The stock market continued to advance into new record-high territory, boosted by releases from major third quarter corporate earnings reports.  This past week marked the fifth consecutive weekly gain for both the Dow Jones Industrial Average and the S&P 500 Index despite a number of political and geopolitical anxieties among investors.

 

Investor sentiment was influenced by several factors including President Trump’s executive order to revoke certain “Obamacare” regulations allowing health insurance companies to issue less comprehensive and cheaper insurance plans.  Trump’s executive order also put a stop to the former Obama administration’s unconstitutional funding of subsidies that compensated health insurers for reducing premiums for low-income enrollees in state insurance exchanges.  Investors also considered rumors of a potential pullout by the U.S. from the North American Free Trade Agreement (NAFTA), the possibility of another North Korean missile launch, and worried about congressional bungling on tax reform.

 

However, there were several constructive economic reports during the week advancing both stocks and bonds.  Initial Jobless Claims (243,000) fell sharply and were below the consensus forecast of 255,000.  Retail Sales for September (+1.6%) exceeded expectations of +1.5%, bouncing back following August’s -0.1% decline.  The boost in retail sales may be a reflection of consumers feeling better about the economy as the University of Michigan’s preliminary October reading on Consumer Sentiment reached a 13 year high at 101.1 to easily surpass the consensus forecast of 95.6 and last month’s reading of 95.1.  Furthermore, the latest consumer inflation data remains tame with the Consumer Price Index (CPI) coming in below the consensus forecast of 0.6% with an increase of just 0.5% in the month of September.  On a year-over-year basis, CPI increased 2.2%, which is just below expectations of 2.3%.  The Core CPI, which excludes food and energy prices, increased by 0.1%, which was below the consensus forecast of 0.2%.  The bond-friendly inflation data helped to send bond prices higher and yields lower on Friday.

 

In housing, mortgage application volume fell during the week ending October 6.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) declined by 2.1%.  The seasonally adjusted Purchase Index decreased 0.1% from the prior week while the Refinance Index fell 4.0%.

 

Overall, the refinance portion of mortgage activity decreased to 49.0% of total applications from 50.1% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.6% of total applications from 6.0%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.16% from 4.12% with points decreasing to 0.44 from 0.45.

 

For the week, the FNMA 3.5% coupon bond gained 23.40 basis points to close at $103.172.  The 10-year Treasury yield decreased 8.59 basis points to end at 2.2748%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 98.05 points to close at 22,871.72.  The NASDAQ Composite Index increased 15.62 points to close at 6,605.80 and the S&P 500 Index advanced 3.84 points to close at 2,553.17.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 15.73%, the NASDAQ Composite Index has advanced 22.71%, and the S&P 500 Index has added 14.04%.

 

This past week, the national average 30-year mortgage rate fell to 3.93% from 3.99%; the 15-year mortgage rate decreased to 3.23% from 3.27%; the 5/1 ARM mortgage rate fell to 3.19% from 3.22% and the FHA 30-year rate declined to 3.50% from 3.60%.  Jumbo 30-year rates decreased to 4.14% from 4.19%.

 

Economic Calendar – for the Week of October 16, 2017

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

The FNMA 30-year 3.5% coupon bond ($103.17, +23.40 bp) traded within a 43.8 basis point range between a weekly intraday low of $102.734 on Tuesday and a weekly intraday high of $103.172 on Friday before closing the week at $103.172 on Friday.

 

Mortgage bond prices moved above a couple of resistance levels located at $103 and the 100-day moving average at $103.12 and these now become support levels.  New resistance levels are found at the 25-day and 50-day moving averages at $103.21 and $103.27 respectively.  A new buy signal was triggered on Wednesday with a positive stochastic crossover from an “oversold” position.  The bond is far from “overbought” so we should see prices easily challenge overhead resistance, and a break above the identified resistance levels in the chart would lead to slightly lower mortgage interest rates.

 

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The stock market posted another good week of gains resulting in the major indexes reaching a new series of record highs.  Meanwhile, bond yields moved a little higher following better than expected economic data earlier in the week and after Friday’s release of the September jobs report showing strong gains in wage growth with an increase of 0.5% in average hourly earnings.

