May 2019 ( What is going on with Interest Rates?

May 2019 ( 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. 

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Newsletter updated weekly:

Friday May 31

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Next week we will see the most important economic report for the month -- the May Jobs Report. Outside of February's soft reading, the labor market has been strong throughout 2019. 

On Wednesday, we may get an advanced look on the Jobs Report by way of the ADP Payroll number.

Right now, outside of high impact reports like the Jobs Report, economic data is taking a backseat to the trade issues between the US and China, as well as the geopolitical headlines out of Washington. 

If the Jobs Report reading is a disappointment and Stocks continue to decline, we will likely see increased chatter of a Fed rate cut in 2019. 

History has shown the first Fed rate cut comes 6 months after the last rate hike. The Fed last hiked rates in Dec 2018. We shall what happens next week. 

Reports to watch:

  • From the manufacturing sector, the Chicago PMI will be released on Monday along with the ISM National Manufacturing Index.
  • The ADP Private Payrolls Report will be delivered on Wednesday along with the ISM Non-Manufacturing Index.
  • Weekly Initial Jobless Claims and Productivity will be announced on Thursday.
  • That brings us to Friday's Jobs Report for May which includes Non-Farm Payrolls, the Unemployment Rate, Hourly Earnings, and the Average Workweek.

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Week in Review -  "Sell in May and go away"... an old Wall Street investment strategy which suggests not owning Stocks during the Summer months. 

That investment strategy certainly worked this past May as Stocks declined each week in response to escalating US/China tensions, weakening global economic reports, and increased fears of a US recession. 

When Stocks fall in price, typically rates fall as well. And this past week we watched the 10-year Note yield decline to 2.14% -- a 20-month low. However, home loan rates, which did decline slightly this past week, didn't experience the same sharp drop as the 10-year Note yield. 

Why the disconnect? Why did the 10-year Note yield drop so much but home loan rates didn't? 

Home loan rates are driven by the trading activity of mortgage-backed securities, and not how the 10-year Note yield moves. 

When there is global unrest like we have seen this past week, investors around the globe look to park their money and investments into the "safe-haven" of the US Dollar by purchasing the US 10-year Note. Hence the reason for the larger decline in 10-year Note versus mortgage backed-securities and home loan rates. 

Bottom line: Home loan rates may continue to drift lower if the US/China trade turmoil goes unresolved or escalates further.

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


MARKET WRAP - Mortgage Bonds were able to close above the 2019 highs of $103.09 for the benchmark Fannie Mae 30-yr finishing the week and month on a high note closing at $103.22 with solid gains. The boost came from plunging Stocks as the sell in May and go away trade dominated the month. The S&P 500 lost 6.5% in May due in part to the trade war between the US and China. Yesterday's new tariffs on Mexico added fuel to the fire. The 10-yr yield fell to 2.13%. WTI oil settled at $53.48/barrel, -$3.11 on demand concerns. Next week the markets will continue to hang on to the headlines surrounding trade issues between the US/China and the US/Mexico. The May Jobs Report will be released on Friday.  Have a great weekend!

Late Morning Review - The fight-to-safety rages on this morning as global yields decline sharply with the German 10-year Bund yield at its lowest level ever ... -0.22%. The bond buying was touched off by President Trump's announcement that the US will impose tariffs on Mexican goods coming into the US until Mexico applies stricter measures to halt illegal immigration. Throw in the escalating China trade war, slowing global growth and increased fears of a US recession and you have investors across the globe searching for yield ... which can be found here in the US.

US stocks are declining as "sell in May and go away" continues on this last day of the month due to the new and ongoing trade wars, slowing global growth along with recession fears here in the US. The closely watched S&P 500 has lost 5.3% in May, and as of this moment, is showing a poor technical signal by opening beneath its 200-day moving average. In the same time, the yield on the US Treasury Note has gone from 2.50% to the current level of 2.17%.

Inflation remained subdued in April as the annual Core PCE came in at 1.6%, well below the Fed's target of 2%. Inflation around the globe also continues to decline. It would not surprise us to see long-term rates move even lower with the 10-year Note showing something in the 1%-handle yield in months ahead. The report went on to reveal that personal incomes and spending were better than expected. The low inflation environment will hold interest rates low for the foreseeable future.

Thursday - May 30  

MARKET WRAP - Not much movement for mortgage bonds today as they traded in a tight range while stocks squeaked out modest gains. The Fannie Mae 30-yr 4% coupon closed below resistance at the 2019 high of $103.09 settling at $103.0, +9bp. The 10-yr yield closed at 2.21%. WTI oil settled at $56.40/barrel, -$2.40 on demand fears. The Core PCE will be released tomorrow morning. 

Late Morning Review - Pending home sales declined by 1.5% in April from March while also seeing a drop year-over-year, marking the 16th straight month of annual declines. Pending home sales occur when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. The only sector across the country that showed gains was the Midwest. Lawrence Yun, NAR chief economist said, "Though the latest monthly figure shows a mild decline in contract signings, mortgage applications and consumer confidence have been steadily rising. It’s inevitable for sales to turn higher in a few months."

