Blog

August 2019

August 5th, 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 - August 29  

Market Wrap - US stocks rallied today on positive trade issues, led by tech and industrials ... the Dow rose 326 points. Mortgage Bond prices closed near unchanged while Treasury prices fell. The 10-yr yield edged higher to 1.50% from the early morning low of 1.44%. Solid consumer spending was seen within the GDP data, a plus for the economy. Tomorrow the Core PCE will be released but we don't see any uptick in inflation and the day should be quiet given the holiday weekend and the unofficial end of summer. Continue floating, but be on guard for any reversal in sentiment.

Late Morning Review - Mortgage rates inched higher in the latest week, though they remain near multi-year lows and almost a full percentage point lower than last year this time. Freddie Mac reports that the 30-year fixed-rate mortgage rose five basis points to 3.60% this week with an average 0.5 in points and fees. Sam Khater, Freddie Mac’s Chief Economist says, "Low mortgage rates along with a strong labor market are fueling the consumer-driven economy by boosting their purchasing power, which will certainly support housing market activity in the coming months.”

Tappable home equity hit an all-time high in the second quarter of 2019 as home price gains have made real estate more valuable. Black Knight reports that tappable equity hit $6.3 trillion in the second quarter, 26% above the previous high hit back in 2006. The average homeowner has $140,000 available to borrow against with about 55% have a mortgage rate that is 0.75% above current rates. And with mortgage rates at multi-year lows, it is a good time to purchase or refinance a home.

 

Wednesday - August 28 

Market Wrap - Mortgage Bond prices ended the session flat to slightly higher while the 10-yr yield closed at 1.47% from yesterday's close of 1.49%. Stocks ended higher as the volatility continues to be supplied by the trade, yield conversion and slowing global growth issues. WTI oil settled at $55.76/barrel, +$0.83. GDP, Pending Home Sales and Weekly Initial Jobless Claims will be released tomorrow morning. Floating is recommended as support at the 50-DMA continues to be our friend.

Late Morning Review - Mortgage rates inched higher in the latest week rising for the first time since the week of July 12. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose just four basis points to 3.94% with 0.38 in points for the week ended August 23 but remain 80 basis points below the beginning of 2019. The MBA also reported that the Market Composite Index, a measure of total mortgage loan application volume, decreased 6.2%. The Refinance Index fell 8% while the Purchase Index declined 4%.

A report out this week by Fitch Ratings revealed that lower mortgage rates are not expected to be a boon for the US housing market and refinance activity as seen in prior rate cycles. Fitch cites three reasons for the lack of activity with the first being not enough supply on the markets. Second is that lenders may not be able to handle the big increase in refiancing while rising input costs for builders, due to tariff considerations, could be a negative for the housing sector. In conclusion, home prices are expected to rise 2%-3% this year, down from the approximate 6% average growth seen annually since 2012.

Market Composite Index - 30-yr fixed-rate mortgage +4bp to 3.94% with 0.35 in points.

Tuesday - August 27  

Market Wrap - Mortgage Bond prices were able to rise today though they have been trapped in a sideways pattern right above support. Treasury prices surged as the disconnect with Mortgage Bonds continues. Stocks started the day to the plus side but gave up those gains as financial shares fell and as trade hopes dimmed. The 10-yr yield fell to 1.47% while the 2-yr yield settled at 1.52%. Tomorrow the Treasury will sell $41B 5-yr Notes. There are no economic reports due for release. Continue floating while the trend above the 50-DMA remains our friend.

Late Morning Review - Home price gains continued to slow in June after the big gains seen annually a year ago. The S&P Case/Shiller 20-City Home Price Index rose 2.1% from June 2018 to June 2019, down from 2.4% in May. That is well below the near 7% gains seen last year this time. On a monthly basis from May to June, there were no gains. “Home price gains continue to trend down, but may be leveling off to a sustainable level,” says Philip Murphy, Managing Director and Global Head of Index Governance at S&P Dow Jones Indices.

Consumer strength remained lofty in August due in part to a strong job market along with a positive economic environment. The Conference Board reports that its Consumer Confidence Index came in at 135.1 in August versus the 129.6 expected and just below the 135.8 recorded in July. The present index or the read on current conditions improved further in August and is at its highest level since November 2000. "While other parts of the economy may show some weakening, consumers have remained confident and willing to spend," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

With the Labor Day weekend upon us, gas prices at the pumps across the nation are the lowest in three years. Motor club AAA reports that the average prices for a regular gallon of gasoline is at $2.58, down from $2.83 a year ago.“For Americans who bookend summer with road trips, they will find gas prices this coming weekend that are cheaper than this past Memorial Day and last year’s Labor Day holiday,” said Jeanette Casselano, AAA spokesperson. “At the start of the week, two-thirds of all states have gas price averages that are nearly a quarter cheaper than last year.”

Monday - August 26  

Market Wrap - Mortgage Bonds lost some ground today as yields around the globe moved higher on positive US/China trade news. A sense that US-China talks will continue caused yields to spike since the overnight lows. The 10-year Note moved from 1.43% overnight to close at 1.54%. The lowest yield ever is 1.36% and each time the yield went that low, it spiked much higher rather quickly. We must be on guard now for such a move, as headline risk can further increase the sharp price movements. The 50-day MA is just beneath current levels. If that doesn't hold, locking everything will be prudent. For now, float with that support just 10bp or so beneath current levels.

Late Morning Review - The New York Federal Reserve reports that total household debt rose to an all-time high in Q2 2019 marking the twentieth consecutive quarter with an increase. Total household debt rose $192 billion to $13.86 trillion. The previous peak was $12.68 trillion in Q3 2008. Within the numbers it showed that mortgage debt also reached a peak of $9.4 trillion. In addition, credit card balances rose to $868 billion while student debt came in at $1.48 trillion.

