July 2019 What Is Going On With Interest Rates? (

July 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. 

Views You Can Use updated monthly:

Newsletter updated weekly:

Wednesday - July 31  

MARKET WRAP - The Fed cut the Fed Funds rate by 25bp today and Powell's words at his press conference were rather bond friendly which lifted prices off the session lows. Stocks may have been looking for a 50bp cut and ended the day lower as Powell signaled there may not be more to come but kind of walked back that signal as the press conference continued. The yield on the 10-yr Note gyrated hitting 2.07% right after the Fed statement but ended at 2.0%. Mortgage Bonds fell hard after the statement which prompted our alert to lock any real short-term files and then prices rebounded. Looking ahead, lock files closing within 30 days, float all others. Next up, Friday's July Jobs Report.

:Late Morning Review - Freddie Mac released its Economic & Housing Research Forecast for July showing that the housing market will see increased momentum due to low mortgage rates. Freddie Mac is forecasting that the 30-year fixed-rate mortgage will average 4.1% in 2019 and 4% in 2020. In addition, consistently strong homebuilder confidence and lower mortgage rates support our view that housing starts and sales will recover from their slump in 2018. Home prices are expected to rise 3.4% in 2019 and 2.6% in 2020.

Freddie Mac went to forecast that total mortgage originations to be $1.8 trillion in 2019 and $1.7 trillion in 2020. The refinance share of originations is expected to increase to 34% in 2019, before decreasing slightly to 28% in 2020, as the effect of lower rates on refinance originations tapers over time. As far as economic growth, Gross Domestic Product is expected to average 2.1% in 2019 before decelerating to 1.8% in 2020.

Private payroll growth rebounded in July after a weak reading in June. ADP private payrolls rose 156,000 in July, above the 150,000 expected while June was revised higher to 112,000 from 102,000. “Job growth is healthy, but steadily slowing,” Mark Zandi, chief economist at Moody’s Analytics, said in a statement. "Hampering job growth are labor shortages, layoffs at bricks-and-mortar retailers, and fallout from weaker global trade.”

Tuesday - July 30  

MARKET WRAP - Mortgage Bonds traded close to unchanged ahead of tomorrow's Fed rate decision at 2:00 p.m. ET. Treasuries also closed flat with the 10-yr yield settling at 2.05%. Stocks closed with modest losses. WTI oil closed at $57.97/barrel, +$1.10. Aside from the Fed, July ADP Private Payrolls will be released along with the Employment Cost Index and Chicago PMI. We are maintaining our position of floating to the Fed, however, there is a landmine at 8:15 in ADP ... a market reaction may be muted but we just don't know. If you have loans closing relatively soon and you can't afford to lose anything, then go ahead and lock. In the meantime, you should have all clients ready to lock as the headline risk will be enormous and the directional move in Bonds and rates may occur.

Late Morning Review - Inflation continued to remain tame in June, as evidenced by a key inflation indicator. The Core Personal Consumption Expenditure (PCE), which strips out volatile food and energy, rose 1.6% in June, below the 1.7% expected. The Core PCE is the Fed's favorite inflation gauge and it has set a target range of around 2%. The Fed has said that inflation will continue to run low for several years to come. Inflation can be defined as the overall general upward price movement of goods and services in an economy.

Home price gains continued to cool off in May and have come back down to more sustainable levels. The S&P 20-City Home Price Index rose 2.4% annually in May, down from 2.5% in April and well below the 7% gains seen a year ago. On a national level, the Home Price Index rose 3.4%. On a monthly basis, the 20-City Index rose 0.1%. Philip Murphy, Managing Director and Global Head of Index Governance at S&P Dow Jones Indices said, “Among 20 major US city home price indices, the average year-over-year gain has been declining for the past year or so and now stands at the moderate nominal year-over-year rate of 3.1%."

The Conference Board reports that the Consumer Confidence Index in July surged to 135 versus the 125 expected and up from 124 in June. It was the third highest reading since October 2000. Within the report it said that those saying jobs are “plentiful” increased from 44% to 46.2%, while those claiming jobs are “hard to get” declined from 15.8% to 12.8%. “After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year. These high levels of confidence should continue to support robust spending in the near-term despite slower growth in Gross Domestic Product.”


Monday - July 29  

MARKET WRAP - US markets were on holdonce again today ahead of this week's risk-events that begins tomorrow with the Core PCE. We don't see a big surprise with the Core numbers as inflation continues to remain tame. Mortgage Bonds closed near unchanged while Treasury prices posted modest gains. The 10-yr yield closed at 2.06%. WTI oil closed near unchanged at $56.19/barrel. Besides Core PCE, Personal Income and Spending, Consumer Confidence, Pending Home Sales and the S&P Case-Shiller Home Price Index will be released. Continue to float all files into the Fed if the market allows.


Late Market Review - The US capital markets are on hold today in what is shaping up to possibly be a volatile week. The inflation reading and the Fed's favorite inflation gauge, the Core PCE, will be released on Tuesday while the closely watched Jobs Report for July is released on Friday. The two-day Federal Open Market Committee meeting will kick off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy decision. It is expected that the short-term Fed Funds Rate will be cut by 25 basis points.

