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May 2020

May 5th, 2020

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.

Friday - May 29  

 

Late Morning Review - Inflation has been non-existent in the past two months due to the coronavirus induced shutdown of the U.S. economy. The inflation reading Core PCE fell to 1% annually in April, down 0.5% monthly from March. Personal Spending fell by 13.6% while Personal Incomes rose 10.5%. The personal savings rate surged a record 33% as most Americans were under lock down and didn't spend much. In addition, Personal Incomes surged boosted by government payments.

Consumer Sentiment inched higher in May as the pandemic induced shutdown began to loosen up a bit across the nation. The Consumer Sentiment Index rose to 72.3 this month from 71.8 in April. Spokesperson Richard Curtin said, " The CARES relief checks and higher unemployment payments have helped to stem economic hardship, but those programs have not acted to stimulate discretionary spending due to uncertainty about the future course of the pandemic." To put it into perspective, the index was at 101 in February.

Gas prices at the pumps have increased over the past month as the shutdown eases and drivers take to the road with the driving season upon us. The national average price for a regular gallon of gasoline has risen to $1.97 from $1.76 a month ago. Jeanette Casselano, AAA spokesperson said, “While motorists will see pump prices continue to increase, AAA does not expect the summer average to be as expensive as last year’s season.”

 

Thursday - May 28

Late Morning Review - Just over 40 million Americans are now on the unemployment line since the shutdown began in mid-March but there is a silver lining. Weekly Initial Jobless Claims rose 2.123 million versus the 2 million expected for the week ended May 23. However, continuing claims or the number of people who have already filed an initial claim plunged by nearly 4 million. This signals that people are already finding work or getting rehired. As expected, the second reading on Q1 GDP fell 5% while Durable Orders fell 17%.

Mortgage rates continued to inch lower in the latest survey while home purchase demand picks up steam. Freddie Mac reports that the 30-year fixed-rate mortgage fell to 3.15% with 0.8 in points and fees. It was the lowest rate in the 50-year survey history. Freddie Mac went on to say that refinance activity remains elevated and low mortgage rates have been accompanied by a $70,000 decline in the average loan size of refinance borrowers this year.

Pending Home Sales fell 21.8% in April from March marking the second straight monthly decline due to the pandemic outbreak, reports the National Association of REALTORS® (NAR). The NAR said that every major region experienced a drop in month-over-month contract activity and a decline in year-over-year pending home sales transactions. Lawrence Yun, NAR’s chief economist said, “In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about homebuying in the midst of the social distancing measures.”

8:32 AM - Weekly Initial Jobless Claims 2.123 million vs 2 million expected. Durable Orders -17.2% vs -17%. Q1 2nd read on GDP -5.0% from -4.8% in the initial reading. Stock futures holding gains. Bond prices slip into negative territory.

Wednesday - May 27  

Market Wrap - Mortgage Bonds ended near unchanged today having given up decent gains seen early in the session. Treasury prices closed near unchanged with the 10-yr yield settling at .69% as risk on was the trade once again today. The Dow rose 550 points as optimism abounds across the markets. WTI oil closed at $32.80/barrel, -$1.55.

Late Morning Review - Mortgage rates continued to hover near record lows in the latest week as low rates spur on purchase activity. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage was essentially unchanged at 3.42% with 0.33 in points. The Market Composite Index, a measure of total mortgage loan application volume, rose 2.7%. The Purchase Index surged 8.6% while the Refinance Index was unchanged. "The housing market is continuing its path to recovery as various states reopen, leading to more buyers resuming their home search," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

The U.S. stock market rally marches on today as states continue to reopen while airline and cruise shares lead the push higher. In addition, the European Union as well as Japan proposed more stimulus in the region for the coronavirus recovery which is also boosting stock prices. And from Wharton finance professor and stock market guru Jeremy Siegel ... he sees the major U.S. stock indices hitting fresh new highs before the year is out due to the Fed's support and if a second wave of coronavirus is avoided. The closely watched S&P 500 is up nearly 34% from the March 23 low when the country was essentially shut down for business.

 

Tuesday - May 26  

Market Wrap - Mortgage Bonds closed near unchanged today as risk on was the trade during the session. Positive economic data, states reopening along with several potential vaccine drugs for the coronavirus sent the major stock indexes soaring. Stocks did close off their best levels on late-day reports of negative U.S.-China relations. The 10-yr yield settled at .69%. Today's $44B 2-yr Note auction saw pretty good demand. WTI oil ended at $34.36/barrel, +$1. There are no economic reports due for release tomorrow. Continue a floating stance for brand new files and those with a longer time frame to closing.

Late Morning Review - Sales of newly constructed single-family homes unexpectedly jumped in April though the market may not have felt the full impact from the pandemic as job losses mount. New Home Sales rose 0.6% in April from March to an annual rate of 623,000 units, well above the 485,000 expected. Sales were down 6.2% from a year ago due to the big declines seen in March. Sales were up in the Northeast, Midwest and South, with losses seen in the West. There was a 6.3 month supply of new homes for sale on the market while the median home price was $309,900 in April, down 8.6% from a year ago.

Consumer Confidence rebounded in May after two months of declines due to the outbreak of the coronavirus pandemic rising to 86.6 from 85.7 in April. Consumers’ assessment of current conditions declined further in May. Lynn Franco, Senior Director of Economic Indicators at The Conference Board said, “Following two months of rapid decline, the free-fall in Confidence stopped in May. However, consumers remain concerned about their financial prospects."

