December 2018 (What is going on with Interest Rates)

December 3rd, 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 - December 28  

MARKET WRAP:

Mortgage Bonds were able to end the year higher though the gains were modest at the early close, 2:00 p.m. ET. The Fannie Mae 30-yr 4% coupon closed at 101.91, +12bp. Stocks are higher and close normal time at 4:00 p.m. ET. All U.S. markets are closed tomorrow for New Year's Day. We'll be back at it on Wednesday morning ahead of Thursday's ADP Report and Friday's Non-Farm Payrolls.

Happy New Year!

Late Morning Review:

In housing news, Pending Home Sales declined in November from October. "The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates," reports the National Association of REALTORS®. Pending Home Sales fell 0.7% this month and fell 7.7% year-over-year, the eleventh straight month of annual decreases. Pending Home Sales measures signed real estate contracts for existing single-family homes, condos and co-ops.

ATTOM Data Solutions reports that home equity lines of credit (HELOC) fell 14% in the third quarter of 2018 from the previous quarter and down 11% from a year ago. ATTOM says that there were a total of 313,744 residential HELOCS originated in Q3. Across the nation, HELOC originations fell annually by 67% in those metropolitan areas analyzed. “The rising mortgage rates we’ve seen this year should make HELOCs a more attractive option than cash-out refinances for tapping home equity for many homeowners," says Daren Blomquist, senior vice president at ATTOM Data Solutions.

 

Friday - December 28

Next Week

The first week of 2019 is also holiday shortened and may also be extremely volatile as the financial markets will react to the December Jobs Report on Friday. 

There is no expected delay on releasing the Jobs Report should the government still be partially closed. 
There will also be several manufacturing reports released during the week, but everything takes a back seat to the Friday Jobs release. 

Why? The Fed has stated they are "data-dependent" when it comes to future rate hikes, meaning they are looking at important readings like the Jobs Report in determining the future path of short-term interest rates. 

The recent selloff in Stocks has been largely caused by fears the Fed will be too aggressive hiking interest rates in 2019. The Jobs Report may give early clues on what to expect with rate hikes in 2019 and it could be a market moving event this week. 

The Bond markets close early on Monday, New Year's Eve at 2:00 p.m. ET. Stocks are open for a normal session. All U.S. markets are closed on Tuesday for New Year's Day. 

Reports to watch:

  • The Chicago PMI will be released on Wednesday followed by the ISM National Manufacturing Index on Thursday.
  • ADP Private Payrolls will be released Thursday due to the holiday shortened week.
  • The government's Jobs Report for December will be released Friday and includes Non-Farm payrolls, the Unemployment Rate and Hourly Earnings.

Week in Review

The financial markets had plenty to cheer about this week. On Wednesday, Stocks rallied a stunning 1,000+ points, enjoying their best one-day gain in history and then rallied over 800 points higher intraday on Thursday, erasing a huge midday loss. All in all, a great and welcome week in what was otherwise a miserable December for Stocks. 

Typically, higher stock prices mean higher home loan rates but that wasn't the case this holiday week. Yes, Bonds moved slightly lower and home loan rates slightly higher in response to the swift Stock rally, but rates ended the week and head into 2019 near the best levels since spring. 

The high volatility in the markets is likely to continue well into 2019 as Stocks and Bonds continue to bounce around in response to the U.S. government shutdown, U.S./China tariffs, China slowdown, European issues and uncertainty around the Fed. 

Is this good news for home loan rates and housing? Inflation is in line with the Fed's expectations and bond yields in other parts of the world remain low due to slower economic growth which means that home loan rates should remain relatively low for the foreseeable future. 

MARKET WRAP:

Stocks continued in a peak and valley trading pattern today with gains, losses, then gains again only to close the day with modest losses. Mortgage Bond prices improved during the week and ended on a high note today. The Fannie Mae 30-yr 4% coupon closed at 101.81, +22bp and well above resistance at the 200-day Moving Average (101.36), which could become support next week if prices hover near current levels. The Dow lost 76.42 points to 23,062.40, the S&P fell by 3.09 points to 2,485.74 while the NASDAQ saw a 5.03 point gain to end the volatile week at 6,584.52. WTI oil settled at $45.35/barrel, +$0.72. 10-yr yield 2.71%. The Bond markets close early on Monday, New Year's Eve at 2:00 p.m. ET. Stocks are open for a normal session. All U.S. markets are closed on Tuesday for New Year's Day. We will be sending out Bond quotes and our MMG Daily on Monday. Next week ADP Private Payrolls will be released on Thursday, Non-Farm Payrolls on Friday. Have a great weekend!

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Late Morning Review:

In housing news, Pending Home Sales declined in November from October. "The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates," reports the National Association of REALTORS®. Pending Home Sales fell 0.7% this month and fell 7.7% year-over-year, the eleventh straight month of annual decreases. Pending Home Sales measures signed real estate contracts for existing single-family homes, condos and co-ops.

ATTOM Data Solutions reports that home equity lines of credit (HELOC) fell 14% in the third quarter of 2018 from the previous quarter and down 11% from a year ago. ATTOM says that there were a total of 313,744 residential HELOCS originated in Q3. Across the nation, HELOC originations fell annually by 67% in those metropolitan areas analyzed. “The rising mortgage rates we’ve seen this year should make HELOCs a more attractive option than cash-out refinances for tapping home equity for many homeowners," says Daren Blomquist, senior vice president at ATTOM Data Solutions.

Thursday - December 27  

MARKET WRAP:

Another extreme volatility session for Stocks as the Dow saw a 600 point loss during the session only to close with a 260 point gain. Shares of technology and health Stocks lifted the Stock markets back into positive territory. The Fannie Mae 30-yr 4% coupon closed at 101.56, +16bp. The Dow closed at 23,138.82 up 260.37 points, the S&P 500 rose 21.13 points to 2,488.83 while the NASDAQ was up 25.13 points to end the day at 6,579.49. WTI oil settled at $45.62/barrel, -$0.60. 10-yr yield 2.78%. Pending Home Sales for November will be released tomorrow.