Due in part to a strong job market, credit scores rose to a three-year high recently, reports Ellie Mae. The average credit score of borrowers for all types on mortgages rose to 731 in June. Breaking down the numbers showed that, for conventional mortgages backed by Fannie Mae and Freddie Mac, the average FICO score for refinances was 742 and 754 for loans to purchase homes. The current unemployment rate is 3.7%, the lowest in almost 50 years.


Friday - July 26  

MARKET WRAP - Mortgage Bonds opened and closed near unchanged today weighed down by a solid GDP report along with rising stock prices. The S&P and NASDAQ closed at record highs. The yield on the 10-yr T Note closed at 2.07%. WTI oil settled at $56.19/barrel, near unchanged. Next week, the markets will get data from the Core PCE and the July Jobs Report while the Fed will release its interest rate decision on Wednesday at 2:00 p.m. ET. We are maintaining our position of floating to the Fed next week, if the markets allow us. Meantime, you should have all clients ready to lock next week as the headline risk will be enormous and the directional move in Bonds and rates may occur. Have a great weekend!

Late Morning Review - Economic growth edged lower in the second quarter of 2019. The Bureau of Economic Analysis reported that Gross Domestic Product (GDP) in the second quarter of 2019 rose 2.1%, down from 3.1% in Q1. However, a surge in consumer and business spending pushed the Personal Consumption Expenditures index higher by 4.5%, the best since Q4 2017, offseting some of the negatives within the report. Recent tariffs and a global economic slowdown stunted growth somewhat in Q2 though a GDP with a 2% handle is still solid.

After a slow week in the markets with little economic data or glaring headlines, next week is shaping up to be volatile given the three risk-filled events in the Core PCE, the Fed meeting, and the jobs report. In addition, the US/China trade talks will be ongoing and the above events could fuel an uptick in volatility and could fuel a disruption in the markets given the outcomes.

The two-day Fed meeting will kick off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement. It is widely expected that the Fed will cut the benchmark short-term Feds Fund Rate by 25 basis points. Fed Chair Jerome Powell will hold a press conference immediately following the statement release at 2:30 p.m. ET. The Fed Funds Rate is currently at 2.50% and is the interest rate in which banks and other depository institutions lend money to each other, usually on an overnight basis.

Thursday - July 25  

MARKET WRAP - Mortgage Bonds gave up yesterday's modest gains in today's session after strong economic data here in the states and as ECB chief Draghi deemed a recession risk in the Eurozone as low. Stocks fell after mixed earnings hit the wires and as investors took the opportunity to take some profits with the Dow, S&P and NASDAQ hovering near record highs. The 10-yr yield closed at 2.08%. WTI oil settled at $56.03/barrel, near unchanged. Tomorrow, Q2 2019 first read on GDP will be released. Continue floating into next week's risk-filled events if the market allows.


Late Morning Review - Despite slowing economies across the globe, here in the states, economic data remains impressive. This morning, June Durable Orders came in better-then-expected rising 2% versus the 1% expected and up from the -1.3% reported in May. Weekly Initial Jobless Claims remain near 50-year lows falling 10,000 to 206,000 in the latest week.

Mortgage rates edged lower in the latest survey after a slight increase in the previous week. Freddie Mac reports that the 30-year fixed-rate mortgage fell six basis points to 3.75% and is hovering near three-year lows. "While the improvement has yet to impact home sales, there’s a clear firming of purchase demand that should translate into higher home sales in the second half of this year,” said Sam Khater, Freddie Mac's chief economist.

The US Census Bureau reports that the homeownership rate in Q2 2019 slightly declined to 64.1% from 64.2% in Q1 2019. Across the nation, the rate was the highest in the Midwest at 68%, followed by the South at 66Z%, the Northeast at 61.2% while the West saw a 59.3% homeownership rate. The rate has been declining in the past year due in part to rising prices and low inventories of homes for sale on the market.

Wednesday - July 24  

MARKET WRAP - Mortgage Bonds traded higher today pressing up against 2019 resistance and have been unable to overtake current levels. The S&P and NASDAQ closed at record highs while the Dow closed lower weighed down by Dow components Boeing and Caterpillar. The yield on the 10-yr T Note closed at 2.05%. WTI oil fell by $0.94 to $55.93/barrel. Continue to float all files ahead of next week's risk-filled events. Durable orders and jobless claims will be released tomorrow. The Treasury will sell $32B 7-yr Notes.

Late Morning Review - The US Census Bureau reports that new home sales in June jumped 7% from May to an annual rate of 646,000 units. Sales for new single-family homes in three past three months were revised lower. On an annual basis, sales rose 4.5%. Across the nation, New Home Sales surged in the West, were flat in the South with declines seen in the Northeast and Midwest. The median new home price was unchanged at $310,400 from a year ago.

Despite mortgage rates inching lower and at multi-year lows, mortgage application volume declined in the latest week. The Mortgage Bankers Association (MBA) reports that the Market Composite Index, a measure of total mortgage application volume, fell 1.9% in the week ended July 19, 2019. In addition, the Refinance Index decreased 2% while the Purchase Index fell 1.6%. On the rate front, the 30-year fixed-rate mortgage fell four basis points to 4.08% with points at 0.33. The jumbo rate declined to 4.04% from 4.07% with 0.25 points while the FHA fell to 3.98% from 4.01% with 0.31 points. The MBA says the survey covers 75% of all US residential mortgage applications.


