October 2018 (What is going on with Interest Rates)

October 2018 (What is going on with Interest Rates)

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:

Newsletter updated weekly:

Wednesday - October 31  


It was a bad month for U.S. Stocks. U.S. markets lost $2.5T during the month as the S&P 500 lost 7%, the worst month for the S&P since August 2011. Fears of rising rates, tariffs, mixed industrial earnings and a tech wreck during the month were a few reasons for the decline. Today, ADP Private Payrolls showed that 227K jobs were created in October, above the 180K while wages and salaries rose 3.1% in Q3, the largest increase in 10 years. The Fannie Mae 30-yr 4% coupon fell by 16bp to end at 100.0, right on support. The Dow gained 241.12 points today, the S&P closed at 2,711.74 while the NASDAQ was up 144.24 points to end at 7,305.89. WTI oil closed at $65.31/barrel, -$0.86, its worst month since July 2016. 10-yr yield 3.15%. Tomorrow's economic data includes Productivity, Weekly Initial Jobless Claims and the ISM Manufacturing Index.


Late Morning Reivew:

ADP reported 227,000 new private jobs were created in October, well above the 180,000 expected as the job market continues to strengthen. It was the highest number in eight months. Mark Zandi, chief economist of Moody's Analytics said, "The only blemish is the struggles small businesses are having filling open job positions." Just recently, the NFIB reported that the Small Business Optimism Index shattered the record previously set 35 years ago. Today's report comes ahead of the government's Jobs Report for October on Friday.

Mortgage rates were unchanged in the latest week after rising for most of 2018. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage remained at 5.11% with an average of 0.50 in points. Within the report, it showed that both the refinance and purchase indexes fell 4% and 2%, respectively. The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.



Tuesday - October 30 


Mortgage Bond prices were weighed down today by rebounding Stocks as we head into two key labor market reports in tomorrow's ADP Report and Friday's Jobs Report, both for October. Today's release of Consumer Confidence showed the index at 137.9, the highest since September 2000. The Fannie Mae 30-yr 4% coupon closed at 100.12, -12bp. Stocks got a relief rally led by chip makers and hopes of a trade deal with China. The Dow surged by 431.72 points to 24,874.64, the S&P was up 41.38 points to 24,874.64 while the NASDAQ closed at 7,161.65, +111.35 points. WTI oil settled at $66.18/barrel, -$0.86. 10-yr yield 3.12%. The ADP Private Payrolls Report will be released at 8:15 a.m. ET. As always, be sure to be tuned in and look to the "Market News" section for the numbers and market reaction.


Late Morning Review:

The S&P Case-Shiller 20-City Index rose 5.5% in August 2018 from August 2017, down from 5.9% in July and below the 5.9% expected. The housing sector has slowed with an ease in home price gains. However, seeing a moderation in home price gains should be viewed as healthy because the previous trend of hot price gains and low wage growth was unsustainable.

Consumer Confidence rose to an 18-year high in October due in part to a strong U.S. economy and solid labor market. The Conference Board reports that its Consumer Confidence Index rose to 137.9 in October, the highest since September 2000. Lynn Franco, Senior Director of Economic Indicators at The Conference Board said, “Consumers’ assessment of present-day conditions remains quite positive, primarily due to strong employment growth. The Expectations Index posted another gain in October, suggesting that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.”

Freddie Mac released its October forecast on Monday revealing that economic growth and home sales slow as mortgage rates rise. Freddie predicts that after a strong 4.2% Gross Domestic Product in the second quarter of 2018, growth will slow to a more normal level of 3% in the third quarter and an average of 3% for all of 2018. On the mortgage rate front, the 30-year fixed-rate is expected to average 4.5% in 2018, rising to 5.1% in 2019 and 5.6% in 2020. Total originations are expected to remain at $1.650 trillion in 2019, matching 2018. Freddie went on to forecast that total home sales will decline marginally to 6.07 million this year and increase 1.8% in 2019 to 6.18 million.

Monday - October 29  

Late Morning Review:

The Fed's favorite inflation gauge, the annual Core PCE, was unchanged in September at 2% while month over month saw a rise of 0.2%, just above the 0.1% expected. Inflation pressures have remained contained and the Federal Reserve will have to look closely at future inflation data ahead of the December Federal Open Market Committee meeting. Remember, the Federal Reserve has forecasted Core PCE to run near current levels through 2021. If that forecast is accurate, long-term rates like mortgages, can't move too high.

Consumer spending rose in September, a good sign that Americans have the confidence in the economy and the job market to continue to spend their hard-earned dollars. Personal Spending rose 0.4% in September, above expectations while August was revised higher. That is a positive sign heading into the holiday shopping season as retailers look to ring up brisk sales in a strong U.S. economy.

