March 2019 (www.WIGOWIR.com) What is going on with interest rates?

March 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=

Friday - March 29  

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Next Week:

The upcoming week will bring the March Non-Farm Payrolls (Jobs Report), which comes on the heels of February's very weak 20,000 job reading. 

Revisions for the two previous months will be key when the report comes out on Friday, especially if the February number gets bumped higher. 

Wage growth, currently running at 3.4% year-over-year, and the highest in a decade, will also be delivered in this report. Should the wage gains increase further, Bonds may not like the inflationary tone that goes along with higher wages. 

On Wednesday, we will get a preview to the Jobs Report when the ADP Private Payrolls is released. 

Any additional headlines surrounding recession fears will also play a role in which way both Stocks and Bonds trade. 

As you can see there's a lot of headline risk as we head into this week. 

Reports to watch:

  • A gauge of consumer spending will be released on Monday in the form of Retail Sales, along with the ISM National Manufacturing Index.
  • On Wednesday, the ADP Private Payrolls report will be delivered along with the ISM Service Index.
  • As usual, Weekly Initial Jobless Claims will be released as they hover near lows seen in the late 1960's.
  • The closely watched government Jobs Report will be released on Friday, which includes Non-Farm Payrolls, the Unemployment Rate and Hourly Earnings.

 

 

 

 

 

 

 

Week in Review:

That is the best way to describe the current home loan rate environment. This past week we saw mortgage rates experience their largest one-week decline in 10 years!!! 

What caused the sharp decline in home loan rates? Recessionary fears, and the likelihood the Fed's next move on rates may be a cut and as soon as this year. 

The Treasury's Two-Month Bill yielded 2.40% this past week and the 10-Year Note yielded a low of 2.34%. This "inverted yield curve", where short-term Bonds yield more than long-term Bonds, elevated the recession talk. 

Bond yield curve inversions are not always accurate, and the lead time to a recession can be as much as three years. 

It will be more important to track how the 2-Year Note, presently yielding 2.23%, performs against the 10-Year Note in the weeks and months ahead, because a sustained inversion between them would be a more serious recessionary signal. 

The financial markets were spooked this week when potential Federal Reserve Board Nominee Stephen Moore said if he were brought onto the Fed, he would immediately vote for a .50% cut to the Fed Funds Rate. This surprise statement brought uncertainty to the financial markets, which led to Stocks moving lower and Bonds moving higher in price. 

Bottom line: Inflation is not a threat, and was evidenced in last Friday's PCE reading of just 1.8% year-over-year. Plus, the idea that the Fed may now cut rates next means this complacent "wait and see" attitude may continue to keep home loan rates at low levels for the spring homebuying season, and more. 

MARKET WRAP - Mortgage Bonds closed modestly lower weighed down by rising Stock prices. The S&P 500 had its best quarter since Q2 2009 and its best first quarter since 1998 due in part to the reversal from the Fed from hawkish to dovish in the beginning of January. We maintain our recent stance, "Float brand-new files and longer-term lock scenarios, but at the same time, consider locking loans that are closing in 30 to 45 days and take what is at hand and avoid the price volatility." ADP and Non-Farm Payrolls will be released next week. Have a great weekend!

Late Morning Review:

Good news was reported this morning in the housing sector as the spring buying gets underway. Sales of new single-family houses rose nearly 5% in February from January recording the largest monthly gain in 11 months. The Census Bureau reports that New Home Sales came in at an annual rate of 667,000 in February versus the 618,000 expected. Sales were marginally higher year-over-year by 0.6%. Across the country, big gains were seen in the Northeast and Midwest with a slight gain in the South while the West saw flat sales. The average sales price was $379,600 with inventories were at a 6.1 month supply.

Inflation remained subdued in February as demand for goods and services eased a bit with somewhat slowing growth. The Federal Reserves favorite inflation gauge, the Core Personal Consumption Expenditure (PCE), fell to 1.8% year-over-year in January from the 2% recorded in December. The Fed has a target rate of 2%. If inflation remains low, the Fed will be on hold for any rate hikes in 2019 and could even cut in the fall.

Thursday - March 28  

MARKET WRAP - Mortgage Bonds closed modestly lower weighed down by rising Stock prices. The S&P 500 had its best quarter since Q2 2009 and its best first quarter since 1998 due in part to the reversal from the Fed from hawkish to dovish in the beginning of January. We maintain our recent stance, "Float brand-new files and longer-term lock scenarios, but at the same time, consider locking loans that are closing in 30 to 45 days and take what is at hand and avoid the price volatility." ADP and Non-Farm Payrolls will be released next week. Have a great weekend!

Late Morning Review:

Low inflation levels coupled with slowing global economic growth continued to push mortgage rates lower in the latest survey to lows seen in mid-January 2018. Freddie Mac reports that the 30-year fixed-rate mortgage fell 22 basis points to 4.06% with an average 0.50 in points and fees. It was the largest one-week decline in a decade. Freddie Mac says low rates and a strong job market will be great for housing demand now that the spring buying season is underway.

The final read on Q4 2018 Gross Domestic Product was released with a slight decline to 2.2% from the previous reading of 2.6% leaving full year growth at a solid 2.9%. Inflation data within the numbers were tame while consumer spending slipped a bit. The first quarter of 2019 GDP could come in lower, given the government shutdown and historically being the weakest quarter of the year. Weekly Initial Jobless Claims came in at 211K, lows seen in the late 1960s as the labor market continues its winning ways.

