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February (wigowir.com) What is going on with interest rates

February 1st, 2019

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=

Thursday - February 28  

Late Morning Review:

The Bureau of Economic Analysis (BEA) reported Gross Domestic Product rose 2.6% in the final three months of 2018, above estimates of 2% to 2.3% leaving 2018 at 2.9%, the biggest increase since 2015. Consumer spending was at a solid 2.8% clip in the quarter, though below the previous two quarters. The BEA said the government shutdown in December did have an impact on the numbers. Within the data, the inflation numbers were flat to a bit lower than the third quarter. In addition, business inventories grew more than estimated. Overall, a solid report.

Mortgage rates remained unchanged in the latest survey and continue to hover near 12-month lows. Freddie Mac reports that the 30-year fixed-rate mortgage came in at 4.35% in this week's survey with an average 0.50 in points and fees. Freddie Mac says that average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Freddie went on to say that the general decline in rates we have seen recently, combined with rebounding pending home sales, hint at a strong spring homebuying season.

Home prices continued to rise in the final three months of 2018 and on a monthly basis though at a slower pace. The Federal Housing Finance Agency reported this week that home prices rose 1.1% in the fourth quarter of 2018 and jumped 5.7% from the fourth quarter of 2017 to the fourth quarter of 2018. On a monthly basis, prices increased 0.3% from November to December. “House prices rose throughout 2018 but at a slower rate than in recent years,” said Dr. William Doerner, Supervisory Economist. “In the fourth quarter, house price appreciation hit one of the lowest levels in the past four years.”

 

Wednesday - February 27  

Late Morning Review:

Yesterday Fed Chair Powell's testimony in front of the Senate Banking Committee reiterated the Fed will remain patient on interest rate hikes while watching the incoming data. He went on to say that the FOMC will "evaluate the appropriate timing and approach for the end of the balance sheet runoff." There's probably a good chance the Fed will halt or slow the quantitative tightening by year-end.

Signed contracts to purchase homes surprisingly jumped in January from December with gains seen across all four major regions of the U.S. The National Association of REALTORS© (NAR) reports that Pending Home Sales jumped 4.6% from December though year-over-year signings fell 2.3%, marking the thirteenth straight month of annual declines. Lawrence Yun, NAR chief economist said, “Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”

Mortgage rates were essentially unchanged in the latest week and remain near 12-month lows. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage was at 4.65% in the week ending February 22, 2019 with an average 0.42 in points. Total mortgage application volume rose by 5.3% while the refinance and purchase index increased 4.6% and 6.1%, respectively. The 30-year jumbo loan fell by 16 basis points to 4.40% with 0.29 in points. "Mortgage rates were little changed last week, but as we anticipated, homebuyers are responding favorably to this more stable rate environment," said Mike Fratantoni, MBA Senior Vice President and Chief Economist.

 

Tuesday - February 26  

MARKET WRAP:

Mortgage Bonds continue to be trapped in a sideways pattern unable to break above stiff overhead resistance. Mixed data today along with dovish testimony from Fed Chair Powell left both Stocks and Mortgage Bond prices near unchanged. The Fannie Mae 30-yr 4% coupon closed at 102.16, up 9bp and has been seeing modest gains one day only to give them back the next, which has been occurring for the past three weeks. Stocks closed slightly lower on the mixed data and Powell. The Dow closed at 26,057.98 down 33.97 points, the S&P settled at 2,793.90 down 2.21 points while the NASDAQ closed at 7,549.29 down 5.16 points. WTI oil settled at $55.60/barrel, near unchanged. 10-yr yield edged lower to 2.64%. Pending Home Sales will be released tomorrow. Fed Chair Powell will be in front of the House tomorrow morning at 10:00 a.m. but we don't see much of a reaction after today's testimony in front of the Senate.

Late Morning Review:

Delayed December Housing Starts fell 11.2% from November to an annual rate of 1.078 million units versus the 1.254 million expected. It was the slowest pace since September 2016. Building Permits were essentially unchanged at 1.326 million versus the 1.290 million expected. Year-over-year, Housing Starts fell nearly 11% with losses seen in both single-family starts (-6.7%) and multi-dwelling units (-22%). Fannie Mae Chief Economist Doug Duncan said last week, "Falling - or at least not rising - interest rates, strong employment, continued wage growth, and a deceleration in home price appreciation should support more favorable homebuying conditions heading into the spring, along with improved affordability."

Home price gains continued to cool a bit in December as price appreciation comes back down to more normal levels. The S&P Case-Shiller 20-City Index rose 4.2% from December 2017 to December 2018, down from 4.6% in November. Month-over-month, prices were up 0.2%. The National Home Price Index saw a 4.7% annual gain from 5.1% in November. Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices David Blitzer said, "Home prices continue to outpace wage gains of 3.5% to 4% and inflation of about 2%."