In economic news, July Durable Orders rose 2.1% versus the 1.2% expected. The ex-transportation number came in light. Overall, the US consumer remains solid though the manufacturing sector is slowing due in part to the US/China trade issues. This week the markets will receive data on the inflation reading Core PCE and personal spending along with the closely watched Consumer Confidence Index, which is just below all-time highs. There will also be a few manufacturing reports. The second read on Q2 Gross Domestic Product will be released this week.

 

180823

Next Week - After a slower news week, this upcoming week could heat up a bit with a full economic calendar highlighted by the Fed's inflation reading, Core PCE.

Inflation continues to run low as evidenced by the recent Fed minutes from the July 31 meeting. Inflation is also the driver of long-term interest rates, like home loans, so this is an important reading.

The second read on Q2 GDP will be released. A recession is defined as two quarters of negative growth. The first reading was 2.1%, which is not close to a negative reading.

The summer unofficially comes to an end in the coming days with Labor Day on September 2. The upcoming week could be on the quiet side as many get away for the final days of summer.

Reports to watch:

  • Durable Orders will be released on Monday.
  • From the housing sector, S&P Case Shiller will be released on Tuesday and Pending Home Sales on Thursday.
  • The closely watched Consumer Confidence Index will be released on Tuesday with Consumer Sentiment on Friday.
  • GDP will be delivered on Thursday.
  • On Friday, the Core PCE will be released along with Personal Income and Spending.

190823 eco

Friday - August 23 

Week in Review - Home loan rates finished this past week essentially where they began, near 3-year lows.

With all the chatter of a global recession and elevated fears that the U.S. will slip into a recession thanks to the recent inverted yield curve, why haven't rates improved further? Is the Bond market telling us something? Quite possibly.

There is a force around the globe whose sole purpose is to promote job growth, manage inflation, and promote economic stability to avoid a recession...and they are the central banks of different countries. They have woken up around the world and have already started to enforce measures to promote economic growth. The European Union has already cut rates and is prepared to introduce more economic stimulus. And our Federal Reserve, the Fed, is set to cut rates multiple times over the next few months.

These central bank rate cuts and additional stimulus serve as the opposite end of the tug of war, helping to pull economies from the brink of recession. And only time will tell if our Fed and other central banks around the globe are successful.

It could be this very reason why interest rates, including home loan rates, have not declined further. If the Fed is going to cut rates to help promote economic growth and elevate inflation, it is actually bad for long-term Bonds like Mortgage Bonds. There is also a saying "Don't Fight the Fed." If the Fed is doing things counter to promote low long-term rates, they could win the tug of war and limit how low home loan rates will go.

Bottom line: the U.S. economy continues to shine, the labor market is strong, consumer and business sentiment are near record highs, while home loan rates remain near three-year lows. The current economic environment is more like Goldilocks, rather than one that is slipping into a recession.

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

Late Morning Review - Sales of newly-constructed single-family homes fell in July from June, though the numbers in June were revised sharply higher. Low mortgage rates have been a support mechanism for the housing market while low inventories and a construction slowdown have made purchases less affordable for potential buyers. The Census Bureau reports that new home sales in July fell to an annual rate of 635,000 units, below the 645,000 expected. However, June was revised sharply higher to 728,000 from 646,000. Sales were up 4.3% from July 2018.

Fed Chair Powell spoke this morning at the Fed sponsored Jackson Hole Economic Symposium. Mr. Powell says the Fed will act as appropriate on rates, the Fed is in risk management mode, and sees further evidence of slowing global growth while inflation remains low. Mr. Powell also reiterated that the Fed's challenge now is to sustain the current economic expansion. Mr. Powell went on to say that the US outlook continues to be favorable and job growth and rising wages continues to support consumer spending.

Thursday - August 22  

Late Morning Review - Americans filing for first-time unemployment benefits remained near 50-year lows in the latest week as the labor market continues to remain a bright light in the US economy. The Bureau of Labor Statistics reports that weekly initial jobless claims fell by 12,000 in the latest week to 209,000. The four-week moving average of initial claims, which irons out seasonal abnormalities, was essentially unchanged at 214,500.

The two-day Jackson Hole Economic Symposium kicks off today and is hosted by the Kansas City Federal Reserve Bank. Participants include prominent central bankers and finance ministers, as well as academic luminaries and leading financial market players from around the world. Fed Chair Powell will be speaking tomorrow morning around 10:00 a.m. ET. This morning, Kansas City Fed's Esther George said she disagreed with the recent fed funds rate cut.

Wednesday - August 21

Market Wrap  - Not much action today in the Mortgage Bond market as prices edged lower clinging to key support levels. The yield on the 10-yr T Note closed near unchanged at 1.59%. Stocks closed with solid gains as the Fed minutes didn't impact trading. WTI oil closed at $55.65/barrel. Continue floating but be on guard.

Late Morning Review - US stocks are rebounding this morning after solid earnings from Lowe's and Target signaled strong consumer spending. The headlines quelled fears of slowing economic growth here in the US. Better-than-expected retail sales over the past four months also confirms solid consumer spending. The US economy remains the cleanest shirt in the laundry compared to global economies.

Mortgage rates were essentially unchanged in the latest week and remain near three-year lows. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage was 3.90% in the latest week with an average 0.35 in points. The Market Composite Index, a measure of total mortgage loan application volume, fell 1%, the Refinance Index rose a meager 0.4% while the Purchase Index fell by 4%.

The minutes from the July 31 Fed meeting will be released this afternoon at 2:00 p.m. ET and could stir things up a bit in a rather quiet week for trading. The August doldrums have set in as the summer comes to a close with many players away on vacation. The minutes could reveal the path of future interest rate policy.