Americans filing for first time unemployment benefits fell to lows seen in the late 1960's in the latest week. The Labor Department reports that Weekly Initial Jobless Claims fell by 5,000 in the latest week to 211,000. The four-week moving average of claims, which irons out seasonal abnormalities, fell 3,250 to 217,250. The March Jobs Report will be released next week and comes after a weak Non-Farm Payrolls for February.

Wednesday - March 27  

MARKET WRAP:

Mortgage Bonds ended slightly higher today supported by lingering global growth fears, a dovish Fed and a low inflation environment. WTI oil settled at $59.24/barrel, -$0.52.

Late Morning Review:

Home borrowing and refinance costs continued to decline in the latest week due in part to fears of slowing global growth along with a low inflation environment. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell ten basis points in the latest week to 4.45% with points declining to 0.39. The 30-year jumbo rate fell to 4.35% from 4.37% with similar points. The beginning of the spring buying season saw purchase applications jump 6% while the Refinance Index surged 12%.

The FHFA reports that home prices rose 0.6% in January 2019 from December 2018. The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. On a year-over-year basis, prices rose 5.6% from January 2018 to January 2019. Home price gains have been declining annually to more normal levels.

The National Association of REALTORS® (NAR) reports that more Americans believe that now is a good time to purchase a home. Of those surveyed, 37% said it is a good to purchase a home, up from 34% in the final quarter of 2018. In addition, 53% polled said that the economy is still improving, though below 59% at the end of 2018. NAR's chief economist Lawrence Yun says several factors are helping to improve the attitudes of potential homebuyers. "First, inventory has been rising, so those buyers interested in making a purchase will not be limited in choices. Additionally, more stable home price trends are leading to more foot traffic at various open house gatherings."

Tuesday - March 26  

MARKET WRAP:

Mortgage Bonds ended slightly higher today supported by lingering global growth fears, a dovish Fed and a low inflation environment. WTI oil settled at $59.24/barrel, -$0.52.

Late Moring Review:

The Commerce Department reports that Housing Starts fell 8.7% month-over-month in February from January to an annual rate of 1.162 million units versus the 1.210 million expected. Starts were down 9.9% year-over-year. It was the largest monthly percentage decline for total Housing Starts in eight months. Single-family starts plunged 17% month-over-month, down 10.6% annually. Multi-family dwellings jumped 23.5% monthly, but fell 5.4% annually. Total Housing Starts fell in the Northeast, South and West, with gains seen in the Midwest.

A recent study conducted by Credit Suisse says that real estate agents are reporting the current housing market environment is leaning towards buyers. Real estate agents are saying that many of their home buyers are motivated with more supply of homes on market along with along with declining mortgage rates. However, for buyers looking for homes priced in the $200,000 to $300,000 levels, there is a lack of supply in that category.

Tuesday - March 26  

Late Morning Review:

The Commerce Department reports that Housing Starts fell 8.7% month-over-month in February from January to an annual rate of 1.162 million units versus the 1.210 million expected. Starts were down 9.9% year-over-year. It was the largest monthly percentage decline for total Housing Starts in eight months. Single-family starts plunged 17% month-over-month, down 10.6% annually. Multi-family dwellings jumped 23.5% monthly, but fell 5.4% annually. Total Housing Starts fell in the Northeast, South and West, with gains seen in the Midwest.

A recent study conducted by Credit Suisse says that real estate agents are reporting the current housing market environment is leaning towards buyers. Real estate agents are saying that many of their home buyers are motivated with more supply of homes on market along with along with declining mortgage rates. However, for buyers looking for homes priced in the $200,000 to $300,000 levels, there is a lack of supply in that category.

Monday - March 25  

MARKET WRAP:

Mortgage Bonds closed near unchanged in quiet trading in the absence of any economic data. The yield on the 10-yr T Note ended at 2.40%, lows seen in December 2017. With Mortgage Bond prices at fresh 13-month highs, consider locking files that are closing within 30-days with a longer-term floating bias.

 

Late Morning Review:

Rental prices edged higher in February from January and are up 3.6% annually last month, up $2 to $1,426. The 3.6% annual gain is the largest increase since late 2016, according to the latest Yardi Matrix National Multifamily Report. The data showed that demand for rentals continues to grow, which covers 127 major U.S. real estate markets. The report cited low unemployment along with growing wage growth for the continued increase in rents.

U.S. stocks begin the week modestly higher as the markets look for some type of trade deal this week. U.S. trade officials will travel to Beijing on Thursday to meet with Chinese officials. Global growth fears have capped any gains for the equity markets in the past month though here in the U.S. unemployment remains low, consumer confidence is just below all-time highs while growth here in the U.S. continues to remain solid.

Inflation has been tame for quite some time now as the Federal Reserve expects it to remain low through 2021. The Fed's favorite inflation gauge, the Core Personal Consumption Expenditures (PCE), will be released at the end of the week. The current data saw the Core PCE at 1.9%, just below the Fed's target range of 2%. The Core PCE is a measure of the prices paid by people for domestic purchases of goods and services, excluding the prices of food and energy.

Friday - March 22  

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Next Week:

 

After the Fed lifted Bond prices last week with a dovish Monetary Policy Statement, the markets in the upcoming week will have to deal with a bevy of economic data. 

The big report will be Friday's Core PCE (Personal Consumption Expenditures price index). This report measures price changes for household goods and services, and is the preferred method for the Fed when measuring consumer inflation in the United States. 

Last week, the Fed said inflation will continue to remain low, and the non-threat of higher inflation is one of the factors leading to the complacency and calm in the financial markets. 