Consumer Confidence surged this month as Stocks rallied since the beginning of the year and after the government shutdown ended. The Conference Board reports that the Consumer Confidence Index rose to 131.4 in February, above the 125 expected and well above the 121.7 recorded in January. Currently, consumers continue to to view both business and labor market conditions favorably. Lynn Franco, Senior Director of Economic Indicators said, "Consumers expect the economy to continue expanding. However, according to The Conference Board’s economic forecasts, the pace of expansion is expected to moderate in 2019.”

Monday - February 25

MARKET WRAP:

Not much action for Mortgage Bonds today as they were weighed down by rising Stock prices and traded in an extemely tight range. Stocks got a boost on positive trade headlines though they did close below their best levels of the session. There were no economic reports released today. The Dow gained 60.14 points to 26,901.95, the S&P 500 rose 3.44 points to 2,796.11 while the NASDAQ closed at 7,554.46 up 26.91 points. WTI oil closed at $55.45/barrel, -$1.81. 10-yr yield 2.67%. Economic data heats up tomorrow with the S&P Case-Shiller Home Price Index, a delayed Housing Starts and Building Permits for December and Consumer Confidence. Fed Chair Powell will deliver his semiannual monetary policy report to the Senate Banking Committee around 10:00 a.m. ET.

Late Morning Review:

This week is filled with risk-events that could bring in an uptick in volatility. This week features a slew of economic reports from housing, manufacturing, consumer attitudes, personal income and spending along with the inflation reading Core PCE. Fed Chair Powell will be in front of Congress on Tuesday and Wednesday testifying on the current state of the U.S. economy and monetary policy. Throw in trade headlines and you have a recipe for an uptick in volatility.

President Trump said that "substantial progress" has been made in the U.S.-China trade talks and will extend the March 1 deadline for increasing tariffs on Chinese goods imported into the U.S. The closely watched S&P 500 is now just 4.3% shy of its all-time closing high of 2,930 hit back on September 20, 2018. The index is up nearly 19% from the Christmas Eve low of 2,351 due in part to dovish rhetoric from Fed Chair Powell and trade optimism. The S&P is trading higher to begin the week.

Redfin reports sales of new single-family homes declined 8% from January 2018 to January 2019. It was the fifth consecutive month of year-over-year decreases in new-home sales. Breaking the numbers down year-over-year down by regions, the Midwest fell 8.7%, Northeast down 6.6%, South lost 4.7% while the West saw a 16.5% decline. "The shrinking size of sales declines, paired with falling interest rates, may be helping to improve builder confidence, which has been on the rise since December," said Daryl Fairweather, chief economist at Redfin.

Friday - February 22  

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MARKET WRAP:

Tame inflation data out of Japan along with continued weak economic data from Germany boosted Bond prices today in somewhat quiet trading. The Fannie Mae 30-yr 4% coupon closed at 102.12, +16bp. Stocks closed higher on trade hopes. The Dow gained 181.19 points to 26,031.81, above 26,000 for the first time since November, the S&P 550 rose 17.79 points to 2,792.67 while the NASDAQ closed at 7,527.54 up 67.83 points. The Dow has risen nine straight weeks. WTI oil was last seen at $57.18/barrel, +$0.21. 10-yr yield 2.65%. Next week things heat up with a packed economic calendar, Fed Chair Powell in front of Congress speaking on the U.S. economy along with a boatload of $113B in Treasuries being sold. Have a great weekend!.

Late Morning Review

Lower mortgage rates coupled with an increase in refinance application volume spurred on an increase in refinance closings in January, reports Ellie Mae. The January Ellie Mae Origination Insight Report showed the percentage of refinance closings increased to 35% of total applications, up from 29% in December. Ellie Mae went on to report that the time to close all loans dropped to 45 days in January, down from 47 days in December. Jonathan Corr, president and CEO of Ellie Mae said, “We anticipate that as we move into the traditionally busier spring months, the percentage of home purchases will increase relative to refinances.”

Given the light economic calendar this week, next week there are several hurdles for the markets to contend with. The main event will be Fed Chair Powell in front of Congress on Tuesday and Wednesday giving his semi-annual testimony on the U.S. economy and monetary policy. The Bond markets will have to digest a whopping total of $113 billion of Treasury securities which could impact trading.

A slew of economic data will also be released next week which will cover a wide range of the U.S. economic landscape and culminates with Friday's Core PCE data. The Core PCE, currently at 1.9%, is the Fed's favorite inflation gauge with a target of 2%. The Fed has forecasted that the Core PCE will stay close to current levels for three years out, which should hold interest rates relatively low.