Home prices were on the rise in March, reports the FHFA and the S&P Case Shiller 20-City Home Price Index. The FHFA reports that U.S. house prices rose 1.7% in Q1 2020, up 5.7% from Q1 2019 to Q1 2020, and up 0.1% monthly in March from February. The March S&P Case-Shiller 20-City Home Price Index rose 3.9% annually from 3.5% in February, up 0.5% from February to March.

 

200522

Next Week - All U.S. financial markets are closed on Monday for Memorial Day.

The holiday-shortened week will continue with more of the same including headlines streaming in on states reopening, the number of virus cases, and possibly more news from the Fed and Congress to stimulate the economy.

Key economic data will be released with housing numbers, consumer attitudes, economic activity, inflation data, and weekly claims.

The Weekly Initial Jobless Claims numbers will be closely watched. The numbers have declined but they are still in the millions each week.

Reports to Watch:

  • Housing data will come from the S&P Case-Shiller Home Price Index and New Home Sales on Tuesday, and Pending Home Sales on Thursday.
  • Consumer Confidence will be released on Tuesday with Consumer Sentiment on Friday.
  • Weekly Initial Jobless Claims will be delivered on Thursday along with the second reading on Q1 Gross Domestic Product.
  • On Friday, Personal Income and Spending and the Core PCE will be released. 

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Friday - May 22

Average Mortgage Rates - Reported by Mortgage News Daily (Not ours)

Type               Rate          Points

30 Yr Fixed     3.04          0.40

15 Yr Fixed     2.67%       0.40

Week in Review - As the unofficial start of summer begins with the Memorial Day holiday, there are three trends worth following which may determine how the economy moves past the coronavirus. 

  1. The reopening. Most states have begun to open up in some form. A few states have been open for weeks and have not yet seen a resurgence in cases, which if the trend continues, would be a great proxy for the rest of the country.
  2. Don't fight the Fed. Last Sunday on 60 Minutes, Fed Chairman Powell reiterated that the Fed will do whatever it takes to help underwrite the economic recovery. If the Fed, Treasury, and administration continue to throw every resource necessary to help the economy, it will likely work.
  3. American spirit. We are seeing incredible increased demand in online shopping, DIY projects, and more. It seems reasonable that American spirit and optimism can continue to rise as we enter the summer months and states gradually reopen.

When you couple American spirit and states reopening safely, along with continued Fed support, you have all the ingredients required for an economic recovery. Let's see what the next few weeks bring.

Meanwhile, home loan rates are at all-time lows and the housing market continues to see buying demand.

On the other side of the virus, we may very well see a strong housing market for all the reasons above, plus the pent-up demand created by increased household formation.

Better days are surely ahead. 

Thursday - May 22

Market Wrap - The 10-yr yield closed unchanged at .67%. Stocks closed lower but the losses were modest on U.S.-China tensions and recovery hopes. WTI oil settled at $33.96/barrel, +$0.47. There are no economic reports due for release tomorrow. The bond markets close at 2:00 p.m. ET tomorrow - stocks undergo normal hours.

Late Morning Review -  Nearly 39 million Americans have lost their jobs in the past nine weeks due to the economic shutdown. However, with many states reopening, Memorial Weekend upon us and the American spirit ready to go - the market response to the weak data is muted. Weekly Initial Jobless Claims came in at 2.438 million for the week ended May 16 while the previous week was lowered to 2.687 million from 2.981 million. The numbers have fallen since the record 6.867 million filed on Mach 27. This means with 157 million people in the U.S. workforce in February, nearly 25% of the workforce is without a job.

Mortgage rates remained near record lows in the latest week, reports Freddie Mac. The 30-year fixed-rate mortgage came in at 3.24% this week with 0.7 0n points and fees. Freddie Mac says as states reopen, we’re seeing purchase demand improve remarkably fast, now essentially flat relative to a year ago. Going forward, mortgage rates have room to decline as mortgage spreads remain elevated.

Sales of existing homes plunged in April and year over year as the pandemic impacted sales. Existing Home Sales fell nearly 18% month-over-month and down 17% from April 2019 to an annual rates of 4.33 million units. The 4.33 million units was the lowest annual pace since September 2011. Housing inventories stand at a 4.1 month supply. “The economic lockdowns – occurring from mid-March through April in most states – have temporarily disrupted home sales,” said Lawrence Yun, NAR’s chief economist. “But the listings that are on the market are still attracting buyers and boosting home prices.”

 

 

8:31 AM -  Weekly Initial Jobless Claims 2.438M vs 2.4M expected for the week ended May 16. The previous week was revised lower to 2.687M from 2.981M.

Wednesday - May 20

Market Wrap - Mortgage Bonds squeaked out modest gains early in the session but closed near session lows. Treasury prices ended with small gains. The 10-yr yield slipped to .68%. Stocks ended higher as investors regain some more confidence ... Dow +369 points. WTI oil ended at $33.51/barrel, +$1.55. Weekly Initial Jobless Claims and Existing Home Sales will be released tomorrow.

Late Morning Review - Mortgage rates remained near record lows in the latest week during the uncertain times caused by the coronavirus pandemic. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage was at 3.41% with 0.33 in points for the week ended May 15, 2020. The MBA's Market Composite Index, a measure of total mortgage loan application volume, fell 2.6%. The Refinance Index fell 6% while the Purchase Index rose 6%.