However, inflation can grow quickly and a trend worth following is rising wages, which is currently sitting at 3.4% year-over-year, and the highest levels in ten years. 

As wages rise, people have more disposable income which creates a higher demand for goods and services, thereby driving prices higher. 

Remember that inflation is the driver of long-term rates like mortgages - not the Fed. So, if inflation remains low, as many expect, then rates will also remain low. If inflation ticks higher, home loan rates must go higher as well. 

Reports to watch:

  • Housing data will be plentiful with Tuesday's S&P Case-Shiller Home Price Index, Housing Starts and Building Permits.
  • Pending Home Sales will be released on Thursday.
  • Consumer Confidence will be delivered on Tuesday with Consumer Sentiment on Friday.

Week in Review:

The monetary authority of the United States, the Federal Reserve, meets 8 times a year to discuss the economy and adjust monetary policy to promote maximum employment and maintain price stability (inflation). 

The Fed, led by Chairman Jerome Powell, met this past Wednesday and decided to leave the Fed Funds Rate unchanged at 2.50% - this was expected. They also issued their Monetary Policy Statement which includes their outlook on the economy and its interest rate forecast. 

Overall the Statement was "dovish", meaning stimulative to the economy. They forecasted slower US growth, and inflation running beneath their target, which led to them forecasting no more rate hikes for the remainder of 2019. This was a nice surprise to the financial markets. 

The Fed, inflation, and higher interest rates are not an immediate threat. This continues to push Stocks higher and long-term Bonds, like Mortgage Bonds, to one-year highs. This helps bring home loan rates to one-year lows. 

Bottom line: The spring housing market could be one of the best in years thanks to a solid economy, relatively low rates, a positive wealth effect thanks to the rise in Stocks and a Federal Reserve that said rates are not likely to rise anytime soon - if at all. 

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 overcome some afternoon selling, closing midway between today's highs and lows. The 10-yr yield closed at 2.43%, lows last seen in January 2018. 

Late Morning Review:

The National Association of REALTORS(R) reports that sales of Existing Homes rose nearly 12% in February from January to an annual rate of 5.51 million annualized units, the largest month-over-month gain since December 2015. Sales were down 1.8% year-over-year. Gains were seen in the Midwest, South and West with little change in the Northeast. Unsold inventory is at a 3.5-month supply, below 6-months that is seen as normal. The median home price rose 3.6% year-over-year to $249,500. A solid report as the spring buying season gets underway.

Freddie Mac reports that given mortgage rates have declined and a strong labor market should attract potential home buyers this spring and could propel the housing market to greener pastures in 2019. Mortgage rates have declined in 2019 from 2018 and should average 4.5% this year before rising to 4.8% in 2020. Total mortgage originations for single-family homes are expected to increase 1.6% to $1.67 trillion this year with similar levels seen in 2020. Freddie Mac went on to forecast that total home sales are expected to regain momentum this year.

 

 

Wednesday - March 20  

MARKET WRAP:

The dovish Fed statement sent Mortgage Bonds higher today, yields lower as the Fed took rate hikes off the table in 2019 while inflation remains tame. The Fannie Mae 30-yr 4% coupon closed at 102.59, +28p. The Dow and S&P ended lower due to negative trade headlines and as the dovish Fed sent bank shares lower. In addition, the FBI has joined the criminal investigation into the certification of Boeing 737 MAX. The Dow fell 141.75 points to 25,745.67, the S&P dropped 8.34 points to 2,824.23 while the NASDAQ saw a meager gain of 5.02 points to end at 7,728.96. WTI closed at $60.20/barrel +$1.46, the first close above $60 since November as crude inventories decline. Weekly Initial Jobless Claims and the Philly Fed will be released tomorrow.

Late Morning Review:

Mortgage rates continued to edge lower in the latest week due to ongoing low inflation levels coupled with slowing global growth. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell nine basis points to 4.55% for the week ending March 15. That rate carries 0.42 in points. The Refinance Index rose 4% while the Purchase Index was essentially unchanged. The Market Composite Index, a measure of total mortgage loan application volume, rose 1.6% with rates at favorable levels.

It's Fed Day! The Fed will release its monetary policy statement at 2:00 p.m. ET along with economic projections and an interest rate forecast. Fed Chair Powell will hold a press conference at 2:30. There is a near zero percent chance of a hike to the short-term Fed Funds Rate, but what the statement says regarding the ending of the balance sheet runoff will be key. In addition, what Mr. Powell says in his press conference will be closely scrutinized.

 

Tuesday - March 19  


MARKET WRAP:

Mortgage Bonds closed near unchanged today and traded in a tight range ahead of the Fed. There were no economic reports today. The Fannie Mae 30-yr 4% coupon closed at 102.34, unchanged. Stocks traded higher up until mid-afternoon when reports surfaced that the U.S.-China trade deal hit some snags which erased the early gains and closed flat. The Dow closed at 25,887.38, the S&P at 2,832.57 while the NASDAQ finished at 7,723.94. WTI closed at $59.34/barrel, +$0.25. 10-yr yield 2.61%. There are no economic reports due for release tomorrow. The Fed statement will be released at 2:00 p.m. ET with Fed Chair Powell holding a press conference at 2:30. Be sure to read tomorrow morning's MMG Daily ahead of the fed.