Thursday - February 21  

MARKET WRAP:

Mortgage Bonds edged lower today due in part of the failure to break out of its current trading range and could be topping out. The Fannie Mae 30-yr 4% closed at 101.97, -19bp. Stocks closed lower after this morning's weak economic data. The Dow fell 103.81 points to 25,850.63, the S&P 500 lost 9.82 points to 2,774.88 while the NASDAQ closed at 7,459.70 down 29.36 points. WTI oil closed at $57/barrel, -$0.16. 10-yr yield 2.69%. There are no economic reports due for release tomorrow. Fed speak will be abundant tomorrow.

Late Morning Review

Mortgage rates continued to decline this week and are at 12-month lows falling for the third consecutive week. Freddie Mac reports that the 30-year fixed-rate mortgage fell two basis points to 4.35% with an average 0.5 in points and fees. Last year this time, the rate was 4.40%. Sam Khater, Freddie Mac’s chief economist says,"Wages are growing on par with home prices for the first time in years, and with more inventory available, spring home sales should help the market begin to recover from the malaise of the last few months.”

The National Association of REALTORS® (NAR) reports that sales of existing homes fell in January for the third straight month but greener pastures could be ahead, says the NAR. Existing Home Sales fell 1.2% from December to an annual rate of 4.94 million annualized units vs the 5.05 million expected, the lowest since November 2015. Compared to last year, sales are down 8.5%. The Midwest, South and West all saw declines in sales while the Northeast had gains. The median home price rose 2.8% from January 2018 to $247,500. Inventories are at a 3.9-month supply, below the normal level of six months. "Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months,” said Lawrence Yun, NAR's chief economist.

The January Fed minutes were released yesterday with the keyword being "patient" regarding any interest rate hikes in 2019. Most likely, the Fed will be on hold for 2019 and not raise the benchmark Fed Funds Rate, unless there is a big surprise spike in inflation. As far as the Fed's balance sheet, policy makers seem to have united around a plan to stop the balance sheet runoff at year's end. The U.S. markets may get additional clues at the March Federal Open Market Committee meeting.

Wednesday - February 20  

MARKET WRAP:

Not much action today in the Bond markets as prices traded near unchanged for most of the session. The Fed minutes echoed Fed Chair Powell's recent words of "patience" when it comes to rate hikes. The Fed minutes also revealed that most members would like the end of the balance sheet wind down by the end of 2019. There will be more info on the balance sheet reduction at the march FOMC meeting. The Fannie Mae 30-yr 4% coupon closed at 102.12, -6bp. Stocks ended a bit higher after the Fed minutes. The Dow rose 63.12 points to 25,954.44, the S&P 500 gained 4.94 points to 2,784.70 while the NASDAQ was up 2.30 points to 7,489.06. WTI oil settled at $57.15/barrel, +$1.04. 10-yr yield 2.64%. Durable Orders, Weekly Initial Jobless Claims and January Existing Home Sales will be released tomorrow morning.

Late Morning Review:

The National Association of REALTORS® (NAR) released its February 2019 U.S. Economic Outlook showing a decline in economic growth in 2019 while home price gains ease a bit. The NAR forecasts that Gross Domestic Product will rise 1.7% in 2019 from 3.1% in 2018 with a 1.6% increase in 2020. The median price for Existing Homes is expected to rise 2.2% to $264,700 in 2019 from 2018 while sales are estimated to decline 1.7% this year with a 4% gain seen in 2020.

The minutes from the January Federal Open Market Committee meeting will be released this afternoon at 2:00 p.m. ET. The minutes could reveal the path of the winding down of the Fed's massive balance sheet which is worth a little over $4T. The minutes signal that the Fed may not hike interest rates in the near future and any movement in monetary policy would be data dependent. The last meeting and Fed Statement were rather dovish and it will be interesting to see if the minutes confirm that dovish feeling. A dovish stance is an economic policy which promotes monetary policies that involve low interest rates, hawkish the opposite.

Mortgage rates were unchanged in the latest week having edged lower in the past three months after the highs seen in November 2018. The Mortgage BankersAssociation reports that the 30-year fixed-rate mortgage was near unchanged at 4.66% in the week ended February 13 with an average 0.42 in points. The 30-year jumbo rate rose eight basis points to 4.56 with an average 0.23 in points. The report also showed that the refinance index rose 6% while the purchase index increased 2%.

Tuesday - February 19  

Late Morning Review:

Declining mortgage rates along, frothy consumer confidence and a strong job market boosted home builder sentiment in February. The National Association of Home Builders reported on Tuesday that its Housing Market Index rose four points this month to 62, above the 59 expected. Any number over 50 indicates that more builders view conditions as good than poor. NAHB Chairman Randy Noel, a custom home builder from LaPlace, LA said, “In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season.”

Consumer spending bellwether Walmart reported both earnings and revenues beat expectations in its quarterly earnings statement released on Tuesday. The retail giant said there was a 43% increase in e-commerce sales while overall sales were up 4.2% over last year this time. The big jump in e-commerce sales were due in part to its growing grocery pickup and delivery business. Walmart reported earnings per share of $1.41 versus the $1.33 expected.