 

Investors showed more concern over possible wage-based inflation than a -33,000 decline in Nonfarm Payrolls for September that was negatively impacted by the effects of hurricanes Harvey and Irma.  Most of the jobs lost were among restaurant and bar workers and many of these will return in future months.  Economists had expected new job growth of 75,000 rather than a loss, but many economists are expecting a rebound in the October payrolls number.

 

Comments made by Philadelphia Federal Reserve President Patrick Harker also played a role in the rise in bond yields after he stated he had “penciled in” a December rate hike even though inflation readings remain low.  The fed funds futures market is now showing the implied probability of a rate hike occurring in December has increased to 90.6%.

 

 

In housing, mortgage application volume fell during the week ending September 29.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) declined by 0.4%.  The seasonally adjusted Purchase Index increased 1.0% from the prior week while the Refinance Index fell 2.0%.

 

Overall, the refinance portion of mortgage activity decreased to 50.1% of total applications from 50.8% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.0% of total applications from 6.5%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.12% from 4.11% with points increasing to 0.45 from 0.40.

 

For the week, the FNMA 3.5% coupon bond lost 7.80 basis points to close at $102.938.  The 10-year Treasury yield increased 2.17 basis points to end at 2.3607%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 368.58 points to close at 22,773.67.  The NASDAQ Composite Index increased 94.22 points to close at 6,590.18 and the S&P 500 Index advanced 29.97 points to close at 2,549.33.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 15.24%, the NASDAQ Composite Index has advanced 22.42%, and the S&P 500 Index has added 13.87%.

 

This past week, the national average 30-year mortgage rate edged higher to 3.99% from 3.97%; the 15-year mortgage rate increased to 3.27% from 3.24%; the 5/1 ARM mortgage rate rose to 3.22% from 3.21% and the FHA 30-year rate was unchanged at 3.60%.  Jumbo 30-year rates increased to 4.19% from 4.17%.

 

Economic Calendar – for the Week of October 9, 2017

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

The FNMA 30-year 3.5% coupon bond ($102.94, -7.80 bp) traded within a 50.0 basis point range between a weekly intraday low of $102.734 on Friday and a weekly intraday high of $103.234 on Wednesday before closing the week at $102.938 on Friday.

 

Mortgage bond prices fell below the $103 support level on Thursday and subsequently tested the next lower support level of $102.68 on Friday before improving from the intraday low $102.73.  The bond is now significantly “oversold” and poised for a rebound higher to test the nearest resistance level at $103.   Friday’s candlestick is known as a “Hammer.”  The Hammer is a potential bullish reversal pattern that forms after a decline.  Additionally, hammers can mark market bottoms or support levels.  The low of the long lower shadow suggests sellers drove prices lower during the session, but the strong finish indicates buyers regained control to end the session on a strong note.  While this may seem enough to act on, hammers require further bullish confirmation.

 

A positive close on Monday could provide the bullish confirmation leading to a move higher to test overhead resistance.  A break above resistance levels would lead to a slight improvement in mortgage rates, but a sideways move between support and resistance should result in rates remaining relatively stable.

 

 

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This past week the stock market continued to move higher with the NASDAQ Composite Index, the small-cap Russell 2000 Index, and the S&P 500 index recording new highs.  Investors shifted their focus to the Trump administration’s announcement of a new tax plan that sounded beneficial to the economy and middle class, but will require many details to be negotiated.  Then again with Congress’s recent track record of legislative failure, especially in the Senate, passage of a tax system overhaul remains far from certain.

 

Furthermore, the proposed new tax plan fueled expectations the plan would significantly add to the federal budget deficit and result in a significant increase in the issuance of Treasury bonds to help pay for tax cuts.  This sentiment helped push bond prices lower raising long-term yields with the yield on the 10-year Treasury note reaching its highest level since July.  After all, most people realize the federal government never meaningfully cuts it’s out of control spending to balance its budget.