Economic growth remained strong in the first quarter of 2019 though corporate profits edged lower. Gross Domestic Product (GDP) rose 3.1% in Q1 2019, just below the first read of 3.2%. Within the numbers it showed that consumer spending rose 1.3% while inflation rose at a 1.4% pace year-over-year, well below the Fed's target range of 2%. GDP measures the value of the goods and services produced within the US.

Americans filing for first-time unemployment benefits continue to near lows seen in the late 1960s as the labor market continues to strengthen. Weekly Initial Jobless Claims rose by 215,000 in the latest week, up modestly from the prior week. The four-week moving average of claims, which irons out seasonal abnormalities, fell 3,750 to 216,750.

Tuesday - May 28  

Late Morning Review - Home price gains continued to cool in March and are moving down to more normal historical levels. The S&P Case-Shiller 20-City Home Price Index saw a 2.7% annual gain, down from the 3% annually recorded in February and well below the near-7% gains seen year-over-year in March 2018. “Home price gains continue to slow,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The patterns seen in the last year or more continue: year-over-year price gains in most cities are consistently shrinking. Double-digit annual gains have vanished." The National Index rose 3.7% annually in March from 3.9% in February.

Americans recently surveyed across the nation respond that they feel the economy should continue to grow at a solid pace in the short-term which will continue to boost consumer spending. The Conference Board reports that its Consumer Confidence Index rose to 134.1 in May from 129.2 in April. The report went on to reveal that both business and employment expectations improved, though income prospects were mixed. “Consumer Confidence posted another gain in May and is now back to levels seen last Fall when the Index was hovering near 18-year highs,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.



Thursday - May 23

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All US markets will be closed on Monday in observance of Memorial Day, a day to remember those who died in active military service. 

The holiday-shortened week will have readings on inflation and economic growth, with the Fed's favored inflation gauge, Core PCE, as well as the second reading on first quarter Gross Domestic Product.

The economic news being reported may take a back seat to the US/China trade uncertainty which continues to hold financial markets captive. 

How the US/China trade story goes -- so will Stocks and home loan rates. If we see positive headlines and a resolution, both will go higher. The opposite is also true. 

Reports to watch:

  • The S&P Case-Shiller 20-City Home Price Index will be released on Tuesday followed by Pending Home Sales on Thursday.
  • Consumer Confidence will be delivered on Tuesday with Consumer Sentiment on Friday.
  • As usual, Weekly Initial Jobless Claims will be released on Thursday along with Gross Domestic Product.
  • And last but not least, the Fed's favorite inflation gauge, the Core PCE will be announced on Friday along with Personal Income and Spending.

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The ongoing and unresolved US/China trade turmoil is the biggest story to follow right now. The uncertainty and negative headlines associated with the negotiations have pushed Stocks lower for most of May, with Bonds and home loan rates being the beneficiary. 

We would like to think that the talks over the past year or so will bring forth a positive agreement -- but it's unclear whether this will come to pass. The next round of talks is scheduled for June 28-29 at the G20 meeting, so there is likely to be no progress before this time. If that is the case, US interest rates will remain near multi-year lows. 

One thing's for sure...the Fed will not be hiking rates anytime soon if this trade turmoil goes unresolved or escalates. In fact, there's actually a chance we see a Fed rate cut in 2019 -- especially if the US economy reacts poorly to the US/China trade dispute. 

It's important to understand that this story, while very negative and uncertain at the moment, could change very quickly. If a positive resolution comes to pass, we should expect Stocks to reclaim all of their recent losses and more -- all at the expense of bonds and home loan rates. 

Bottom line: Home loan rates are back near 16-month lows and coupled with the current strong US economic backdrop, it is an incredible moment to either refinance or purchase a home. 

MARKET WRAP - Mortgage Bonds were finally able to squeak out some gains today as Stocks plunged on trade uncertainty. Treasury gains outsized the gains in Mortgage Bonds as investors rushed into the ultra safe haven trade of Treasuries. WTI oil settled at $57.83/barrel, -$3.59 as trade tensions dampen demand outlook and on surging crude supplies. 10-yr yield falls to 2.30%. The only economic report out tomorrow is durable orders. Float brand-new files or long-term files with a locking bias for files closing within 30 days. The Bond markets close early tomorrow at 2:00 p.m. ET. Stocks close normal time at 4:00 p.m. ET.

Late Morning Review - Sales of new homes declined from March to April though the numbers in March were revised higher. The Census Bureau reports that new home sales fell nearly 7% in April from March though were above the 665,000 expected. Sales rose by 7% from April 2018 to April 2019. Sales losses were seen across the country except for the Northeast, which saw sold gains of 11.5%. However, demand for housing will remain supported by low mortgage rates along with a strong job market. Inventories of homes for sale on the market was 5.9 months while the median new home price rose 8.8% from a year ago to $324,200 in April.