U.S. Stocks are trading in mixed fashion to begin the week after the big move higher that has taken place since a low hit on December 24, 2018. The closely watched S&P 500 Stock Index has risen seven out of the last eight weeks and is up 18% since the Christmas Eve low and just 5% below its all-time closing high of 2,930, which was hit back on September 20, 2018. That low on Christmas Eve ended up being the exact bottom of the market. It's remarkable to see when headlines are overly bearish or bullish - you should consider strongly betting the way.

 

Friday - February 15

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MARKET WRAP:

Not much action in the Mortgage Bond markets today as prices traded close to the flat line without any movement. The Fannie Mae 30-yr 4% coupon closed at 102.0, -3bp. Stocks surged on trade optimism. The Dow gained 443.86 points to 25,883.25, the S&P closed at 2,775.60 while the NASDAQ closed at 7,472.41 up 45.45 points. WTI oil settled at $55.56/barrel, +$1.16. 10-yr yield 2.66%. Next week, both the Housing Starts and Building Permits data will not be released and will be delayed due to the government shutdown that took place in January. All U.S. markets are closed on Monday in observance of Presidents Day. The Tabrasa offices are also closed. Have a great long weekend!

Late Morning Review:

Consumer sentiment pushed higher in early February due in part to end of the partial government shutdown and after the Federal Reserve signal that it will pause in raising interest rates. The Consumer Sentiment Index rose to 95.5 this month, up from 91.2 in January and above the 94 expected. Within the data it showed that consumers' long-term inflation expectations fell to the lowest level in the past half century. In addition, consumers expect incomes to rise more than any other time in over 15 years.

In a reversal of fortune or misfortune, from whatever side you look at it, Amazon has scrapped plans to build a headquarters in New York City. Amazon cited opposition from state and local politicians. The new "HQ" was also met with protests while the $3 billion in incentives for the e-commerce giant were also met with criticism. A Quinnipiac poll from December showed strong support for the new campus, with 60% of Queens residents approving of the project and 26% against it.

Business activity in New York State grew modestly in February while the New Orders Index and labor markets both increased. The Empire Manufacturing Index rose to 8.8 in February from 3.9 in January. After slumping last month, indexes assessing the six-month outlook improved noticeably, suggesting firms were fairly optimistic about future conditions.

Thursday - February 14

MARKET WRAP:

Weak Retail Sales and low wholesale inflation boosted Bond prices today while Stocks fell but closed off their worst levels. The Fannie Mae 30-yr 4% coupon closed at 102.03, +12bp. The Dow fell by 103.88 points to 25,439.39, the S&P 500 lost 7.30 points to 2,745.73 while the NASDAQ closed at 7,426.96 up 6.57 points. WTI oil closed at $54.47/barrel, up $0.57. 10-yr yield 2.65%. Economic data out tomorrow morning includes Consumer Sentiment and Empire Manufacturing.

Late Morning Review:

Consumers held back on spending their hard-earned dollars in December as sales declined across all sectors in the retail space. Retail Sales fell 1.2% in December versus the +0.1% expected. It was the biggest decline in nine years. Lower prices at the gas pumps were a factor along with a plunge in the stock markets. After combing through the report, the 3.9% decline in Internet purchases is a big disappointment. The Retail Sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation.

Mortgage rates continued to decline in the latest survey the catalyst being low inflation coupled with slowing growth. Freddie Mac reports that the 30-year fixed-rate mortgage fell four basis points this week to 4.37% with an average 0.40 in points and fees, the lowest in 12 months. Freddie Mac said that while housing activity has clearly softened over the last nine months and the lingering effects of higher rates from last year are still being felt, lower mortgage rates and a strong job market should rekindle demand for the spring home buying season.

The Mortgage Bankers Association (MBA) reports that mortgage applications to purchase new homes rose in January though remain unchanged from a year ago. The MBA said that applications rose nearly 30% in January from December, seasonally adjusted. "After two lackluster months, new home sales surged almost 30 percent in January to the fastest pace since our survey began in 2013. The healthy job market, faster wage growth, moderating price gains and lower mortgage rates, all helped home sales recover." said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

Wednesday - February 13  

MARKET WRAP:

Not much movement today for Mortgage Bonds as they continued to edge lower this week as Stocks rally. Today's tame inflation data from CPI couldn't lift Bond prices. The Fannie Mae 30-yr 4% coupon closed at 101.94, -9bp. Stocks rose on trade deal hopes and after the subdued inflation data that suggests that the fed would hold interest rates steady in the near-term. The Dow rose 117.51 points to 25,543.27, the S&P 500 gained 8.30 points to 2,753.03 while the NASDAQ closed at 7,420.37, up 5.75 points. WTI oil settled at $53.80/barrel, +$0.70. 10-yr yield 2.70%. Retail Sales, PPI and Weekly Initial Jobless Claims will be released tomorrow morning.