10:23 AM EST Freddie Mac reports that the 30-yr fixed-rate mortgage fell 7bp to 4.55% with an average 0.5 in points and fees.

Late Morning Review:

Mortgage rates continues to decline this week due in part to the meltdown in the stock markets, which drove bond prices higher. Freddie Mac reports that the 30-year fixed-rate mortgage fell by seven basis points to 4.55% with an average 0.5 in points and fees. Freddie Mac said, "The drop in mortgage rates should stem or even reverse the slide in home sales that occurred during the second half of 2018."

Consumer confidence edged lower in December after November's decline as job prospects and business conditions weakened. The Conference Board's Consumer Confidence Index fell to 128.1 this month down from 136.4 in November. Within the report, it showed that most components declined. Lynn Franco, Senior Director of Economic Indicators at The Conference Board said, “Expectations regarding job prospects and business conditions weakened, but still suggest that the economy will continue expanding at a solid pace in the short-term. While consumers are ending 2018 on a strong note, back-to-back declines in Expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

The Dow Jones Industrial Average rose 1,086 points in yesterday's trading session fueled by extremely oversold conditions and strong holiday sales. It was the largest point gain in the 122-year history of the closely watched stock index. The big gain comes after the Dow fell 653 points on Christmas Eve, which was the worst Christmas Eve performance ever. The Dow, S&P and NASDAQ are lower for 2018.

 

Wednesday - December 26  

MARKET WRAP:

Extreme oversold conditions fueled a huge rally in the Stock markets today erasing the worst Christmas Eve losses ever on Monday. The Dow rose +1000 points. The rally in Stocks pushed Bond price lower and yields higher. The Fannie Mae 30-yr 4% coupon fell 19bp to $101.41 after hitting $101.62 early in the session. The Dow gained 1,086.25 points to 22,878.45, the S&P rose 116.60 points to 2,467.70 while the NASDAQ was up 361.43 points to end the bullish session at 6,554.35. WTI oil settled at $46.22barrel, +$3.69. 10-yr yield 2.81% from the early morning low of 2.72%, that's a big jump. New Home Sales and Weekly Initial Jobless Claims will be released tomorrow. The Treasury will sell $32B 7-yr Notes and comes after today's weak demand for the 5-yr offering, results at 1:00 p.m. ET.

Late Morning Review

Home price gains are moderating after several years of frothy prices. Higher mortgage rates coupled with prices rising faster than wages are a few reasons for the pull back in home price gains. The S&P Case-Shiller 20-City Index rose 5% from October 2017 to October 2018, down from 5.2% in September and the third month in a row of slowing price gains. "Home prices are up 54%, or 40% excluding inflation, since they bottomed in 2012. Reduced affordability is slowing sales of both new and existing single-family homes. Sales peaked in November 2017 and have drifted down since then," said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

Strong consumer confidence coupled with a solid labor market fueled solid holiday sales this season in both online and brick and mortar stores. The Mastercard Spending Pulse data showed a gain of 5.1% in sales from 2017 to a total of $850 billion, the strongest growth in six years. Online sales saw a whopping gain of 19.1% compared to 2017. The report provides insights into overall retail spending trends across all payment types that includes cash, checks and cards. The holiday shopping season begins on November 1 and runs through December 24.

ATTOM Data Solutions reports that home affordability dropped to a more than 10-year low in the fourth quarter of 2018. The report showed that median prices were up 9% from a year ago, while wages were up 3% in the same time period. Year-over-year home price appreciation in the fourth quarter of 2018 outpaced average wage growth in 366 of 469 counties analyzed in the report. The report went on to reveal that there are some silver linings in some sectors across the nation where wage growth outpaced home price appreciation.

Monday - December 24

MARKET WRAP:

Mortgage Bonds closed near unchanged in the holiday shortened session while Stocks continued in their push lower. The Bond closed at 101.59, +16bp. Stocks fell over the usual suspects of global growth, tariffs, interest rates, the government shutdown and after the Mnuchin headlines. The Dow plunged 653.17 points to 21,792.20, the S&P lost 65.52 points to 2,351.10, while the NASDAQ was lower by 140.07 points to end the day at 6,192.91. WTI oil was trading last at $42.98, -$2.91. 10-yr yield 2.73%. Merry Christmas and Happy Holidays! All U.S. markets are closed tomorrow for the Christmas holiday. We'll be back at it on Wednesday morning.

 

 

 

Friday - December 21

Next Week:

The financial markets enter what is typically one of the slowest weeks of the year as the Christmas holiday is celebrated.


The Stock and Bond markets will close early on Monday and will be closed Tuesday for Christmas.

Economic news will be on the light side with housing data and Consumer Confidence as the highlights.

However - the Bond markets will have to contend with the Treasury Department auctioning off a total of $113B in 2, 5 and 7-year Notes on Monday, Wednesday and Thursday. If the buying appetite at these auctions are not good, home loan rates might suffer.

A "Santa Claus rally" for Stocks usually takes place in the month of December, generally seen in the last week of the year from December 26 to January 2. We shall see if that comes to pass and that too could negatively impact home loan rates.