Mortgage rates remained near 16-month lows this week as bond prices rose. Yields pushed lower due in part to the uncertainty surrounding the US/China trade issues. Freddie Mac reports that the 30-year fixed-rate mortgage is 4.06% this week with an average 0.5 in points and fees. Freddie Mac said, "The drop in mortgage rates is causing purchase demand to rise and the mix of demand is skewing to the higher end as more affluent consumers are typically more responsive to declines in rates."

The New York Fed recently revealed a survey that showed 65% of those surveyed think it is a good time to purchase a home. The survey went on to reveal that households expect home prices to rise at a somewhat slower pace relative to last year. The New York Fed went on to say that renters perceive that access to mortgage credit has loosened somewhat, after tightening in 2018.


Wednesday - May 22  

MARKET WRAP - Mortgage Bonds ended near unchanged to slightly higher today supported by falling Stock prices. Negative trade headlines the cause behind the down tick for stocks. The Fannie Mae 4% 30-yr coupon once again failed to overtake resistance at $102.84 closing at $102.78. 10-yr yield fell to 2.38%. WTI oil settled at $61.40/barrel, -$1.73. Weekly Claims and New Home sales will be released tomorrow. Be mindful that the trade uncertainty is Bond supportive, but that could change quickly despite seemingly no near-term solution in sight.

Late Morning Review - Low mortgage rates along with seasonal increases in home sales continued to boost prepayments in April, reports Black Knight. After a slow start to the year, the national delinquency rate declined in April by 5% from March to 3.47%, the lowest level since record keeping began in 2000. The report went on to reveal that serious delinquencies, loans 90 or more days past due, but not yet in foreclosure, fell to 474,000, a 12-year low and a 124,000 year-over-year decline.

Mortgage rates continued to decline in the latest week which led to a jump in refinancing activity, reports the Mortgage Bankers Association (MBA). The 30-year fixed-rate mortgage fell to 4.33% from 4.4% for the week ending May 17, 2019 with an average 0.43 in points. The MBA also reports that its Market Composite Index, a measure of total mortgage loan application volume, rose 2.4%. The Refinance Index jumped 8% while the Purchase Index declined by 2%. Those potential borrowers who remain on the fence may look to take advantage of the low rate environment in the near future.

The MBA also recently reported that April mortgage applications for new home purchases surged nearly 16% from a year ago. On a month-over-month basis, applications rose 3%. The MBA said that it estimates that new single-family home sales were at an annual rate of 722,000 units in April 2019. "There was a healthy increase in new home purchase activity in April, boosted by the strong economic and employment conditions seen in the first quarter of 2019," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.


Tuesday - May 21

MARKET NEWS - Mortgage Bonds traded in a tight range today closing nearly midway between resistance and support at the 50-day Moving Average. Prices were capped by rising stocks on easing US/China trade headlines. The yield on the 10-yr T Note inched higher to 2.43%. The S&P 500 closed at 2,864, above 2,848 which we pointed out as a key level i n recent weeks. WTI oil settled at $63.07/barrel, unchanged. The minutes from the May 1 Fed meeting will be released tomorrow afternoon at 2:00 p.m. ET but we don't see much of a change from recent rhetoric from the Fed. There are no major economic releases tomorrow.

Late Morning Review - The National Association of REALTORS® (NAR) reports that existing-home sales declined 0.4% in April from March to an annual rate of 5.19 million units versus the 5.35 million expected. Sales were lower by 4.4% from April 2018 to April 2019. Sales declined in the Northeast and South with gains seen in the West and flat sales in the Midwest. Inventories of homes for sale on the market continued to rise with a 4.2-month supply, up from 3.8 months in March.

Lawrence Yun, NAR’s chief economist, said he is not overly concerned about the 0.4% dip in sales and expects moderate growth very soon. “First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” he said. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

Some household debt numbers from the New York Fed: Total household debt rose for the 19th consecutive quarter in 2019 by $124 billion to $13.67 trillion. Mortgage balances rose by $120 billion, to $9.2 trillion. Mortgage originations declined to $344 billion from $401 billion, the lowest level seen since the third quarter of 2014. Outstanding student loan debt increased by $29 billion, to $1.49 trillion. Newly originated auto loans totaled $139 billion, continuing a long-running growth trend. Credit card balances fell slightly, to $848 billion from $870 billion.

Monday - May 20

MARKET WRAP - Disappointing day for Bonds. Despite a sell off in Stocks, we are seeing another Red Candle, which tell us there is selling momentum throughout the day. The S&P 500 closed lower to 2,840, below the key 2,848 level on the Huawei fallout. WTI oil settled at $63.13/barrel, +$0.37. 

Late Morning Review - Fannie Mae released its May Economic & Housing Outlook last week saying that strong demand along with improved affordability points to a rebound in the housing market in 2019. Fannie Mae went on to say, "Pending sales and purchase mortgage applications are trending upward, while the lower mortgage rate environment and builders’ renewed focus on modestly sized homes are likely to support affordability."