Late Morning Review:

Mortgage rates continued to edge lower in the latest week to low levels seen a year ago. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell four basis points to 4.65% with an average 0.43 in points. Lower rates didn't push mortgage application activity higher as the purchase index declined while the refinance index was unchanged. The MBAs Market composite Index, a measure of total mortgage loan application volume, fell 3.7%.

Inflation at the consumer level remained tame in latest report due in part to declining gas prices at the pumps. The Consumer Price Index (CPI) was unchanged in January, reports the Bureau of labor Statistics. Over the last 12 months, CPI increased 1.6% from 1.9% in the previous reading. The gasoline index fell 5.5% during the month. If inflation remains subdued, the Fed will not likely raise the benchmark short-term Fed Funds Rate in 2019.

Gas prices at the pumps remain lower than last year as oil supply is somewhat outpacing demand. The U.S. is now the largest exporter of oil in the world where just a five years ago it was more dependent on foreign imports. The price for a regular gallon of gasoline is at $2.27 and is as low as $2.13 in parts of New Jersey. That is down from $2.56 a year ago and up from $2.24 a month ago. Prices will begin to rise modestly as the late spring and summer driving season kicks off while refineries switch over to the more costly refined summer blends.

Tuesday - February 12

  MARKET WRAP:

Higher stock prices pushed Mortgage Bonds modestly lower in today's session while a record number of job openings in December and small business optimism weighed on the debt markets. The Fannie Mae 30-yr 4% coupon closed at 102.02, -2bp. Stocks ended higher on hopes of a U.S.-China trade deal and on news that a partial gov't shutdown will be averted. The Dow gained 372 points to 25,425.76, the S&P 500 rose by 34 points to 2,744.73 while the NASDAQ closed at 7,414.61 up 107 points. WTI oil settled at $53.06/barrel, +$0.65. 10-yr yield 2.67%. Tomorrow's economic data is limited to the inflation reading Consumer Price Index.

Late Morning Review:

The January NFIB Small Business Optimism Index (-3.2 points to 101.2) retreated a touch, though above historic averages, as owners expressed concern about future economic growth. However, hiring, hiring plans and job openings remained strong while inventory and capital spending were solid. NFIB President and CEO Juanita D. Duggan said, “One thing small businesses make clear to us is their dislike for uncertainty, and while they are continuing to create jobs and increase compensation at a frenetic pace, the political climate is affecting how they view the future.”

U.S. stocks are higher on headlines that a partial government shutdown will be avoided this Friday night at midnight. Lawmakers have agreed in principle on border security funding that includes $1.3 for a wall or a physical barrier along the southern border. In addition, positive trade talks between the U.S. and China are also helping to buoy the equity markets today.

Private equity firm Thoma Bravo gas agreed to purchase Ellie Mae for a deal worth around $3.7 billion. Ellie Mae is the leading cloud-based provider for the mortgage finance industry. Ellie Mae is expected to remain headquartered in Pleasanton, California with the deal closing in the second or third quarter of this year.

Monday - February 11

MARKET WRAP:

U.S. markets were quiet today as the week kicked off with Mortgage Bonds closing slightly lower, Stocks mixed. There were no economic reports released today nor were there any glaring market moving headlines. The Fannie Mae 30-yr 4% coupon closed at 102.19, -9bp. The Dow closed at 25,053.111 down 53.22 points, the S&P 500 gained a meager 1.92 points to 2,709.80 while the tech heavy NASDAQ closed at 7,307.90, up 9.70 points. WTI oil settled at $52.39/barrel, -$0.33. 10-yr yield closed at 2.65%. There are no major economic reports due for release tomorrow. The JOLTS report and the NFIB Small Business Optimism Index will be released tomorrow. Fed Chair Powell will be speaking tomorrow around 12:45 p.m. ET.

 Late Morning Review:

Homes selling above list prices continued to decline in the second half of 2018 and fell to a three-year low in the month of December. This follows many years where prices progressively sold above their listed price. Zillow reports that 19.4% of homes sold above list price in December, the lowest share in almost three years and marked the seventh straight month in which the rate declined. This is in stark contrast to the 24% share that sold above list in May 2018, which was the highest since the housing recovery.

After last week's slow economic calendar, this week features economic data from the inflation reading Consumer and Producer Price Index, Retail Sales, Consumer Sentiment along with NFIB's Small Business Optimism Index. There were no reports due for release today. The Job Opening and Labor Turnover Survey will also be released. Throw in lingering Brexit issues and the European economic slowdown, which could spark some volatility. Earnings season will begin to wind down. There will also be several Fed members speaking this week including Fed Chair Powell.