 

Tuesday - August 20  

Market Wrap - No movement seen today for Mortgage Bond prices while stocks fell after their three-day surge. The 10-yr yield fell to 1.55%. WTI oil settled at $56.18/barrel, near unchanged. Continue to float but be on guard. The Fed minutes from the July 31 meeting will be released tomorrow at 2:00 p.m. ET.

Late Morning Review - Low mortgage rates will continue to boost mortgage originations in 2019, reports the Mortgage Bankers Association (MBA). The MBA is forecasting that the 30-year fixed-rate mortgage will average 3.70% in Q3 and Q4 of 2019, down from its previous forecast of 3.90%. The low rate environment will also boost total originations by 15% in 2019 compared to last year to $1.86 trillion from $1.64 trill in 2018. The MBA went on to forecast that home prices will increase 4.7% in 2019 from the 6% gain seen in 2018. In conclusion, the MBA sees economic growth (GDP) will decrease to 1.7% in Q4 2019 from a 3.1% in the first three quarters of 2019.

A report out by Capital Economics shows that home prices will increase by 3% in 2019, up from a 2% rise that was forecasted in the beginning of the year. Mortgage rates are hovering near a three-year low and are down from last year's average of 4.53%. In addition, low housing inventory will also help to boost prices. The report went on to reveal that given the upcoming slowdown that will weigh on job creation and earnings, potential buyers may be less willing to bid aggressively for a home.

US stocks continued their rebound higher yesterday on easing concerns surrounding trade, currency, and yield curve issues. Though with little data today and in the absence of any glaring headlines along with summer trading desks below normal capacity and lower volumes, trading should be on the quiet side. There were reports that the White House is exploring a temporary payroll tax cut to boost consumption but that was later denied by the administration. The markets may begin to heat up tomorrow with the Fed minutes being released and the Jackson Hole Economic Symposium on Thursday.

Monday - August 19

Market Wrap - Mortgage Bonds ended the lackluster session near unchanged with little market impacting data today. Easing currency, trade and yield curve issues fueled big gains for stocks during the session, adding to Thursday's and Friday's gains. The 10-yr yield settled at 1.60%. There are no economic reports tomorrow. Continue to float but as always, be on guard.

Late Morning Review - The National Association of REALTORS reports that housing affordability rose in June from a year ago due in part to three-year low mortgage rates. The Housing Affordability Index rose to 151.9 in June from June 2018, a 10% rise. A higher reading means that homes are getting more affordable that measures prices, incomes, and financing costs. The median price for single-family homes across the US was $288,900 in June, up 4.5% from $276,500 in June 2018. Freddie Mac reported last week that the 30-year mortgage rate was 3.60% compared to 4.53% a year ago.

US stocks begin the week considerably higher as global recession fears ease a bit while President Trump said over the weekend that he doesn't see a recession here in the US. And after several global central banks announced additional stimulus plans late last week, stocks are surging with Dow futures +300 points. The week is light on economic data. The highlight this week will be the two-day Jackson Hole Economic Symposium hosted by the Fed that begins on Thursday. The Fed minutes from the July 31 meeting will be released Wednesday afternoon and could offer some clues as the future path of interest rates.

190816

Next Week  - The increased volatility due to the Fed, trade and currency issues, an inverted yield curve, and a boatload of economic data, is likely to continue next week despite only a few market-moving reports set for release. 

The main event will be Thursday's Federal Reserve Bank of Kansas City's Economic Policy Symposium in Jackson Hole, Wyoming. The event brings together economists, financial market participants, academics, U.S. government representatives, and news media to discuss long-term policy issues of mutual concern. Topics include inflation, labor markets, and international trade.

With global recessions fears, disinflation, and central banks around the world introducing new stimulus, there will be a lot to address and the possibility of many market-moving comments. 

The week will also feature the minutes from the July 31 Fed meeting, as investors look for more clues as to the future direction of interest rates.

Given the Symposium, there will be no Fed speak around the country during the week, and there are no Note or Bond offerings from the Treasury.

Reports to watch:

  • Existing Home Sales will be released on Wednesday, followed by Weekly Initial Jobless Claims on Thursday, and New Home Sales data being released on Friday.

190816 eco

Friday - August 16  

Week in Review - This past week we watched Bond yields/interest rates decline around the globe on rising fears of a global recession. 

It's worth noting that home loan rates did not partake in the declining interest rate party this week as the Treasury market, not the Mortgage Backed Security market, received the majority of investment dollars. 

A recession is defined as two consecutive quarters of negative growth, so when Germany reported its economy shrank or contracted, financial markets were spooked and investors fled into the safe haven of the U.S. dollar and U.S. denominated assets like Treasuries. 

The flood of capital into the U.S. caused our 10-year Note yield to drop sharply and beneath that of the 2-year Note yield, causing a yield curve inversion for the first time since 2007... right before the global financial crisis. 

History has shown that each time the 10-year yield moved beneath the 2-year yield in the last 50 years, a U.S. recession followed sometime in the next 22 months. 

So, is the U.S. headed for a recession? Maybe, and the chances increase everyday as the U.S. economy is in the midst of the longest economic expansion (without a recession) in our nation's history.

Could the yield curve inversion be a false signal this time around? Also, a maybe. 

With term premium or the added yield investors demand to park their money in long-term Bonds declining for over 30 years, it's more likely to see yield curve inversions today. And with global yields collectively at 120-year lows and negative around much of the globe, money is literally pouring into our Treasury market as our anemic 1.59% 10-year yield is relatively attractive. 

The chance of a recession in 2020 has climbed to about 30%. It will be interesting to see what happens with a couple of Fed rate cuts before 2019 ends. 

A U.S./China trade deal, while not likely soon, would go a long way to help lift uncertainties and help many global economies possibly avoid recession. 