 

In housing, the Commerce Department reported last Tuesday that New Home Sales fell to a seasonally adjusted annual rate of 560,000 or 3.4% month-over-month in August, the lowest level since December 2016.  The consensus forecast had projected sales of 577,000, a 3.3% increase.

However, New Home Sales for July were revised higher to 580,000 from an initially reported 571,000.  The median sales price increased 0.4% year-over-year to $300,200 while the available inventory of new homes for sale represented a supply of 6.1 months at the current sales rate, an increase from 5.7 months in July.

Additionally, the National Association of Realtors’ released their Pending Home Sales Index for August showing a 2.6% decline in sales compared to July.  The drop in sales was larger than expected as economists had forecast only a -0.4% sales decline.  A drop in housing supply coupled with ever rising home prices were largely to blame for the sales decline although the devastation caused by Hurricanes Harvey and Irma were contributing factors.

However, mortgage application volume increased during the week ending September 22.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) slipped lower by 0.5%.  The seasonally adjusted Purchase Index increased 3.0% from the prior week while the Refinance Index fell 4.0%.

 

Overall, the refinance portion of mortgage activity decreased to 50.8% of total applications from 52.1% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.5% of total applications from 6.8%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.11% from 4.04% with points remaining unchanged at 0.40.

 

For the week, the FNMA 3.5% coupon bond lost 21.8 basis points to close at $103.016.  The 10-year Treasury yield increased 8.56 basis points to end at 2.3390%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 55.5 points to close at 22,405.09.  The NASDAQ Composite Index increased 69.04 points to close at 6,495.96 and the S&P 500 Index advanced 17.14 points to close at 2,519.36.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 13.37%, the NASDAQ Composite Index has advanced 20.67%, and the S&P 500 Index has added 12.53%.

 

This past week, the national average 30-year mortgage rate remained at 3.97%; the 15-year mortgage rate decreased to 3.24% from 3.27%; the 5/1 ARM mortgage rate rose to 3.21% from 3.20% and the FHA 30-year rate was unchanged at 3.60%.  Jumbo 30-year rates decreased to 4.17% from 4.20%.

 

Economic Calendar – for the Week of October 2, 2017

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

The FNMA 30-year 3.5% coupon bond ($103.016, -21.8 bp) traded within a 43.7 basis point range between a weekly intraday low of $102.969 on Thursday and a weekly intraday high of $103.406 on Tuesday before closing the week at $103.016 on Friday.

 

Mortgage bond prices moved higher last Monday and Tuesday only to be turned away by overhead resistance at the 25-day moving average ($103.40) on Wednesday.  Weakness the remainder of the week drove prices below the 50-day ($103.26) and 100-day ($103.08) moving averages.  Closest support is found at $103.00 with the 38.2% Fibonacci retracement level at $102.806 providing secondary technical support.  Technical signals are currently bearish suggesting a further test of support levels.  A failure of support at $103 could lead to a slight worsening of mortgage rates this coming week with the September Employment Situation Summary (Jobs Report) on Friday serving as a further catalyst for possibly significant price movement.

 

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The financial crisis that started in 2008 caused many homeowners to lose their properties to foreclosure, deed-in-lieu or short sale. This is referred to in the mortgage industry as an “adverse event,” and will affect one’s ability to get a mortgage after the crisis has passed.

 

Many people feel that the stigma of foreclosure will haunt them for the rest of their lives, forever keeping them from becoming homeowners again. While an adverse event presents some challenges to someone coming back to the market—hence the term, “boomerang”—it is by no means a permanent barrier.

 

First, let’s clarify what these events are, and explain how to recover from them. Be aware there are different guidelines for conventional, FHA and VA loans.

 

Conventional loans

 

When a lender makes a loan to buy or refinance real estate, the property is its security for that loan. If the homeowner does not make the payments as agreed, the lender can force the sale of the property to get its money. This is called foreclosure.

 

Homeowners may choose to avoid the ordeal of foreclosure by simply deeding the property back to the lender. This is called “deed-in-lieu of foreclosure,” or simply, “deed-in-lieu.”