U.S. Stocks begin the final days of October higher though the month has seen the Dow, S&P and NASDAQ fall from the all-time highs hit in September. The Dow Jones Industrial Average has declined 6.5% in October, the S&P has fallen 9% while the tech heavy NASDAQ is down 11% due in part to tariff issues, geopolitical headlines, mixed earnings in the industrial and tech sector along with profit taking. However, the U.S. economy remains strong and Stock market corrections, when prices are at all-time highs, are normal and healthy.


Friday - October 26  


Declining Stocks gave a boost to the Bond markets today as the debt markets shrugged off a strong Q3 GDP report. Stocks fell after Alphabet (Google) and Amazon reported disappointing earnings. The Fannie Mae 30-yr 4% coupon closed at 100.31, +16bp. The Dow lost 296.24 points to 24,688.31, the S&P 500 fell by 46.88 points to 2,658.69 while the NASDAQ was down 151.12 points to end the volatile week at 7,167.21. WTI oil settled at $67.59/barrel, +$0.26. 10-yr yield fell to 3.07%. Next week the Fed's favorite inflation gauge, the annual Core PCE, will be released along with ADP and the government's Jobs Report for October. Have a great weekend!

chart 181026


Late Morning Review:

The first read on third-quarter Gross Domestic Product (GDP) rose 3.5% versus the 3.3% though down from the frothy 4.2% seen in the second quarter. The 4.2% is very hard to achieve again given the “ideal” rate is usually between 2.5% and 3%. So, the U.S. economy is running above “ideal” levels.

Within the report, it revealed that consumer spending rose 4%, the strongest since the fourth quarter of 2014. Inflation measures within GDP declined. The PCE price index rose 1.6%, down from 2% in Q2. There was a slowdown in business and residential investments. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation's overall economic health.

With the summer driving season behind us, gasoline prices have edged lower as demand eases a bit. Motor club AAA reports that the average price for a regular gallon of gasoline is at $2.83, down from $2.86 a month ago though up from $2.46 a year ago. Jeanette Casselano, AAA spokesperson says, "Prices are falling despite market concerns about global supply and geopolitical tensions, but that could change later this month ahead of the U.S. announcement of imposed sanctions on Iran.”

Thursday - October 25  

Late Morning Review:

Mortgage delinquencies edged high in September, reports Black Knight, a leading provider of integrated software, data and analytics solutions. Mortgage delinquencies jumped 13% in September, the largest single-month increase since November 2008. Hurricane Florence had an impact during the month with delinquencies rising 38% month-over-month, with more than 6,000 borrowers already missing a payment as a direct result of the storm.

Extreme volatility has gripped the U.S. Stock markets with the closely watched S&P 500 now down nearly 10% from its all-time closing high of 2,929 hit back on September 21. The S&P is now in negative territory for 2018 as traders watch the 2,650 level as support as it closed at 2,656 yesterday. Stocks are trying to rebound this morning. Tariff issues, some sluggish outlooks from corporate America, modest weakness in the manufacturing sector, geopolitical headlines along with profit taking have sent equities lower.

Mortgage rates were essentially unchanged in the latest week after the big rise seen since December 2017. Freddie Mac reports that the 30-year fixed-rate mortgage rose just 1 basis point in the week ended October 25 with an average 0.50 in points and fees. Sam Khater, Freddie Mac’s chief economist, says, “We expect rates to continue to rise, which will put downward pressure on homebuying activity. While higher borrowing costs will keep some people out of the market, buyers with more flexibility could take advantage of the decreased competition."

Wednesday - October 24  


The Dow and S&P fell into negative territory for 2018 in today's bearish environment. Chipmakers fell while investors worry over the latest weak housing data. September New Home Sales fell for the fourth straight month. The Fannie Mae 30-yr 4% coupon gained 22bp to end at 100.19. The Dow lost 608.01 points to 24,583.42, the S&P fell by 84.59 points to 2,656.10 while the NASDAQ was lower by 329.13 points to end at 7,108.40. The Treasury sold $39B 5-yr Notes and was met with tepid demand. WTI oil was last seen at $66.28, near unchanged. 10-yr yield fell to 3.11%. Weekly Initial Jobless Claims and Pending Home Sales will be released tomorrow. The Treasury will sell $31B 7s tomorrow.


Late Morning Review:

New Home Sales fell for the fourth straight month in September due in part to rising mortgage rates and higher home prices. The Commerce Department reported that New Home sales declined 5.5% in September from August to an annual rate of 553,000 units, below the 625,000 expected. August was revised lower to 585,000 from 629,000. September was the lowest number since December 2016. Sales were down 13.2% year over year. Sales declined in the Northeast, South and West with gains seen in the Midwest. Supply of new homes for sale on the market was 7.1 months, above 6 months that is seen as normal. 