Bottom line: the risk of recession has risen, but we are not seeing a recession in the cards at the moment. Being the cleanest shirt in the laundry, the U.S. is attracting investment dollars in droves and helping cause an inversion. Home loan rates have not declined further as the gains in the Bond market have been limited to the Treasury market. So if you are in the market to either buy a home or refinance, today is a great day to do so.

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

 

 

Market Wrap - Mortgage Bond prices gave up some of yesterday's gains today and ended lower as stocks rebounded big while yields inched higher. Stocks rose as more global central banks announced stimulus measures. The 10-yr yield settled at 1.56%. WTI oil closed at $54.74/barrel, +$0.27. Next week's economic calendar is on the light side. The Fed minutes from the July 31 Fed meeting will be released. Heading into the weekend, continue to float all files but as always, be on guard as Mortgage Bond prices are stuck at current levels. Have a great weekend!

 

Late Morning Review - New home construction across the US in July declined from June falling for the third straight month, due in part to a drop in multi-family dwellings. US housing starts fell nearly 4% in July from May to an annual rate of 1.191 million units. From a year ago, starts were up 0.6%. Multi-dwelling units plunged 17% month-over-month and were down 4.7% annually. Single-family starts, which make up the bulk of the housing market, rose 1.3% from June and up almost 2% year-over-year.

Rental prices edged higher in July due to household numbers rising while apartment development has not kept up with demand. RentCafe reports that the nation's average rent rose $48 from a year ago to $1,469, up 0.2% from June and higher by 3.4% from a year ago. “A slow recovery in construction has led to a nationwide housing shortage,” said Doug Ressier at Yardi Matrix. “The number of households is now rising at the same level as in the 1990s and early 2000s, but apartment development is not keeping up with demand, leading to rising prices.”

Thursday - August 15  

Market Wrap - Volatility in the US markets continued today with stocks trading positive, then negative before closing with gains. The yield on the 10-yr T Note also saw some swings with a low of 1.47%, a high of 1.60% before settling at 1.50%. Mortgage Bonds also closed with gains and at the session highs after trading positive and negative during the session. An ECB policy maker said today that the central bank will unveil new stimulus measures, including "substantial and sufficient" bond purchases, which helped to push stock and bond prices into positive territory. Housing Starts, Building Permits and Consumer Sentiment will be released tomorrow. Continue to float all files but as always, be on guard

Late Morning Review - The consumer is alive and kicking due to a strong labor market. July retail sales rose 0.7%, well above the +0.3% expected, the biggest gain in four months. When stripping out autos, sales jumped 1% versus a gain of 0.3%. Within the report, the control group number rose 1% well above expectations. The control group is all sales, excluding receipts from auto dealers, building-materials retailers, gas stations, office supply stores, mobile homes and tobacco stores. This filtered number is a more precise method of gauging consumer spending, and consumer spending makes up nearly 70% of US GDP.

After declining since the year began, mortgage rates held steady in the latest week and remain at multi-year lows. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged this week at 3.60% with an average point of 0.50. A year ago this time, the rate averaged 4.53%. Sam Khater, Freddie Mac’s chief economist, says, "The decline in mortgage rates over the last month is causing a spike in refinancing activity – as homeowners currently have $2 trillion in conventional mortgage loans that are in the money – which will help support consumer balance sheets and increase household cash flow. On top of that, purchase demand is up seven percent from a year ago.”

The Mortgage Bankers Association reports that its Builder Application Survey for July showed that mortgage applications to purchase new homes surged 31% from last year. On a month-over-month basis, applications rose 11%. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors. "July's strong new home sales increase on a monthly and annual basis was driven by the ongoing decline in mortgage rates, combined with steady housing demand and a still-healthy job market," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

Wednesday - August 14 

Market Wrap - Weak global economic data, trade issues along with an inverted yield curve sent US stocks crashing today as the Dow ended with an 800 point loss. The yield on the 10-yr T Note was up 84bp in price while the yield fell to 1.58%. The benchmark Fannie Mae 30-yr 3.5% coupon ended with just modest gains and right on support. An inverted yield curve could predict a recession here in the US in 12 to 24 months in the future. The US is still the cleanest shirt in the laundry. WTI oil settled at $55.10/barrel, down $2.00. Continue to float all files but as always, be on guard in this volatile market.

Late Morning Review - Mortgage application activity surged in the latest week as mortgage rates fell again and remain at multi-year lows. The Mortgage Bankers Association reports that the Market Composite Index, a measure of total mortgage loan application volume, rose 22% in the latest week. The Refinance Index soared by 37% while the Purchase Index rose 2%. The 30-year fixed-rate mortgage fell eight basis points to 3.93%, the lowest since November 2016, with 0.35 in points. The jumbo 30-year fell to 3.88% from 3.96% with 0.24 in points.

Sale prices for newly built homes fell in Q2 2019 while supplies of new homes declined in the latest report from real estate brokerage Redfin. The company reported that supply of new homes was down 1%, which the largest annual decline since the first quarter of 2013. In the same time, the sales price for newly built homes dropped 0.5% year over year to a median price of $372,900. "I expect to see new-home inventory stay low overall. But low mortgage rates and more affordable prices for new homes mean sales could strengthen a bit in the coming months," said Redfin chief economist Daryl Fairweather.

US stocks are plunging today after weak economic data from Germany and China stoked global recession fears. The Dow Jones Industrial Average was down over 600 points this morning at its worst level. Global economies continue to weaken but here in the US, the economy is still solid and as consumer confidence remains near all-time highs. In addition the US labor market is the strongest it's been in 50 years, as evidenced by the 3.7% unemployment rate.