Reports to watch:

  • Housing data will come from Wednesday's S&P Case-Shiller Home Price Index, followed by New Home Sales on Thursday and Friday's Pending Home Sales.
  • Consumer Confidence will be delivered on Thursday and is running at sky-high levels

Friday - March 21

MARKET WRAP:

Another big seesaw session for Stocks triggered by the usual suspects we have been laying out for the past month in trade, global slowdown, rate hikes and now the potential for a government shutdown. However, Bond prices didn't have any significant gains today. The Fannie Mae 30-yr 4% coupon closed at $101.44, +6bp. The Dow lost 414.23 points to 22,445.37, the S&P fell by 50.84 points to 2,416.58 while the NASDAQ lost 196.41 points to close at 6,332.99. WTI oil was last seen at $45.41/barrel, -$0.47. Next week, the Bond markets close early at 2:00 p.m. ET on Monday, December 24, Christmas Eve, Stocks close at 1:00 p.m. ET. All U.S. markets are closed on Tuesday, December 25, Christmas Day. The Tabrasa offices are closed on Monday but we will be sending out quotes and the MMG Daily. 

Happy Holidays!

 

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Late Morning Review:

Inflation pressures remained contained in November as evidenced by a key barometer that the Federal Reserve closely watches. The Core Personal Consumption Expenditure (PCE) came in at 1.9% year-over-year in November, just above the 1.8% recorded in October. The Federal Reserve has a target of 2% on the Core PCE and for the most part, it has remained below that level for six years with the exception of the 2% hit in May of this year. The Core PCE measures the movements of prices paid by consumers and strips out volatile food and energy prices. The U.S. Bond markets will close early on Monday, December 24 for Christmas Eve while Stocks close at 1:00 p.m. ET. All U.S. markets will be closed on Tuesday for the Christmas holiday. The markets will generally be quiet next week given the holiday shortened week and is usually on of the slowest weeks of the year. Holiday drivers will begin to hit the roads this Saturday, December 22 with a 4.4% rise expected from 2017 and the eighth consecutive yearly increase. Motor Club AAA expects 102.1 million to travel by car over the river and through the woods to their favorite holiday destination. The holiday travel period is from December 22 through January 1. A strong economy and sky-high consumer confidence along with relatively low gas prices are a few reasons behind this year's increase.

 

7:59 AM EST 10-yr yield near unchanged at 2.79%.

Thursday - December 20th

MARKET WRAP:

Government shutdown fears, the Fed, global slowing economies and tariffs pushed investors to the exit signs again today as Stocks rolled over but they did manage to close above the session lows. However, Bond prices weren't the benefactors as prices also declined while the 10-yr yield rose to 2.80% from 2.74% earlier in the session. The Fannie Mae 30-yr 4% coupon closed at $101.38, -16bp, session low, and off the 101.62 session high falling right back on resistance at the 200-day Moving Average. The Dow lost 464.06 points to 22,589.60, the S&P fell 39.54 points to 2,467.42 while the NASDAQ lost 108.42 points to end the day at 6,528.40. WTI oil continued its downward spiral closing at $45.95/barrel, -$2.22. 10-yr yield 2.80%. Tomorrow's data includes the Fed's favorite inflation gauge, the Core PCE. The third read on third quarter GDP will also be released.

Late Morning Review:

Mortgage rates continued to edge lower in the latest week as U.S. Stocks declined which pushed Bond prices higher. As Bond prices rise, interest rates tend to move lower with an inverse relationship. Freddie Mac reports that the 30-year fixed-rate mortgage fell two basis points to 4.62% this week with an average 0.50 in points and fees. Freddie Mac said given the recent rise in Existing Home Sales in November after six monthly declines, lower rates could boost the housing market in the months ahead.

Manufacturing activity in the Philadelphia, Pennsylvania region declined this month to the lowest reading since August 2016. The Philadelphia Fed Index fell to 9.4 in December from 12.9 in November and well below the 17.5 expected. The report said that the 'surveys broad indicators were positive, but their movements were mixed.' The firms that were surveyed remained generally optimistic about future growth. On the employment front, firms continued ti report overall higher employment.

U.S. Stocks slid lower yesterday after the Federal Reserve signaled a more hawkish statement when the FOMC meeting was adjourned. Stocks have had a rough year of trading given the recent correction in the closely watched S&P 500. The index has fallen 15% since September due in part to tariffs, slowing global growth, uncertainty surrounding the Federal Reserve's interest rate policy and good old-fashioned profit taking. A correction is seen as 10%. But remember, the S&P rose nearly 40% from November 2016 to this past September and marketsalways fall more quickly than they rise.

Thu, Dec 20 10:09 AM
Freddie Mac reports that the 30-yr fixed-rate mortgage was near unchanged this week at 4.62% with an average 0.5 in points and fees.

Thu, Dec 20 9:40 AM 10-yr yield 2.75%.

Wednesday - December 19  

MARKET WRAP:

Another volatile session today for Stocks on the heels of a somewhat hawkish Fed statement and hawkish words from Fed Chair Powell. The Dow was up 400 points early only to close with a 351 point loss. The Fannie Mae 30-yr 4% coupon closed above resistance at the 200-day MA for the 2nd straight day as that level will become support tomorrow, for now. The Bond closed at 101.59, +12bp. The Dow fell by 351.98 points to 23,323.66, the S&P 500 lost 39.20 points to 2,506.96 while the NASDAQ closed at 6,636.82 down 147.08 points. WTI oil was last seen at $47.20/barrel, +$1.72. 10-yr yield fell to 2.76%. Tomorrow's data inclaudes Weekly Initial Jobless Claims and the Philly Fed.

Fed Watch:

2 pm EST As expected, the Fed raises the Fed Funds Rate by 0.25% to 2.50%.With today's hike to the Fed Funds Rate to 2.50%, the Prime Rate now sits at 5.50%. Fed Funds Rate (2.50%) + 3 percentage points = 5.50%.

Late Morning Review:

The National Association of REALTORS® (NAR) reports that Existing Home sales in November rose 1.9% from October to an annual rate of 5.32 million units versus the 5.20 million expected. Gains were seen in the Northeast, Midwest and South with losses in the West. Existing Home Sales include transactions on single-family homes, townhomes, condominiums and co-ops. Sales were down 7% from November 2017.