Tuesday - July 23  

MARKET WRAP - Mortgage Bonds limped into close, well off the early morning highs. Treasuries also had a rough go with the 10-yr yield ticking back up to 2.08%. Next week is looking to be an enormous risk event with the Core PCE, the Jobs Report and the Fed Rate cut along with the US/China meeting in Singapore all week. WTI oil closed at $56.72/barrel, +$0.50. June New Home Sales will be released tomorrow. The Treasury will sell $41B 5-yr Notes. Suggestion: Continue floating but be ready to locker.

Late Morning Review - The National Association of REALTORS® reports that existing home sales in June fell 1.7% from May to an annual rate of 5.27M units versus the 5.30M expected. The decline is due in part to the continued shortage of homes for sale on the market. Sales fell 2.2% from June 2018. Modest gains were seen in the Northeast and Midwest with declines in the South and West. The median existing home-price for all housing types hit an all-time high of $285,700, up 4.3% from June 2018. Inventories are running below the normal 6-month level, currently at 4.4-months.

Due in part to solid US economy, a strong job market and modestly rising wages, the nation’s median home price increased for the third consecutive month, up 3.4% in June from a year earlier, according to Redfin. U.S. home prices hit a median price of $321,200 last month. In addition, only 6 of the 85 largest metro areas saw an annual decline in their median sale price. Redfin chief economist Daryl Fairweather said, "Economic growth is a double-edged sword for the housing market. The increase in demand for low- and moderately priced starter homes is pushing up prices for the most affordable segment of the market."

Strong earnings are lifting US stocks today while weighing on bond with both prices and yields near unchanged. Dow components Coca-Cola and United technologies along with Lockheed Martin, Hasbro and Pulte Homes are pushing stocks higher and capping any price gains for bonds. In the US debt ceiling news, it looks like a two-year deal has been reached in Congress. This morning, the International Monetary Fund cut its global growth forecast but upped the numbers for the US as the economy here in the states continues to be a bright light among world economies.


Monday - July 22  

MARKET WRAP - The US markets were on the slow side today with both stock and bond prices closing near unchanged levels. There were no economic reports released. The yield on the 10-yr T Note closed at 2.04%, near unchanged. Existing Home Sales for June will be released tomorrow while the Treasury will sell $40B 2-yr Notes. Continue floating all files into the Fed meeting if the market allows. But as always, be sure to be tuned into MMG on a daily basis as we steer you into next week's monetary policy decision.


Late Morning Review - A lack of affordability has become commonplace for first-time homebuyers in the past few years but builders vow that it is about to change. Builders are now looking to build homes that are smaller with lower square footage to cut costs. In addition, builders are also looking to increase production of townhouses to meet the demand for more affordable housing. The National Association of REALTORS® reports that KB Home says its first-time buyer segment of homes is growing rapidly. Jeff Mezger, CEO of KB Home, told that 55% of KB’s new home deliveries in the second quarter of this year were to first-time home buyers—its highest percentage in a decade.

The closely watched S&P 500 Stock Index is modestly higher to begin the week as the major averages hover near all-time highs. Earnings season is in full bloom this week as S&P 500 company profits are now expected to rise 1%, a reversal from a small decline that was previously forecasted. The US/China trade talks look like they will continue to try and reach a deal, which is also good news for stocks. The S&P hit an all-time closing high of 3,014.30 on July 15.


Friday July 19

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Next Week - The upcoming week looks to be on the slow side once again, so the sideways summer trend in rates may continue for one more week. 

There is little economic data being released and Fed members will not be speaking during this blackout period prior to the July 31 Fed meeting where a Fed rate cut is fully expected.

A wildcard, which could spark the volatility, could be fresh U.S./China trade headlines. 

I'll be watching, so let me know if you have any questions.

Reports to watch:

  • Housing data will come from Tuesday's release of Existing Home Sales followed by Wednesday's New Home Sales.
  • Durable Orders and Weekly Initial Jobless Claims will be released on Thursday.

Review of the Week - This past week had little economic data for the financial markets to react to. As a result, home loan rates have inched higher though they remain near multi-year lows. 

Take a look at the chart above. It's pretty easy to see the sideways trend in mortgage Bonds and the reason why home loans have stabilized since the beginning of June. 

It is normal to see quiet sideways trading action in the summer months, especially with the U.S./China trade war punting into the future and the Fed about to cut rates at month's end. Traders are more apt to sit on their hands and wait for the next directional move in the financial markets. 

What should we expect next for home loan rates? Volatility. Long, boring and complacent sideways trading patterns like we are seeing in mortgage Bonds are typically followed by an increase in volatility, and a sharp breakout one way or the other. 

How mortgage Bonds respond to the Fed Statement and rate cut on July 31 may very well determine the next directional move in home loan rates. 

Bottom line: anyone looking to either refinance or purchase a home ... being ready to lock in the next couple of weeks would be wise. A Fed rate cut doesn't guarantee that home loan rates will move lower. In fact, ever since the probability of a Fed rate cut hit 100%, home loan rates ticked up a bit.