Tuesday - August 13  

Market Wrap - Mortgage Backed and Treasury securities were weighed down today by a big rally in US stocks after positive trade headlines regarding the US and China hit the airwaves. In addition, a bit warmer inflation reading CPI for July also helped to push bond prices lower. The 10-yr yield settled at 1.70% from the early morning low of 1.64%. As we have been saying, we were just just one positive Tweet or headline away from a reversal in sentiment. WTI oil was last seen at $56.85/barrel up $1.93 in after hours trading. There are no major economic reports due for release tomorrow. Continue to lock files that are closing within 30 days while considering a longer-term floating bias

Late Morning Review - From the positive news department, the NFIB Small Business Optimism Index rose to 104.7 in July, just below all-time highs as expectations for business conditions, real sales, and expansion made solid gains. "While many are talking about a slowing economy and possible signs of a recession, the 3rd largest economy in the world continues to defy expectations, generating output, creating value, and expanding the economy," said NFIB President and CEO Juanita D. Duggan. "Small business owners want to grow their operations, and the only thing stopping them is finding qualified workers." Small businesses are the lifeblood of the US economy and from all signs, it is generating a solid working environment.

Consumer inflation edged higher in July due in part to rising gasoline and housing costs. A bit warmer-than-expected Core Consumer Price Index (CPI) for July was reported as it rose 0.3% from June versus the 0.2% expected while year-over-year it increased 2.2% from 2.1%. Headline CPI rose 1.8% from 1.6% in the 12 months ended in July. Not a big surge higher but above the July numbers. Inflation remains on the cool side which has helped to keep interest rates historically low.

Many pundits continue to talk of a recession indicator in the closely watched 2- and 10-year yield spread, as it narrowed to three basis points yesterday. If an inversion were to occur, where long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality, a recession comes in about 22 months on average after the curve inverts. That would be almost two-years from now, where in that time span anything can take place. The Federal Reserve Bank of the US has said it will use all of its power to avoid an economic slowdown.

Monday - August 12  

Market Wrap - Mortgage Bonds ended the day near unchanged as the flight-to-safety was concentrated in US Treasuries today. The yield on the 10-yr T Note fell to 1.64% with the price soaring by 81bp. There were no economic reports released today. US stocks plunged on the lingering trade issues with China as investors feel a prolonged war could push the US into an economic slowdown. Both Goldman Sachs and Bank of America said today that chances of a US recession have increased in the next 12 months due to the US/China trade issues. Consumer inflation from the Consumer Price Index will be released tomorrow morning. With the Dow down 400 points today and Mortgage Bonds finishing flat, continue locking files that are short-term in nature, 30 days or less, with a longer-term floating bias.

Late Morning Review - There are no economic reports due for release today, but the rest of the week the markets will receive data from CPI, housing, manufacturing, retail sales and consumer sentiment. Earnings season will be coming to an end with 90% of the S&P 500 companies having reported their numbers. Of those companies that have reported, 73% have beaten analyst estimates. 
The markets will continue to ebb and flow with the trade and currency issues this week while economic data could also impact trading.

Mortgage credit availability decreased in July led by declines in conforming and government indices, reports the Mortgage Bankers Association. The Mortgage Credit Availability Index (MCAI) fell by 0.4% to 189.0 last month. 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.

 

190809

 

Friday - August 9  

Next Week - Just when you thought the summer doldrums would take place during the dog days of summer, volatility has gripped the markets the past few weeks.

That could most likely continue this week with a packed economic calendar, along with the lingering issues with China regarding trade and currency.

Earnings season will be coming to an end and the calendar is absent of any Fed speakers.

A key report in the upcoming week will be Retail Sales, which will measure the strength of consumer spending, which makes up two-thirds of the U.S. economy. The past three have seen strong numbers...we will see if the pattern continues.

Reports to watch:

  • Economic data heats up this week with the inflation reading Consumer Price Index being released on Tuesday.
  • On Thursday, Retail Sales, Weekly Initial Jobless Claims, Empire and Philadelphia Fed Manufacturing Indexes, and Productivity will be delivered.
  • Housing Starts, Building Permits, and Consumer Sentiment will be reported on Friday.

190809 eco

Week in Review - This past week we watched home loan rates touch three-year lows as investors around the globe continue to seek the safe haven of the U.S. dollar.

Why are global investors moving money into the U.S. dollar and safe instruments like U.S. Bonds? Due to the lingering uncertainty behind the U.S./China trade dispute, global economies slowing, and central banks around the globe cutting interest rates.

All of this forces investors to search for yield in a world where many countries like Japan, Germany, Switzerland, and the like have negative interest rates, meaning investors who park their money in those countries receive no interest and a loss of principal. That's a bad investment.

So, our 10-Year Note hit 1.59% this past week, which is a ridiculously low level, but when compared to other countries around the globe yielding negative interest rates, 1.59% looks pretty attractive. And that coupled with the relative strength of the U.S. dollar, thanks to our strong economy, is the reason why the U.S. continues to attract significant investment dollars from around the globe.

For us in the mortgage and real estate industry, we must understand that volatility is high and any glimpse of good news or a random tweet could change sentiment quickly to something more positive, which is bad for Bonds and interest rates.

Finally, as mentioned, the 10-year yield hit 1.59% before ticking back up into the 1.70s to finish the week. At the same time, the yield or interest you can receive by investing in the S&P 500 Stocks is 1.96%. At some point, investors and the financial markets start to question, if I am investing for 10 years, am I better off investing in stocks like Apple where I can receive a higher yield or interest payment than Treasuries, along with a better chance of price appreciation? When that time comes, a decline in home loan rates, which has been in place since November, will pause.

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 ended the week on a low note though a key support level held. The yield on the 10-yr yield inched higher to close at 1.74% from 1.85% last Friday. Stocks ended lower today and fractionally lower in a volatile week. WTI oil settled at $54.44/barrel, +$1.90. Next week's economic calendar is full while the markets continue to deal with trade and currency issues. Continue to lock files closing in 30 days while floating everything beyond that time frame. Have a great weekend!

