49, the S&P fell by 4.04 points to 2,722.18, while the NASDAQ closed unchanged at 7,200.87. WTI oil continued in its bearish ways closing at $55.69/barrel, -$4.24 as today's drop was touched off by President Trump urged OPEC not to cut supply and a lower demand outlook. 10-yr yield 3.14%. CPI will be released tomorrow morning.

Late Morning Review:

The NFIB Small Business Optimism Index continued its two-year streak of highs coming in at 107.4 in October. "For two years, small business owners have expressed record levels of optimism and are proving to be a driving force in this rapidly growing economy," said NFIB President and CEO Juanita D. Duggan. "The October optimism index further validates that when small businesses get tax relief and are freed from regulatory shackles, they thrive and the whole economy prospers." This is wonderful news and will lead to higher wages going forward.

A recent Harris Insights housing consumer study shows more Americans are using real estate agents to buy and sell their homes than ever before, even among the younger generations. The report showed that 90% of consumers are using real estate agents, up 5% from the last report in 2014 and up 9% from 2001. Millennials are also using real estate agents as 91% of those ages 18 to 34 prefer agents to technology based buying and selling of homes.

Gas prices at the pumps continue to push lower as demand eases and the end of the refinery maintenance season wraps up. The national average price for a regular gallon of gas fell to $2.68 today, down from $275 a week ago and $2.90 a month ago. AAA says prices can go even lower if we see a surge in gasoline production in the coming weeks. Also helping to usher in lower gas prices is the recent decline in oil. West Texas Intermediate oil hit $77/barrel on October 3 and is currently trading around $57.

 

Friday - November 9  

Fri, Nov 09 4:30 PM

MARKET WRAP:

Mortgage Bonds ended week with gains today and essentially unchanged for week. The Fannie Mae 30-yr 4% coupon closed at 99.56, +19bp. Stocks declined today but produced gains for the week. The Dow fell 201.92 points to 25,989.30, the S&P closed at 2,781.01 down 25.82 points while the NASDAQ settled at 7,406.90, -123.98 points on fears of slowing global growth. WTI oil closed at $60.19/barrel, -$0.36 and has fallen 10 days in a row, its longest losing streak in over 34 years. 10-yr yield 3.18%. Next week, the Bond market is closed on Monday for Veterans Day while Stocks are open for normal trading hours. The economic calendar is on the light side featuring CPI and Retail Sales. Have a great weekend!

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Late Morning Review:

Fannie Mae released its Home Purchase Sentiment Index (HPSI) for October this week showing a decline in sentiment despite a favorable U.S. economy. The HPSI fell 2 points in October to 85.7, continuing its recent downward trend. The report revealed that the net share of Americans who said it is a good time to buy a home fell 5 percentage points, and the net share who said it is a good time to sell a home fell 3 percentage points.

Wholesale inflation surged in October to the highest level in six years led by rising energy costs. The Producer Price Index rose 0.6% in October, well above the 0.2% expected. When stripping out volatile food and energy, the Core PPI also rose 0.6% versus the0.2% expected. On a 12-month basis, PPI jumped 2.9% from 2.6% in September while the Core rate rose 2.6% from 2.5%. And although the PPI is not as crucial to the Fed as the Consumer Price Index (CPI), it will still be taken into consideration for monetary policy. CPI will be released next week.

An increase in mortgage rates and a modest uptick in home prices kept housing affordability at a 10-year low in the third quarter of 2018. The National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) fell to 56.4% from 57.1% in the second quarter. That equals to 56.4% of new and existing homes sold between the beginning of July and the end of September were affordable to U.S. families earning the U.S. median income of $71,900.

Thursday - November 8  

MARKET WRAP:

Mortgage Bonds traded near unchanged to modestly higher for most of the session but started to decline late in the day after the Fed statement signaled a solid economy with more rate hikes ahead. The Fannie Mae 30-yr 4% coupon closed at 99.53, -6bp. Stocks closed mixed and near unchanged. The Dow rose 10.92 points to 26,191.22, the S&P lost 7.06 points to 2,806.83, while the NASDAQ closed at 7,530.88, -39.86 points. WTI oil fell into bear market territory closing at $60.67/barrel, -$1, down 21% from the 52-week high. 10-yr yield 3.24%. Data out tomorrow includes PPI and Consumer Sentiment.

Late Morning Review:

A strong U.S. economy, job market and business activity pushed mortgage rates higher in the latest week. Freddie Mac reports that the 30-year fixed-rate mortgage rose 11 basis points in the latest week to 4.94% with an average of 0.50 in points and fees. Freddie Mac said, "Higher mortgage rates have led to a slowdown in national home price growth, but the price deceleration has been primarily concentrated in affluent coastal markets such as California and the state of Washington."