The Federal Housing Finance Agency (FHFA) reports that its House Price Index rose 0.3% in August from July, +6.1% from August 2017 to August 2018. The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. The FHFA regulates Fannie Mae, Freddie Mac and the 11 Federal Home Loan Banks. These government-sponsored enterprises provide more than $6.2 trillion in funding for the U.S. mortgage markets and financial institutions.

Mortgage rates held steady in the latest week after the big rise seen in 2018. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate 30-year mortgage was essentially unchanged at 5.11%, near seven-year highs. That rate carries an average 0.52 in points. The MBA went on to report that the refinance index rose 10% while the purchase index was up 2%.

Tuesday - October 23  


Mortgage Bonds were able to improve in the early part of today's trading session but started to decline as Stocks clawed their way back from a big early plunge. The Dow was down by 550 points this morning, only to pare the loss to -10 points but closed 125 points lower. There were no economic reports scheduled for release today. The Fannie Mae 30-yr 4% coupon closed at 99.97, +9bp, session low, after hitting a high of 100.22 early on. The Dow closed at 25,191.43 down 125.98, the S&P fell by 15.19 points to 2,740.69, below its 200-day Moving Average (2,768) while the NASDAQ lost 31.09 points to end the turbulent session at 7,437.53. WTI oil suffered its worst loss in three months due in part to slowing global demand closing at $66.43/barrel, -$2.93. 10-yr yield closed at 3.16% after hitting 3.11% early this morning.


Late Morning Review

U.S. home prices in September rose at their slowest annual pace in six years while supplies posted the first annual gain in almost three years. Redfin reports that home prices increased 2.1% from September 2017 to September 2017 across the 171 metro markets that Redfin tracks, the smallest increase since February 2012. Inventory growth rose a scant 0.2% year over year after many years of declines.

Global risk-off is the trade today as Stock investors fret over Saudi political concerns, trade issues, lingering Italian debt woes, technical factors along with mixed industrial earnings here in the states. The Dow Jones Industrial Average fell nearly 600 points in early trading before recovering a portion of the losses. Despite the sell off in Stocks, the U.S. economy remains strong with a solid labor market. Former Federal Reserve Chairman Alan Greenspan recently said this is the tightest labor market he has ever seen. Mr. Greenspan is 92 years old.

Monday - October 22  


Not much action in the Mortgage Bond market today as prices traded near unchanged in a quiet trading session. The Fannie Mae 30-yr 4% coupon closed at 99.88, unchanged. The Dow closed at 25,317.41 down 126.93 points, the S&P closed at 2,755.88 down 11.90 points while the NASDAQ squeaked out a 19.60 point gain to end at 7,468.62. WTI oil was last seen at $69.17/barre, near unchanged. 10-yr yield 3.19%, near unchanged. There are no economic reports due for release tomorrow.


Late Morning Review

The Mortgage Bankers Association (MBA) reported last week that it is forecasting $1.24 trillion in purchase mortgage originations in 2019, a 4.2% gain from 2018. In the refinance arena, the MBA predicts a 12.4% decline in 2019 to $395 billion. For 2019, the MBA sees total originations to decrease to $1.63 trillion from $1.64 trillion this year. The MBA expects home purchase originations to increase each year from 2019-2021 and should continue to increase past the forecast horizon, as more millennials look to purchase homes.

There are no economic reports due for release today. The markets are looking ahead to Friday's release of Q3 2018 first read on Gross Domestic Product (GDP), which is expected to rise 3.3%. That would be down from the frothy 4.2% recorded in Q2, however, when coupled with the past few quarters, it will be running at 3.0% year over year, a figure we have not seen for some time. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation's overall economic health.

U.S. consumers are expected to spend $119.99 billion online during the holiday shopping season in 2018, which unofficially begins on November 1 and ends on December 31. That would be a 15.5% gain from the $103.88 billion online sales in 2017. A few of the catalysts driving online sales this year is sky-high consumer confidence and the fact that more and more consumers are shopping online for the holiday season. Total retail sales are expected to rise 5.5% in 2018 from 2017 to $719.09 billion.

Friday - October 19  


Mortgage Bonds closed lower today as the Dow and S&P closed with positive gains. The Fannie Mae 30-yr 4% coupon closed at 99.88, -16bp. September Existing Home Sales fell to their lowest level since November 2015. The Dow gained 64.89 points to 25,444.34, the S&P closed near unchanged at 2,767.78 while the NASDAQ was down 36.11 points to end at 7,449.02. WTI oil closed at $69.13/barrel, +$0.47. 10-yr yield 3.19%. Next week, the Treasury will sell $38B 2-yr Note on Tuesday, $39B 5s on Wednesday and $31B 7s on Thursday. The big data point next week is the first read on Q3 2018 GDP. Have a great weekend!

chart 181019

Late Morning Review:

The National Association of REALTORS® reports that Existing Home Sales declined 3.4% in September from August to an annual rate of 5.15 million units versus the 5.30 million expected. All four major regions of the country saw no gains in September. Sales were also lower by 4.1% from a year ago. Inventories increased during the month to a 4.4 month supply from 4.3 in August while the median existing-home price rose 4.2% to $258,100.