 

Late Morning Review - Fannie Mae reports that due to improving job and mortgage rate expectations, its housing sentiment survey hit a fresh high in July. The Home Purchase Sentiment Index rose 2.2 points in July to 93.7, a new survey high. Five of the six components increased in July with a big jump in the "Confidence about not losing a job" category. The net share of Americans who say it is a good time to buy a home increased 3 percentage points to 26%. “Consumers appear to have shaken off a winter slump in sentiment amid strong income gains. Therefore, sentiment is positioned to take advantage of any supply that comes to market, particularly in the affordable category," said Doug Duncan, Senior Vice President and Chief Economist of Fannie Mae.

In the news, the currency manipulation issues with China's yuan have eased a bit with no fresh news from the trade front. This morning, the July Producer Price Index, or wholesale inflation data, confirmed what the markets have been seeing for a decade: muted inflation and as a result, little market reaction. The yield on the 10-year Treasury note is near unchanged at 1.71% up a bit from Wednesday's low of 1.59%. US stocks are lower after yesterday's big gains. The Dow gained back nearly 1,000 points from the 25,440-low seen on Wednesday to yesterday's close of 26,007. Next week, the economic calendar heats up as the markets may continue to deal with both currency and trade issues with China.

 

Thursday - August 8 

MARKET WRAP - Mortgage Bonds closed near unchanged and off their worst levels today while the 10-yr yield topped out at 1.79% before settling at 1.71%. Stocks surged, led by the tech sector and easing currency fears with the Dow gaining 370 points. WTI oil closed at $52.52/barrel, +$1.43. Continue to advise floating files that are brand-new and those closing outside 30 days while locking files that are short-term in nature. The inflation reading PPI will be released tomorrow but we don't see much of an impact.

Late Morning Review - Continued uncertainty surrounding the US/China trade and currency issues sent bond prices higher late last week and early this week which pushed mortgage rates to lows seen in November 2016. Freddie Mac reports that the 30-year fixed-rate mortgage fell to 3.60% early this week from 3.75% last week. That rate does carry an average 0.6 in points and fees. Sam Khater, Freddie Mac’s chief economist, says, "Consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall.”

ATTOM Data Solutions released its Midyear 2019 US Foreclousre Market Report showing that foreclosure filings in the first six months of 2019 are down nearly 18% from a year ago. In the first half of 2019 there were 296,458 US properties with foreclosure filings, and as mentioned, this number was down 18% from the same period last year and down a whopping 82% from the peak of 1,654,634 in the first six months of 2010. “Our midyear 2019 foreclosure activity helps to show an overall view on how foreclosure activity is trending downward,” said Todd Teta, chief product officer at ATTOM Data Solutions.

Americans filing for first-time unemployment benefits declined in the latest week and remain near 50-year lows. Weekly Initial Jobless Claims fell by 8,000 in the latest week to 209,000 as the labor market continues to run at strong levels. The four-week moving average, which irons out seasonal abnormalities, rose moderately from 211,500 to 212,250. A strong labor market coupoed with solid consumer spending will keep recesssion fears on the shelf for the foreseeable future.

 

Wednesday - August 7  

MARKET WRAP - Can you spell V-O-L-A-T-I-L-I-T-Y! US stocks plunged soon after the opening bell as the Dow fell by nearly 600 points. Investors snapped up beaten down stocks and pushed the S&P and NASDAQ into positive territory by the close while the Dow closed near unchanged. The yield on the 10-yr T Note hit 1.59% this morning before closing at 1.72%. The Fannie Mae 30-yr 3.5% coupon closed near the session lows after hitting $102.97 earlier. WTI oil closed at $51.22/barrel, -$2.41 on an unexpected inventory build. Heading into tomorrow, lock those files that are closing within 30 days with a longer-term floating bias.

 

Late Morning Review - Mortgage rates continued to edge lower in the latest week due in part to slowing global growth along with trade fears. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell seven basis points to 4.01% in the latest week with an average 0.37 in points. It is the lowest rate since November 2016. Within the report it showed that the Market Composite Index, a measure of total mortgage loan application volume, rose 5.3%. The Refinance Index increased 12% while the Purchase Index fell 2%.

The US bond market is trading higher once again as global yields continue to decline and drag US yields lower. The 10-year Note price is soaring to the tune of 103 basis points while Mortgage Bonds are up, though the gains are far less. Weak economic data out of Germany, slowing growth fears coupled with three more global central banks cutting interest rates today has sparked this flight-to-safety trade into the US dollar and US bond market. The German 10-yr Bund has fallen to an all-time low of -0.60% while the US 10-yr yield has fallen to 1.62%, a near three-year low. Investors are looking for positive yielding "safe" assets, like here in the US.

 

Tuesday - August 6

MARKET WRAP - US stocks rebounded today wiping out nearly half of yesterday's losses after China stabilized its currency. Mortgage Bonds closed lower and gave back almost half of yesterday's gains. However, the disconnect continues between Mortgage Bonds and Treasuries. The 10-yr yield closed lower at 1.71%, price modestly higher. WTI oil closed at $53.77/barrel, -$0.91. Tomorrow, the Treasury will sell $27B 10-yr Notes and will be closely watched. There are no economic reports due for release. Still floating amidst the lingering uncertainty but be on guard.

Late Morning Review - CoreLogic reports that home prices, including distressed sales, rose 3.4% from June 2018 to June 2019, down from 3.6% in May as home price gains have cooled off a bit. Looking ahead, CoreLogic is forecasting a 5.2% increase in prices from June 2019 to June 2020. "With incomes up and current mortgage rates about 0.8 percentage points below what they were one year ago, home sales should have a better sales pace in the second half of 2019 than a year earlier, leading to a quickening in price growth over the next year," said Dr. Frank Nothaft, Chief Economist for CoreLogic.