MARKET WRAP - Mortgage Bonds had little movement today, closing near unchanged, while the markets were on the quiet side, typical for a Friday afternoon in the summer. Stocks closed modestly lower on reports that Iran seized a UK oil tanker. 10-yr yield 2.05%. Heading into next week and the Fed meeting at the end of the month, there might be an opportunity to see better rates on Wednesday July 31. Have a great weekend!

Late Morning Review - US stocks are modestly higher this morning being buoyed by strong earnings from Microsoft. This morning, Larry Fink from BlackRock, chairman and CEO of the world's largest money-management firm, said that US stocks should push higher from the current record levels. "People are underinvested in equities ... with the change of tone of central bank behavior and you're starting to see corporate earnings coming in pretty well," said Fink. "We are still constructive on the world." We agree with Mr. Fink and think his statements will age well for we do not see a recession in the near-term horizon and those that are saying it are simply incorrect.

The Bureau of Economic Analysis will release its Gross Domestic Product (GDP) data for the second quarter of 2019 next week and the numbers are looking to decline from the strong 3.1% recorded in the first quarter. Most estimates are calling for a rise of around 2% as the US is now in its longest stretch of economic expansion in history. At this point in time, the US economy still has room to grow after strong June retail sales and manufacturing data reported in the past few weeks. The US labor market remains strong while Americans filing for first-time unemployment benefits are near 50-year lows. GDP is the value of the goods and services produced in the US.


Thursday - July 18  

MARKET WRAP - Rates have moved sideways, complacent fashion since the beginning of June. The Fed Rate Cut on July 31 may be the catalyst for this increased volatility and could very well determine the next directional move in rates out of this sideways pattern. we are still watching the 2019 price highs in Mortgage Bonds as resistance and 2.00% on the 10-yr as yield support. Consider floating to the Fed, if you can, just to see how prices respond. You should have your pipeline ready to lock at month's end as we do not know how Mortgage Bonds will respond to the first Fed rate cut in 10 years.

Late Morning Review - Median home prices hit fresh record highs in the second quarter of 2019 as demand ramped up due in part to low mortgage rates. ATTOM Data Solutions reports that the single-family homes or condos sold for a median price of $266,000 in Q2 2019, up nearly 11% from the previous quarter and up 6.4% from a year ago. Todd Teta, chief product officer at ATTOM Data Solutions said, "With mortgage rates dipping to new lows, it’s no surprise that people were wanting to buy a home, even if prices were at their peak. We expect to see milder home prices in the coming quarters.”

Mortgage rates edged higher in the latest week though they remain at multi-year lows. Freddie Mac reports that the 30-year fixed-rate mortgage rose six basis points in the latest week to 3.81% with an average 0.6 in points and fees. A year ago this time, the 30-year fixed-rate mortgage averaged 4.52%. Freddie Mac said that despite the uptick in rates, the improvement in housing demand should provide sufficient momentum for the housing market and economy during the rest of the year.

Manufacturing activity in the Philadelphia region surged in July, according to the Philadelphia Federal Reserve. The Philly Fed Index surged to 21.8 in July, well above the 0.3 recorded in June and above the 5.0 expected. All components within the reports rose while the employment gauge increased 15 points to 30.0, the highest reading since October 2017. In addition, the survey’s future indexes indicate that respondents continue to expect growth over the next six months.

Wednesday - July 17  

Late Morning Review - For the second straight month, new home construction declined in the US due in part to builders unable to find inexpensive lots to build on, a lack of skilled workers and higher prices. The Commerce Department reports that housing starts fell 1% in June from May to an annual rate of 1.253 million units, below the 1.27 million expected. Starts rose 6.2% from June 2018 to June 2019.Big gains were seen in the Northeast and Midwest with losses in the South and West. Single-family units, which account for the bulk of the housing market, rose 3.5% in June from May with a modest loss year-over-year. Multi-dwelling units fell nearly 10% month-over-month. Building Permits, a sign of future construction, fell 6% from May to June.

After moving lower in the first half of 2019, mortgage rates have edged higher in the past few weeks as bond prices rose while US stocks hit all-time record highs. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose eight basis points in the latest week to 4.12% with an average 0.38 in points. The MBA also reports that its Market Composite Index, a measure of total mortgage application volume, fell 1.1% while the refinance index rose 1.5% and the purchase index fell by 3.8%. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.

Fannie Mae released its housing forecast this week revealing that mortgage rates will remain low for the foreseeable future. Fannie forecasts that the 30-year fixed-rate mortgage will average 4% in 2019 with a decline to 3.70% in 2020. Total mortgage originations are expected to reach $1.75 trillion this year while 2020 will see a lower number of $1.691 trillion. “Housing remains a net positive to the economy, as the industry anticipates growth fueled by strong household balance sheets, low mortgage rates, and a surge in refinance activity,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.



Tuesday - July 16  

MARKET WRAP - Both Stock and Bond prices edged lower in today's session though the losses were modest. Strong retail sales were reported for June signaling the consumer is alive and well which raised the possibilty that the Fed could adopt a less dovish stance, which weighed on Stocks. The yield on the 10-yr T Note ended at 2.11%. WTI oil settled at $57.61/barrel, down $1.97. Continue to lock files that are closing within 30 days while floating brand-new and longer-dated files. Housing Starts and Building Permits will be released tomorrow.