Ellie Mae released its Origination Insight Report for September showing that refinance closings in September declined to 29% from 32% as mortgage rates edged higher. In addition purchase closings rose to 71% from 68% while the closing rate for all loans remained at 71.7%, which is the highest since August 2017.

With Halloween right around the corner, retailers will be looking to cash in on the first big shopping spree from consumers ahead of the November-December holiday shopping season. The National Retail Federation (NRF) reports that total 2018 Halloween spending will hit $9 billion, the second-highest number since the Great Recession ended back at the end of 2009. The NRF's Halloween Spending Survey revealed that seven in 10 consumers will celebrate Halloween in 2018 spending an average of nearly $90 per person. Purchases will range from everything to decorations to candy to costumes.



Thursday - October 18


Mortgage Bonds were able to produce gains today but the fizzled out by the close of trading. The Fannie Mae 30-yr 4% coupon closed at 100.0, +9bp. Stocks declined on Saudi Arabia concerns, Italian debt woes along with weak industrial earnings. The Dow lost 327.45 points to 25,379.45, the S&P fell by 40.43 points to 2,768.78 while the NASDAQ was down 157.56 points to end at 7.485.13. WTI oil closed at $68.65/barrel, -$1.10 on increasing U.S. stockpiles. 10-yr yield 3.17%. Tomorrow's economic data is limited to Existing Home Sales

Late Morning Review:

After rising seven out of the last eight weeks, mortgage rates edged lower this week. Freddie Mac reports that the 30-year fixed-rate mortgage fell five basis points this week to 4.85% with an average 0.50 in points and fees. Freddie Mac said, "The modest decline in mortgage rates is a welcome respite from the rapid increase in rates the last few weeks. While the housing market has clearly softened in reaction to the rise in mortgage rates, the economy and consumer sentiment remain very robust and that will sustain purchase demand, particularly in affordable markets and neighborhoods."

Fannie Mae released its October 2018 Economic and Housing Outlook today saying that 2018 and 2019 economic growth outlook is steady as housing falters. The report revealed that economic growth (Gross Domestic Product) is forecasted to increase 3% in 2018 and 2.3% in 2019. After a strong 2018 second quarter, growth will ease a bit due to a deceleration in consumer spending and business investment growth. Fannie went on to say, "Residential fixed investment is expected to have fallen for a third consecutive quarter, with home sales and mortgage demand continuing to soften amid rising interest rates. While the amount of for-sale inventory of existing homes is finally showing some improvement, it remains tight in many areas of the country, especially in the lower-priced tiers."

U.S. Stocks have been on a seesaw rise this week up big one day, down today. China trade issues, European debt woes along with the Federal Reserve signaling more rate hikes ahead were a few of the factors that raped up volatility. The Dow Jones Industrial Average was up nearly 600 points on Tuesday, slightly lower yesterday and down nearly 400 points today. Investors looking to secure some profits have also contributed towards today's losses.



Wednesday - October 17  

Late Morning Reveiw:

Construction of new homes declined in September from August, due in part to a drop in new construction in the South after Hurricane Florence hit North and South Carolina during the month. The Census Bureau reports that Housing Starts fell 5.3% in September from August to an annual rate of 1.201 million units, below the 1.221 million expected.

Total Housing Starts fell 13.7% in the South, the biggest decline since October 2015. Starts rose in the Northeast and West with a decrease in the Midwest. Housing Starts were up 3.7% from September 2017. Single-family starts, which makes up the bulk of residential housing, fell 0.9% from August but rose 4.8% from a year earlier. Multi-dwelling units, 5 or more, fell 12.9% month over month and rose 4.5% year over year.

The Mortgage Bankers Association (MBA) reports that its Market Composite Index, a measure of total mortgage loan application volume, fell 7.1% in the latest week. The MBA also reported that the refinance index fell 9% while the purchase index fell nearly 6%. The MBA went on to report that the 30-yr fixed-rate mortgage rose 5 basis points to 5.10%, the highest since February 2011. The jumbo rate was 4.98%, FHA 4.99%, both near unchanged. Those rates do carry around 0.50 point.


Tuesday - October 16  


Strong corporate earnings coupled with all-time high job openings in August lit a fire under the Stock markets as the Dow blasted off to the tune of +547 points in today's session. Despite the big gains for equities, Mortgage Bond prices were able to produce modest gains while the 10-yr yield was unchanged. The Fannie Mae 30-yr 4% coupon closed at 100.19, +9bp. The Dow surged 547.87 points to 25,798.42, the S&P 500 closed at 2,809.92, +59.13 points, both with +2% gains. The NASDAQ rose nearly 3% to end at 7,645.48, +214.74 points. WTI oil settled at $71.92/barrel, near unchanged. 10-yr yield unchanged at 3.16%. Tomorrow's data includes Housing Starts and Building Permits. The September FOMC minutes will be released at 2:00 p.m. ET.