Inventories of previously owned homes for sale on the market is at 3.9 months, up from 3.5 a year ago. Lawrence Yun, NAR’s chief economist, says two consecutive months of increases is a welcomed sign for the market. “The market conditions in November were mixed, with good signs of stabilizing home sales compared to recent months, though down significantly from one year ago. Rising inventory is clearly taming home price appreciation.”

The U.S. Transportation Security Administration (TSA) reports that more travelers will be flying this holiday season than last year. The TSA says that between December 19 and January 5, 41 million passengers will travel through security screening checkpoints nationwide, an increase of 6% from 2017. The TSA recommends that travelers arrive extra early to check in and get through the security screening process. “We have experienced several record-breaking travel days this year, to include the busiest travel day this past Thanksgiving, so we are prepared for a very busy period leading up to Christmas and through the New Year holiday,” said TSA Administrator David Pekoske.

 

Tuesday-December 18

MARKET WRAP:

Mortgage Bonds pushed higher today as they revisited last week's highs, closing in positive territory. Today's Housing Starts were positive but it was attributed towards an increase in multi-family dwellings while single-family units were at their lowest levels in 19 months. The Fannie Mae 30-yr 4% coupon closed at 101.50, +31bp. Stocks seesawed in today's session ahead of the Fed meeting. The Dow gained 82.66 points to 23,675.64 after an early 334 point gain. The S&P ended near unchanged at 2,546.16, while the NASDAQ rose by 30.17 points to end at 6,783.91. WTI oil plunged by $3.64 to settle at $46.24/barrel on oversupply concerns. 10-yr yield 2.82%. Existing Home Sales will be released tomorrow morning but all eyes and ears will be on the Fed. The Fed will deliver its monetary policy statement at 2:00 p.m. ET with its economic projections. Fed Chair Powell will hold a press conference at 2:30 p.m. ET. Stay tuned.

November Housing Starts rose 3.2% from October to an annual rate of 1.256 million units versus the 1.230 million expected. October was revised lower to 1.217 million from 1.228 million. Housing Starts were down 3.6% from November 2017. Building Permits jumped 5% percent from October to an annual rate of 1.328 million versus the 1.270 million expected. We here at the Mortgage Market Guide feel that the housing market remains solid and with long-term rates not likely to rise too quickly, 2019 could be a better year for housing.

Oil prices continue to push lower on oversupply across the globe. WTI oil hit $47.84/barrel this morning, down from $77 hit back on October 3, the lowest since September 2017. Lower prices at the pumps have also taken place with the national average price for a regular gallon of gasoline at $2.36 with $2.20 seen in parts of New Jersey, down from $2.63 a month ago. Lower gas prices put extra cash in the pockets of consumers to spend on holiday shopping.

The latest national housing report from ReMax was released on Monday showing that extremely low housing inventory improved in November as sales declined for the fourth straight month. November saw the second consecutive month of year-over-year growth in the number of homes for sale on the market. ReMax reports that across the 53 metro areas surveyed, inventories rose 3%, the highest annual gain in the 10-year history of the report. In addition, November’s median sales price of $235,000 was 4.0% higher than November 2017 and was the highest November price in the report’s history.

Monday - December 17

MARKET WRAP:

Stocks plunge but Mortgage Bond prices increased just modestly today. The S&P closed at its lowest level in 14 months due in part to fears of slowing global growth, tariffs and uncertainty surrounding the Fed. Today's weak Empire Manufacturing data also weighed on Stocks. The Fannie Mae 30-yr 4% coupon closed at 101.19, +16bp ... not much for lenders to give favorable pricing. The Dow fell by 507.53 points to 23,592.98, the S&P 500 Index lost 54.01 points to 2,545.94 while the NASDAQ was down 156.93 points to end the day at 6,753.73. WTI oil settled at $49.88/barrel, -$1.32. 10-yr yield 2.85%.

  

Late Morning Review

It's Fed week! The Fed kicks off its two-day Federal Open Market Committee meeting tomorrow and will end on Wednesday at 2:00 p.m. ET with the monetary policy statement and a projection of economic indicators. The Fed's Powell will hold a press conference at 2:30. The Fed is expected to hike the short-term Fed Funds Rate by 0.25% to 2.75%. The key headlines will be derived from the monetary policy statement, which may reveal the path of interest rate movements for 2019.

Home builder confidence slipped in December to its lowest level since May 2019 due in part to affordability issues. The NAHB Housing Market Index fell to 56 in December, down from 60 in November. Within the report, it showed that current sales conditions, expectations and buyer traffic all declined. NAHB Chief Economist Robert Dietz says, “This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.”

Fannie Mae predicts that the housing market is expected to stabilize in 2019 as economic growth slows. Fannie Mae released its released its December Economic Outlook revealing that it sees Gross Domestic Product averaging 3.1% in 2018 before slowing to 2.3% in 2019 and 1.6% in 2020. The labor market will continue to be a strong point this and into 2019. Doug Duncan Fannie Mae's chief economist says, "If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market. We also expect residential fixed investment to resume a positive growth trajectory amid continued rising housing starts and stabilizing home sales. However, affordability is likely to remain an industry concern, particularly among first-time homebuyers.”

 

Friday - December 14

What to expect next week:

"It's a tug of war, we expected more"... Tug of War, Paul McCartney 

Home loan rates bounced around this week, due to volatility in the U.S. Bond market, but went into the weekend still near three-month lows. 

There are push/pull items that continue to limit how low and high rates can go. Here is what home shoppers should know: 

Factors currently limiting how low rates can go:

  1. Tight U.S. labor market.
  2. Rising wages, fastest pace in a decade.
  3. Soaring business and consumer confidence.
  4. Solid economic growth.
  5. Tough technical barriers (look at chart below).