On the economic front, Fannie Mae is forecasting full-year 2019 growth at 2.3%, after the strong, though likely unsustainable first-quarter growth of 3.2%. Fannie Mae does not expect the Federal Reserve to raise interest rates within its two-year horizon due to low inflation, the Fed's recent patient stance on monetary policy and a lack of optimism of a growth-inducing trade deal with China.

From Fannie Mae's website: Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. It partners with lenders to create housing opportunities for families across the country. Fannie Mae drives positive changes in housing finance to make the home buying process easier, while reducing costs and risk.

Friday - May 17


Next Week

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With little major economic data and the end of earnings season in the upcoming week, all attention will be focused on the aforementioned US/China trade negotiations. 

The week will be holiday-shortened with the Bond markets closing early at 2pm ET on Friday heading into the unofficial kickoff of summer, Memorial Day weekend. The Stock markets will undergo a full session on Friday.

This coming week, the markets will see readings on New and Existing Home Sales as well as Durable Orders, which are items that have a lifespan over 4 years. 

The Minutes from the May 1 Fed meeting will be released on Wednesday afternoon at 2:00 p.m. ET, and could always carry a surprise comment and thereby surprise reaction. 

Reports to watch:

  • Existing Home Sales will be released on Tuesday followed by New Home Sales on Thursday.
  • Weekly Initial Jobless Claims will also be released on Thursday, with Durable Orders on Friday.

Week in Review -

The biggest story in the financial markets and around the globe is the ongoing US/China trade negotiations. 

At the moment, there is no resolution and it appears there will be no resolution for at least several weeks as the US and China are not expected to talk again until the G-20 Summit June 28-29. 

The uncertainty surrounding the talks helped home loan rates improve this week, and are at lows seen in January 2018. 

The US, China and the entire globe would benefit from a deal and should it happen, Stocks will likely recover all of their recent losses and then some. At the same time, should the story drag on and escalate as higher tariffs are instituted -- it would have a negative effect on global economies and Stocks may suffer as home loan rates improve further. 

Looking at the US economy, it continues to do very well. Walmart posted incredibly strong corporate earnings this past week. Seeing they have $500B in annual sales -- if Walmart is doing well, the US economy is doing well. 

In housing news, April Housing Starts and Building Permits came in higher than expectations, providing further evidence of confidence in the sector. 

Bottom line: The backdrop to housing could not be much better. The economy is strong and home loan rates are historically low. Today presents an incredible window to consider buying or refinancing a home.

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



MARKET WRAP - Bond prices closed near unchanged today while yields also closed near unchanged in a lackluster session. Stocks closed lower on lingering trade issues. 10-yr yield ended at 2.39%. WTI oil settled at $62.73/barrel near unchanged. Continue floating files and let's see how prices continue to behave near 2019 price highs.Trade headlines can come at any moment either positive or negative. Be on guard as Bond prices can fall sharply from these lofty levels. Next week's economic calendar is on the light side with trade headlines most likely dictating the path of the markets. Have a great weekend!

Late Morning Review - Americans grew more upbeat on the US economy in early May after solid growth was recorded in the first quarter of 2019 along with a strong labor market. The Consumer Sentiment Index in early May rose to 102.4 this month, the highest level in 15 years though the survey was conducted before the recent negative headlines from the US - China trade wars. The survey went on to say that consumers viewed prospects for the overall economy much more favorably, with the economic outlook for the near and longer term reaching their highest level since 2004.

Due to the low mortgage rate environment, Freddie Mac says the refinance share of the market will increase from 30% of all originations in 2018 to 33% by the end of the year. Freddie also says that it sees house price growth at 3.6% in 2019 moderating to 2.6% in 2020. On the origination front, Freddie Mac sees total originations at 1.7 trillion in 2019, up from 1.6 trillion in 2018. In conclusion, the combined positive impact of low mortgage rates, a strong labor market, low unemployment, and modest wage growth supports Freddie Mac's forecast for a steadily growing housing market in 2019.

Thursday - May 16

MARKET WRAP - Rallying stocks weighed on Mortgage Bonds in today's session as the benchmark Fannie Mae 30-yr 4% coupon closed just below resistance at $102.84. Stocks rose on solid earnings along with better-than-expected economic data. The yield on the 10-yr T Note settled at 2.40%. WTI oil closed at $62.99/barrel, +$0.97. Tomorrow's data is limited to preliminary Consumer Sentiment for May.  With stocks looking like they want to move higher and the S&P well above a key resistance level of 2,848, closing at 2,876, it could come at the expense of Bonds, which could fall sharply from these lofty levels. 

Late Morning Review - New residential home building increased in April as the low mortgage rate environment is helping to fuel a rebound in the housing market. The Census Bureau reports that housing starts rose 5.7% in April from March to an annual rate of 1.235 million units, above the 1.2 million expected, while March was revised higher to 1.168 million from 1.1239 million. However, starts declined 2.5% from a year ago. Single-family starts jumped 6.2% monthly from March, though down 4.3% annually. Multi-dwellings, or five or more units, saw a 2.3% increase month-over-month, up 1.4% year-over-year.