 

Many homeowners, knowing that they owed more on their homes than they were worth, sold their homes as “short sales.” This meant that the lender agreed to accept less than the outstanding balance when the property was sold. Lenders refer to this as a “pre-foreclosure sale.”

 

A buyer will have to wait seven years from a foreclosure to qualify for a new conventional mortgage. If they did a short sale or deed-in-lieu, that time drops to four years.

 

A possible loophole

 

A borrower may be able to claim that “extenuating circumstances” were responsible for their financial woes. These are specifically defined as, “non-recurring events that are beyond the borrower’s control that results in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” They must document these events thoroughly; a simple letter of explanation won’t be sufficient. The lender requires divorce decrees, medical reports or job severance notices to confirm acceptable extenuating circumstances.

 

FHA and VA loans

 

These guidelines are more forgiving. FHA loans require three years from a foreclosure or deed-in-lieu or just two years after a short sale. VA allows just two years to have passed.

 

Extenuating circumstances can shorten these time frames as they do for conventional loans. For FHA loans, the criteria are a bit more exacting; a homeowner who received a job transfer and couldn’t sell his property would not be able to claim extenuating circumstances, for example. A decrease in income is not by itself an extenuating circumstance for an FHA loan, but it may be acceptable if there is other supporting documentation.

 

VA loans are more lenient. They require just two years from a foreclosure, deed-in-lieu or short sale. A buyer may be able to claim extenuating circumstances, but they are largely up to the underwriter’s discretion.

 

What to make of this

 

The events following the 2008 crisis and the ensuing recession were traumatic for many. Job losses or changes, transfers, and plummeting real estate values all caused people to lose hope of ever getting the life they hoped to have. But there is always hope. No one should assume they are forever locked out of the housing market because of earlier financial tribulations. They should look at their situation with fresh eyes, with some knowledge, and the realization that the dream of homeownership is still attainable.

 

Source: TBWS

 

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by | Categories: main, Purchase | No Comments

In the pre-open trade this morning, the stock indexes were better, the 10-yr. note yield up 1 bps to 2.23% from yesterday’s close. No direct new threats from NK, and investors still driving stock indexes higher. Slightly weaker yesterday but no follow-through today, a pattern that has repeated itself for the last two months in equity markets.

At 10:00 AM EDT two key reports: August new home sales, expected +3.5% to 583K, sales declined 3.5% to 560K units. September consumer confidence from the Conference Board expected at 120.2 fell to 119.8 AND August as revised lower to 120.4 from 122.9 originally released. Both soft, but markets yawned, with no declines in stock indexes. I have a hard time with recent data coming in weaker than forecast, yet investors continue to lay huge bets that equity markets will continue to climb. That said, at the moment it is what it is–and going against the trend is a foolish risk.

Janet Yellen’s speech has been changed from 11:50 am EDT to 12:45 pm.

At 1:00 pm, Treasury will auction $26B of 3 yr. notes, tomorrow $34B of 5s and Thursday $18B of 7s.

NK moving aircraft to the east coast according to South Korea intelligence officials after the US flew B-1 bombers close to the peninsula. Investors appear nonplussed, however; no fear evident in how equity markets are reacting, but still there is money moving into safety in US treasuries. Another current support for the US markets, the dollar is gaining strength against the yen and especially the euro after German elections over the weekend that lessened Merkel’s power. The dollar has been in free-fall since the beginning of the year. A strengthening dollar adds to better returns to foreign investors.

Rates holding well so far in the face of continued buying in the equity markets. NK still a worry point but investors seem to be less concerned with the rhetoric increasing and not expecting more than just words and threats. Two kids on the playground saying, “dare me,” neither wanting to take the dare.

Source: TBWS

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by | Categories: The Economy | No Comments

Simple answer: no. The Fed Open Market Committee (FOMC) met this week to decide what they would do with the Federal Funds Rate. This is the rate at which banks and credit unions lend money to each other overnight, from their reserve balances.