Another government shutdown is looming for this Friday at midnight, says acting White House Chief of Staff Mick Mulvaney. Lawmakers from the House and Senate are scrambling to come up with a bill to present to President Trump this week before a shutdown occurs. Sources say that border wall funding talks have broken down and hopes for a deal is fading quickly. The recent shutdown was the longest in history.

Friday - February 8  

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Next Week:

After last week's light schedule of economic data, this week's calendar is filled with data that could move the markets and interest rates. 
The Fed is "data-dependent," meaning they are watching the incoming data carefully and will use these reports to determine their next course of action -- whether to hike or even cut rates later this year. 

Inflation numbers, manufacturing, consumer spending and sentiment along with a reading on small business optimism will be released. 

As mentioned earlier, inflation is a key metric for the Fed. The rate of inflation has started to show signs of slowing -- if that trend continues, we will likely see home loan rates improve again. 

Reports to watch:

  • Inflation data in the upcoming week will come from Wednesday’s Consumer Price Index followed by the Producer Price Index on Thursday.
  • Retail Sales will be delivered on Thursday along with Weekly Initial Jobless Claims.
  • On Friday, the Empire Manufacturing Index and Consumer Sentimentwill be released.

And while not a traditional economic data point, the NFIB Small Business Optimism Index will be announced on Tuesday. Small businesses make up a large chunk of the U.S. labor market and the index has been hovering near all-time high levels. 

Week in Review:

Bad news is good news for the U.S. Bond market and rates. This past week, bad news by way of worse than expected economic numbers in Europe cast a dark shadow on the financial markets. As a result, U.S. home loan rates ticked down to the best levels in ten months. 

The U.S. economy is the "cleanest shirt in the dirty laundry" when compared to other global economies -- meaning our economy is performing pretty well, while countries like Germany are on the brink of recession. 

How do problems in Europe help our rates? With their economies materially slowing, their Central Bank, the ECB, will not be raising rates anytime soon -- possibly not for another year or more. This means their rates will stay low for longer. And when rates around the globe move lower it drags U.S. rates lower as well. 

The chance of a Fed rate hike in 2019 is looking more unlikely every day and this fresh round of weak economic data from Europe helps the Fed’s case for no hikes in 2019. 

In the absence of a surprise uptick in economic growth and inflation, we should expect home loan rates to remain near current levels for 2019 and possibly beyond. 


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

MARKET WRAP:

Mortgage Bonds were able to produce small gains today as Stocks tumbled on global growth fears along with trade worries between the U.S. and China. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 102.25, +9bp. Stocks closed in mixed fashion after trading in the red for most of the session. The Dow lost 63.20 points to 25,106.33, the S&P 500 closed with a meager gain of 1.83 points to 2,707.88 while the NASDAQ closed at 7,298.19 up 9.84 points. WTI oil closed at $52.76/barrel, near unchanged. 10-yr yield 2.63%. Next week the economic data heats up with consumer and wholesale inflation (CPI,PPI), manufacturing, Retail Sales and Consumer Sentiment. Have a great weekend!

Late Morning Review:

Higher household incomes in January pushed home purchase sentiment higher during the month, reports Fannie Mae. The Home Purchase Sentiment Index rose 1.2 points to 84.7 last month though it lower by 4.8 points compared with the same time last year.

Fannie Mae's report revealed that there was an 8-percentage point increase in the net share of Americans who reported higher household income from January 2018. "Overall, these results are in line with our forecast that, amid improving affordability conditions, home sales should stabilize in 2019 after declining last year for the first time in four years," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Consumer credit in the U.S. hit a record high in December due in part to low unemployment and steady income growth, reports the Federal Reserve. Consumer credit rose $16.6 billion in December to an all-time high of $4 trillion. That's trillion! In December, the report showed that credit card debt rose 2% while auto and student loans were up 6%. Mortgage loan data is not included in the report.

Thursday - February 7  

MARKET WRAP:

Mortgage Bonds closed near unchanged to slightly higher in today's session as prices have traded sideways this week. The Fannie Mae 30-yr 4% coupon closed at 102.16, +6bp. Stocks closed lower though off worst levels on global growth and trade fears. The Dow lost 220.77 points to 25,169, the S&P fell by 25.56 points to 2,706.05 while the NASDAQ closed at 7,288.35, down 86.92 points. WTI oil settled at $52.70/barrel, -$1.47. 10-yr yield 2.65%. There are no scheduled economic reports due for release tomorrow.

Late Morning Review:

Mortgage rates continued to decline this week and are at the lows seen in April 2018. Freddie Mac reports that the 30-year fixed-rate mortgage fell five basis points to 4.41% with an average 0.40 in points and fees. Sam Khater, Freddie Mac’s chief economist, says, “Mortgage rates are essentially similar to a year ago, but today’s buyers have a larger selection of homes and more consumer bargaining power than they did the last few years.”