Uncertainty surrounding the US/China trade issues along with low inflation have pushed mortgage rates to lows seen in January 2018 this week, reports Freddie Mac. The 30-yr fixed-rate mortgage declined to 4.07% this week from 4.10% last week with an average 0.5 in points and fees. Freddie Mac said, "While signals from the financial markets are flashing caution signs, the real economy remains on solid ground with steady job growth and five-decade low unemployment rates, which will drive up home sales this summer."

Americans filing for first-time unemployment benefits continue to hover near 50-year lows in the latest week as the labor market runs on all cylinders. Weekly Initial Jobless Claims fell by 16,000 in the latest week to 212,000 and show no sign of increasing in the foreseeable future. The four-week moving average of claims, which strips out seasonal abnormalities, rose by 4,750 to 225,000. Those who are already collecting benefits fell by 28,000 to 1.66 million.


Wednesday - May 15  

MARKET WRAP - Mortgage Bonds were able to close with gains today trading in an extremely tight range, despite rallying stock prices. The benchmark 4% 30-yr Fannie Mae coupon closed above resistance at $102.84, ending at $102.91. The closely watched S&P 500 closed above a key resistance level of 2,848 finishing at 2,850. That 2,848 level was pointed out by MMG's Chief Market Analyst Bill Bodnar in this morning's MMG Stock Talk minute audio, which was sent via our 9:00 a.m. ET Bond text message. Trade optimism fueled Stocks higher. 10-yr yield settled at 2.37%. WTI oil closed at $62.06/barrel, +$0.28. Continue floating all files and let's see how prices behave near 2019 price highs. As always, start lining up folks closing within 30 to 45 days to lock for any further positive trade comments can shift sentiment and Bonds can fall sharply from these lofty levels.

Late Morning Review - Home builder confidence jumped in May from April fueled by improved demand and ongoing low overall supply, reports the National Association of Home Builders (NAHB). The NAHB's Housing Market Index rose to 66 in May, above the 63 posted in April and to the best level since October 2018. However, the NAHB says affordability challenges still persist. The NAHB went on to say that the low mortgage interest rate environment, strong labor market along with rising wages is contributing to a gradual improvement in the marketplace. Any number over 50 indicates that more builders view conditions as good than poor.

American consumers pulled back on spending in April as sales of autos decreased along with spending on clothes appliances. US retail sales disappointed last month, declining 0.2% in April versus the +0.2% expected and well below the gain of 1.7% seen in March, which was the strongest rise since 2017. When stripping out autos, sales rose a scant 0.1%, well below the +0.6% expected. Retail sales are closely scrutinized as consumer spending drives a large portion of US economic activity.

Mortgage rates held steady in the latest survey and remain at 12-month lows due in part to slowing global growth along with low inflation levels here in the US. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage was essentially unchanged in the latest week at 4.40% with an average 0.40 point. The MBA went on to say that its Market Composite Index, a measure of total mortgage loan application volume, fell 0.6%, while the Refinance and Purchase Index fell by just about 1%.

Tuesday - May 14

Late Morning Review - The NFIB reports that its April Small Business Optimism Index remains at a historically very strong level, consistent with solid growth, keeping the economy at full employment and says there is recession in sight this year. NFIB President and CEO Juanita D. Duggan said, "The continued economic boom is thanks, in a major way, to strong growth in the small business half of the economy." The index rose to 103.5 in April, up 1.7 points.

Delinquency and foreclosure rates in February fell to lows not seen in nearly two decades due in part to strong economic expansion along with unemployment at a 50-year low. Those two factors continue to drive down housing market distress, reports CoreLogic. CoreLogic reports that the 30 days or more delinquency rate for February was 4%, down from 4.8% in February of 2018. In addition, as of February 2019, the foreclosure inventory rate was 0.4%, down 0.2% from February 2018.

The National Association of REALTORS® reports that metro home prices saw a 3.9% increase in Q1 2019 from Q1 2018. The median price for existing single-family home was $254,800 in Q1 2019. At the end of Q1 2019, there were 1.68 million existing homes for sale on the market, up 2.4% from Q1 2018. Lawrence Yun, NAR chief economist, says the first quarter has been beneficial to U.S. homeowners. “Homeowners in the majority of markets are continuing to enjoy price gains, albeit at a slower rate of growth. A typical homeowner accumulated $9,500 in wealth over the past year."

Monday - May 13 

MARKET WRAP - Negative US/China trade headlines sent US stocks plunging in today's session, boosting bond prices and sending yields lower. However, Mortgage Bonds saw just modest gains and were unable to rise above resistance. The 10-yr yield fell to 2.40%. WTI oil settled at $61.08/barrel, -$0.58. There are no economic reports due for release tomorrow. The NFIB Small Business Optimism Index will be released. You should continue to float files with a longer time to close. However, with files getting closer to funding, within 30 to 45 days, consider locking while bond prices hover near 13 month highs, rates at 12-month lows.