The Federal Reserve influences the rate at which they lend this money by changing the requirement for the reserves the banks must hold on their books. When the Fed raises that requirement, there is less cash available, and the rate—the Federal Funds Rate—goes up. This is a supply-demand phenomenon.

When the Federal Funds rate moves, the cost of other financing, like car loans, lines of credit and credit cards, goes up along with it. Want to know what doesn’t go up along with the Federal Funds Rate? Mortgages.

Mortgage rates move based on the current price of a fixed-income investment called a Mortgage Backed Security (MBS). These are a type of bond, made up of pools of residential mortgages, bought and sold by investors. When there is high demand, the price of the bond goes up. When this happens, mortgage rates go down. The converse is also true: when the investors are selling because there is less demand, the price of the MBS goes down, and rates go up.

There are times when rates go down after the Fed announces an increase in the Federal Funds Rate. The Fed decides to raise rates in anticipation of more inflation. The investors who buy fixed-income MBS hate inflation, so when the Fed raises rates to forestall inflation, the investors feel good about bonds, so they buy more of them, raising their price and lowering mortgage rates.

One other thing the Fed can do to affect the economy: They can buy bonds. At present, they own roughly $4.5 trillion of them. They have been buying bonds because of a program called Quantitative Easing. They had already cut the Federal Funds Rate to zero in the wake of the 2008 meltdown, so they were out of ammunition for their main economic “gun.” So they started buying bonds—Treasuries and MBS—to help get rates lower and stimulate the economy out of the recession.

The Fed bought roughly 7.5% of the MBS that were being created by Fannie Mae and Freddie Mac, the investors who buy mortgages from lenders. They can’t do this forever, so they have announced that they will begin “tapering” their purchases of MBS.

Over the next 12 months, the Fed will gradually reduce their purchases of MBS by a total of $124 billion. According to the Mortgage Bankers Association, lenders will originate $1.625 trillion in new loans in 2018. Because the Fed will buy 7.5% less of these loans (in the form of MBS), we will see rates go up a bit next year.

The Fed has announced that they plan one more increase in the Federal Funds Rate in 2017, and possibly as many as three increases in 2018, depending on the performance of the economy and the prospects for inflation. Each one of these gradual increases is normally .25%. But it is not so much the increases in the Federal Funds Rate that moves mortgage rates as it is the Fed’s purchases of MBS—and as they tighten their purse strings, we can expect to see those rates increase slightly on 2018.

Source: TBWS

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Mortgage Rate Update

Sep 25, 2017

This past week the stock market ended “mixed” with the Dow Jones Industrial Average and S&P 500 indexes recording marginal gains while the NASDAQ Composite Index slipped modestly lower.  Investors were wary of continued rhetorical threats between President Trump and North Korean dictator Kim Jong-un who boasted North Korea would test a hydrogen bomb somewhere over the Pacific Ocean.  However, the strong words traded between the U.S. and North Korea took a back seat to the week’s most significant piece of economic news that arrived on Wednesday with the Federal Reserve’s September Federal Open Market Committee (FOMC) Policy Statement.

 

As widely expected, the Fed held the fed funds interest rate at the current range of 1.00-1.25%, but hinted they would raise rates by 25 basis points (0.25%) at their December meeting while looking to raise rates three more times in 2018.  U.S. Treasuries and mortgage bond prices ended Wednesday on a sour note, falling in response to the September FOMC Statement.  Also in response, the fed funds futures market is now showing the implied probability of a rate hike in December has increased to 72.8% from 57.8% the previous week.

 

More importantly, the FOMC announced it will initiate the balance sheet normalization program beginning in October.  This program will allow the Fed to begin reducing its massive $4.5 trillion balance sheet, of which $1.8 trillion is held in mortgage backed securities, by not reinvesting in some of its Treasury and mortgage bonds as they mature. This “rolling off” of its bond holdings will begin with monthly reductions of $4 billion in mortgage securities and $6 billion in Treasuries with these levels rising every quarter until reaching $20 billion in mortgage securities and $30 billion in Treasuries per month.  So, how long will it take the Fed to reduce its $1.8 trillion in mortgage securities?  Current projections show it will take about seven years.