Easing state lock downs, hopes for better economic times ahead and incredible support by the Fed, Treasury and Congress are boosting the major U.S. stock indexes today. This comes after Monday's huge gains and yesterday's declines. In addition, solid earnings from Lowe's is also boosting sentiment today. The closely watched S&P 500 is up 30% from the March 23 low but has been stalling lately states reopen along with the instance of new cases.

For the first time since its inception 20 years ago, motor club AAA will not release its Memorial Day travel forecast, as the accuracy of the economic data used to create the forecast has been undermined by COVID-19. With gas prices at $1.90 for regular at the pumps, and below last year's $2.85, drivers would have had more money to spend during the Memorial Day weekend. “Gas prices around Memorial Day have not been this cheap in nearly 20 years. However, as the country continues to practice social distancing, this year’s unofficial kick-off to summer is not going to drive the typical millions of Americans to travel,” said Jeanette Casselano, AAA spokesperson.

8:35 AM After yesterday's gains, Mortgage Bonds, Treasury prices flat to lower. The 10-yr yield is unchanged at .71%. Stock futures higher as the risk trade resumes reclaiming yesterday's losses and after Monday's huge rally. WTI oil at $32.65/barrel, +$0.71. Treasury will sell a 20-yr bond today, first-time since the 1980s.

Tuesday - May 19  

Average Mortgage Rates 5/15/20 - Reported by Mortgage News Daily (Not ours)

Type               Rate          Points

30 Yr Fixed     3.15%       0.40

15 Yr Fixed     2.81%       0.40

Market Wrap - Stocks plunged late day led lower by falling bank and retail shares while the virus vaccine trial tests from Moderna had some negative news today. Both Mortgage Bond and Treasury prices rose while the 10-yr yield slid to .69%. WTI oil ended at $32.30/barrel, +$0.34. There are no economic reports due for release tomorrow. The Treasury will introduce and auction its 20-yr Bond.

Late Morning Review - The pandemic outbreak sent shock waves throughout the U.S. economy in March and April with the housing sector not immune from the carnage. The Commerce Department reports that April Housing Starts plunged 30.2% from March to an annual rate of 891,000 units. It was the lowest level of starts since 2015 while the percentage loss was the lowest on record dating back to 1959. Starts fell 29.7% from a year ago while all four major U.S. regions saw big losses. Single-family starts declined by 25.4% monthly and 24.8% annually. Multi-family unit construction fell 40% monthly and 38% annually.

To support borrowers and mortgage servicers, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac have issued temporary guidance regarding the eligibility of borrowers who are in forbearance, or have recently ended their forbearance, looking to refinance or buy a new home. Borrowers are eligible to refinance or buy a new home if they are current on their mortgage (i.e. in forbearance but continued to make their mortgage payments or reinstated their mortgage). Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan, or payment deferral option or loan modification.

Fannie Mae says that given its low-interest rate forecast and incoming data, it has upgraded its refinance originations forecast by $119 billion to $1.5 trillion in 2020, a 51% jump from 2019. Mortgage rates could potentially fall below 3% by the start of 2021. Fannie Mae said that housing was a bright spot in the first quarter, with residential fixed investment posting the largest annualized gain since 2012, but disruptions from the coronavirus are now severely impacting the sector. Listings of single-family for-sale homes fell sharply year over year in April, as potential sellers delayed putting their homes on the market.

 

Monday - May 18

Market Wrap - Soaring stock prices weighed on the bond markets today after positive words on the U.S. economy from Fed Chair Powell along with hopes of a virus vaccine. the 10-yr yield rose to .72% while Mortgage Bonds declined. The Dow ended with a 911 point gain. WTI oil ended at $31.82/barrel, +$2.39. April Housing Starts and Building Permits will be released tomorrow. Treasury Secretary Mnuchin and Fed Chair Powell will be in front of the Senate at a remote hearing on the coronavirus loan programs but we don't see an impact. 

 

Late Morning Review - Promising trial tests from drug-maker Moderna for a coronavirus vaccine is lifting U.S. stocks to begin the week. The Dow Jones Industrial Average was up 900 points in early trading on the news. In addition, positive words on the U.S. economy from Fed Chair Powell on Sunday night on 60 minutes is also adding to the lofty gains. The Dow is now up 34% from the closing low seen on March 23. The yield on the 10-year Note has risen to .70% as risk-on is today's trade.

Home builder confidence edged higher in May after the historic drop in April due to the coronavirus fallout that closed most state economies across the nation. The NAHB Housing Market Index rose seven points to 37 in May, up from 34 in April though below 50, where 50 is the diving line between positive and negative. All six of the components within the index posted gains in May. Oil prices continue to gush higher with West Texas Intermediate oil at $32/barrel as the market eyes future higher demand in the coming months as countries slowly reopen. In addition, output cuts are also helping to boost prices. With the rise of oil prices in May, prices at the pumps are on the rise. The national average prices for a regular gallon of gasoline is at $1.87, up from $1.82 a month ago though well below the $2.58 a gallon seen last year this time. At the start of the Memorial Day work week, the national gas price average is $1.87. The last time the national gas price average leading into the holiday was under $2/gallon was 17 years ago in 2003, reports AAA.

8:25 AM Mortgage Bonds begin the week near unchanged while Treasury prices edge lower. 10-yr yield inches higher to .66%. Stocks futures surging. WTI oil at $32/barrel, up $2.57. Be sure to catch this morning's MMG Daily for what's moving the markets today.