Americans filing for first-time unemployment benefits continue to hover near 50-year lows as the job market continues to roam in greener pastures. The Labor Department reports that Weekly Initial Jobless Claims came in at 214,000 for the week ended November 3. The four-week moving average of claims, which irons out seasonal abnormalities, fell to 213,750, near unchanged. The labor market is now at or near full employment.

With Thanksgiving right around the corner, motor club AAA forecasts that this year more Americans will travel for the holiday since 2005. AAA predicts that 54.3 million Americans will travel 50 or more miles from home, a 4.8% increase from 2017. There will be 2.5 million more people taking to the road to get to their destinations than last year. “Consumers have a lot to be thankful for this holiday season: higher wages, more disposable income and rising levels of household wealth,” said Bill Sutherland, AAA Travel senior vice president. “This is translating into more travelers kicking off the holiday season with a Thanksgiving getaway, building on a positive year for the travel industry.”

 

 

Wednesday - November 7  

Late Morning Review:

The midterm elections produced a split Congress, which investors are taking in stride as both Stock and Mortgage Bond prices are rising ahead of this afternoon's release of the Fed statement. The Republicans remained in control of the Senate by a slim margin while the Democrats took control of the House, also by a slim margin. Historically, U.S. Stocks have fared well into the third year of the president's term.

Mortgage rates edged higher in the latest week as borrowing costs continue their slow yet upward trajectory. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose four basis points in the latest survey to 5.15%. That rate does carry an average 0.50 in points. Within the report, it showed that the MBA's Market Composite Index, a measure of total mortgage loan application volume, fell 4% in the latest week. The refinance index fell 2.5% while the purchase index declined 5%.

Gas prices at the pumps continued to edge lower this week and are the lowest level in six months. An uptick in oil supplies along with fewer drivers on the road at this time of the year has sent prices lower. The national average price for a regular gallon of gasoline is at $2.74, down from $2.91 a month ago though up from $2.53 a year ago. The highest recorded price was $4.11 hit back on July 17, 2008. Motor club AAA says that as demand continues to decline, gas prices could get even cheaper.

Tuesday - November 6  

MARKET WRAP:

No movement seen in Mortgage Bond prices today as traders sat on their hands ahead of the midterm election results and tomorrow's Fed statement. The Fannie Mae 30-yr 4% coupon closed at 99.56, -6bp. Stocks ended higher ahead of the election results. The Dow gained 13.31 points to 25,635.01, the S&P closed at 17.14 points to end at 2,755.45 while the tech heavy NASDAQ ended higher by 47.11 points to close at 7,375.96. WTI oil settled at $62.21/barrel, -$0.89. 10-yr yield 3.22%. Tomorrow will bring the election results, the Fed and a $19B 30-yr Bond auction.

 

Late Morning Review:

CoreLogic reports that home prices nationwide, including distressed sales, rose 5.6% year over year in September 2018 compared to September 2017. The 5.6% is down from June's 7.1% year-over-year increase as home price gains moderate to more historical levels. Month--over month saw a 0.4% rise. From September 2018 to September 2019, CoreLogic forecasts a 4.7% gain ... still a great story with rates at historically low levels.

Job openings remained elevated in September as employers look for qualified candidates to fill open positions. The Bureau of Labor Statistics (BLS) reports that on the last business day in September there were 7 million jobs available in its JOLTS (Job Openings and Labor Turnover Survey) report, just below the all-time high of 7.3 million hit in August. The 7 million exceeds the 6.08 million that are currently unemployed. In a separate report from the BLS showed unemployment rates were lower in September in 9 states, higher in 4 states, and stable in 37 states and the District of Columbia.

Mortgage credit availability increased in October after two months of tightening in August and September. The Mortgage Bankers Association reports that its Mortgage Credit Availability Index (MCAI) rose 2.5% to 186.7, its highest level since early 2008, up 3.1% from a year ago. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

Monday - November 5  

MARKET WRAP:

Mortgage Bonds began the week flat to slightly higher ahead of the event filled week with midterm elections, Treasury supply and the Fed meeting. The Fannie Mae 30-yr 4% coupon closed at 99.59, +6bp. Stocks closed mixed as financials and energy pushed the Dow and S&P higher while lower Apple shares left the NASDAQ in negative territory. The Dow gained 190.87 points to 25,461.70, the S&P closed at 2,738.31 up 15.25 points while the NASDAQ was down 28.14 points to end at 7,328.85. WTI oil closed near unchanged at $63.10/barrel. 10-yr yield 3.20%. Tomorrow, the Treasury will sell $27B 10-yr Notes, results at 1:00 p.m. ET and comes after today's tepid demand for the 3-yr offering.

 

Late Morning Review:

The service sector of the U.S. economy, which makes up a large portion of the economy, continued to strengthen in October. The ISM Service Index edged lower to 60.3, below the 21-year high of 61.6 hit in September. The report showed that every major sector of the service industry expanded in October. In addition, the service sector has grown for the 105th consecutive month. A reading above 50% indicates the non-manufacturing sector economy is generally expanding; below 50% indicates the non-manufacturing sector is generally contracting.