 

Fed Chair Janet Yellen said the Fed has no plans to tinker with this pace of balance sheet normalization, but would be willing to restart re-investments if the economic outlook deteriorates.

 

In housing, the National Association of Realtors reported Existing Home Sales fell 1.7% in August to a 5.350 million unit annualized pace; coming in lower than analyst expectations of 5.42 million. Inventory levels declined 2.1% to 1.88 million homes for sale while the median existing home price dropped to $253,500.  Hurricanes Harvey and Irma interrupted closings in the South to negatively impact the sales count nationwide, and will likely continue to do so in coming months.  At the current sales pace, it would take 4.2 months to sell the current home inventory in the market.  First-time buyers made up 31% of all sales, a one-year low, compared with 33% in July.  Homes typically sold in 30 days, compared with 36 days in August 2016 and 51% of homes sold in August were on market for less than a month.

 

The U.S. Census Bureau reported Housing Starts fell slightly by 0.8% in August from July to a seasonally adjusted annual rate of 1.180 million, driven by continued steep declines in multifamily building.  Although buildings with two or more units fell 6.5%, single-family starts increased by 851,000 or by 1.6% in August over July’s revised total of 838,000.  The report indicates single-family construction is gradually improving while multifamily construction is declining significantly due to an oversupply of apartments in many urban markets.  Meanwhile, Building Permits soared 5.7% to a seasonally adjusted annual rate of 1.300 million from an upwardly revised 1.230 million for July.  Ironically, the strength in permits was due to a 19.6% increase in multi-family permits while single-family permits fell by 1.5%

.

Mortgage application volume increased during the week ending September 15.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 9.7%.  The seasonally adjusted Purchase Index decreased 11.0% from the prior week while the Refinance Index fell 9.0%.

 

Overall, the refinance portion of mortgage activity increased to 52.1% of total applications from 51.0% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.8% of total applications from 6.7%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.04% from 4.03% with points remaining unchanged at 0.40.

 

For the week, the FNMA 3.5% coupon bond lost 4.7 basis points to close at $103.234.  The 10-year Treasury yield increased 5.11 basis points to end at 2.2534%.  The major stock indexes ended the week “mixed”.

 

The Dow Jones Industrial Average gained 81.25 points to close at 22,349.59.  The NASDAQ Composite Index fell 21.55 points to close at 6,426.92 and the S&P 500 Index gained 1.99 points to close at 2,502.22.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 13.09%, the NASDAQ Composite Index has advanced 19.39%, and the S&P 500 Index has added 11.76%.

 

This past week, the national average 30-year mortgage rate increased to 3.97% from 3.94%; the 15-year mortgage rate increased to 3.27% from 3.22%; the 5/1 ARM mortgage rate remained unchanged at 3.20% and the FHA 30-year rate rose to 3.60% from 3.50%.  Jumbo 30-year rates increased to 4.20% from 4.19%.

 

Economic Calendar – for the Week of September 25, 2017

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

The FNMA 30-year 3.5% coupon bond ($103.23, -4.7 bp) traded within a 28.1 basis point range between a weekly intraday low of $103.00 on Wednesday and a weekly intraday high of $103.281 on Tuesday and Wednesday before closing the week at $103.234 on Friday.

 

Mortgage bonds continued lower during the week to test support levels at the 50-day ($103.21) and 100-day ($103.05) moving averages.  Friday, the bond bounced higher off of the 100-day moving average support level resulting in a slow stochastic crossover buy signal while being deeply “oversold.”  This suggests the bond could continue higher toward the 25-day moving average resistance level in the coming week to send mortgage rates slightly lower.

 

 

 

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The stock market inched higher again today; the bond and mortgage markets generally unchanged. Markets acting as usual ahead of an important FOMC meeting that concludes tomorrow, these days normal is for the stock indexes to make new highs daily.