Average Mortgage Rates 5/15/20 - Reported by Mortgage News Daily (Not ours)

Type               Rate          Points

30 Yr Fixed     3.09%       0.40

15 Yr Fixed     2.74%       0.40

  

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Forcast for Next Week - A never-ending supply of Treasury securities will continue to be offered with this week's new 20-year Bond on Wednesday as the government starts funding the massive stimulus program.

Congress is also mulling over a Phase 4 relief package that would unleash even more added Bond supply for years to come.

The markets will continue to monitor the U.S. economic landscape for signs of improvement or further signs of deterioration. Economic data will be on the light side, highlighted by housing data and the now closely watched Weekly Initial Jobless Claims.

The Bond markets will close early on Friday at 2:00 p.m. ET ahead of Memorial Day Weekend, the unofficial kickoff to summer.

Reports to Watch:

  • Housing data will be seen from Monday's NAHB Housing Market Index, Tuesday's Housing Starts and Building Permits, and Thursday's Existing Home Sales.
  • Weekly Initial Jobless Claims and the Philadelphia Fed Index will be delivered on Thursday.

 

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Week in Review - Home loan rates remain near historic lows and have stabilized, thanks mainly to the Federal Reserve, as the central bank continues to purchase mortgage-backed securities on a daily basis.

The Fed also helped rates this past week in another way, but it may have been unintentional. Fed Chairman Powell spoke last Wednesday and uttered remarks that lifted uncertainty about the economic recovery. By saying the U.S. is facing an "extended period" of economic weakness, Stocks fell sharply, providing an improvement to rates.      

The reality is the U.S. economic recovery is likely to be gradual as states re-open at a slower pace, while consumer demand may take some time to return to more normal levels. At the same time, we should expect the Fed, Treasury, and U.S. government to do whatever it takes to help the economy through this deep, yet temporary, recession -- and revive it upon coming out of the other side of the virus.

The next couple of weeks are important to see whether the unemployment rate can decline in states that are re-opening, alongside a continued decline in cases.

Bottom line: Home loan rates are at all-time lows. Even all of the uncertainty and the sharp decline in Stocks could not push rates another leg lower this week. If you have an opportunity to lock a 30-year mortgage here, you should do so. 

Friday - May 15

Market Wrap - Mortgage Bonds closed lower today while Treasuries also declined. The 10-yr yield inched higher to end at .64%. Stocks seesawed throughout the session, ending modestly higher and had their worst weekly decline since March as the recent rally stalls. WTI oil gushed higher to $$29.38/barrel, +$1.82. 

Late Morning Review - The pandemic induced shutdown put a big dent in retail stores across the nation with no sector left undamaged. April Retail Sales fell a record 16.4%, worse than the -12% expected. Gas stations, as well as restaurants and bars, were also impacted along with clothing stores while grocery stores saw gains. March fell by 8.3% as the shutdown began mid-month. Some of the big losses were seen in clothing stores (-78%), electronics and appliances (-60%), furniture and home furnishing (-58%), sporting goods (-38%) and bars and restaurants (-30%).

Consumer attitudes haven't plunged in early May as much as expected due in part to the massive stimulus measures enacted by Congress through the CARES Act. Consumer Sentiment rose to 73.7 in May from 71.8 in April and above the 67.4 expected. “The CARES relief checks improved consumers’ finances and widespread price discounting boosted their buying attitudes,” said Richard Curtin, chief economist for the Surveys of Consumers, in a statement. Coronavirus update from Johns Hopkins as of this morning: Here in the U.S., there are 1,417,889 cases of the virus with 85,906 total deaths while 246,414 have recovered. There are 4,444,670 cases of the virus reported worldwide, 302,493 deaths while 1,588,858 have recovered from the virus. Many states across the nation are beginning to reopen slowly while some are still on stay-at-home guidelines. New York, which was set to partially end sat-at-home orders today, has been extended to June 13, Governor Cuomo announced today.

 

Thursday - May 14th

Average Mortgage Rates - Reported by Mortgage News Daily (Not ours)

Type               Rate          Points

30 Yr Fixed     3.13%      0.40

15 Yr Fixed     2.75%      0.40

30 Yr Jumbo   4.34%      0.50

Average Mortgage rates reported by the Mortgage Bankers Assoc (Not ours)

Type             Rate          Points

30 Yr Fixed     3.43%      0.30

15 Yr Fixed     2.92%      0.29

 

Market Wrap - Mortgage Bonds closed with modest gains today while Treasury prices rose. The 10-yr yield settled at .61%. Stocks closed well into positive territory led higher by the energy and banking sector and as the White House signals they are open to a Phase 4 stimulus bill. WTI oil settled at $27.44/barrel, +$2.16. Tomorrow's data includes Retail Sales, Empire State Manufacturing, Consumer Sentiment and the JOLTS report.

Late Morning Review -On Tuesday, to help homeowners who are in COVID-19 related forbearance, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac are making available a new payment deferral option. The payment deferral option allows borrowers, who are able to return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity. FHFA Director Mark Calabria said, “This new forbearance repayment solution responsibly simplifies options for homeowners while providing an additional tool for mortgage servicers. Borrowers who can pay their mortgage should, because missed payments remain an obligation that will ultimately have to be repaid.”