Factors currently limiting how high rates can go:

  1. Slowing economic conditions around the globe.
  2. Low global bond yields - German 10-year Bond yield is 0.28% and the U.S. 10-year Note yield is 2.90%. If yields stay low in other parts of globe, there is a limit as to how high long-term rates can go.
  3. Disinflation or slowdown in the rate of inflation around globe, including the U.S.
  4. A split Congress that likely ensures no real fiscal stimulus in the near future.
  5. Pace of Fed rates hikes are slowing due to all of the above.

Bottom line, we are in a very unique economy where we have strong growth, a tight labor market, low inflation and low rates...all making a great backdrop to buy a home.

Next week it's all about the Fed! The scheduled two-day Federal Open Market Committee meeting will kick off on Tuesday and ends Wednesday with the release of the monetary policy statement at 2:00 p.m. ET. 

The financial markets have placed an 80% probability that the Fed will increase the short-term Fed Funds Rate by 0.25% to 2.75%. With the rate hike expected, what the statement reveals regarding the path of future interest rate moves may be the market moving event. 

Come Friday, the Fed's favorite inflation gauge, the annual Core PCE, will be released. With future rate hikes being mostly determined by the rate of inflation - this is an important number to track. 

Reports to watch:
 

  • The Empire Manufacturing Index will be delivered on Monday followed by the Philadelphia Fed Index on Thursday.
  • Housing Starts and Building Permits will be released on Tuesday followed by Existing Home Sales on Wednesday.
  • The final reading on third-quarter Gross Domestic Product will be released on Friday along with Core PCE.

MARKET WRAP:

Not much movement seen for Mortgage Bond prices today, this despite the 500 point loss for the Dow. The Fannie Mae 30-yr 4% coupon closed at 101.03, -3bp. Stocks fell on global growth concerns and after blue chip J&J had reports that its talcum powder may have contained asbestos. The Dow lost 496.87 points to 24,100.51, the S&P 500 fell by 50.59 points to 2,599.95 while the NASDAQ crashed by 159.66 points to end at 6,910.66. WTI oil settled at $51.20/barrel, -$1.38. 10-yr yield 2.89%. Next week the big focus will be on Wednesday's FOMC statement where it is expected that the short-term Fed Funds Rate will increase by 0.25%, as expected. What the statement reveals about the path of future interest rate movements could be the market mover. The Fed's favorite inflation gauge, the Core PCE, will be released but that comes after the fed. Have a great weekend!

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Late Morning Review:

The consumer continued to spend in November after some impressive numbers in October. November Retail Sales rose 0.2%, which was inline with expectations, but that doesn't tell the whole story. When looking under the hood, there was a 0.5% decline in receipts at gas stations, which is good for the consumer as we are paying less at the pumps to fill our vehicles. October Retail Sales were revised higher to 1.1% from 0.8%. The national average price for a regular gallon of gasoline at the pumps is $2.39, down from $2.67 a month ago.

The two-day Federal Open Market Committee meeting kicks off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement. The benchmark short-term Fed Funds Rate is expected to increase by 0.25% to 2.75% but what is in the statement is key. The Fed has come under fire by some on Wall Street and the White House for too many hikes, which could slow the economy in the near future. However, recent chatter from Fed members is signaling rate hikes may begin to slow in 2019 or maybe even not a hike at all next year.

After years of low numbers of homes for sale on the market, housing inventories have begun to increase. Online real estate brokerage Redfin reports that housing inventory rose 5% from November 2017 to November 2018, the fastest pace since June 2015. The report also revealed that home prices rose 3.3% year-over-year to a median price of $298,800. "The tide has turned," said Redfin Chief Economist Daryl Fairweather. "Sellers are now competing for buyers, but they haven't all realized it yet. Sellers who have adjusted their price expectations downward are still finding plenty of willing buyers."

 

 

Thursday December 13

MARKET WRAP:

Not much movement for Mortgage Bonds today as they traded in a tight range near unchanged levels while Stocks gave up early morning gains and closed mixed. The Fannie Mae 30-yr 4% coupon closed at $101.03, near unchanged. The Dow closed higher by 70.11 points to 24,597.38, the S&P closed near unchanged at 2,650.54 while the NASDAQ closed at 7,070.33, down 27.97 points. WTI oil was last seen at $53.09/barrel, +$1.94. 10-yr yield 2.91%. Retail sales will be released tomorrow morning.

Late Morning Review:

Applications to purchase new homes plunged in November from October due in part to affordability issues and as wage growth continues to trail behind home-price growth. The Mortgage Bankers Association (MBA) reports that its Builder Application Survey fell 14% in November from October and declined 11% from a year ago. The MBA's Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country.

Mortgage rates declined this week falling to their lowest levels in three months and have either declined or remained flat for five consecutive weeks. Freddie Mac reports that the 30-year fixed-rate mortgage fell 12 basis points this week to 4.63% with an average 0.50 in points and fees added on top of the rate. Freddie Mac says, "While the housing market softened in response to higher rates through most of this year, the combination of a low unemployment and recent downdraft in rates should support home sales heading into the early winter months."

Americans filing for first-time unemployment benefits continue to hover near 50-year lows as the labor market is now at or just above full employment. Weekly Initial Jobless Claims fell by 27,000 to 206,000, just above the 49-year low of 202,000 hit in mid-September. The four-week moving average of claims, which irons out seasonal abnormalities, fell 3,750 to 224,750. Employers have said that it has been hard finding workers to fill positions in this tight labor market.