 

President Trump at the UN today; called the Iran deal an embarrassment; threatened NK once again saying the US will have “no choice but to totally destroy North Korea” if forced to defend itself. Called the little leader “Rocket Man” saying he is on a suicide mission. The Sec General also speaking for the first time since he took the leadership countered with the usual diplomatic course. Trump said the world must do more to isolate both North Korea and Iran, which he described as rogue regimes that respect neither their own citizens nor the sovereignty of other countries.

 

Healthcare; a new bill being crafted by Republicans led by Pence and Senate Majority leader McConnell. The bill would hand over billions of dollars in healthcare spending from the federal government to the states, end the coverage mandates included under Obamacare, and drastically cut back Medicaid. A bill must be passed by the end of this month; already huge resistance. Some key Republicans are already saying they won’t vote for it, including Sen Paul Ryan. The bill will need all but two Republicans to get it passed.

 

Tomorrow is all about the FOMC, but in the morning August existing home sales will be reported; expected at 5.48M from 5.44M in July.

 

Will the Fed bend to more hawkishness tomorrow and announce the beginning of tapering off its $4.5 trillion balance sheet; or will the FOMC look at the lack of inflation and a questionable outlook for better economic growth and kick the can? The general consensus is that the Fed will announce the tapering but will fall back on data dependency when it comes to anticipating another rate hike at the December meeting. A week ago the ECB kicked the can and kept QEs going with Draghi commenting the issue would be discussed again at its October meeting.

 

Ambivalence heading into Wednesday’s decision continues to amaze. Under the surface, we hear there is a lot of angst at the level of stock indexes, but on the surface, where money matters more the indexes continue to make new highs, pushing indexes higher up a very steep hill. If the Fed comes off looking worried about continued growth, or if the Fed comes off hawkish and markets take it that the Fed may be finished supporting the economy; either way, it may be viewed as a hurdle for economic bullishness. Growth this quarter has slowed so far; most stock analysts are on the same page saying Q3 earnings will not match earnings in Q1 and Q2. The FOMC has to make a case that inflation is increasing; hard to do but markets do take the Fed as gospel, especially if the Fed lines up behind a particular market belief. Either way, tomorrow afternoon should set up increased market volatility.

 

We expect flat trading tomorrow until at least 2:00 PM EDT when the statement and the Fed’s quarterly forecasts on inflation and GDP growth for the next two years; then at 2:30 Janet Yellen’s press conference. This FOMC meeting has been on minds since last April.

 

Source: TBWS

 

 

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This past week investors were rewarded with the three major stock indexes reaching new record all-time highs.  The rally began last Monday following early reports that damages from Hurricane Irma were not as severe as first projected when Irma was classified as a category 5 before slamming into Florida.  Also, the equity markets shrugged off another launch of a ballistic missile by North Korea that flew over the northern Japanese island of Hokkaido on Friday to continue the week’s safe-haven sell off.

 

The week’s most significant economic news arrived Thursday from a Commerce Department report showing the Consumer Price Index (CPI) rising by a greater than expected 0.4% in August resulting in a year-over-year increase of 1.9%.  The consensus estimate had called for a 0.3% increase in the August CPI.  This report led investors to consider the Federal Reserve’s view that the recent weaker than forecast inflation data was temporary might be true.  Expectations are now significantly increasing for another interest rate hike at the Fed’s December 13 FOMC policy meeting.  In fact, the Fed Funds futures market shows the probability of another rate hike by year end has jumped higher to 57.8% from 27.3% last week while the current implied probability for a rate-hike at the June 2018 FOMC meeting increased to 76.9% from last week’s 47.1%.

 

In housing, mortgage application volume increased during the week ending September 8.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 9.9%.  The seasonally adjusted Purchase Index increased 11.0% from the prior week while the Refinance Index advanced 9.0%.

 

Overall, the refinance portion of mortgage activity increased to 51.0% of total applications from 50.9% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.7% of total applications from 7.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.03% from 4.06% with points increasing to 0.40 from 0.38.