The unemployment line continues to grow. Nearly 37 million people are now unemployed across the nation in the past seven weeks due to the pandemic induced shutdown of the U.S. economy. For the week ended May 9, 2.981 million Americans filed for first-time unemployment benefits, worse than expectations of 2.475 million. The worst of new claims could be in the rear-view mirror and has been declining since the 6.87 million record for the week ended March 28. The four-week moving average, which irons out seasonal abnormalities came in at 3,616,500 down 564,000.

Mortgage rates remained near record lows this week as the coronavirus fears cast a cloud of uncertainty over the markets. Freddie Mac reports that the 30-year fixed-rate mortgage rose two basis points to 3.28% with 0.7 in points and fees. A year ago the rate was 4.07%. Rates should remain low for the foreseeable given the current environment.

 

 

8:35 AM - Weekly Initial Jobless Claims at 2.981 million vs the 2.475 million expected. Stock futures add to losses, bond prices inching higher.

Wednesday - May 13th

Average Mortgage Rates - Reported by Mortgage News Daily (Not ours)

Type               Rate          Points

30 Yr Fixed     3.19%      0.40

15 Yr Fixed     2.99%      0.40

30 Yr Jumbo   4.36%      0.50

Average Mortgage rates reported by the Mortgage Bankers Assoc (Not ours)

Type             Rate          Points

30 Yr Fixed     3.43%      0.30

15 Yr Fixed     2.92%      0.29

 

Market Wrap - Mortgage Bonds opened and closed near unchanged today in a lackluster session as the Fed continues to stabilize the market. Treasury prices closed higher as risk off was the trade after Fed Chair Powell warned of a prolonged recession. The 10-yr yield slipped to .65%. The Dow fell over 500 points. WTI oil ended at $25.34/barrel, -$0.44. Weekly Initial Jobless Claims will be released tomorrow morning ... expected 2.475 million.

 

Late Morning Review - Mortgage rates inched higher in the latest week though they remain near historic lows. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose three basis points to 3.43% with 0.29 in points and fees. The MBA's Market composite Index, a measure of total mortgage loan application volume, rose 0.3%. The Refinance Index fell 3% while the Purchase Index was up 11%.

Fed Chair Powell was speaking virtually this morning to the Peterson Institute for International Economics on the current state of the coronavirus and what the fallout could be. Mr. Powell uttered some concerns this morning at his speech at 9:00 a.m. ET and his words have fueled a sell-off in the U.S. stock markets. Fed Chair Powell says the path ahead is highly uncertain with significant downside risks to the economic outlook. Mr. Powell went on to say that additional relief may be needed and he is concerned of a prolonged recession with a weak recovery. Mr. Powell signaled that the Fed doesn't see negative rates in the future.

 

8:35 AM - Concerns of a second wave of COVID-19 weighs global equity markets. Treasury prices, Mortgage Bonds higher. 10-yr yield .66%. Stock futures flat to slightly higher. WTI oil $25.73/barrel, unchanged. PPI sees record 1.3% decline in April. Fed Chair Powell speaking at 9:00 a.m. ET

Tuesday -  May 12th

Market Wrap - Fears of a virus resurgence in the economic reopening along with a warning from Dr. Fauci on not to reopen too soon sent stocks from the green well into negative territory by the close of trading today. The Dow was up 160 points early this morning and ended with a 460 point loss. The decline in stocks lifted bond prices while Treasury prices got an extra boost from the strong demand seen in today's $32B 10-yr Note offering. The 10-yr yield fell to .66% at the close. Mortgage Bonds ended with limited gains. WTI oil ended at $25.76/barrel, +1.62. April PPI will be released tomorrow. 

Late Morning Review - The coronavirus pandemic has not only impacted the health and well-being of many Americans but has also inflicted great harm on small businesses across the country due to the shutdown. The NFIB Small Business Optimism Index fell in 5.5 points in April to 90.9, with owners expressing certainty the economy will weaken in the near-term, but expecting it to improve over the next six months. In addition, the percent of owners thinking it’s a good time to expand lost 10 points falling to three percent, its lowest level since March 2010.

Consumer inflation plunged as expected in April and showed the largest decline since December 2008. The Consumer Price Index (CPI) declined by 0.8% in April after the 0.4% drop in March. The Core CPI, which strips out volatile food and energy, fell 1.4% year over year, the largest decline on record. The declines were due in part to falling demand for gasoline and services. In contrast, food indexes rose in April, with the index for food at home posting its largest monthly increase since February 1974 as households stocked up during the state lockdowns.

8:31 AM As expected, consumer inflation declined in April, CPI -0.8%, inline. No reaction in the bond markets.

Monday - May 11th

Average Mortgage Rates - Reported by Mortgage News Daily (Not ours)

Type               Rate          Points

30 Yr Fixed     3.18%      0.40

15 Yr Fixed     2.92%      0.40

30 Yr Jumbo   4.35%      1.00

Average Mortgage rates reported by the Mortgage Bankers Assoc (Not ours)

Type             Rate          Points

30 Yr Fixed     3.40%      0.30

15 Yr Fixed     2.93%      0.29

Market Wrap - Big added supply this week and in the near future pushed bond prices lower today while stocks closed mixed as investors balance the pandemic and recovery. The 10-yr yield inched higher to close at .70%. WTI oil settled at $24.46/barrel, -$0.28. The April Consumer Price Index will be released tomorrow. The Treasury will sell $32B 10-yr Notes

Late Morning Review - The week's economic calendar is on the light side with data from the inflation reading Consumer and Producer Price Index along with Retail Sales and Consumer Sentiment. Earnings season will continue and could impact the markets as future guidance has been put on hold due to the pandemic. Stocks are lower after Germany and South Korea reported a pick-up in new virus cases after lifting some restrictions. Chair Jerome Powell will be speaking via webcast hosted by the Peterson Institute for International Economics at 9 a.m. ET on Wednesday.