For the first time in four months, mortgage credit availability rose in January. The increase was due in part to investors and lenders adding more programs for lower credit score borrowers along with new relief refinance programs. The Mortgage Credit Availability Index (MCAI) rose 2.3% to 179.0 in January. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012.

A big merger in the banking sector was announced today as BB&T will purchase SunTrust in an all-stock deal worth $66 billion. The merger will create the sixth-largest U.S. bank in an effort to compete with the country's biggest banks. The new company will operate under a new name that hasn't been decided on yet. The new bank will have $442 billion in assets, $301 billion in loans and $324 billion in deposits with the deal closing later this year.

Wednesday - February 6  

MARKET WRAP:

For the third time this week not much action in the Mortgage Bond markets as they traded close to unchanged for most of the session in the absence of any major economic or geopolitical headlines. The Fannie Mae 30-yr 4% coupon closed at 102.09, near unchanged. Stocks also had a lackluster trading day. The Dow lost 21.22 points to 25,390.30, the S&P 500 declined by 6.09 points to 2,731.61, while the NASDAQ closed at 7,375.28. WTI oil settled at $53.99/barrel, +$0.33. 10-yr yield 2.70%. Economic data is limited to Weekly Initial Jobless Claims tomorrow. The Treasury will sell $19B 30-yr Bonds and comes after today's soft demand for the 10-yr offering.

Late Morning Review:

The Mortgage Bankers Association (MBA) reports that its Market Composite Index, a measure of total mortgage loan application volume, fell 2.5% in the week ended February 1, 2019. The MBA said the refinance index was near unchanged while the purchase index declined 5%.

Mortgage rates edged lower in the latest week to the lowest levels since April 2018. The 30-year fixed-rate mortgage fell seven basis point to 4.69% with an average 0.45 in points. Joel Kan, the MBAs Associate Vice President of Industry Surveys and Forecasts said, "Moderating price gains and the strong job market, including evidence of faster wage growth, should help purchase growth going forward."

U.S. stocks are taking a breather today after the big gains seen since the lows seen on Christmas Eve. The closely watched S&P 500 Stock Index is up 16% since the low of 2,351 at the close on December 24. The index is now just 6% below its all-time closing high of 2,930 hit back on September 20 of last year. The recent gains are due in part to a reversal in the Fed's monetary policy outlook from hawkish to dovish along with solid readings from the labor markets.

Tuesday - February 5 

MARKET WRAP:

Not much action again today for Mortgage Bonds as prices traded near unchanged to slightly higher for most of the session. The Fannie Mae 30-yr 4% coupon closed at 102.09, +9bp. Stocks rose on earnings optimism and ahead of tonight's State of the Union Address at 9:00 p.m. ET. The Dow gained 172.15 points to 25,411.52, the S&P 500 rose 12.83 points to 2,737.70 while the NASDAQ was up 54.54 points to end at 7,402.08. WTI oil closed at $53.75/barrel, -$0.81. 10-yr yield 2.70%. Productivity for Q4 2018 will be released tomorrow and we don't see an impact from the data. The $27B 10-yr Note auction will garner some attention when the results are released at 1:00 p.m. ET.

 Late Morning Review:

CoreLogic reports that home prices, including distressed sales, rose 4.7% from December 2017 to December 2018. It was the slowest year-over-year growth since August 2012 as price gains fall back down to more normal levels. Looking ahead, CoreLogic is forecasting a 4.6% gain in prices from December 2018 to December 2019. Frank Nothaft, Chief Economist at CoreLogic said, "Higher mortgage rates slowed home sales and price growth during the second half of 2018. Annual price growth peaked in March and averaged 6.4% during the first six months of the year. In the second half of 2018, growth moderated to 5.2%."

The recent decline in mortgage rates has set up some homeowners for refinancing in the months to come. Black Knight reports that there are now 2.9 million homeowners with mortgages that could qualify for a refinance by at least 0.75%, the largest number since January 2018. Within the report it also revealed that delinquencies, serious delinquencies and active foreclosures ended 2018 below 2000-2005 pre-recession averages for the first time since the financial crisis.

The service sector of the U.S. economy grew for the 108th consecutive month in January, reports the Institute for Supply Management (ISM). The ISM Service Index registered 56.7 last month versus the 57 expected. The government shutdown did cause a bit of slowdown in certain areas, but on the whole the report was positive. A reading above 50 indicates the non-manufacturing sector economy is generally expanding; below 50 indicates the non-manufacturing sector is generally contracting.

Monday - February 4  

MARKET WRAP:

Not much action in the Mortgage Bond markets today as prices traded in a tight range ending with minor losses. There were no economic reports released today. The Fannie Mae 30-yr 4% 30-yr coupon closed at 101.94, -9bp. Stocks closed with gains fueled by the tech sector. The Dow gained 175.48 points to 25,239.37, the S&P 500 rose 18.34 points to 2,724.87 while the NASDAQ was up 83.66 points to end the day at 7,347.87. WTI oil settled at $54.61/barrel, -$0.65. 10-yr yield 2.72%. Tomorrow's economic data is limited to ISM Service Index.