Late Morning Review:

Foreclosure activity continued to decrease in February due in part to rising wages and a strong labor market. ATTOM Data Solutions reports that foreclosure filings - default notices, scheduled auctions and bank repossessions - declined 3% from January to February and were down 11% from February 2018 to February 2019. It was the eighth consecutive annual drop in foreclosure activity. In addition, bank repossessions were down 7% month-over-month and fell 12% from a year ago.

U.S. stocks are rallying today as the Federal reserve members kick off their Federal Open Market Committee meeting. Stocks are higher in anticipation of a dovish Fed when the statement is released on Wednesday. The closely watched S&P 500 has traded higher the last five out of six days and is up over 4% since the March 8 low and is just 80 points shy of hitting a new all-time high.

Monday - March 18  

MARKET WRAP:

Not much action for Mortgage Bonds ahead of the mid-week Fed events. The Fannie Mae 30-yr 4% coupon closed at 102.34, unchanged. Stocks ended higher boosted by bank stocks. The Dow gained 65.23 points to 25,914.10, the S&P 500 closed at 2,832.94 up 10.46 points while the NASDAQ closed with a 25.95 point gain to end at 7,714.47. WTI oil settled at $59.30/barrel, +$0.78. 10-yr yld 2.60%. There are no major economic reports due for release tomorrow.

Late Morning Review:

Home builder confidence remained steady in early March due in part to lower price points along with increased affordability of affordably priced homes. The National Association of Home Builders reports that its Housing Market Index came in at 62 versus 63 expected and matched the 62 reading in February. Any number over 50 indicates that more builders view conditions as good than poor. “Builders report the market is stabilizing following the slowdown at the end of 2018 and they anticipate a solid spring home buying season,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, CT.

Freddie Mac recently released data on the current state of U.S. household real estate worth. As of the end of the fourth quarter of 2018, U.S. households owned real estate worth over $25 trillion and have mortgage debt of just under $10 trillion for over $15 trillion in net homeowner equity. In the fourth quarter of 2018, an estimated $14,8 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $20.4 billion a year earlier and way below the $104.8 billion during the second quarter of 2006.

The members of the Federal Reserve will convene on Tuesday to discuss the current state of the US economy and monetary policy with the statement being released at 2:00 p.m. ET on Wednesday. At 2:30, Fed Chair Powell will hold a press conference. There is a zero percent chance of a hike to the Fed Funds Rate but what the statement reads and what Powell says, could impact the markets.

Friday - March 15

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Next Week:

It's Fed Week! The members of the Federal Reserve will convene on Tuesday for the regularly scheduled two-day Federal Open Market Committee meeting to discuss the landscape of the US economy, monetary policy and the Fed's massive balance sheet. 

The meeting ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement where there is a near zero percent chance of a hike to the short-term Fed Funds Rate, currently at 2.50%. 

Fed Chair Powell will hold a press conference immediately following the release at 2:30 p.m. ET. 

Remember -- the Fed has recently created calm and complacency in the markets by using "dovish" or market-friendly rhetoric. So, what the statement and Mr. Powell reveal about the path of interest rates, inflation outlook, and the balance sheet could impact the markets. 

The week also features a few housing market numbers. The markets will also be on the lookout for headlines regarding Brexit and the US-China trade talks.

Reports to watch:

  • The NAHB Housing Market Index will be released on Monday with Existing Home Sales on Friday.
  • Weekly Initial Jobless Claims and the Philadelphia Fed Index will be delivered on Friday.

 

Week in Review:

Volatility has disappeared in the financial markets and a sense of calm and complacency has emerged. Why? 

Well thanks to the Fed, and inflation and higher rates not being a threat -- both Stocks and Bond prices are moving higher. 

For 2019, home loan rates have been stable at one-year lows (look at the chart below), and everyone's stock portfolio is increasing in value. What's not to like? 

Complacency will change to volatility at some point, and what we are watching is rising wages and how that may increase inflation in months to come. 

Should that happen, we could experience a real shock to the US Bond market and the present complacent interest rate market will be over -- and in a hurry. 

But for now, complacency is the theme as we head into the Spring housing market...meaning good times for us. 

MARKET WRAP:

Mortgage Bonds closed the week a bit higher from last Friday's close though just a 9bp gain this week as the sideways pattern continues. The Fannie Mae 30-yr 4% coupon closed at 102.34, +12bp. Stocks rose fueled by higher tech shares and trade optimism. The Dow gained 138.93 points to 25,848.97, the S&P gained 14 points to 2,822.48 while the NASDAQ was up 57.61 points to end the week at 7,688.52. WTI oil closed at $58.39/barrel, -$0.22. 10-yr yield 2.59%. Next week is all about the Fed though rates will remain unchanged but it will be what's in the monetary policy statement that could be market moving. Have a great weekend!

Late Morning Review:

The week comes to an end with little fanfare in the absence of any major headlines. In economic news, manufacturing activity in the New York State region came in below expectations though the employment component increased. Preliminary March Consumer Sentiment came in at 87.8, beating estimates. Redfin reports that home sales slowed in February, up 0.6% year-over-year, the smallest annual increase since March 2012.

Zillow Research reports that rental prices, which cooled a bit in 2018, are now slowly inching higher. Nationally, median rents rose 2.4% or $34 year-over-year in February to $1,472 a month. The priciest rental market was San Jose, California at $3,547 in February while Pittsburgh was the lowest at $1,100. Zillow went on to report that home values nationally rose 7.2% in February 2019 from February 2018.