 

For the week, the FNMA 3.5% coupon bond lost 54.7 basis points to close at $103.28.  The 10-year Treasury yield increased 14.82 basis points to end at 2.2023%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 470.55 points to close at 22,268.34, a new all-time high.  The NASDAQ Composite Index added 88.28 points to close at 6,448.47 and the S&P 500 Index gained 38.80 points to close at 2,500.23.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 12.68%, the NASDAQ Composite Index has advanced 19.79%, and the S&P 500 Index has added 11.68%.

 

This past week, the national average 30-year mortgage rate increased to 3.94% from 3.84%; the 15-year mortgage rate increased to 3.22% from 3.12%; the 5/1 ARM mortgage rate moved higher to 3.20% from 3.10% and the FHA 30-year rate rose to 3.50% from 3.35%.  Jumbo 30-year rates increased to 4.19% from 4.10%.

 

Economic Calendar – for the Week of September 18, 2017

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

The FNMA 30-year 3.5% coupon bond ($103.28, -54.7 bp) traded within a 54.7 basis point range between a weekly intraday low of $103.703 on Monday and a weekly intraday high of $103.156 on Thursday before closing the week at $103.28 on Friday.

 

The stock market continued to move higher while bonds sold off in response.  Mortgage bonds fell below last week’s nearest support levels and these now become resistance levels.  The bond is no longer severely “overbought” and the slow stochastic oscillator is now moving toward an “oversold” level, but has not yet reached this position.  Technically it appears the bond will continue a little lower to test support at the 50-day and 100-day moving averages.  As a result, mortgage rates may rise slightly in the coming week.  Also, bond traders will be focusing on this coming week’s Federal Reserve FOMC meeting on Tuesday and Wednesday.  It is widely anticipated Fed Chair Janet Yellen will announce the beginning of a gradual reduction of assets, including mortgage bonds, to shrink its huge balance sheet resulting from its response to the 2008 financial crisis.  While Yellen is unlikely to “upset the apple cart” with such an announcement, you never know how traders will respond to the Fed’s plan for shrinking their balance sheet by selling bonds.

 

 

 

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Buy Real Estate with Bitcoins? In Dubai, you can.

British entrepreneurs and real estate developers Michelle Mone and Doug Barrowman have begun offering units in their 2.4 million square foot buildings in Dubai…for Bitcoins. A studio apartment will go initially for the low, low promotional price of 30 BTC, while the more spacious 1-bedroom units will bring 50 BTC. The prices of the 150 units offered for Bitcoin payment are tied to the US Dollar, so they will fluctuate as the Bitcoin moves. The studio apartment was initially offered at $133,918—but that was when 1 BTC was trading at its high of $4,600.

At today’s prices, 1 Bitcoin is worth $3,850. No, wait: it’s $3,854. Hold on…it’s almost $4,000. Now it’s back to $3,850. It reached a high of $4,683 in August 2017. Bitcoin is somewhat volatile; you might say—this time last year, you could buy 1 BTC for about $600. Interested readers can find the history of Bitcoin prices online.

For anyone not quite familiar with the term, Bitcoin (BTC) is a form of “cryptocurrency.” It first appeared in 2009, introduced by an anonymous person using the name, “Satoshi Nakamoto.” No one knows for sure who this person is.

Part of the appeal for many is that transactions conducted in BTC are completely anonymous; the parties are identified using a unique, encrypted digital “key, ” and the transactions occur online. The anonymity of BTC transactions causes a certain amount of anxiety to security experts around the world. Some might consider it to be the equivalent of numbered Swiss bank accounts.

We’re likely to hear more about cryptocurrencies in the future.

It’s not likely that we’ll see Bitcoin used to purchase real estate in the U.S. anytime soon, if ever. Large financial transactions, such as anything involving real estate, requires a detailed accounting of all the funds involved. A wealthy buyer can’t walk into the title company with a wheelbarrow full of cash—or a digital “wallet” full of Bitcoins—and expect to close escrow. A “cash” buyer must document the source of the funds to avoid any possibility of money laundering.

While the units in the Dubai luxury complex will almost certainly sell out quickly to wealthy cash (Bitcoin) buyers, those who hold Bitcoins in the U.S. will still have to settle for paying for their real estate acquisitions with good old dollars.

Source: TBWS

 

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