The U.S. bond markets will be under pressure this week as a massive amount of new supply will be hitting the markets. This week, $96B in supply will be offered this week starting with today's $42B 3-year Note auction. The backup in yields last week is directly attributed to the Treasury recently announcing they will need to borrow $3 trillion though the 3rd Quarter. In addition, the Treasury will need to borrow more, possibly much more, before this is over to fund the stimulus programs enacted by Congress. Come May 20th the Treasury will start selling a new 20-year Treasury bond,$20B worth, to start paying for the enormous stimulus package.

8:33 AM - Mortgage Bonds and Treasury prices flat as the looming increased supply weighs on prices. Stock futures lower on fears of another wave of virus infections, economic recovery fears. 10-yr yield near unchanged at .67%. WTI oil $25.25/barrel, +$0.51. No economic data today. The Treasury will sell $42B 3-yr Notes today, results at 1:00 p.m. ET, part of $96B being offered this week.

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Forecast for next week - The upcoming week will continue along the same lines, as headlines from the pandemic-induced economic fallout will continue to stream in.

The Bond markets will be up against a huge batch of increased added supply from the Treasury that investors will have to sop up. The Treasury will sell $96 billion in Treasury securities this week, up from $84 billion from a recent similar offering.

A key report this week will measure how the consumer has been holding up during the shutdown. Retail Sales for April will be released this upcoming Friday after the near 9% decline seen in March, which was the worst on record in the data available from the Census Bureau, which dates back to 1992.

The markets will be closely watching if unemployment declines and if coronavirus cases decline as well. If they do during the next couple of weeks, the recent uptick in optimism will be justified.

Another set of data to be watched this week will be the NFIB Small Business Optimism Index for April to gauge the depth of the virus outbreak on the small business sector of the economy, which accounts for 44% of U.S. economic activity. In addition, the JOLTS (Job Openings and Labor Turnover Survey) report will be released for March, which is another set of numbers to measure job openings.

Reports to Watch:

  • The inflation reading Consumer Price Index will be released on Tuesday followed by the Producer Price Index on Wednesday.
  • The closely watched Weekly Initial Jobless Claims report comes on Thursday.
  • Retail Sales, Empire State Manufacturing, and Consumer Sentiment will be delivered on Friday.

 

200508 EcoWeek in Review - One week after home loan rates failed to improve further in the face of multiple Bond-friendly stories, such as low inflation, high unemployment claims, and the Fed's continued commitment to purchase Bonds, we watched home loan rates tick up this past week.

Why?

Oversupply. The U.S. Treasury announced they will need to borrow $3 trillion through the third quarter of 2020 to pay for the economic stimulus package related to the coronavirus. In order to "borrow" the $3 trillion, the Treasury will issue a new 20-year Bond that will need to be purchased by investors.

Investors, at the moment, are showing early signs that rates will need to tick higher to meet the buying demand for this enormous new supply of Bonds. Early in the week, the 10-year yield hovered near .60% but ticked higher to .73% during the week and this weighed on mortgage-backed securities, which home loan rates are derived from.

On Friday, the Bureau of Labor Statistics reported that 20,500,000 were unemployed in April, lifting the unemployment rate to 14.7%. It was the worst Jobs Report in the history of the U.S.

Home loan rates didn't improve in response to the horrible "oversupply" of unemployed shown in the Jobs Report. This is because the markets are forward-looking, and April's Jobs Report is backward-looking.

Bottom line: The Bond market is more focused on the additional supply of Bonds that will need to be purchased and the cautious optimism seen in reopening parts of the U.S. economy. For this reason, consumers who have an opportunity to lock home loans at current all-time low rates would be wise to do so.

 

Friday - May 8th

Market Wrap - Mortgage Bonds opened and closed near unchanged in lackluster trading today weighed down by soaring stock prices. Despite the 20.5 million Americans losing their jobs in April, the Dow gained 455 points on hopes that the awful jobs report marks the bottom. Treasury prices declined with the 10-yr yield pushing higher to .68%. WTI oil ended at $24.71/barrel, +$1.16. You can float brand new clients into the weekend and attempt to buy some time

Late Morning Review - 

This morning, the Bureau of Labor Statistics reported the worst Non-Farm Payrolls report in U.S. history for April. Non-Farm Payrolls showed 20.5 million Americans lost their jobs last month while the Unemployment Rate soared to 14.7% with losses seen across all sectors of the labor market. The U6 number, or total unemployed soared to 22.8% - meaning that literally 1 in 5 people are without a job and want one.

Fannie Mae reports that its Home Purchase Sentiment Index (HPSI) fell 17.8 points in April to 63.0, its lowest reading since November 2011. More consumers reported that their household income is significantly lower today than it was 12 months ago. Doug Duncan, Senior Vice President and Chief Economist said, "While consumers did grow more pessimistic in April about whether it’s a good time to buy a home, low mortgage rates remain a driver of purchase optimism. We expect that the much steeper decline in selling sentiment relative to buying sentiment will soften downward pressure on home prices.”