Low mortgage rates have spurred on the ability for mortgage holders to refinance their current loans. Black Knight reports that there are now 8.2 million refinance candidates in the market, 66% more than in May when borrowers would have been applying for loans driving June prepayment numbers. At 3.75%, the 30-year fixed-rate mortgage is at multi-year lows, resulting in the most refinance incentive in the market since late 2016. Black Knight went to report that if rates decreased by an eighth, refinance candidates would rise by 1.5 million to 9.7 million, an 18% rise.

Job openings continued to run at high rates across the US in June topping 7 million for the 15th month in a row signaling the strongest labor market in decades. The Bureau of Labor Statistics reports that there were 7.34 million job openings in June, just below the 7.38 million in May, which was revised higher from 7.26 million. The job openings level increased in real estate and rental and leasing as well as state and local government education. The quits rate was unchanged at 2.3%, which is at 10-year highs and is a sign that workers remain confident about their ability to find a new job in this strong job market.

Monday - August 5  

MARKET WRAP - Negative US/China trade headlines sent US stocks considerably lower today though they did manage to close off their worst levels. The Dow was down nearly 1,000 points before bouncing off and closing above its 200-day MA ... closing down 767 points. Mortgage Bonds closed with modest gains while Treasury prices soared. The yield on the 10-yr T Note settled at 1.73%. Fed rate cut bets increased today with a cut of 25bp set for September at this point in time. We continue to advise floating but be on guard for one little positive Tweet from the White House on trade could quickly reverse sentiment. The JOLTS report will be released tomorrow. The Treasury will sell $38B 3-yr Notes, results at 1:00 p.m. ET.  

Late Morning Review -  News that China has devalued or let its yuan slip below a key level has sent global stock markets lower while US Treasury prices soar. The yield on the 10-year T Note has fallen to a three-year low of 1.77%, though above earlier levels, as global investors seek the ultra-safe haven of the US dollar and the higher yields of US Treasury markets. The Dow Jones Industrial Average was down over 500 points in early trading.

The only economic report released today was the July ISM Service Index which came in at 53.7, down from 55.1 in June. This is the index’s lowest reading since August 2016, when it registered 51.8. Within the data it showed that employment component increased. A reading above 50% indicates the non-manufacturing sector economy is generally expanding; below 50% indicates the non-manufacturing sector is generally contracting.

Wednesday - August 7  

 

Mortgage rates continued to edge lower in the latest week due in part to slowing global growth along with trade fears. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell seven basis points to 4.01% in the latest week with an average 0.37 in points. It is the lowest rate since November 2016. Within the report it showed that the Market Composite Index, a measure of total mortgage loan application volume, rose 5.3%. The Refinance Index increased 12% while the Purchase Index fell 2%.

The US bond market is trading higher once again as global yields continue to decline and drag US yields lower. The 10-year Note price is soaring to the tune of 103 basis points while Mortgage Bonds are up, though the gains are far less. Weak economic data out of Germany, slowing growth fears coupled with three more global central banks cutting interest rates today has sparked this flight-to-safety trade into the US dollar and US bond market. The German 10-yr Bund has fallen to an all-time low of -0.60% while the US 10-yr yield has fallen to 1.62%, a near three-year low. Investors are looking for positive yielding "safe" assets, like here in the US.

Tuesday - August 6  

 

CoreLogic reports that home prices, including distressed sales, rose 3.4% from June 2018 to June 2019, down from 3.6% in May as home price gains have cooled off a bit. Looking ahead, CoreLogic is forecasting a 5.2% increase in prices from June 2019 to June 2020. "With incomes up and current mortgage rates about 0.8 percentage points below what they were one year ago, home sales should have a better sales pace in the second half of 2019 than a year earlier, leading to a quickening in price growth over the next year," said Dr. Frank Nothaft, Chief Economist for CoreLogic.

Low mortgage rates have spurred on the ability for mortgage holders to refinance their current loans. Black Knight reports that there are now 8.2 million refinance candidates in the market, 66% more than in May when borrowers would have been applying for loans driving June prepayment numbers. At 3.75%, the 30-year fixed-rate mortgage is at multi-year lows, resulting in the most refinance incentive in the market since late 2016. Black Knight went to report that if rates decreased by an eighth, refinance candidates would rise by 1.5 million to 9.7 million, an 18% rise.

Job openings continued to run at high rates across the US in June topping 7 million for the 15th month in a row signaling the strongest labor market in decades. The Bureau of Labor Statistics reports that there were 7.34 million job openings in June, just below the 7.38 million in May, which was revised higher from 7.26 million. The job openings level increased in real estate and rental and leasing as well as state and local government education. The quits rate was unchanged at 2.3%, which is at 10-year highs and is a sign that workers remain confident about their ability to find a new job in this strong job market.

Monday - August 5  

 

News that China has devalued or let its yuan slip below a key level has sent global stock markets lower while US Treasury prices soar. The yield on the 10-year T Note has fallen to a three-year low of 1.77%, though above earlier levels, as global investors seek the ultra-safe haven of the US dollar and the higher yields of US Treasury markets. The Dow Jones Industrial Average was down over 500 points in early trading.

The only economic report released today was the July ISM Service Index which came in at 53.7, down from 55.1 in June. This is the index’s lowest reading since August 2016, when it registered 51.8. Within the data it showed that employment component increased. A reading above 50% indicates the non-manufacturing sector economy is generally expanding; below 50% indicates the non-manufacturing sector is generally contracting.