Late Morning Review:

There was a record number of job openings in August as the economy and labor market continue to strengthen. The Labor Department reports that its JOLTS (Job Opening and Labor Turnover Survey) report saw a record high 7,136,000 job openings at the end of August. The August number exceeds the July number of 7,077,000. Job openings rose in government, construction, health care, financial and professional services.

Homebuilder confidence remained elevated in October due in part to lower lumber prices, which have considerably decreased from record-high levels seen in the summer. The National Association of Home Builders reports that its Housing Market Index rose one point to 68 where any number over 50 indicates that more builders view conditions as good than poor. “Builders are motivated by solid housing demand, fueled by a growing economy and a generational low for unemployment,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.

Strong earnings from Morgan Stanley, Goldman Sachs and United Health are fueling the rise in Stocks this morning after the 4% loss in the S&P 500 last week. Fears of higher borrowing costs along with lingering trade issues fueled the decline as well as plain old profit taking. However, retail giant Walmart lowered its earnings forecast for the year. Netflix is set to report after the close of trading this evening.

Monday - October 15  


Not much action in today's session with many players at the MBA Convention. Weak Retail Sales couldn't lift Bond prices as Mortgage Bonds closed near unchanged. The Fannie Mae 30-yr 4% coupon closed at 100.12, unchanged. Stocks closed lower dragged down by the tech sector. The Dow fell by 89.44 points to 25,250.55, the S&P 500 closed lower by 16.34 points to 2,750.79 while the NASDAQ closed at 7,430.74, -66.15 points. WTI oil was last seen at $71.66/barrel, +$0.32. 10-yr yield 3.15%. The NAHB Housing Market Index will be released tomorrow morning.

Late Morning Review:

Price cuts for listed homes on the markets pushed higher in August and are more prevalent in higher-cost neighborhoods. Trulia reports that in August 2018, 17.2% of U.S. homes listed on the market had a price cut, up from 16.7% a year ago. That was the highest level since 2014. Given the fact that soaring home prices are beginning to ease, and along with this report, the environment may be shifting in the buyers' favor in the coming months. "Buyers should be encouraged by the signals we're seeing in the market," Trulia Housing Economist Felipe Chacon.

Heading into the all-important holiday shopping season, consumers held back on spending in September with big sales drops seen at bars and restaurants. The Commerce Department reports that Retail Sales rose a scant 0.1% in September from August and well below the 0.6% expected. The recent Hurricane Florence that hit the East coast in September could have had an impact on the numbers.

Iconic department store and 126-year old retailer Sears has filed for Chapter 11 bankruptcy amid declining sales and competition from online sellers. Sears was once the largest retailer in the U.S. staring out in Amazon-like fashion when it began selling goods through its famed catalog and delivering items to the consumer. At one point, Sears sold kit homes to the public that were delivered via rail transport and sold 70,000 homes in North America between 1908 and 1940.


Friday - October 12  


Volatility ramped up today in the Stock markets with big swings seen in the Dow which ended bearish week on a high note. The Dow was +400 points in early trading, then it was lower by 50 points only to close with a near 300-point gain. Mortgage Bond prices ended modestly lower. The Fannie Mae 30-yr 4% coupon closed at 100.12, -16bp. The Dow gained 287.16 points to 25,339.99, the S&P 500 closed at 2,767.13, up 39.76 points while the NASDAQ saw a 167.83 gain to end the volatile week at 7,496.89. WTI oil settled at $71.34/barrel, +$0.33. 10-yr yield 3.16%. Next week, earnings season will kick into high gear while Retail Sales, housing and manufacturing data will be released. Have a great weekend!chart 181012


Late Morning Review:

Foreclosure activity continues to edge lower across the U.S. due in part to a strengthening economy and a strong labor market. ATTOM Data Solutions reported this week that foreclosure filings in the third quarter of 2018 fell 6% from the previous quarter and are down 8% from a year ago to the lowest level since the fourth quarter of 2005, a nearly 13-year low. Foreclosure filings encompass default notices, scheduled auctions or bank repossessions.

Earnings season kicked off today and the reports will be closely watched by the investing community for any signs of a slowdown since the tariffs recently took effect. JPMorgan Chase, Wells Fargo and Citigroup reported this morning showing solid numbers from the banking sector. The forecast is that earnings per share growth for S&P 500 companies will increase 21% in the third quarter of 2018, following 24% and 26% growth in the first and second quarters.

After a two-day plunge, U.S. Stocks are rebounding today as investors look for some bargains. The closely watched S&P 500 had lost nearly 7% from its all-time high of 2,929.67 on September 21 until yesterday's close of 2,728.37. The sell-off was due in part to rising yields and fears of higher interest rates. However, the U.S. economy is still strong while the labor market is at or near full employment.