With the spring and summer driving season upon us, gas prices at the pumps are beginning to push higher. The national average price for a regular gallon of gas is at $2.54, up from $2.29 a month ago. Gas prices tend to rise this time of the year due in part to added costs needed to refine the costlier summer blend gas along with an uptick in demand. A year ago the price was $2.53 while the highest price recorded was $4.11 back in July 2008.

Thursday - March 14  

MARKET WRAP:

Not much action once again today as complacency has overtaken the markets this week. The Fannie Mae 30-yr 4% coupon closed at 102.22, -3bp. Stocks closed near unchanged. The Dow closed at 25,709.94, the S&P at 2,808.48 while the NASDAQ settled at 7,630.91. WTI oil closed at $58.58/barrel, +$0.32, touching four-month highs. 10-yr yield 2.62%. Tomorrow's data includes Consumer Sentiment and Empire Manufacturing.

Late Morning  Review:

The Census Bureau reports that delayed January New Home sales fell nearly 7% from December to an annualized rate of 607,000 units versus the 623,000 expected. However, December was revised higher to 652,000 from 621,000. Sales also declined year-over-year by 4.1%. Sales fell in the Northeast, Midwest and in the South but rose in the West. The average sales price was $373,100 from last year's $377,800. Inventories were 6.6 months, just above the 6% average.

Mortgage rates continued to decline in the latest survey due in part to low inflation coupled with slowing global growth. Freddie Mac reports that the 30-year fixed-rate mortgage fell ten basis points to 4.31% with an average 0.40 in points and fees. Rates are now at 13-month lows and sets up for a solid spring buying season given home prices are also lower this season compared to last year.

As the spring buying season kicks off the Mortgage Bankers Association (MBA) reports that mortgage applications for new home purchases rose 3% from February 2018 to February 2019, up month-over-month by 6% from January in its Builder Application Survey. The survey tracks application volume from mortgage subsidiaries of home builders across the nation. Joel Kan the MBA's Associate Vice President of Economic and Industry Forecasting said, "Slowing home-price growth, combined with stronger wage gains and lower mortgage rates, is translating to improving affordability conditions for spring buyers."

Wednesday - March 13  

Late Morning Review:

Inflation at the wholesale level edged slightly higher in February led by higher gas prices though inflation remains contained. The February Producer Price Index (PPI) and Core rate both rose month-over-month by 0.1% just below the 0.2% expected further strengthening the low inflation environment. The Core PPI strips out volatile food and energy costs. The year-over-year numbers edged lower. Delayed January Durable Orders rose 0.4% versus the -0.6% expected.

Mortgage rates edged lower in the latest week and remain just below year ago levels ahead of the critical spring buying season. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage dipped three basis points to 4.64%, FHA down five basis points to 4.61% while the jumbo rate rose four basis points to 4.45%. Those rates do carry at least an average 0.50 in points. The MBA reports that the refinance index was essentially unchanged while the purchase index increased 4.3%. In addition, the average purchase loan size rose to a survey high of $326,000 in the latest week.

Fannie Mae released its Home Purchase Sentiment Index (HPSI) showing a slight decrease after the gains seen in January. The index fell 0.4 points to 84.3 in February due in part to a decline in the net share of Americans who reported substantially higher household income compared to the same time last year which was offset by an increase in the job confidence component. “The HPSI held steady in February, as consumers’ continuing optimism about economic conditions seems to be balanced with softening attitudes toward the housing market,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

 

Tuesday - March 12  

MARKET WRAP:

Mortgage Bonds were able to produce positive gains in today's session led by tame inflation data from CPI and strong results from today's $24B 10-yr Note auction. The Fannie Mae 30-yr 4% coupon closed at 102.34, +19bp as the choppy trading pattern continues. The major indices closed mixed with the S&P and NASDAQ higher while lower shares of Boeing weighed slightly on the Dow. Stocks overall cheered the tame inflation data which supports the dovish Fed stance. The Dow fell by 96.22 points to 25,554.66 the S&P gained 8.22 points to 2,791.52 while the NASDAQ closed at 7,591.03 up 32.96 points. WTI oil closed at $56.93/barrel, +$0.14. 10-yr yield edged lower to 2.59%. Tomorrow's economic data includes PPI and Durable orders.

Late Morning Review:

Inflation at the consumer level remained tame in February due in part to modest gains in the costs of food, gasoline and rents. The February Consumer Price Index rose month-over-month for the first time since October up 0.2%, in line with estimates. On an annual basis, CPI rose 1.5%, the smallest annual increase in 2-1/2 years. Core CPI, which excludes food and energy, rose 0.1% versus 0.2% expected and up 2.1% annually from 2.2% in January. The tame inflation data backs up the call for no rate hikes anytime soon and most likely for all of 2019.

The NFIB Small Business Optimism Index edged higher in February though below the all-time highs seen this past summer. The NFIB also reported that small job creation broke a 45-year record in February as the labor market continues to strengthen. 
“Small business owners are thankful to have the government shutdown in the rear view mirror but need more certainty about the future,” said NFIB President and CEO Juanita D. Duggan. "The best thing Washington can do for the small business half of the economy is to continue the policies – tax cuts and deregulation – that leave them with more resources to invest and find qualified workers.”

Home owners on the brink of foreclosure edged lower in December as incomes and home-price growth continues. CoreLogic reports that the 30-days or more delinquency rate was 4.1% in December, down 1.2% from December 2017. In addition, the report showed that all states saw serious delinquency rates decrease except for North Dakota, which remained the same. The serious delinquency rate is defined as 90 days or more past due including loans in forclosure.