Late Morning Review - A solid labor market coupled with rising home prices has pushed the overall mortgage delinquency rate to its lowest in more than 20 years, reports CoreLogic. The 30 days or more delinquency rate for April was 3.6%, down from 4.3% in April 2018. In addition, no state posted an annual gain in its overall or serious delinquency rate. "The U.S. has experienced 16 consecutive months of falling overall delinquency rates, but it has not been a steady decline across all areas of the country," said Frank Martell, President and CEO of CoreLogic.

The consumer is alive and well in the US due in part to a solid labor market and a slight increase in wages. Retail sales rose 0.4% in June versus the 0.2% expected. When stripping out autos, sales were also up 0.4%, above the 0.2% expected. Within the report, the *control group sales, that feed directly into Gross Domestic Product, jumped 0.7% versus the 0.3% expected. *The "retail sales control group", published by US Census Bureau, represents the total industry sales that are used to prepare the estimates of personal consumption expenditures for most goods - an inflationary number.

Over in the equity markets, stocks are near unchanged after Wells Fargo, Goldman Sachs and JPMorgan reported solid earnings but future Fed rates cuts could impact banks' net interest margins. In addition, the solid retail sales data and the specter of an uptick in inflation could limit further rate cuts in 2019 which is capping any gains for stocks today. A twenty-five basis-point cut to the Fed Funds Rate at the end of the month's FOMC meeting is still showing a 100% probability. Remember, the Fed has stated it will be data dependent on monetary policy going forward.


Monday - July 15  

MARKET WRAP - Not much movement seen for Mortgage Bonds today as they traded close to unchanged for most of the session in quiet trading. The yield on the 10-yr T Note inched lower to 2.08%. Stocks closed with meager gains which pushed the Dow, S&P and NASDAQ into record closing highs. WTI oil lost $0.70 to end at $59.51/barrel. Retail sales will be released tomorrow along with the NAHB Housing market Index. 

Late Morning Review - The Dow Jones Industrial Average (27,332), S&P 500 (3,013) and NASDAQ (8,244) stock indexes all closed at record highs on Friday and are near unchanged this morning after positive economic news out of China along with solid quarterly earnings from Citigroup. Goldman Sachs, JPMorgan and Wells Fargo will report tomorrow. Analysts are forecasting that earnings for the S&P 500 are expected to have declined by 3% in Q2 2019. With such a low bar set for earnings expectations, it could be setting the markets up for companies to beat estimates. Mortgage applications for new home purchases jumped in June from May while year-over-year applications also saw a solid increase. The Mortgage Bankers Association reports that its Builder Application Survey showed a near 18% increase in mortgage applications for new home purchase from June 2018 to June 2019. On a monthly basis, applications rose 14% from May to June. The MBA's Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country.

Next Week -

After the past few weeks of fireworks given the Jobs report, the Fed, and Fed Chair Powell, the upcoming week could be on the quiet side as the dog days of summer set in, and with many traders and investors on vacation. 

There are only a few economic reports set for release with the highlight being Retail Sales, which is a reading on consumer health. The past three months have shown solid consumer spending -- will the solid trend continue?

The financial markets will have to deal with the kickoff of quarterly earnings season and the numbers could dictate the direction of the Stocks, Bonds, and interest rates. If earnings are strong, it could send Bond prices lower, yields higher and vice versa. Investors will also have an ear on the tensions in Mideast along with any headlines surrounding the U.S./China trade talks. 

Reports to watch:

  • Economic data begins on Monday with the Empire State Manufacturing Index followed by the Philadelphia Fed Index on Thursday.
  • The closely watched Retail Sales report will be delivered on Tuesday.
  • Housing data will come from Tuesday's NAHB Housing Market Index and Wednesday's Housing Starts and Building Permits.
  • On Friday Consumer Sentiment will be released.

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Friday - July 12


Week in Review -  This past week, Fed Chair Jerome Powell reaffirmed the Federal Reserve's dovish position as he testified on Capitol Hill, thereby paving the way for the first Fed rate cut in 10 years later this month.

Mr. Powell used the word "uncertainties" five times in his prepared speech to describe potential headwinds to the U.S. economy. When things are "uncertain", here or around the globe, it's the Fed's job to be "accommodative" and provide easy monetary policy to stimulate growth and investment, and boost confidence.

Here's what we have to consider now that the Fed is going to cut rates -- potentially by as much as .50% on July 31.

Fed rate cuts are designed to weaken the U.S. dollar, promote inflation, stimulate the economy, boost Stock prices, boost confidence, and lift some uncertainty. This is really good news for the economy and housing but at the same time, home loan rates will not move lower in lockstep with a Fed rate cut. In fact, we might see a limit to how low home loan rates move in the near-term as we see how Fed rate cuts make their impact on the economy.

However, there is a tug of war happening which continues to pull our rates lower, and that is the declining global yields in places like Germany, Spain, and Japan. Due to "uncertainties" within their economies, their Bond yields and interest rates continue to decline, and as a result our Treasuries and Mortgage Bonds push higher in price and lower in rate as well.

Bottom line: The Goldilocks scenario for housing continues. We are seeing home loan rates near the best levels in two years and the Fed is about to embark on rate cuts which are designed to help the U.S. economy avoid a recession. Clients should understand that if the Fed is successful, and the recession fears lift, home loan rates may not improve much further.