Coronavirus update from Johns Hopkins as of this morning: Here in the U.S., there are 1,256,972 cases of the virus with 75,670 total deaths while 195,036 have recovered. There are 3,866,642 cases of the virus reported worldwide, 270,118 deaths while 1,293,333 have recovered from the virus.

 

9:30 AM - U.S. stocks open higher ... Dow +327 points.

8:38 AM - The April Unemployment Rate rises to 14.7%. After the data, Mortgage Bonds flat, Treasury prices edge lower. 10-yr yield .64%. Stock futures holding solid gains feeling the worst jobs data is behind us. Non-Farm Payrolls in April, -20.5 million, worst in U.S. history with losses across all categories.

Thursday - May 7

Average Mortgage Rates - Reported by Mortgage News Daily (Not ours)

Type             Rate          Points

30 Yr Fixed     3.25%      0.40

15 Yr Fixed     3.02%      0.40

30 Yr Jumbo   4.38%      0.00

Average Mortgage rates reported by the Mortgage Bankers Assoc (Not ours)

Type             Rate          Points

30 Yr Fixed     3.40%      0.30

15 Yr Fixed     2.93%      0.29

30 Yr Jumbo   4.40%      1.00

Market Wrap - Mortgage Bonds closed near unchanged today while Treasury prices rose after the recent decline. The 10-yr yield fell to .64%. U.S. stocks rose on hopes for an economic recovery in the coming months as many states reopen. WTI oil closed at $23.65/barrel, -$0.34. In the past seven weeks there were 33.5 million first-time unemployment claims. Tomorrow the Jobs Report for April will be released at 8:30 a.m. ET ... be sure to be tuned in.

Late Morning Review - The unemployment line continues to grow. Over 33 million people are now unemployed across the nation in the past seven weeks due to the pandemic induced shutdown of the U.S. economy. For the week ended May 2, 3.17 million Americans filed for first-time unemployment benefits, worse than expectations of 3.0 million. The worst of new claims could be in the rear-view mirror and has been declining since the 6.87 million record for the week ended March 28. The four-week moving average, which irons out seasonal abnormalities came in at 4,173,500 down 861,500.

Mortgage rates remained near record lows this week due in part to the global pandemic outbreak. Freddie Mac reports that the 30-year fixed-rate mortgage inched higher to 3.26% this week with 0.7 in points and fees. It is just above last week's all-time low of 3.23% which was the lowest rate since record-keeping began in 1971. Freddie Mac said mortgage rates stayed at or near record lows for the fifth straight week and homeowners are taking advantage with refinance activity remaining high. Although purchase demand declined 35% year-over-year in mid-April, demand has improved modestly over the last three weeks. A year ago the rate was 4.14%.

 

 8:35 AM - MBS near unchanged. Treasury prices inch higher. 10-yr yield slips to .69%. Stock futures higher. WTI oil $26.35/barrel, +$2.36. Weekly Initial Jobless Claims 3.169M vs 2.9M expected. 

Wednesday - May 6

Average Mortgage Rates - Reported by Mortgage News Daily (Not ours)

Type             Rate          Points

30 Yr Fixed     3.27%      0.40

15 Yr Fixed     3.02%      0.40

30 Yr Jumbo   4.40%      1.00

Average Mortgage rates reported by the Mortgage Bankers Assoc (Not ours)

Type             Rate          Points

30 Yr Fixed     3.40%      0.30

15 Yr Fixed     2.93%      0.29

30 Yr Jumbo   4.40%      1.00

Market Wrap -  Not much movement for Mortgage Bonds today as they traded in a narrow range closing slightly lower. The 10-yr yield settled at .70%. The Dow and S&P ended lower after President Trump cast a doubt on a trade deal with China. WTI oil ended at $23.95/barrel, -$0.61. ADP Private Payrolls showed 20.23 million jobs lost in April. Weekly Initial Jobless Claims will be released tomorrow morning. 

Late Morning Review - Mortgage rates continued to hit fresh all-time lows in the latest week in the wake of the pandemic fallout. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell to a survey low of 3.40% with 0.30 in points for the week ended May 1, 2020. The MBA's Market Composite Index, a measure of total mortgage loan application volume, was unchanged. The Refinance Index fell 2% while the Purchase Index rose 6%.

The U.S. job market continued to give off negative numbers that have never been seen in the history of the United States.
ADP Private Payrolls showed a massive 20.236 million jobs lost in April as the pandemic induced shutdown destroyed the labor market in April. Estimates were calling for 20 million private jobs lost with this being the worst ADP report in its history. CNBC reports that the previous record was 834,665 jobs lost in February 2009 at the height of the Great Recession. April's job losses are more than double all the private jobs lost during the Great Recession period.

 

 

Tuesday - May 5  

Average Mortgage Rates - Mortgage News Daily (Not ours)

Type             Rate          Points

30 Yr Fixed     3.27%      0.40

15 Yr Fixed     3.03%      0.40

30 Yr Jumbo   4.40%      1.00

Market Wrap - Stocks rose across the globe overnight and today here in the U.S. on reopening hopes and for a recovery from one of the quickest economic plunges in history. MBS closed flat to lower while Treasury prices declined. The 10-yr yield inched higher to .66%. WTI oil gushed higher to $24.53, +$4.14. The ADP Private Payrolls Report for April will be released tomorrow morning at 8:15 a.m. ET.