Monday - March 11  

MARKET WRAP:

Mortgage Bonds continue to be trapped in a sideways pattern near resistance unable to break above current levels. Today's positive Retail Sales report for January coupled with rising Stocks weighed on Bond prices. Today's 3-yr Note offering was seen with tepid demand. The Fannie Mae 30-yr 4% coupon closed at 102.22, -3bp. Stocks rose on the back of the tech sector. The Dow opened sharply lower as shares of Boeing weighed on the index but reversed course mid morning and closed higher by 200.64 points to 25,650.88, the NASDAQ closed at 7,558.06 up 149.92 points while the S&P jumped 40.23 points to end at 2,783.30. WTI oil settled at $56.80/barrel, +$0.73. 10-yr yield 2.64%. January CPI will be released tomorrow morning. And where not an economic report, the NFIB Small Business Optimism Index will also be released in the morning. Looking ahead to next week, the Fed's scheduled two-day Fed meeting kicks off on Tuesday, March 19 and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement.

Late Morning Review:

The consumer bounced back in January after weak sales numbers at retail outlets were reported in December. Retail sales grew 0.2% in January after the negative 1.6% reported in December. The drop in December could have been due to the partial government shutdown towards the end of December and the decline in stock prices during the month of 2018. Year-over-year sales grew 2.3% from January 2018. When stripping out autos, sales jumped 0.9% from the -2.1% seen in December. One bad month does not constitute a trend.

Fed Chair Powell was on 60 minutes last night and reiterated his "patient" stance on interest rates. Mr. Powell also that he sees no reason why the U.S. economy shouldn't continue to expand. The Fed chief went on to say that unemployment is low while inflation is muted. The Fed member will meet next week for the scheduled two-day Federal Open Market Committee Meeting. There is a near zero percent chance of a hike to the benchmark short-term Fed Funds Rate.

The rest of the week's economic calendar features the inflation reading Consumer Price Index and Consumer Sentiment. The NFIB Small Business Optimism Index and the government's jobs related JOLTS (Job Openings and Labor Turnover Survey) report will be released later in the week. There will be added bond supply as the Treasury will sell $38 billion 3-year Notes today, $24 billion 10's tomorrow and $16 billion 30-year bonds on Wednesday. All results at 1:00 p.m. ET. The results could impact the Bond markets.

 

Friday - March 8  

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Next Week:

This coming week brings just a few important scheduled events that can move the financial markets. 

The main economic data point of the week will be the Consumer Price Index, a reading on consumer prices or inflation. As mentioned earlier, a main reason why home loan rates remain low is the lack of inflation. But with wages on the rise, will we see an uptick of inflation in this report? 

The Bond markets will also have to contend with a total of $78B in new bond supply from the Treasury, which, if not well received, could negatively impact Bond prices and home loan rates. 

The bigger trend to follow is the global slowdown in Europe and Asia -- if that trend continues it will likely push rates lower in the weeks/months ahead. 

Reports to watch:

  • The inflation reading Consumer Price Index will be released on Tuesday followed by the Producer Price Index on Wednesday.
  • As usual, Weekly Initial Jobless Claims will be released on Thursday.
  • On Friday, Consumer Sentiment and Empire Manufacturing will be delivered.

 

Week in Review

If inflation moves lower or is expected to move lower -- rates must go lower as well. That's the situation right now. 

The financial markets and interest rates also follow inflation on a global scale. Why is this important to homeowners? 

If disinflation or the rate of inflation moderates in places like Europe, interest rates in those countries move lower and tend to drag US interest rates lower as well. 

This past week we watched home loan rates revisit one-year lows upon news that the European Central Bank or ECB downgraded their economic outlook and inflation expectations. 

The ECB said they now expect 2019 economic growth to come in at a paltry 1.1%, down sharply from a previous forecast of 1.7%. Moreover, ECB officials said inflation, which is already very low, could move lower still. 

Again, if inflation moves lower in large countries around the globe -- we tend to see improvement in long-term US interest rates...that is the current trend. 

Interest rates don't buy houses, jobs do!

The Bureau of Labor Statistics reported that just 20,000 jobs were created in February, well below expectations of 175,000. This was a disappointing number, but the unemployment rate fell to 3.8% and wages grew by 3.4% year over year...the highest level in a decade. Overall the labor market continues to expand and wages are rising -- all good news for housing. 

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 closed near unchanged today but did recover this week on weak global growth concerns. The Fannie Mae 30-yr 4% coupon closed at 102.25, +3bp. Stocks closed lower but well above worst levels. The Dow lost 22.99 points to 25,450.24, the S&P 500 fell by 5.86 points to 2,743.07 while the NASDAQ lost 13.32 points to end at 7,408.14. WTI oil settled at $56.14/barrel, -$0.52. 10-yr yield 2.63%. Economic data next week iincludes Retail Sales and CPI. The Treasury will offer $78B in Notes and Bonds. Have a great weekend!

Late Morning Review:

The Bureau of Labor Statistics reports that there were just 20,000 jobs created in February, well below estimates ranging from 173,000 to 185,000. When looking at the internal numbers, wage growth jumped 3.4% year-over-year, the largest gain since 2009. Month-over-month saw a 0.4% gain, above the 0.3% expected. The Unemployment Rate fell to 3.8%, a near 50-year low. The U6 number, or total unemployed, fell to 7.3% from 8.1%. The Labor Force Participation Rate was unchanged at 63.2% and has been rising slowly. So overall, not a bad report after the weak headline number. Housing numbers are beginning to rebound in 2019 with positive reports from New and Existing Home Sales, Housing Starts and Building Permits so far this year. The Commerce Department reports that Housing Starts rose nearly 19% in January from December to an annual rate of 1.23 million units versus the 1.18 million expected. However, starts were down 7.8% from January 2018. Construction on single-family units surged 25% month-over-month, up 4.5% year-over-year. Multi-family dwellings rose 4% month-over-month and were down 33% annually. Gains were seen in all regions across the nation except for the Midwest.