MARKET WRAP - Mortgage Bonds were able to stop the bleeding today and ended with minor gains while the Dow (27,332), S&P (3,013) and NASDAQ (8,244) closed at all-time record highs. The yield on the 10-yr T Note closed at 2.11%. WTI oil settled at $62.26, near unchanged. Continue locking short-term files closing 30 days and within while floating brand-new and longer-term files. Have a great weekend!

Late Morning Review - In recent years, potential homebuyers looking for a mortgage or those looking to refinance felt it took too long to close the deal once approved, but times have changed. LendingTree reports that the average time to close a purchase mortgage loan transaction is now 40 days, down from 74 days in 2017, a refinance now takes 38 days, down from 55 days in 2017. There were a few caveats as to what type of mortgage and the borrower. A borrower with a high credit score tends to close faster while refi borrowers with loan-to-value ratios below 80% also sealed the deal quicker.

After a rough week for the bond markets and yields, mortgage backed securities are trying to stabilize after being pushed lower by the ongoing rate cut euphoric stock frenzy. Both the Dow (27,088) and the S&P (2,999) closed at record highs yesterday after a rate cut was set by Fed Chair Powell this past week at the end-of-month Fed meeting. The Goldilocks economy here in the US is continuing for the foreseeable future with low inflation, solid economic growth and consumer spending along with high consumer confidence. Could there be a recession at some point? Possibly. But Fed Chair Powell has stated over and over that the Fed will do all that is necessary to sustain the current economic expansion.



Thursday - July 11  

MARKET WRAP - An uptick in core consumer inflation, a rally in stocks, a weak 30-yr Bond auction along with rising global yields sent Mortgage Bond and Treasury prices lower today. The 10-yr yield settled at 2.13% after hitting 1.94% just last week. The Dow (27,088) and S&P (2,999) closed at record highs. WTI oil settled at $60.26/barrel, -$0.17. PPI will be released tomorrow. After today's Lock Alert, continue to lock loans that are closing within 30 days while considering floating brand-new and longer-term files but make customers aware that we are currently in a rising yield environment, at least here in the short-term.

Late Morning Review- Underlying inflation at the consumer level warmed up a bit in June with the biggest increase occurring since January 2018. The Core Consumer Price Index (CPI), which strips out volatile food and energy, rose by 0.3% in June led by increases in prices for apparel, used cars and trucks along with household furnishings. On an annual basis, the Core CPI rose 2.1% from the 2% recorded year-over-year in May. The Federal Reserve will closely dissect this number along with incoming economic data in the coming weeks ahead of the two-day FOMC meeting on July 30-31.

Mortgage rates were unchanged this week and remain near three-year lows as the market stabilizes after pushing lower since the highs seen last November. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged this week at 3.75% with an average 0.5 in points and fees. Sam Khater, Freddie Mac’s chief economist, says, “While rates have moderated, we’re still at nearly three-year lows, which is good news for buyers looking to purchase a home before school starts.”

Americans filing for first-time unemployment benefits fell to a three-month low in the latest week and are at lows seen around 1970. The Labor Department reports that weekly initial jobless claims fell by 13,000 in the latest week to 209,000 signaling continued strength in the sector which could boost the somewhat slowing US economy. The four-week moving average of initial claims, which irons out seasonal abnormalities, fell 3,250 to 219,250 last week. There have been no signs of an uptick in layoffs related to the US/China trade wars thus far.

Wednesday - July 10  

MARKET WRAP - Dovish rhetoric from Fed Chair Powell lifted both stocks and bonds in today's session which saw the closely watched S&P 500 hit 3,000 for the first time before closing just below that level. A rate cut is now fully priced in at the July 31 FOMC meeting. The 10-yr yield closed at 2.06%. WTI oil gushed higher by $2.65 to $60.48/barrel on decreasing supplies.

Late Morning Reveiw - Mortgage rates inched lower in the latest week and remain near lows seen in September 2017. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell three basis points to 4.04% with an average 0.37 in points. The jumbo rate rose three basis points to 4.03% with 0.27 points while the FHA 30-year was unchanged at 3.97% with 0.30 in points.

The MBA also reported that the Market Composite Index, a measure of total mortgage loan application volume, fell 2.4% while the Refinance Index decreased 6.5% and the purchase index gained 2.3%. Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting said, "Borrowers have been less sensitive to low rates as many borrowers have either recently refinanced or are likely waiting for rates to fall even further.

"Inflation pressures remain muted, global growth continues to be a concern," were the remarks from Fed Chair Powell this morning prior to his testimony on Capitol Hill. Those words from Fed Chair Powell's opening statement this morning was virtually identical to what he was saying back in early January when he did a 180 degree turn to the dovish side. Mr Powell also added, "Since then (the June Fed meeting), based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook." Mr. Powell's remarks lifted both the stock and bond markets this morning and propelled the closely watched S&P 500 Stock Index to an all-time high of 3,000.