Late Morning Review:  Credit availability for mortgages rose in April with a big rise seen in the jumbo arena, reports the Mortgage Bankers Association (MBA). The MBAs Mortgage Credit Availability Index rose 2.1% in April to 186.0. A decline in the index indicates that lending standards are tightening while increases in the index are indicative of loosening credit. "Credit supply increased 2 percent in April and was driven by a 7 percent gain in the jumbo index, which reached its highest level since the beginning of the MCAI in 2011," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

A recent report by Trulia found that for the first time in more than two years, housing inventories did not decrease annually in the first quarter of 2019. In the first quarter, inventories did not decline from the previous year for the first time since the third quarter of 2016. Inventory grew year-over-year in exactly half of the nation’s 100 largest metro areas, up from just 19 one year ago. The report concluded by saying that nationally, more starter and trade-up homes is positive news for potential homebuyers, especially for first-time homebuyers, who tend to be more budget conscious.

The breakdown of trade talks between US/China have pushed stocks around the globe lower. The headlines are also pushing bond yields lower. The White House is said to readying tariffs of 25% for practically all imports from China into the US while China is also set to raise tariffs on $60 billion of US imports into China. There are no talks planned for the near future. The uncertainty is likely to be positive for mortgage rates though headlines from the trade front could turn positive at any time.

Friday - May 10 

Next Week - This coming week we will get a look at the health of the US consumer as Retail Sales for April will be released. Consumer spending makes up almost two-thirds of US economic activity, so Retail Sales is a great gauge of the economy. 

The strong Retail Sales number in March pushed Gross Domestic Product to one of the strongest first quarters in many years. 

The markets will also get readings on housing and manufacturing. 

US/China trade issues will continue to dictate the path of where US markets and home loan rates move, with positive headlines good for Stocks, bad for Bonds and rates, and vice versa. 

Reports to watch:

  • Retail Sales will be released on Wednesday along with the Empire State Manufacturing Index.
  • On Thursday, Housing Starts and Building Permits will be delivered, along with Weekly Initial Jobless Claims and the Philadelphia Fed Index.
  • Friday brings Consumer Sentiment.


MARKET WRAP - Mortgage Bonds opened and closed near unchanged today unable to push higher despite the Dow falling 360 points today before closing with gains. The US/China trade talks ended today with no deal or no future meetings scheduled but were "constructive" said Sec Treasury Mnuchin and President Trump. 10-yr T Note yield closed at 2.46%, WTI oil $61.66/barrel, near unchanged. Continue to float clients outside a 30-day window. Any files closing inside 30 days, by all means lock as stiff resistance is capping any further gains. Next week's economic calendar features housing, manufacturing along with news on small business optimism. Have a great weekend!

Late Morning Review: Consumer inflation rose in April boosted by rising gas prices along with increasing rents and healthcare costs, though underlying inflation remained tame. The Core PCE, the Fed's favorite inflation gauge, rose 1.6% in the latest report, below the Fed's target range of 2.0%. The Labor Department reports that the Consumer Price Index (CPI) rose by 0.3% last month, just below the 0.4% expected and down from 0.4% in March. Low inflation levels will continue to keep the US Federal Reserve holding interest rates at current levels, while mortgage rates will remain low in the foreseeable future.

US stocks are extending losses on the last trading day of the week due to concerns of a protracted trade dispute between the US and China. The US has increased tariffs to 25% on $200 billion worth of imported goods coming into the US. The news has sent stock prices lower all week as the closely watched S&P 500 Stock Index has declined by 3.6% from its all-time closing high of 2,945, hit on April 30. Keep in mind that markets don't go straight up or down, and when at all-time highs, investors look to cash in some profits and look for the next opportunity.

Thursday - May 9  

Late Morning Review - Mortgage rates edged lower in the latest survey as investors piled into the bond markets due to uncertainty caused by the ongoing trade disputes. Freddie Mac reports that the 30-year fixed-rate mortgage fell by four basis points in the latest week to 4.10% with an average 0.5 in points and fees. Last year this time the rate was 4.55%. Freddie Mac says, "A combination of low mortgage rates, a strong job market and modest wage growth should spur homebuyer interest and also serve as an incentive for homeowners looking to refinance."

In economic news, tame numbers from the Producer Price Index reinforce the low inflation environment in what many don't see as "transitory," as uttered by Fed Chair Powell at his press conference last week. Inflation has been running low for quite some time and as the Fed tells us, will continue to be subdued for several years to come. This will keep home loan rates relatively low longer than most think.

Weekly Initial Jobless Claims hovered near 50-year lows at 228,000 last week as the strong labor market helps to keep the US economy on a solid growth pace. The four-week moving average of claims, which irons out seasonal abnormalities, rose by 7,750 to 220,250. The solid labor market will help potential home buyers or those refinancing with low borrowing costs. Just recently, it was reported that the unemployment rate fell to a 50-year low while job openings across the US hover just below record highs.