Wednesday - December 12  

MARKET WRAP:

Mortgage Bonds traded in a tight range today near unchanged weighed down by rising Stock prices and tepid demand from today's 10-yr offering. The Fannie Mae 30-yr 4% coupon closed at 101.0, -3bp. Stocks closed higher but well off session highs on trade optimism headlines. The Dow closed at 24,527.27 up 157.03 points, the S&P 500 rose 14.29 points to 2,651.07 while the NASDAQ gained 66.48 points to 7,098.31. WTI oil settled at $51.15/barrel, -$0.50. 10-yr yld 2.91%. Economic data tomorrow is limited to Weekly Initial Jobless Claims. The Treasury will sell $16B 30-yr Bonds, results at 1:00 p.m. ET.

Late Morning Review:

Consumer inflation remained contained in November due in part to declining energy prices. The November Consumer Price Index was unchanged while year-over-year fell to 2.2% from 2.5% in October. The Core CPI, which strips out food and energy, was also inline at 0.2%, while year over year rose 2.2% from 2.1%. The Fed will break down the inflation numbers when considering interest rate policy at next week’s Federal Open Market Committee meeting that begins on Tuesday and ends Wednesday at 2:00 p.m. ET when the monetary policy statement is released.

Mortgage rates had their biggest weekly decline since 2017 in the latest survey as Bond prices rose and Stocks declined. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell 12 basis points last week to 4.96% with an average 0.50 in points and fees. The report showed that the refinance index rose 1.8% while the purchase index increased 2.5%. The MBA's survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.

 

Tuesday - December 11  

CLOSING TECHNICAL SIGNAL:

The Fannie Mae 30-yr 4% coupon remains below strong resistance at the 200-day Moving Average, currently at 101.41, while the 10-year yield remains above strong support at 2.82%. History has shown the 200-day MA to be a significant barrier to cross - both to the upside and downside.

MARKET WRAP:

Volatility reigned supreme once again today as Stocks seesawed from positive to negative several times during today's session finally ending near unchanged levels. The Fannie Mae 30-yr 4% coupon closed at 101.12, -9bp. The Dow saw a meager 53.02 point loss to 24,370.24 after an early 365 point gain, the S&P closed near unchanged at 2,636.78 while the NASDAQ gained a mere 11.31 points to end at 7,031.83. WTI oil closed at $51.65/barrel, +$0.65. 10-yr yield 2.88%. Tomorrow's data is limited to the high impact Consumer Price Index. The Treasury will sell $24B 10-yr Notes and the results will be more closely watched than today's 3-yr offering.

Late Morning Review:

Fannie Mae released its Home Purchase Sentiment Index (HPSI) showing that the index rose slightly in November due in part to rising incomes. The HPSI rose 0.5 points to 86.2. Within the report it showed that Americans who said it is a good time to buy a home rose 2 percentage points, while the net share who said it was a good time to sell was unchanged. Doug Duncan, senior vice president and chief economist at Fannie Mae said, “Consumers’ perceptions of growth in their household income reached a survey high this month, helping to absorb some of the impact of increasing mortgage rates on housing market activity."

Wholesale inflation from the Producer Price Index (PPI) declined in November to 0.1% from 0.6% and just above expectations of 0.0% due to falling energy prices. The Core Rate, which excludes volatile food and energy, fell to 0.3% from 0.5%. On an annual basis, headline PPI fell to 2.5% from 2.9%. Inflation is not getting hotter, but it may actually be getting cooler, like in other parts of the globe. Tomorrow, the more closely watched Consumer Price Index will be released. The Fed will be watching this number for any signs of consumer inflation.

Volatility is the name of the game in the stock markets for the past few months and it hasn't been easing up one bit. Yesterday, the Dow Jones Industrial Average fell by 507 points only to close with a modest 34 point gain. This morning, the index was up 350 points then gave back two-thirds of the gains. The big swings have been caused by trade headlines between the U.S. and China and fears of slowing global growth along with uncertainty surrounding the interest rate hikes from the Federal Reserve.

Monday - December 10  


MARKET WRAP:

U.S. Stocks continued their volatility as an early morning 500-point loss for the Dow turned into a small gain by the close of trading. The tech wreck reversed and wiped out the losses. Mortgage Bonds did have some early morning gains but closed flat to lower by the close. The Fannie Mae 30-yr 4% coupon closed at 101.25, -3bp. The Dow closed at 24,423.26, +34.31 points, the S&P closed higher by 4.64 points to 2,637.72 while the NASDAQ finished with a 51.26 points gain to end at 7,020.52. WTI oil settled at $51/barrel, -$1.61. 10-yr yield 2.85%. Wholesale inflation data from the Producer Price Index will be released tomorrow. The Treasury will sell $38B 3-yr Notes, results at 1:00 p.m. ET.

Late Morning Review:

Homeowners looking to tap into equity from the homes will be surprised that equity fell in October for the first time since the housing recovery. Black Knight reports that tappable equity declined by $140 billion in the third quarter of 2018 due in part to an ease in the pace of rising home prices. The company reports that a total of 43.6 million homeowners have tappable equity available, which is 272,000 fewer than in the second quarter of 2018. “Of course, there is still $9.8 trillion in total home equity in the market, some $5.9 trillion of which is tappable. That’s $571 billion more than in Q3 2017, and tappable equity remains near an all-time high," reports Ben Graboske, executive vice president of Black Knight’s Data & Analytics division.

Stocks are falling to begin the new week led lower by declining shares of Apple as well as shares in the banking sector. The Dow Jones Industrial Average, S&P and NASDAQ fell 4.5% or more last week for their biggest weekly losses since March due to trade issues, fears of slowing global growth along with uncertainty surrounding future rates hikes by the Fed. At its worst level, the Dow was down 300 points this morning. However, the closely watched S&P 500 Stock Index rose nearly 40% from November 2016 to its all-time closing high of 2,929 hit on September 21 of this year and have given back 10% up until today. Always remember, markets don't go straight up or straight down.