Friday - August 2  

190802
Next Week - Many traders will be watching the U.S./China headlines as last week's headlines will likely allow uncertainty to linger and keep home loan rates low.

The week will feature a total of $84 billion in notes and Bonds being sold by the treasury, and the added supply could impact the Bond markets. 

The week will be absent of any Fed speakers after last week's FOMC meeting. Earnings season will continue with the recent numbers coming in on the positive side. 

The only economic report of any significance will be the inflation reading Producer Price Index. 

Reports to watch:After last week's risked-filled events, the upcoming week is short on economic data. Trading volumes will most likely be on the light side with many traders and investors away on vacation. 

Many traders will be watching the U.S./China headlines as last week's headlines will likely allow uncertainty to linger and keep home loan rates low.

The week will feature a total of $84 billion in notes and Bonds being sold by the treasury, and the added supply could impact the Bond markets. 

The week will be absent of any Fed speakers after last week's FOMC meeting. Earnings season will continue with the recent numbers coming in on the positive side. 

The only economic report of any significance will be the inflation reading Producer Price Index. 

Reports to watch:

  • The ISM Service Index will be released on Monday, Weekly Initial Jobless Claims on Thursday and the Producer Price Index on Friday.

190802 eco

Week in Review - This past week the Federal Reserve (Fed) cut the Fed Funds Rate by .25% to 2.25%, the first rate cut in 10 years. 

Many consumers are wondering why home loan rates haven't declined by .25% in tandem with the Fed action. Let's break down how a Fed rate cut affects different interest rates including home loan rates. 

The Fed Funds Rate (FFR) is an overnight rate at which banks lend to each other. It affects short-term rates on things like home-equity loans, credit cards, and auto loans. And oh, by the way, savings deposit rates likely decline as well. 

The FFR has no effect whatsoever on home loan rates. Home loan rates are driven by pricing and trading action in mortgage-backed securities (see chart below), which tend to ebb and flow with the direction of US 10-Year Note. 

The main driver for long-term rates, like mortgages, is inflation and inflation expectations. If inflation is forecasted to move higher, rates move higher. The opposite is also true. 

Since last November and up until last Wednesday's Fed rate cut, home loan rates have declined by over 1.00%, so home loan rates have already declined by a lot. 

Another driver of long-term rates is uncertainty, and last Thursday we received a good dose upon a surprise announcement that the U.S. will institute a fresh 10% tariff on $300B worth of Chinese goods. In response, home loan rates touched the lowest levels in three years. 

Bottom line: home loan rates are near three-year lows and thanks to low inflation, slowing growth around the globe, and the U.S./China trade war renewed, rates are likely to go lower still.

China trade war

MARKET NEWS - After a rather volatile week, Mortgage Bonds ended unchanged while Treasury prices closed higher. Stocks closed lower though off worst levels on trade fears with the Dow, S&P and NASDAQ closing lower for the week. The 10-yr yield settled at 1.85%, lowest since late 2016. WTI oil settled at $55.51/barrel, +$1.56. Next week the economic calendar is light as the markets will take direction from earnings and trade headlines. 

Late Morning Review - And the survey says: 164K jobs created in July, just above the 160,000 expected, reports the Bureau of labor Statistics. The report showed that revisions for May and June were revised lower by 41,000, the Labor Force Participation Rate ticked up to 63%, and the U6 number, or total unemployed, fell to 7% while average hourly earnings rose 0.3% versus 0.2% expected. The unemployment rate inched higher to 3.7% from 3.6% as more Americans entered the workforce. Overall a solid report.

Yesterday, the White House took the US markets by surprise when it announced it may slap a 10% tariff on an additional $300 billion in Chinese exports entering the US. The headlines pushed bond prices higher, yields lower while US stocks fell. The president did say that he would hold off on the tariffs if certain measures are met and meet in September as scheduled. Stocks are modestly lower after the volatility that took place this week. The markets will now be eagerly awaiting any new trade headlines, which could turn positive rather quickly.

Thursday - August 1

MARKET WRAP - Mortgage Bonds spent most of the day with modest gains but when President Trump slapped a 10% additional tariff on $300B in Chinese exports into the US around 2:00 p.m. ET, Bond prices soared, yields plunged while Stocks fell hard. Mortgage Bonds closed at fresh 2019 highs, though off their best session levels, while the 10-yr yield settled at 1.90%. WTI oil closed at $53.97/barrel, -$4.61 as a prolonged trade war with China could slow demand. Today's big move higher in Mortgage Bond prices has left us with a nice cushion heading into tomorrow's Jobs Report.

Late Morning Review - The Federal Reserve cut the benchmark short-term Fed Funds Rate (FFR) yesterday by 0.25% for the first decrease in that rate since December 2008. The move did not come as a surprise though the Fed signaled that there may just be one more rate cut in 2019, down from three cuts that were expected before yesterday's Fed meeting. The decrease in the short-term rate will impact personal and car loans, credit cards and the like. The FFR is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis.

US construction spending fell for the second month in a row in June and was the biggest decline in seven months fueled by a big drop in private construction spending. The Commerce Department said construction spending declined 1.3% from May. In a separate report, the ISM National Manufacturing Index fell to 51.2 in July, the lowest reading since August 2016. The declines were due in part to the lingering effects of the trade issues between the US and China.

Mortgage rates were unchanged this week and remain near multi-year lows and seem to be bottoming out after the steep decline in 2019. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged this week at 3.75% with an average 0.6 in points and fees. Freddie Mac says going forward, the combination of low mortgage rates, tight labor market and high consumer confidence should set up the housing market for continued improvement in home sales heading into the late summer and early fall.

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
 

Mission Statement

To be the simplest and most informative mortgage website on the market today. To make the mortgage process as easy as possible, by informing and educating the consumer on what to expect and how much it is going to cost.

Sign Up Now!