 

Thursday - March 7  

MARKET WRAP:

Mortgage Bonds got a boost today from lower Stock prices after the ECB stoked growth concerns in the Eurozone. The Fannie Mae 30-yr 4% coupon closed at 102.19, +16bp and at the session high. The Dow lost 200.23 points to 25,473.23, the S&P 500 fell by 22.52 points to 2,748.93 while the NASDAQ was down 84.45 points to end at 7,421.46. WTI oil settled at $56.61/barrel, +$0.39. 10-yr yield 2.64%. That brings us to tomorrow's Jobs Report for February where estimates range from 173K to 185K new positions created in February. The numbers will be released at 8:30 a.m. ET. Look to the Market News section of the MMG website for the numbers and the markets reaction.

Late Morning Review:

After months of moderating from the highs seen last November, mortgage rates edged higher in the latest week. Rates still remain near 12-month lows, reports Freddie Mac. The 30-year fixed-rate mortgage rose six basis points in the latest week to 4.41% with an average 0.50 in points and fees. A year ago, the rate was 4.46%. Freddie Mac said that the recent lower rates and a strong labor market has led to an increase in purchase mortgage demand as the spring homebuying season kicks off.

Americans filing for first-time unemployment benefits remain near lows seen in fifty years as the labor market continues to strengthen. Weekly Initial Jobless Claims fell 3,000 in the week ended March 2 to 223,000. The four-week moving average of claims, which irons out seasonal abnormalities, fell 3,000 to 226,500. The numbers come ahead of Friday's Jobs Report for February, which is expected to see cooling job growth after 304,000 jobs were created in January.

U.S. stocks are experiencing their worst week of 2019 this week as prices have rallied in 2019 with no real downside occurring. Since the lows seen on Christmas Eve to the highs seen on March 4, the closely watched S&P 500 rose nearly 20% on dovish rhetoric from the Fed, low unemployment, sky-high consumer confidence and positive trade hopes between the U.S. and China. However, some consolidation is currently being seen as investors cash in some chips and taking profits.

Wednesday - March 6

MARKET WRAP:

Not much action once again today as Mortgage Bonds traded near unchanged for most of the session in the absence of any market moving events. This morning's ADP data showed a near inline headline number while the previous month was revised higher. The Fannie Mae 30-yr 4% coupon closed at 102.03, +6bp. Stocks closed lower as prices look to be topping out after the recent big rally along with no new news on trade front. The Dow lost 133.17 points to 25,673.46, the NASDAQ fell by 70.44 points to 7,505.92 while the S&P 500 was lower by 18.20 points to end at 2,771.45. WTI oil is at $56.25/barrel, -$0.31. Economic data tomorrow is limited to Weekly Initial Jobless Claims and Productivity.

Late Morning Review:

Private payroll growth slowed in February though still at a solid pace led by a slowdown in the retail and travel industries. ADP Private Payrolls estimates that 183,000 jobs were created in February with expectations ranging from 175,000 to 190,000. January was revised higher to 300,000 from 213,000. Gains were seen in the professional services, health care and education. The report comes ahead of Friday's Jobs Report for February.

Mortgage rates edged higher in the latest week and remain just above 12-month lows, reports the Mortgage Bankers Association (MBA). The MBA reports that the 30-year fixed-rate mortgage rose two basis points to 4.67% with an average 0.44 in points. The Market Composite Index, a measure of total mortgage loan application volume, fell 2.5%. In addition, the Refinance Index fell 2% while the Purchase Index tumbled 3%.

Tuesday - March 5  

MARKET WRAP:

Not much action in the markets today ahead of tomorrow's ADP report and Friday's Non-Farm Payrolls. Solid economic data this morning weighed on Bond prices today as they finished with meager gains. The Fannie Mae 30-yr 4% coupon closed at 101.97, +6bp. Stocks closed with minor losses. The Dow closed at 25,806.63, the S&P 2,789.65, NASDAQ at 7,576.36. WTI oil settled at $56.54/barrel, near unchanged. 10-yr yield 2.71%, near unchanged. ADP Private Payrolls will be released at 8:30 a.m. ET tomorrow morning. Look to the Market news section of the MMG site for the numbers and market reaction.

 

Late Morning Review:

The Census Bureau reports that New Home Sales rose 3.7% in December to an annual rate of 621,000 units, a seven-month high and above the 572,000 expected. Sales were down 2.4% from December 2017 to December 2018 while sales for November were revised lower to 599,000 from 657,000. The Northeast saw a 44.8% gain in New Home Sales, a 5% increase in the South, up 1.4% in the West and down 15.3% in the Midwest. The median sales price fell to $318,600 from $343,300 in December 2017.

The service sector of the economy rebounded in February after January's decline which was due in part to left over market volatility and the partial government shutdown. The service sector makes up two-thirds of the U.S. economy and employs around 100 million people. The ISM Service Index rose to 59.7 in February above the 56.7 in January and above the 57.2 expected. Readings above 50 indicates expansion, below 50, contraction.