What has been declining, to the delight of motorists, has been the price of gas at the pumps across the country. Motor club AAA reports that the national average price for a regular gallon of gasoline is at $2.42, the lowest price for 2018. Declining oil prices, the switch to cheaper refining costs in the winter and less drivers on the road are some of the reasons for the decline. AAA predicts that gas prices could fall a few more cents by the end of the year.

 

Friday - December 7 

What to expect next week:

The Bond market, while at three-month highs, are starting the week right near a strong technical barrier (see chart below) which has prevented further rate improvement in the past. 

The last time Bond prices were at current levels, they moved lower pretty quickly causing interest rates to spike higher. 

If history repeats itself, last Thursday's intra-day and multi-month low may serve as a near-term bottom in rates. 

There is a slew of important economic reports set for release which can keep the volatility going, including the Consumer Price Index (CPI) which gives us a reading on consumer inflation. 

What will be interesting to follow is how the Bond markets react to a total of $78 billion in Treasury Notes and Bonds being sold this week with yields near 3-month lows. If investors don’t like the lower yields and the auctions don’t do well, rates may tick higher. 

Reports to watch:

  • The wholesale inflation reading Producer Price Index will be released on Tuesday with the more critical Consumer Price Index on Wednesday.
  • The other key report to watch will be Friday's Retail Sales Report.

181207


Week in Review:

This past Thursday, thanks to uncertainty around the U.S. and China trade deal, fear of slowing global economic growth, a roughed-up Stock market and the likelihood of fewer Fed rate hikes, the Bond market and home loan rates hit their best levels in three months. 

On Friday, the Labor Department reported that 155,000 jobs were created in November, a bit less than expectations of 189,000. The labor market remains incredibly strong and wages are rising at fastest pace in a decade. 

Low rates coupled with a solid labor market and rising wages make for great home purchase conditions.

It appears the highest home loan rates for 2018 are behind us and with low inflation and low bond yields in Europe and Asia, our home loan rates should not go too high for the foreseeable future. That is great news as we head into 2019. 


If you or someone you know has questions about home loans, give me a call. I'd be happy to help.

MARKET WRAP:

Another flight-to-quality session today as the Jobs Report seemed like a Goldilocks scenario but the Stock markets took it on the chin due in part to lingering trade issues along with a tech wreck. Mortgage Bond prices were able to gain back most of yesterday's gains. The Fannie Mae 30-yr 4% coupon closed at 101.31, +28bp ending above the 100-day Moving Average. The Dow lost 558.72 points to 24,388.95, the S&P 500 fell by 62.87 points to 2,633.08 while the NASDAQ closed at 6,969.25 down 219 points. All three major Stock indexes suffered their biggest weekly percentage decline since March. For the week the Dow was down 4.5%, S&P down 4.6%, NASDAQ down 4.9%. Both the Dow and S&P have turned negative for 2018. WTI oil gained $1.12 to $52.61/barrel after OPEC and partners agreed to cut output. 10-yr yield 2.85%. Next week the markets will receive data from the inflation reading PPI and CPI along with Retail Sales. The Treasury will sell $38B 3-yr Notes on Tuesday, $24B 10s on Wednesday and $16B 30-yr Bonds on Thursday. Have a great weekend!

Late Morning Review:

The Bureau of Labor Statistics reported on Friday that U.S. employers added 155,000 new workers in November, below the 189,000 expected. Revisions for September and October were revised lower by a total of a modest 12,000. The Unemployment Rate was unchanged at 3.7%, a 50-year low. Average hourly earnings rose 0.2%, just below the 0.3% expected while year over year was unchanged at 3.1%. Overall it was a Goldilocks report, not too hot, not too cold.

A recent study conducted by Freddie Mac on housing construction across the U.S. showed that the major challenge is inadequate supply. Since the Great recession ended in mid-2009, the economy has grown sharply, but the housing market has not fully recovered. Freddie Mac says, " Since 2011, residential housing construction has increased, but only gradually – and not enough to meet demand." Freddie Mac went on to report that from 1968 to 2008, a span of 40 years, there was only one year in which fewer new housing units were built than in 2017, and this despite rising demand in a growing economy. In addition, until construction ramps up, housing costs will likely continue rising above income, constricting household formation and preventing homeownership for millions of potential households.

 

Thursday - December 6  

MARKET WRAP:

U.S. Stocks went on a steep roller coaster ride today after the news of the China tech exec may have derailed trade relations between the two global economies. However, IMF's Lagarde, JPMorgan's Dimon and dovish words from several Fed members, the Dow closed with just a modest loss. The big rebound in Stocks reversed Mortgage Bond prices from the highs, which prompted our Alert To Lock at 2:00 p.m. ET. The Fannie Mae 30-yr 4% coupon closed at $101, +9bp after hitting $101.31 early in the session. The Dow lost 79.40 points to 24,947.67 after being down 800 points, the S&P fell 4.1 points to 2,695.95 while the NASDAQ actually closed higher by 29.83 points to end at 7,188.25. WTI oil closed at $51.56/barrel, -$1.57. 10-yr yield hit 3.82% this morning before closing at 2.89%. And if you didn't know ... the November Jobs Report will be released tomorrow morning at 8:30 a.m. ET. Be sure to be tuned in to get the numbers and the market reaction.

Late Morning Review:

Mortgage rates continued to edge lower this week due in part over fears of a slowing global economy along with a big decline in the U.S. Stock markets, which boosted Bond prices. Freddie Mac reports that the 30-year fixed-rate mortgage fell six basis points this week to 4.75% with an average 0.50 in points and fees added on top of that rate. Freddie Mac said that this week's decline in rates is a welcome relief to prospective homebuyers who have recently experienced rising rates and rising home prices.