Tuesday - July 9  

MARKET WRAP - Another day that Mortgage Bonds traded positive early on, only to end near the session lows as buyers disappeared. The losses were modest but it looks like Bonds have lost their footing and continue to slide lower in response to Friday's strong Jobs Report for June. Stocks closed near unchanged. The yield on the 10-yr T Note closed at 2.06% after hitting 1.94% last week. WTI oil settled at $57.79/barrel, up $0.13. Tomorrow morning around 10:00 a.m. ET, Fed Chair Powell will appear before the House Financial Services Committee to testify on the state of the US economy. The Fed minutes for the June meeting will be released at 2:00 p.m. ET

Late Morning Review - The NFIB Small Business Optimism Index edged lower in June from May though it remains near historically high levels. The index fell to 103.3 from 105.0 in May. The NFIB commented that if economic growth slows, that is not bad in a fully employed economy that can’t find enough workers to fill open job positions. "Job openings and plans to create jobs remain historically very strong, and while it's not as "hot" as May, Main Street is still running strong," said NFIB Chief Economist William Dunkelberg.

Job openings remained higher than there are workers to fill those positions across the country as the labor market continues running on all cylinders. The Bureau of Labor Statistics reports that job openings fell by 49,000 on the last day of May to 7.32 million from 7.37 million in April in its Job Openings and Labor Turnover Survey, or JOLTS report. The quits rate held at 2.3% for the 11th straight month in May, the highest since 2005 which means workers are confident regarding their chances to find a new job.

Monday - July 8  

MARKET WRAP - Declining stock prices were unable to boost Mortgage Bond prices today in lackluster trading. Both Treasury and Mortgage Bonds started the day to the plus side but gave up gains as the session wore on and closed unchanged and at the session lows in price. There were no economic reports released today. The yield on the 10-yr T Note closed at 2.05%. WTI oil settled at $57.40/barrel, near unchanged. There are no major economic reports due for release tomorrow though the NFIB Small Business Optimism Index will be released along with the Labor Department's JOLTS report. Consider floating brand-new files or those closing outside 30 days while locking shorter-term files to capture these great rates.

Late Morning Review - After last week's holiday-shortened week, things will heat up in the next 5 days while volatility may also be on the rise for the US capital markets. The week will feature Fed Chair Powell as he delivers his semi-annual testimony on the state of the US economy in front of Congress on Wednesday and Thursday. Powell's speech comes ahead of the July 30-31 Fed meeting and his words could be market moving. The Treasury will sell a total of $78 billion in Treasury Notes and Bonds this week beginning with tomorrow's $24B 3-year offering. Inflation readings from the Producer and Consumer Price Index will also be released during the week.

Low mortgage rates could generate an uptick in homeowners refinancing their current mortgages in the months ahead. Black Knight, a leading provider of integrated software for housing industry, reports that 8.2 million homeowners with mortgages could now benefit from a refinance, including 35% of those who took out their loans last year. In addition, as of June 27, there were 1.5 million potential refinance candidates in the 2018 vintage alone, matching the total of potential refinance candidates in the 2013-2017 vintages combined, reports Black Knight.

Fannie Mae reports that housing confidence dipped slightly in June, though it remains near survey highs on improved mortgage rate expectations in its monthly Home Purchase Sentiment Index (HPSI). The index fell 0.5 points in June to 91.5 after hitting a near survey high in May. “Growing expectations that mortgage rates will remain steady suggest improved stability for housing affordability and helped keep the HPSI relatively flat this month, despite modest declines in other components,” said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae.

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Friday July 5

MARKET WRAP - Mortgage Bonds took on the chin in early trading in response to the solid Jobs Report. However, over the course of the day prices were able to recover a chunk of the losses ... note the long lower wick on today's Candle. Volatility is back. Stocks closed with modest losses. WTI oil settled at $57.40/barrel, near unchanged. 10-yr yield closed at 2.04%.. US/China, low inflation and compressing yields will remain a tailwind for Bonds for the foreseeable future. Next week, Fed Chair Powell testifies on the state of the US economy before the House Financial Services Committee Wednesday and at the Senate Banking Committee Thursday. Have a great weekend!

Late Morning Review - June Non-Farm Payrolls rise by 224K vs the 160K expected. April and May revised lower by a total of 11K. Average hourly earnings +0.2% vs 0.3% expected. Unemployment rate 3.7% vs 3.6% expected. The Labor Force Participation Rate rise to 62.9%, U6 or total unemployed rises to 7.2% vs 7.1%. Overall a solid report.Mortgage Bonds edge lower after the solid jobs data, 10-yr yield rises to 2%. After hitting record closing highs on Wednesday, the Dow, S&P and NASDAQ open lower in what will be a slow trading session the rest of the day. Mortgage Bonds at session lows after the jobs data. 10-yr yield rises to 2.04% from the early morning low of 1.94%.

Wednesday - July 3

MARKET WRAP - Slowing global growth continued to push yields lower across the worldwide economies to record lows in Germany and as the US 10-yr yield fell to 1.95%, lowest since November 2016. Stocks closed at record highs, see earlier post for the numbers, fueled by rate cut euphoria. WTI oil is up $0.95 to $57.20 ahead of its close. Ahead of the headline risk associated with the Jobs Report, floating is recommended for brand-new or files closing outside 30 days while considering locking short-term files. The Tabrasa offices are closed on Friday but we will be monitoring the markets as usual and we will report the jobs data and market reaction. We will be releasing MMG Daily on Friday along with the text Bond quotes throughout the day as the markets undergo normal trading hours. Have a happy and safe Independence Day!