Two key labor market reports will be released this week which could show continued strength in the sector. Recently, Fed Chair Powell said that employment is broad based while the unemployment rate is low. The ADP Private Payrolls Report will be released on Wednesday while the government's report, Non-Farm Payrolls will be released on Friday. The Unemployment Rate is near a 50-year low.

 

Monday - March 4  

MARKET WRAP:

Not much action in the Mortgage Bond markets today as prices traded near unchanged for most of the session while stocks opened higher but gave up the gains on a technical basis. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.88, +6bp. The failure of the S&P 500 to overtake resistance ushered in sellers after the markets opened higher. The Dow lost 206.67 points to 25,819.65, the S&P fell by 10.88 points to 2,792.81 while the NASDAQ was down 17.78 points to end at 7,577.56. WTI oil closed at $56.53/barrel, +$0.73. 10-yr yield 2.72%. New Home sales and the ISM Service Index will be released.

Late Morning Review:

The U.S. Census Bureau recently released its quarterly residential vacancies and homeownership numbers for the fourth quarter of 2018. It was reported that rental prices posted their largest quarterly decline in 30 years as more renters moved to homeownership. The rental price in the fourth quarter of 2018 fell $56 to $947 after topping $1,000 for the first time in the third quarter. The report went on to reveal that the homeownership rate rose to 64.8% in the fourth quarter from 64.4% in the previous quarter and up from 64.2% in the fourth quarter of 2017.

Construction spending in the U.S. declined in December as investments in both private and public projects dropped, due in part to the government shutdown and as activity eased late in 2018. The Commerce Department reports that construction spending fell 0.6% in December from the 0.8% increase in November. Construction spending rose 4.1% in 2018, the weakest reading since 2011. The report measures the dollar value of newly completed structures. It is the most comprehensive indicator of national construction activity.

The labor markets will get a double dose of data this week from the private and public sector. The last Jobs Reports from both ADP and the government have easily exceeded analysts' expectations. ADP Private Payrolls will be released on Wednesday with the government's Non-Farm Payrolls on Friday. Fed Chair Powell said last week that the long period of economic growth "has pushed the unemployment rate down near historic lows."

 

Friday - March 1

What is happening next week?

Next week it's all about Jobs, Jobs, and Jobs as we get the February Jobs Report on Friday.

The Jobs Report for January showed a whopping 304,000 new jobs created as the labor market remains solid.

The Jobs Report "pre-game" comes Wednesday when ADP reports Private Payrolls or non-government jobs created. This report has become a market mover in recent years with the Fed being more "data dependent" and relying on incoming economic news to determine interest rate policy.

Other reports worth tracking include housing, construction and data from the all-important service sector.

The markets will also continue to deal with geopolitical headlines out of Washington, trade issues, and the North Korean fallout from last week.

Reports to watch:

  • The ISM Service Sector Index will be released on Tuesday.
  • New Home Sales will be delivered on Wednesday.
  • ADP Private Payrolls will be reported on Wednesday.
  • Non-Farm Payrolls, the Unemployment Rate and Hourly Earnings will be released on Friday.

190301

 

 

What happened this past week?

This past week, the Bureau of Economic Analysis (BEA) reported the U.S. economy, as defined by Gross Domestic Product (GDP), grew at a 2.6% rate in the fourth quarter of 2018. Economists and the markets were expecting 2.0% to 2.3%, so this was a nice upside surprise.

This left GDP for all of 2018 at 2.9%. Consumer spending, which makes up nearly two thirds of GDP, expanded by a solid 2.8% in the fourth quarter - yet slower than the previous quarter.

Another solid number within the report was business investment which grew at a swift 6.2% pace.

This Q4 GDP reading was the first of three - so we will see some revisions in the months ahead.

Seeing the economy grow at such a nice clip despite high stock market volatility and the U.S. government shutdown is a good sign as we head into the spring housing market.

The increased wealth effect caused by the recent rally in Stocks along with one-year lows on home loan rates, rising wages and increased housing inventory sets the stage for an improved 2019 housing market. 

MARKET WRAP:

Mortgage Bonds continued their slow steady decline today after the benchmark Fannie Mae 30-yr coupon closed below both support levels at the 25- and 50-day Moving Averages. The Bond closed at 101.78, -16bp. Stocks closed higher as trade optimism overcame weak economic data. The Dow rose 10.32 points to 26,026.32, the S&P 500 gained 19.20 points to 2,803.69, while the NASDAQ closed at 7,595.35 up 62.82 points. WTI oil closed at $55.81/barrel -$1.41. 10-yr yield has risen to 2.76%. Next week, two key job reports will be released, ADP Wednesday and Non-Farm Payrolls Friday. Have a great weekend!

 

What came out this Morning?

The Fed's favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) was unchanged year-over-year at 1.9% this morning as inflation remains in check. 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. Within the report it showed that Personal Incomes fell for the first time in three years in January while Personal Spending declined 0.5%, the biggest drop since September 2009.

Freddie Mac reports that the mortgage market is expected to see modest growth in 2019 buoyed by lower mortgage rates. Rates should stay relatively low in 2019 averaging 4.6% before rising to 4.9% in 2020. Total housing starts are expected to increase to 1.29 million units in 2019 and 1.36 million in 2020 while total home sales should increase to 6.10 million this year and 6.12 next year. Freddie is forecasting U.S. GDP growth at 2.5% in 2019 and 1.8% in 2020. Lastly, single-family mortgage originations are expected to increase 2.1% percent to $1.68 trillion in 2019 and remain at a similar volume in 2020.

 

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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