Thursday - October 11 


Stocks plunged once again today on fears of rising yields and as investors take profits with Stocks just below record highs. The tame CPI data helped to push Bond prices higher, yields lower today. The Fannie Mae 30-yr 4% coupon closed at 100.25, +16bp, though below the session highs. The Dow fell by 545.91 points to 25,052.83, losing nearly 1400 points in two days. The S&P lost 57.31 points to 2,728.37 while the NASDAQ was down 92.98 points to close at 7,329.06. WTI oil closed at $70.97/barrel, -$2.20. 10-yr yield 3.14%. Data tomorrow is limited to preliminary October Consumer Sentiment.

Late Morning Review:

The consumer inflation reading Consumer Price index (CPI) rose 0.1% in September from August while the Core CPI also increased 0.1%, both below the 0.2% expected. Lower energy costs pushed prices lower. The annual CPI fell to 2.3% from 2.7% in August, down from 2.9% in July. The Core remained at 2.2% year over year. This report will be dissected by the Fed as they ponder the pace in which they will increase the short-term Fed Funds rate.

Mortgage rates continued to push higher this week hitting their highest level since April 11, 2011. Freddie Mac reports that the 30-year fixed-rate mortgage rose 19 basis points to 4.90% with an average 0.5 in points and fees. Freddie Mac says, "While the monthly payment remains affordable due to the still low mortgage rate environment, the primary hurdle for many borrowers today is the down payment and that is the reason home sales have decreased in many high-priced markets."

Applications to purchase new homes fell in September from August but showed a solid increase year over year. The Mortgage Bankers Association reports that mortgage applications to purchase new homes increased by 8.2% from September 2017 compared to September 2018 while there was a 9% decrease month over month from August to September. Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting said, "Housing demand is still strong even as mortgage rates increase, and as a result, we're still forecasting for modest growth in purchase origination volume in 2018."

COI 181011


Wednesday - October 10  

Late Morning Review:

Housing sentiment eased a bit in September due in part to higher home prices and interest rates, reports Fannie Mae. Fannie Mae released its Home Purchase Sentiment for September falling 0.3 points to 87.7, after the increase seen in August. The report shows an increase of those surveyed that now is a good to time to buy a home, while those who said it is a good time to sell was unchanged. In addition, the net share who expect mortgage rates to go down over the next 12 months fell 4 percentage points.

The September Producer Price Index rose for the first time in three months up 0.2%, in line with estimates and up from the -0.1% in August. The Core PPI was also in line at 0.2% month over month. Annually, PPI rose 2.6% from 2.8% in August, while the Core was up 2.5% from 2.3%. The Producer Price Index measures inflation on a wholesale basis. The more closely watched inflation reading Consumer Price Index will be released on Thursday.

Mortgage rates hit their highest level since February 2011, reports the Mortgage Bankers Association (MBA). The recent rise is attributed to a strengthening economy, a strong labor market along with sky-high consumer confidence. The MBA reports that the 30-year fixed-rate conforming mortgage rose to 5.05% in the latest week with an average 0.51 in points. The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.


Tuesday - October 9  


Mortgage Bonds were able to produce gains today after the steep decline that took place over the past week. Lower Stock prices, the New York Fed's tame inflation outlook and the forecast of lower global growth from the IMF helped to push Bond prices higher today. Yields edged lower though they remain elevated from recent levels. The Fannie Mae 30-yr 4% coupon closed at 100.19, +22bp. The losses in Stocks were modest as they somewhat shrugged off the IMF forecast. The Dow lost a meager 56.21 points to 26,430.57, the S&P fell by 4.09 points to 2,880.34 while the NASDAQ closed near unchanged at 7,738.01. WTI oil settled at $74.96/barrel, +$0.67. 10-yr yield 3.20%. Tomorrow, the Treasury will sell $36B 3-yr Notes, results at 11:30 a.m. ET and will sell $23B 10s, results at 1:00 p.m. ET ... a double dose of added supply. The Producer Price Index will also be released tomorrow.

Late Morning Review:

Small business optimism continues to hover near all-time highs with employment solid, owners bulked up on inventories while compensation increases set a new record. The NFIB Small Business Optimism Index edged slightly lower to107.9 in September, the third highest ever and just below the all-time of 108.8 hit in August. "This is the longest streak of small business optimism in history, evidence that tax cuts and regulatory rollbacks are paying off for the economy as a whole,” said NFIB President and CEO Juanita D. Duggan. “Our members say that business is booming and prospects continue to look bright.”

Mortgage delinquencies continued to edge lower in July as higher housing prices along with a strong labor market and economy lift all boats. CoreLogic reports that the percentage of mortgages were delinquent by at least 30 days or more was 4.1% in July 2018, down from 4.7% in July 2017. CoreLogic went on to say, "The 30-plus delinquency rate, the most comprehensive measure of mortgage performance, is near a 10-year low."