Mortgage credit availability rose for the second straight month in November, reports the MBA. The MBA's Mortgage Credit Availability Index (MCAI) gained 1.1% to 188.8 in November after the 2.5% gain in October. A decline in the MCAI indicates that lending standards are tightening, while an increase signals they are loosening. The November number of 188.8 was the highest since early 2008, and was up 3.5% from a year ago.

The service sector of the U.S. economy produced positive gains in November and is the largest portion of the U.S. economy's business activity. The Institute for Supply Management (ISM) reported today that its ISM Service Index rose for the 106th consecutive month in November to 60.7 versus the 59 expected. Within the report, the two closely watched components, new orders and employment, both rose during the month. A reading above 50 indicates the non-manufacturing sector economy is generally expanding; below 50 indicates the non-manufacturing sector is generally contracting.

Late Morning Review

Mortgage rates continued to edge lower this week due in part over fears of a slowing global economy along with a big decline in the U.S. Stock markets, which boosted Bond prices. Freddie Mac reports that the 30-year fixed-rate mortgage fell six basis points this week to 4.75% with an average 0.50 in points and fees added on top of that rate. Freddie Mac said that this week's decline in rates is a welcome relief to prospective homebuyers who have recently experienced rising rates and rising home prices.

Mortgage credit availability rose for the second straight month in November, reports the MBA. The MBA's Mortgage Credit Availability Index (MCAI) gained 1.1% to 188.8 in November after the 2.5% gain in October. A decline in the MCAI indicates that lending standards are tightening, while an increase signals they are loosening. The November number of 188.8 was the highest since early 2008, and was up 3.5% from a year ago.

The service sector of the U.S. economy produced positive gains in November and is the largest portion of the U.S. economy's business activity. The Institute for Supply Management (ISM) reported today that its ISM Service Index rose for the 106th consecutive month in November to 60.7 versus the 59 expected. Within the report, the two closely watched components, new orders and employment, both rose during the month. A reading above 50 indicates the non-manufacturing sector economy is generally expanding; below 50 indicates the non-manufacturing sector is generally contracting.

Wednesday - December 5

All U.S. markets are closed today in honor of George HW Bush.

 

Tuesday - December 4  

MARKET WRAP:

Fears of a possible economic slowdown, doubts on trade issues and drama over in Europe sent investors flocking to U.S. Treasuries today in an ultra safe haven trade while Stocks plunged here in the U.S. The Fannie Mae 30-yr 4% coupon closed at 100.88, up just +6bp. The Dow fell by a whopping 799.36 points to 25,027.07, the S&P 500 plunged 90.31 points to 2,700.06 while the NASDAQ plummeted by 283.08 points to end the day's carnage at 7,158.42. WTI oil settled at $53.25/barrel, +$0.30. 10-yr yield 2.91%. All U.S. financial markets are closed tomorrow in honor of former President George HW Bush who passed away over the weekend at the age of 94. Our next MMG Daily will be released on Thursday morning.

Late Morning Review:

CoreLogic reports that home prices, including distressed sales, rose 5.4% from October 2017 to October 2018. That is down from the 7% gain seen year over year in March of this year. On a month over month basis, prices rose 0.5% from September 2018 to October 2018. Looking ahead, CoreLogic sees a 4.8% increase from October 2018 to October 2019. Frank Nothaft, Chief Economist at CoreLogic says, “Rising prices and interest rates have reduced home buyer activity and led to a gradual slowing in appreciation (in prices).”

Gas prices at the pumps continue to decline as the price of oil has fallen to its lowest level since September 2017. A strong dollar coupled slowing demand for oil are a few reasons behind the decline in prices. The national average price for a regular gallon of gas is at $2.44, down from $2.76 a month ago and below the $2.47 seen a year ago. The highest recorded price was hit back on July 17, 2008, of $4.11.

All U.S. financial markets will be closed tomorrow in honor of former President George HW Bush, who passed away last Friday at the age of 94. That has shifted the ADP Private Payroll Report release to Thursday morning from Wednesday morning. The USPS will not be delivering mail on Wednesday. Federal offices will be closed on Wednesday as well as some banks and courts.

Monday - December 3  

MARKET WRAP:

Positive trade headlines out of the G-20 Summit between the U.S. and China lifted Stocks today while capping Mortgage Bond prices. However, with the chaos seen in Europe, Treasury yields edged lower. The Fannie Mae 30-yr 4% coupon rose 6bp to end at 100.72. The Dow gained 287.97 points to 25,826.43, the S&P was up 30.20 points to 2,790.37 while the NASDAQ closed at 7,441.51, +110.97 points. WTI oil was last seen at $53.09/barrel, +$2.16 in after hours trading. 10-yr yield 2.97%.

Late Morning Review:

The G-20 Summit Meeting took place over the weekend with the big event taking place Saturday night between President Trump and China's President Xi. The two leaders discussed trade issues and agreed to suspend any tariffs for 90 days and will enter into negotiations to try and settle the trade dispute between the world's two largest economies. The headlines are lifting U.S. Stocks this morning as the last week of 2018 begins.

Manufacturing activity across the nation grew in November for the 115th consecutive month, reports the Institute of Supply Management (ISM). The ISM Index came in at 59.3 last month, above the 57.2 expected and up from 57.7 in October. Within the report it showed that both the new orders index as well as the employment component produced positive gains during the month.

Two key labor market reports will be released this week and will be closely watched by the members of the Federal Reserve as well as traders. The ADP Private Payrolls Report will be released on Wednesday followed by the government's Jobs Report on Friday. The strength in the labor markets has been well publicized this year and the question will be whether or not the solid numbers will continue. With the U.S. economy at above average growth, the jobs market should continue to prosper into 2019.

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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