Freddie Mac reports that cash-out refinance loans rose in the second quarter of 2018 to the highest level since 2008. However, the dollar number is well below the frothy levels seen in the years leading up to the financial crisis. Cash extractions rose 77% in the second quarter of 2018 to a total of $15.8 billion, far below the pre-recession levels of $75 - $85 billion. “While cash-outs make up the highest share of refinances they have since 2008, this is no reason for alarm,” says the 
Federal Deposit Insurance Corporation. “In an environment of home price appreciation, people commonly tap into their home equity.”

The U.S. markets will be gearing up for this week's two-day Federal Open Market Committee meeting that begins on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement. There is a near-zero-percent chance of a hike to the short-term Fed Funds Rate but what the statement reveals could be key. The statement could signal the path of interest rate hikes down the road. Currently, there is a 72% probability of a hike at the December meeting.

Friday - November 2  

MARKET WRAP:

A strong Jobs Report for October along with positive trade issues with China sent Bond prices lower today while yields edged higher. Stocks rose on the news early on. However, conflicting reports surfaced on trade, which sent Stocks lower though closed off their worst levels at the close. The Fannie Mae 30-yr 4% coupon closed at 99.56, -53bp falling through both layers of support. The Dow lost 109.91 points to 25,270.83, the S&P fell by 17.31 points to 2,723.06 while the tech heavy NASDAQ declined helped out by declining Apple shares ending at 7,356.99, -77.06 points. WTI oil settled at $63.14/barrel, -$0.55. 10-yr yield rose to 3.21%. Next week's data is limited but the two-day Fed meeting kicks off on Tuesday with the monetary policy statement being released at 2:00 p.m. ET Wednesday. There is no chance of a hike to the short-term Fed Funds Rate but what the statement says will be key and could move the markets. Throw in the midterm elections and you have a recipe for continued volatility. Have a great weekend!

Late Morning Review:

The job market continued to strengthen in October and rebounded after an ease in job growth in September due in part to severe weather on the East Coast. The Bureau of Labor Statistics reported that U.S. employers added 250,000 new workers in October while year-over-year wage growth hit nine-year highs. The 250,000 was well above the 190,000 expected, while there were zero net revisions for August and September.

Year-over-year wage growth rose 3.1%, the highest level since September 2009, while month-over-month saw a gain of 0.2%, in line with estimates. The Unemployment Rate remained at a 49-year low of 3.7% while total unemployed, or the U6 number, fell to 7.4% from 8% seen in October 2017. More Americans are now looking for a job, which pushed the Labor Force Participation Rate up to 62.9% from 62.7%. Overall a solid report on all fronts.

Thursday - November 1  

MARKET WRAP:

Mortgage Bonds closed a bit higher today as some short covering may have taken place. The Fannie Mae 30-yr 4% coupon closed at 100.09, +9bp. Stocks closed higher on positive trade headlines. The Dow rose by 264.74 points to 25,380.74, the S&P 500 finished at 2,740.37, up 128.15 points while the NASDAQ gained 128.15 points to end the session at 7,434.05. WTI oil was last seen at $63.47/barrel, -$1.83. 10-yr yield 3.13%. The Jobs Report will be released at 8:30 a.m. ET tomorrow morning. 

Late Morning Review:

Mortgage rates edged lower in the latest survey after rising for most of 2018. Freddie Mac reports that the 30-year fixed-rate mortgage fell three basis points to 4.83% with an average of 0.50 in points and fees. Freddie Mac said that higher mortgage rates have led to a decline in home sales in 2018 though the weakness has been concentrated in the expensive segments rather than entry-level or first-time buyers.

Americans filing for first-time unemployment benefits remained near 50-year lows as the labor market continues to strengthen. Weekly Initial Jobless Claims fell by 2,000 in the latest week to 214,000. The four-week moving average of claims, which irons out seasonal abnormalities, rose 1,750 to 213,750. The details come ahead of Friday's Non-Farm Payrolls report where it is expected that employers added 185,000 new workers in October.

The 2018 holiday shopping season has unofficially kicked off today with Halloween now in the rearview mirror. Target rolled out its Black Friday plans and deals today as retailers try to get a jump on the season. Target will open at 5:00 p.m. on Thanksgiving and will remain open until 1:00 a.m. on Friday. Target will also feature an app for customers in the store to purchase items through the app and avoid the checkout lines. The National Federation of Retailers forecasts that 2018 sales will rise 4.1% from 2017.

Contact

John Marbury
jmarbury@nationalbankofcommerce.com
Mortgage Lender NMLS# 514390
NMLS# 740833
Phone:205-266-5669
Fax: 866-217-4174

813 Shades Creek Parkway
Birmingham, Alabama 35209
 

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