Mortgage credit availability decreased in September due to a tightening in the government index offset a gain in conventional credit availability. The Mortgage Bankers Association reports that its Mortgage Credit Availability Index (MCAI) edged lower by 0.8% in September to 182.1. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

Friday - October 5  


A solid jobs report drove Bond prices lower today while Stocks fell on the weight of higher yields. The September Jobs Report missed on the headline number but strong components were seen within the data. The Fannie Mae 30-yr 4% coupon closed at 99.97, -28bp. The Dow lost 180.43 points to 26,447.05, the S&P 500 fell by 16.04 points to 2,885.57, while the NASDAQ closed at 7,788.44, -91.06 points. WTI oil was last seen at $74.29/barrel, near unchanged. 10-yr yield 3.23%. Next week the big news will be the inflation reading Consumer Price Index. The Bond markets are closed Monday in observance of Columbus Day. Our offices are also closed. The Stock markets are open and will undergo normal trading hours. Have a great weekend!

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Late Morning Review:

And the survey says ... 134,000 new jobs created in September, below the 184,000 expected. However, the Labor Department said, "Hurricane Florence affected parts of the East Coast during the September reference periods for the establishment and household surveys." Average hourly earnings rose 0.3% from August to September, in line with estimates, while annual wage growth slipped to 2.8% from 2.9%. So, fears of higher wage growth were walked back a bit. The report was solid overall. July and August were revised higher by a total of 87,000, while the Unemployment Rate fell to 3.7%, the lowest reading since December 1969! After the job revisions, job gains have averaged 190,000 per month over the last three months.

Gas prices at the pumps have been on a steady rise over the past month as strengthening global economies see a pick up in demand for oil. As oil prices rise, gas prices usually follow them higher. The national average price for a regular gallon if gasoline rose to $2.91, the highest price since June. Some states are calling for a repeal in gas taxes that were enacted over the past few years.

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Thursday - October 4  


Mortgage Bonds closed slightly lower today after the steep plunge that occurred in yesterday's session. There were no earth shattering geopolitical headlines today. The Fannie Mae 30-yr 4% coupon closed at 100.25, -9bp. Stocks closed lower as higher Bond yields produced sellers. If rates continue to rise it could usher in higher borrowing costs for corporations, which could eat into profits and push Stock prices lower. The Dow lost 209.91 points to 26,627.48, the S&P fell by 23.90 points to 2,901.61 while the NASDAQ was down 145.57 points to end at 7,879.51. The three indexes did close above the session lows. WTI oil was last seen at $74.58/barrel, -$1.83. 10-yr yield 3.18%. The September Jobs Report will be released at 8:30 a.m. ET. Look to the "Market News" section of the Mortgage Market Guide for the numbers and the markets reaction.

Late Morning Review:

Mortgage rates were unchanged early this week, reports Freddie Mac though they did edge higher in the past few days. Freddie Mac reports that the 30-year fixed-rate mortgage was at 4.71% with an average 0.40 in points and fees. Rates have been trending higher in 2018 as the U.S. economy strengthens and employment hiring has been robust. Freddie Mac says that with mortgage rates expected to track higher, it’s going to be a challenge for the housing market to regain some of the momentum it has lost in the past six months.

With the holiday shopping season right around the corner, the National Retail Federation (NRF) has released its sales forecast for the November-December period. The NRF expects sales to grow between 4.3% and 4.8% from the last season total of $717.45 billion to $720.89 billion. The percentage is above the average annual increase of 3.9% over the past five years. “Our forecast reflects the overall strength of the industry,” NRF President and CEO Matthew Shay said. “Thanks to a healthy economy and strong consumer confidence, we believe that this holiday season will continue to reflect the growth we’ve seen over the past year."

The government Jobs Report for September will be released on Friday morning where it is expected that U.S. employers added 184,000 new workers during the month. The jobs market continues to strengthen along with a robust economy. Most analysts feel that the labor market is at or just near full employment. Weekly Initial Jobless Claims were reported this morning and hover near 50-year lows.



Wednesday - October 3  


Mortgage Bond prices fell off a cliff today due in part to strong economic data, rising Stocks prices and as Fed's Evans said the economy is running on all cylinder. The Fannie Mae 30-yr 4% coupon closed at 100.34, -62bp. Both ADP and ISM Services produced solid gains. The Dow closed at a record high 26,828.39, +54.45 points. The S&P closed at 2,925.51, up 2.08 points while the NASDAQ closed at 8,025.08, +25.53 points. WTI oil was last seen at $76.22/barrel, +$0.99. Tomorrow's economic data is limited to Weekly Initial Jobless Claims.