Wednesday - May 8 


MARKET WRAP - Three Red Candles in a row - not good! Lower Stocks prices on Monday and Tuesday with unchanged trading today failed to boost Bonds prices so far this week with today's action showing losses and prices finishing at the worst levels of the day. Today's weak 10-yr Note auction dampened the mood for both Mortgage Bonds and Treasuries. The 10-yr yield rose to 2.48% from 2.42% this morning. The poor auctions this week doesn't bode well for tomorrow's 30-year Bond auction.The US/China trade deal issues continue to weigh on Stocks. The next 48-hours will likely determine the next directional move for financial markets and rates as China and US officials will meet tomorrow for trade talks.  WTI oil settled at $62.12/barrel, +$0.72. The inflation reading PPI data will be released tomorrow morning.

Late Morning Review - Mortgage rates held near 12-month lows in the latest week with the spring home buying season is now fully underway. The Mortgage Bankers Association (MBA) reports that the 30-yr fixed-rate mortgage was essentially unchanged in the latest week at 4.41%. Borrowing costs on jumbo loans averaged 4.27% from 4.31%. In addition, the Purchase Index rose 4% while the Refinance Index increased 1%. The MBAs Market Composite Index, a measure of total mortgage loan application volume, rose 2.7%.

US stocks are rebounding today after the three-day decline. US-China trade headlines continue to influence the capital markets with today's positive slant boosting stocks while weighing on bond prices. China had reneged on virtually all agreement terms previously met over the weekend, which set off the US retaliation of increased tariffs should a deal not be met by Friday. The Vice Premier of China is coming to the US tomorrow to hopefully strike a deal good for all parties and the globe.

Tuesday - May 7

MARKET Wrap - US stocks plunged today but Mortgage Bond prices only ended up a few ticks with the bulk of the safe haven buying went into the US Treasury market. The Dow was down over 600 points at the low but ended down 473 points. The yield on the 10-yr Treasury fell to 2.45%.

Late Morning Review - The labor market continues to reach new heights in the US as demand for workers remains robust. The Bureau of Labor Statistics reports that there were 7.5 million job openings on the last day of March from 7.14 million in its Job Openings and Labor Turnover Survey. It was the fourth highest rate in the series history. The largest increases were seen in transportation, warehousing, utilities, construction and real estate and rental and leasing.

Home price gains continued to cool in March though still in an upward trend, reports CoreLogic. The Home Price Insights Report showed that home prices, including distressed sales, rose 3.7% in March 2019 compared to March 2018 with a 1% increase month over month from February 2019 to March 2019. Looking ahead, Corelogic predicts home prices will rise 4.8% from March 2019 to March 2020. “The U.S. housing market continues to cool, primarily due to some of our priciest markets moving into frigid waters," said Ralph McLaughlin, Deputy Chief Economist for CoreLogic.

Uncertainty surrounding the US- China trade talks are pushing US stocks lower for the second straight session today. The "sell in May and go away" may be taking place though the month is just underway. The Dow Jones Industrial Average was down nearly 400 points at the lows of the day though the major indices hover just below all-time highs. US-China trade officials are meeting in Washington later this week to try and hammer out a deal by Friday night's deadline when higher tariffs will be imposed on China imports into the US.

Monday - May 6

MARKET WRAP - Stocks plunged at the opening bell due to negative US-China trade headlines though Mortgage Bond prices took a back seat to bigger gains in Treasuries. However, Stocks rallied to cut a big chunk of losses by the close of trading as investors bet a trade deal will be struck. 10-yr yield closed at 2.50%. WTI oil settled at $62.31/barrel, +$0.49. There are no major economic reports due for release tomorrow.

Late Morning Review - US stocks are plunging as the new week kicks off due to renewed US-China trade wars. The White House is threatening to increase tariffs on $200 billion worth of imports from China to 25% from 10% which is raising fears of a continued global slowdown and breaking the calm that has presided over the markets for the past month or so. The Dow Jones Industrial Average fell nearly 500 points when the equity markets opened, though it has recovered some of those losses.

After last week’s risk-filled-events, this week looks to be on the quiet side as far as economic reports and major events are concerned. The upcoming week will feature the inflation reading Consumer Price Index (CPI). Inflation continues to run low and there should not be a spike higher from the CPI data. Earnings season will just about come to end in the upcoming week with most of the big-name companies having already reported. As of last Thursday, 74.7% of the S&P 500 companies that reported have exceeded earnings estimates.

Friday - May 3

Next Week - After last week's risk-filled events, this week slows down quite a bit as far as economic reports and major events are concerned. The upcoming week will feature the inflation-reading Consumer Price Index (CPI). As mentioned, inflation continues to run low and there should not be a spike higher from the CPI data. 

Earnings season will just about come to an end in the upcoming week with most of the big-name companies having already reported. As of Thursday, 74.7% of the S&P 500 companies that reported have exceeded earnings estimates. 

One thing is for certain, the Goldilocks economy lives on in the US. Low inflation, solid economic growth, low unemployment, strong retail sales and increased consumer spending along with rebounding consumer confidence will fuel home sales in the months ahead. 