Late Morning Review - The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage was essentially unchanged in the latest week at 4.07% with 0.38 in points and fees. Rates are at lows seen in September 2017. The Labor Department reports that Americans filing for first-time unemployment benefits fell by 8,000 in the latest week to 221,000, and are at 50-year lows. Low rates and a solid job market should continue to support the home purchase market.

On the lighter side, here are a few stats for Independence Day from the National Retail Federation. Americans are expected to spend $6.7 billion on cookouts and other celebrations on the 4th with 86% of the population planning to celebrate the 4th. Cookouts, barbecues, and picnics continue to be the most popular activity (61%), followed by fireworks and community celebrations (40%). Americans will spend $1 billion on beer alone for the 4th and another $600 million on wine. Americans are expected to eat 150 million hot dogs just on July 4, according to the National Hot Dog and Sausage Council. Have a happy and safe Independence Day

Tuesday - July 2

MARKET WRAP - Falling global yields pushed US Treasury securities and Mortgage Bonds higher today while the 10-yr yield closed at 1.97%. Stocks also closed higher on hopes of a trade truce between the US and China along with Fed rate cut euphoria. The S&P 500 closed at yet another record high of 2,973. WTI oil settled at $56.35/barrel, -$2.75. Ahead of tomorrow morning's ADP report, float brand-new and files closing outside of 30 days with a short-term locking bias inside 30 days. The bond markets close at 2:00 p.m. ET tomorrow while stocks close at 1:00 p.m. ET. Side note: July marks the 121st month of this economic expansion in the US, making it the longest in history.

Late Morning Review - CoreLogic reports that home prices nationwide, including distressed sales, rose annually by 3.6% in May 2019 from May 2018 and were up month-over-month by 0.9% in May 2019 compared with April 2019. The year-over-year 3.6% gain is a fraction of what gains were in the previous year, but at healthier levels and at equilibrium with wage gains. “Interest rates on fixed-rate mortgages fell by nearly one percentage point between November 2018 and this May. This has been a shot-in-the-arm for home sales," said Dr. Frank Nothaft, Chief Economist for CoreLogic.

Continued slowing Eurozone economic growth is pushing global yields lower this morning while the US 10-year Note teeters on a psychological level. On the trade front, the US is threatening to slap tariffs on $4B worth of goods on imported EU goods. In addition, President Trump said that US/China trade talks have resumed but he can't accept a 50-50 deal. In response to the weak Eurozone economic data, the German 10-year Bund yield has fallen to a record low of -0.36% while yields in Spain and Portugal hit record lows. Australia's central bank cut its benchmark interest rate while the ECB will most likely cut in September. The US Federal Reserve is fully expected to cut the Fed Funds Rate by 25 basis points at its July 31 Fed meeting.

Monday - July 1

MARKET WRAP - Positive trade headlines pushed the S&P 500 to a record close of 2,964 today though it finished off its best levels. Mortgage bonds closed flat to lower while the 10-yr yield inched higher to 2.03%. Fed Fund Futures show a 100% chance of a 0.25% cut at the July 31 Fed meeting. There are no economic reports due for release tomorrow. 

Late Morning Review - The US and China reached a trade truce at the G-20 Summit in Japan over the weekend with both sides agreeing on reopening the talks. The US will also ease restrictions on China's tech giant Huawei while China and hold off on any additional tariffs while China has agreed to stop sanctioning US soy purchases. The headlines lifted the closely watched S&P 500 Stock Index to a record intraday high.

The US economy is slowing a bit midyear even as the US stock market has reached new highs. The Commerce Department reports that construction spending in the US declined in May as investment in private construction fell to its lowest level in nearly 2 1/2 years. Overall construction spending fell by 0.8% in May from April, the largest drop since November while the year-over-year numbers saw a 2.3% decline from May 2018 to May 2019.

The closely watched non-farm payrolls report will be released on Friday as the markets look for the numbers to rebound from the weak data reported in May where there were 75,000 new jobs created. The job market has been a stand out for the US economy for several years now as the unemployment rate is now at 51-year lows. This is the tightest labor market I can remember. Unemployment is at a 50-year low and wage growth is at 3.2%,” said Jed Kolko, chief economist for, an online job seeker search engine.




The upcoming week  - is holiday-shortened with the 4th of July on Thursday. The Bond markets will close early on Wednesday at 2:00 p.m. ET and all US markets will be closed on the 4th for Independence Day. All US markets are open with normal trading hours on Friday. 

This is typically a slow trading week, but not this time around. With US/China headlines coming over the weekend, there is no telling what could happen Monday morning in both Stocks and Bonds.

Moreover, with many traders away for the big vacation week, the low volume in financial markets could spark some exaggerated price movements -- meaning rates can swing sharply. 

And if that weren't enough, come Friday the important Jobs Report will be delivered, which is likely the last meaningful economic report before the July Fed Meeting. This means if it is a stinker like the last three, you can count on a Fed rate cut at month's end. 

Reports to watch:

  • The national ISM Manufacturing Index will be released on Monday followed by the ISM Service Index on Wednesday.
  • ADP Private Payrolls will be delivered on Wednesday with Weekly Initial Jobless Claims on Thursday.
  • On Friday, Non-Farm Payrolls, Hourly Earnings, the Average Workweek and the Unemployment Rate will be released.

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