Late Morning Review:

The service sector of the U.S. economy surged in September as the underlying index hit an all-time high due to respondents' positive outlook on business and the current and future U.S. economy. The ISM Service Index hit 61.6 last month, the highest since the index was created in 2008, as it grew in September for the 104th consecutive month. The two key components of the report are new orders and employment, both of which increased during the month.

The labor market continues to strengthen as evidenced by the strong private payrolls report last month. ADP Private Payrolls rose by 230,000 in September, well above the 184,000 expected, while August was revised higher to 168,000 from 163,000. The service sector led the way with 184,000 jobs while the manufacturing sector added just 7,000, the lowest number in a year. "The labor market continues to impress," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "Both the goods and services sectors soared. The professional and business services industry and construction served as key engines of growth."

In a surprising turn of events, the owners of the remaining assets of Toys R Us are looking to restart the iconic brand loved over the years by children and many adults over the years. The 70 year old retailer shut down in June, costing 31,000 jobs across the country. The details of when we may see stores reopen have not been announced. Hopefully, we will hear something before the holiday shopping season.


Tuesday - October 2  


Not much action for Mortgage Bonds today though they did manage modest gains as the Dow hit a record high close while the S&P and NASDAQ saw small losses. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 100.97, +9bp. The Dow closed at 26,773.94 up 122.73 points, the S&P closed at 2,923.43, -1.16 points while the NASDAQ closed at 7999.54, -37.75 points. WTI oil closed at $75.23, near unchanged. Tomorrow's data includes ISM Services and the first of two key labor market reports, the ADP Private Payrolls Report for September.

Late Morning Review:

Home price gains slowed a bit in August but still produced solid increases year over year due in part to a strong job market and economy. CoreLogic reports that home prices, including distressed sales, rose 5.5% from August 2017 to August 2018. On a monthly basis, prices were up 0.1% from July to August. CoreLogic’s chief economist Frank Nothaft said, “National appreciation in August was the slowest in nearly two years, and we expect appreciation to slow further in the coming year.” CoreLogic is forecasting a 4.7% increase in home prices from August 2018 to August 2019.

Household debt across the U.S. reached a new peak in the second quarter of 2018 and has risen for the 16th straight quarter. The New York Federal Reserve reports that household debt increased by $82 billion to $13.28 trillion in the second quarter of 2018. Overall household debt is now 19.2% above the post-financial-crisis trough reached during the second quarter of 2013. Mortgage balances, the largest component of household debt, rose by $60 billion to $9 trillion. Student loan debt was essentially unchanged at $1.41 trillion, auto loan balances rose $9 billion to $1.24 trillion while credit card debt rose $14 billion to $829 billion.

Bank of America Merrill Lynch reported on Monday that existing home sales, the largest segment of the housing market, may have peaked and have failed to break above the 5.72 million annual units hit in November of 2017. The report said that rising mortgage rates and higher home prices are reasons for the decline. The latest reading on existing home sales for August was 5.34 million units.

Monday - October 1  


Mortgage Bonds hovered near unchanged during today's session despite the rally in the Dow and the S&P. The Fannie Mae 30-yr 4% coupon closed at 100.88, near unchanged. The new USMCA trade deal lifted Stocks today though the NASDAQ closed lower as tech shares slid. The Dow gained 192.90 points to 26,651.21, the S&P 500 rose 10.61 points to 2,924.59 while the NASDAQ fell by 9.05 points to end at 8,037.30. WTI oil closed at $75.30/barrel, +$2.30 due in part to sanctions that are shrinking Iranian crude exports and as North American trade tensions ease, reports CNBC. 10-yr yield 3.08%. There are no economic reports due for release tomorrow.

Late Morning Review:

The U.S., Canada and Mexico struck a new trade deal called the U.S.-Mexico-Canada-Agreement (USMCA), which replaces NAFTA, last night. As a result, U.S. Stocks are surging and hovering near all-time record highs. The $1.2 trillion open trade zone agreement was on the brink of collapse recently, until the three countries agreed on the deal last night. The U.S. is still trying to hammer out trade issues with China where talks are still ongoing.

Real estate brokerage firm Redfin reports that the share of homes selling above list price just dropped below 2016 levels. For the week ended September 25, Redfin reports that 22.9% of homes sold above their asking price. For the same period last year, 25.5% of homes sold above their asking price. Redfin went on to say that the share of homes that sold above list hasn't been this low since 2016 and the number has been declining since its peak of 29% this past June.

Two key labor market reports will be released this week in Wednesday's ADP Private Payrolls Report and Friday's Non-Farm Payrolls Report. The labor market has been a source of strength for the U.S. economy in recent years and has kept up a robust pace in 2018. The recent report for August showed payroll gains of 201,000 while wage growth hit 2.9%, the largest annual increase since 2009. Total unemployment, measured by the U6 number, hit 7.4%, the lowest since April 2001.

9/28/18 Chart





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