Reports to watch:

  • Economic data doesn't kick off until Thursday with Weekly Initial Jobless Claims along with wholesale inflation data from the Producer Price Index.
  • On Friday, the closely watched inflation-reading Consumer Price Index will be released.




MARKET WRAP - Mortgage Bonds ended with minor gains today supported by slower than expected wage growth within the strong April Jobs Report. The Fannie Mae 4% 30-yr coupon was once again able to bounce off support. Stocks closed higher as the Jobs Report supports the upbeat economic environment with the S&P 500 matching Tuesday's record high close of 2,945. The 10-yr yield settled at 2.52%. WTI oil closed at $61.93/barrel, near unchanged. As long as support can hold, continue to float, but as always, be on guard. Next week the calendar slows down with no big headline risk events - so hopefully the nice sideways and complacent trading pattern will continue. Have a great weekend!

Late Morning Review - The Labor Department reported this morning that there were 263,000 jobs created in April, well above the 180,000 - 200,000 range expected while February and March were revised modestly higher by a total of 16,000. The unemployment rate fell to 3.6%, the lowest since December 1969 while average hourly earnings rose 0.2% versus the 0.3% expected.

In addition, the year-over-year wage growth number was 3.2%, matching the March number. This number came in lower than expectations, so with it comes less inflation expectations. The Labor Force Participation Rate edged lower to 62.8%. Total unemployed or the U6 number remained at 7.3%. Overall a solid report with a Goldilocks scenario of strong job growth with subdued inflationary pressures from wages.

Thursday - May 2

MARKET WRAP - Mortgage Bonds ended modestly lower ahead of tomorrow's Jobs Report while the yield on the 10-yr T Note rose to 2.54%. Stocks ended lower though off worst levels as investors look to take some profits as equities hover near all-time highs. WTI oil closed at $61.77/barrel, -$1.83 on reduced fears of lower supply concerns.

Late Morning Review - The US Federal Reserve Bank left the benchmark Fed Funds Rate unchanged at 2.50% and went on to say that the labor market remains strong and that economic activity rose at a solid rate. Growth of household spending and business fixed investment slowed in the first quarter. However, just recently reported were strong retail sales and consumer spending in the past month or so along with a strong Gross Domestic Product (economic growth) in Q1 2019. The Goldilocks US economy continues.

Late Morning Review - After four straight weeks of increases, mortgage rates edged lower this week due in part to slightly weaker inflation data. Freddie Mac reports that the 30-year fixed-rate mortgage fell six basis points to 4.14% with an average 0.5 in points and fees. Last year this time the rate was 4.55%. Sam Khater, Freddie Mac’s chief economist, says, "Moving into summer, we expect rates to be about a quarter to half a percentage point lower than where they were last year, which is good news for the housing market. These lower rates combined with solid economic growth, low inflation and rebounding consumer confidence should provide a solid foundation for home sales to continue to improve over the next couple of months.”

The closely watched government Jobs Report for April will be released tomorrow morning at 8:30 a.m. ET. The report will be watched around the globe to gauge if the world's largest economy can sustain strong job growth along with continued wage increases. Wall Street is expecting 180,000 to 190,000 new jobs created in April after the strong 196,000 print in March. It would not be a surprise to see another strong number tomorrow morning - especially on the heels of yesterday's blockbuster ADP number.

Wednesday - May 1  

MARKET WRAP - The Fed left rates unchanged today, as expected, with the accompanying statement on the dovish side. However, Fed Chair Powell said that low inflation could be transitory, which spooked the markets. Mortgage Bonds gave up their gains and ended flat. Stocks closed lower on the notion that transitory inflation could mean no rate cuts later in the year, which had been expected before Powell spoke. 10-yr yield closed at 2.50% from the session low of 2.46% which was right after the statement release. WTI oil closed at $63.59/barrel, -$0.32. 

Late Morning Review - Job growth in the private sector surged in April led by hiring in the service sector. ADP private payrolls rose by 275,000 last month, well above the 170,000 expected. The numbers showed that small businesses added 77,000 jobs, medium-size companies added 145,000 and big business 53 of the job gains. The March figures were revised higher to 151,000 from 129,000. The report comes ahead of the more closely watched government Jobs Report, which will be released Friday morning.

After three straight week of increases, mortgage rates declined slightly in latest week and remain near one-year lows. The Mortgage Bankers Association reports the 30-year fixed-rate mortgage fell four basis points to 4.42% with an average 0.43 point. The MBAs Market Composite Index, a measure of total mortgage loan application volume, fell 4.3% while the Refinance Index declined 5% and the Purchase Index fell 3.7%.

It's Fed day! The Fed members will release the monetary policy statement at 2:00 p.m. ET this afternoon with Fed Chair Powell's press conference immediately following the release at 2:30. There is a near zero-percent chance of a hike to the short-term Fed Funds Rate, currently at 2.50%, and it hopefully will be a non-event. However, there is always an uptick in risk when the Fed Statement hits and when Powell does his press conference.


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