Late Morning Review: 

U.S. home sellers across the country put more money in their pockets when they sold their homes in 2018 with the big gains seen along coasts. The ATTOM Data Solutions 2018 U.S. Home Sales Report, home sellers in 2018 realized an average home price gain since purchase of $61,000, up from $50,000 last year and up from $39,500 two years ago in 2016 to the highest level since 2006, which was a 12-year high. Todd Teta, chief product officer at ATTOM Data Solutions said, "The effects of last year’s tax cuts are wearing off as limits on homeowner tax deductions are in place and mortgage rates are ticking up ever so slowly, so this could dampen the potential for home price gains in 2019.”

Freddie Mac recently released its Economic and Housing Research Forecast for 2019 showing that mortgage rates may not move much higher than current levels in 2019. Freddie Mac forecasts that the 30-year fixed-rate mortgage will average 4.70% in 2019 and increase marginally to 4.9% in 2020. Home sales should increase to 6.09 million in 2019 and 6.14 million in 2020. In addition, total single-family mortgage originations are expected to increase 2.1% to $1.68 trillion in 2019. Lastly, Gross Domestic Product is estimated to have slowed a bit in 2019 to 2.5% and 1.8% in 2020.

 

Friday - February 1 

190201

Next Week:

The upcoming week will be a dramatic change from last week with no major risk-filled events like the Fed meeting and Jobs Reports.

There are just a few economic reports to be delivered, though the markets will have to contend with the ongoing U.S.-China trade issues along with another looming government shutdown on February 15.

The Bond markets will also have to digest a total of $84 billion in Notes and Bonds being auctioned by the Treasury. At times, these auctions can limit rate improvement.

Overall, with the Fed now more patient and inflation a non-issue we should not expect home loan rates to meaningfully tick higher anytime soon. At the same time -- with the U.S. economy continuing to be on solid footing, it's likely that further rate improvement will be limited.

Reports to watch:

  • The ISM Service Index will be released on Tuesday, followed by Productivity on Wednesday and Weekly Initial Jobless Claims on Thursday. 

Last Week in Review:

The Fed met this past week. As expected, they didn't hike rates and the Fed Statement was very "dovish," suggesting that rate hikes will be off the table for most, if not all, of 2019.

The Fed looked to "muted inflation" and slowing economies abroad as reasons to show "patience" in hiking rates further.

In response, home loan rates revisited the best levels of 2019 this past week.

This new position by the Fed is a complete departure from where they were just a few months ago, when Fed Chair Powell was forecasting 3 rate hikes this year.

People owning Stocks are feeling wealthier as shares hit a multi-month high this week after rallying 14% since Christmas. This is good for housing.

Job creations and wage growth are also fundamental to a healthy housing market and last week's terrific Jobs Report showed steady growth in both.

More good news -- the Mortgage Bankers Association just released a forecast suggesting that 30-year mortgage rates will remain below 5.00% through 2020!!!

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

MARKET WRAP:

Mortgage Bonds gave back yesterday's gains and then some today after the strong jobs data and solid manufacturing report from the ISM. The Fannie Mae 30-yr 4% coupon closed at 102.03, -28bp. Stocks closed mixed as the strong Jobs Report were somewhat offset by weak shares of Amazon after the company's weak forecast. The Dow gained 64.22 points to 25,063.89, the S&P 500 rose 2.43 points to 2,706.53 while the NASDAQ closed at 7,263.86 down a meager 17.86 points. WTI oil settled at $55.35/barrel, +$1.56. 10-yr yield rose to 2.68%. Next week's economic calendar is very light. The markets will continue to deal with U.S.-China trade issues, looming possible government shutdown, earnings season and a boatload of added supply from the Treasury. Have a great weekend!

Late Morning Review: 

The Bureau of Labor Statistics reported that 304,000 jobs were created in January as the labor market continues to remain on very solid ground. However, there was a large 70,000 downward revision for November and December. But even with that, the three-month job creation average is at a strong 240,000.

The Unemployment Rate ticked up to 4% from 3.9% while the Labor Force Participation Rate rose to 63.2%, the highest since August 2013. Average hourly earnings rose 0.1% from December and up a solid 3.2% year-over-year, which matches the annual December reading. Total unemployed, or the U6 number, rose to 8.1% from 7.6%. Overall, this is another solid report.

Manufacturing activity across the U.S. remained strong in January while the U.S. economy grew for the 117th consecutive month. The ISM Manufacturing Index came in at 56.6 in January, above the 53.6 expected. The report read that continued expanding business strength was supported by strong demand and output.

 

Contact

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

600 Luckie Drive Suite 200
Birmingham, Alabama 35223
 

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