Late Morning Review - CoreLogic reports that home prices nationwide, including distressed sales, rose 4.5% from March 2019 to March 2020. On a monthly basis, prices were up 1.3%. CoreLogic's Chief Economist Dr. Frank Nothaft said,“Home prices for March reflect transactions negotiated primarily in the previous two months, prior to the implementation of the shelter-in-place policies. This economic environment will further impact the housing market into the foreseeable future.” From March 2020 to March 2021 prices are only expected to rise by 0.5%.

The coronavirus fallout has impacted the number of house listings for sale in a big way in April as owners held back on inviting potential buyers into their homes. Realtor.com reports that the number of homes that went on sale last month plunged 44.1.% from April 2019, according to its Monthly Housing Trends Report. Realtor.com Chief Economist Danielle Hale said in a statement. "Although we saw sharp drops in new listings, an increase in the time it takes to sell a home, and a flattening of prices in April, May is likely to see some of these metrics worsen."

The easing of lockdowns across the U.S. continues this week which should boost the economy in the coming months. California, the first state to shut down its economy, will begin to reopen this Friday as Governor Newsom has said he is confident that the virus outbreak reached a peak. European nations are slowly lifting shutdown orders. The hopes of a global economic recovery are boosting future demand prospects for oil as prices gush higher. WTI oil is at $23.19/barrel, +$2.77.

 

 

Monday - May 4  

Average Mortgage Rates - Mortgage News Daily  5/04/20 (Not ours)

Type             Rate          Points

30 Yr Fixed     3.22%      0.40

15 Yr Fixed     3.05%      0.40

30 Yr Jumbo   4.40%      1.00

 

Market Wrap - Mortgage Bonds and Treasury prices hovered near unchanged today while stocks seesawed and closed in positive territory with help from the energy and tech sector. The 10-yr yield settled near unchanged at .63%. WTI oil closed at $20.37barrel, +$0.59. Investors and traders await the damage done to the labor market last month with ADP, Weekly Claims and Non-Farm Payrolls later in the week.

 

Late Morning Review - U.S. stocks are following the 'Sell in May and go away' mantra on this just the second day of trading for the month. The Dow Jones Industrial Average has fallen nearly 1,000 points on Friday and Monday after the record numbers in April. Deteriorating U.S.-China relations along with headlines that Berkshire Hathaway shed its airline's holdings are pushing U.S. stocks lower to begin the week. Warren Buffet sold his holdings in the airline sector saying the industry has fundamentally changed due to the coronavirus outbreak. The White House continues to suggest that new tariffs will be placed on China for its handling and the origin of the coronavirus.

Several key labor market reports will be released this week for the month of April with the numbers being severely impacted by the coronavirus pandemic. The ADP Private Payrolls report will be released on Wednesday followed by the government's Jobs Report on Friday. At the moment, forecasts are for 21 million job losses in April with the unemployment rate coming in over 16%. In the past six weeks, 30 million Americans have filed for first-time unemployment benefits with still many more to come in the next few weeks.

 

200501

Forecast for next week -  This coming week brings the most important economic reading for the month -- the April Non-Farm Payrolls or Jobs Report.

March Non-Farm Payrolls saw 701,000 jobs lost after what was the strongest labor market in 50 years in February, before the coronavirus outbreak took place.

Earnings season will continue though most of the big names have already reported. The markets will continue to be impacted by the daily coronavirus headlines, and how several states have begun to reopen and many others are loosening guidelines.

Reports to Watch:

  • On Monday, the ISM Service Index will be released.
  • Thursday's Weekly Initial Jobless Claims will be closely watched for a decline in new claims.
  • ADP Private Payrolls will be released on Wednesday followed by the government's Jobs Report on Friday.

200501 eco

 

 

Friday May 1

Week in Review - Home loan rates continue to hover near all-time lows, but there are three reasons why they should have improved but didn't.

Let's take a look at some of the "Bond-friendly" news from this week that was unable to push mortgage-backed security (MBS) prices higher and home loan rates lower.

  1. Unemployment: The unemployment line is growing. This past week another 3.85 million people filed for unemployment insurance, bringing the total to a staggering 30,000,000 since mid-March. Bonds embrace bad news, and this was bad news.
  2. Core PCE: The Federal Reserve's favorite gauge on consumer inflation, the Core Personal Expenditure Index (PCE), was reported at -0.1%, well beneath expectations. Inflation is like the tide that rises all boats -- when it declines, like we are seeing, rates typically decline as well. That did not happen this week.
  3. Monetary Policy Statement: This past week, the Federal Reserve issued their Monetary Policy Statement and shared that they will continue purchasing MBS "to support smooth market functioning." Bonds and home loan rates were unable to improve further despite the Fed's continued buying commitment.

What does this tell us? Have we reached the "bottom" in rates? Quite possibly.

Stocks ended April up 12%, the best month since the '80s. At the same time, the 10-year Note yield, a benchmark for longer-term rates, has been unable to move convincingly beneath .60%. Both Stocks and the 10-year Note yield are forward-looking and appear, at the moment, to be ignoring the awful economic numbers that continue to roll in.

Bottom line: For those who have an opportunity to lock in a home loan rate, now is an incredible time. It's not yet clear that once our economy starts re-opening that rates will stay near current levels. If this week was any gauge, it is suggesting they won't.

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