The major stock market indexes traded mostly flat to modestly lower to end the week “mixed” with the Nasdaq Composite Index managing to record a gain while the Dow Jones Industrial Average and the S&P 500 Index saw small losses.  Trading volumes began to shrink as the week progressed as market participants turned their attention toward the pending Thanksgiving holiday season.

 

There was one record worth mentioning.  The S&P 500 Index had a 50-day run of avoiding a daily decline of greater than 0.50% heading into last Wednesday when it was ended with a 0.55% decline.  This was the longest such streak since 1965.

 

The week’s economic reports were mostly favorable for the markets.  Retail Sales increased by a greater than expected 0.2% in October while Housing Starts and Permits recorded unexpectedly stronger than forecast gains, rising 13.7% and 5.9%, respectively.  The October Producer Price Index increased 0.4% in October, more than the 0.1% expected by economists.  However, the Consumer Price Index only increased by 0.1% for October with the core rate (excluding food and energy prices) rising 0.2% to match expectations.

 

As far as mortgages were concerned, mortgage application volume increased during the week ending November 10.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) increased 3.1%.  The seasonally adjusted Purchase Index increased 0.4% from the prior week while the Refinance Index increased 6.0%.

 

Overall, the refinance portion of mortgage activity increased to 51.3% of total applications from 49.0% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.4% of total applications from 6.6%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.18% with points increasing to 0.40 from 0.38.

 

For the week, the FNMA 3.5% coupon bond gained 26.5 basis points to close at $102.703.  The 10-year Treasury yield decreased 5.68 basis points to end at 2.3452%.  The major stock indexes ended the week “mixed.”

 

The Dow Jones Industrial Average fell 63.97 points to close at 23,358.24.  The NASDAQ Composite Index gained 31.85 points to close at 6,782.79 and the S&P 500 Index lost 3.45 points to close at 2,578.85.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.19%, the NASDAQ Composite Index has advanced 26.00%, and the S&P 500 Index has added 15.19%.

 

This past week, the national average 30-year mortgage rate fell to 3.97% from 4.01%; the 15-year mortgage rate decreased to 3.30% from 3.31%; the 5/1 ARM mortgage rate increased to 3.21% from 3.20% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates decreased to 4.16% from 4.18%.

 

Economic Calendar – for the Week of November 20, 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 ($102.703, +26.5 bp) traded within a 42 basis point range between a weekly intraday high of $102.841 on Wednesday and a weekly intraday low of $102.42 on Monday before closing the week at $102.703 on Friday.

 

Mortgage bond prices successfully tested support on Monday and continued higher during the week to test overhead resistance on Wednesday before pulling back on Thursday and Friday.  The bond is not yet overbought and is positioned to make another run higher to further test nearby resistance at $102.77 and $102.806.  If the bond can manage to break above the dual levels of resistance it should lead to a slight improvement in mortgage rates.  If the bond is turned away from resistance, the bond would likely trade between the resistance and support levels identified on the chart resulting in relatively stable mortgage rates this coming week.

 

 

 

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The major stock market indexes reached new record highs on Monday and Wednesday before ending the week modestly lower to snap an eight week winning streak.  There was some profit taking on Thursday and Friday to coincide with Thursday’s release of the Senate’s version of a tax reform bill that seemed to depress investor sentiment.

 

The Senate’s version of tax reform called for a one year delay in cutting the corporate tax rate to 20% from 35% and maintained deductions related to mortgages and state and local property taxes.  While the House and Senate versions are now headed toward a reconciliation process to hammer out their differences, uncertainty surrounding the ability of Congress to do just that created a cloud over the financial markets.

 

Investors are now more doubtful about the prospects for real tax reform.  The House version tries to offset the steep cuts in the corporate tax rate by limiting the mortgage deduction and deductibility of state and local property taxes, and these proposals are proving to be highly controversial.  Here’s a thought – pay for the tax cuts by cutting federal spending.

 

The economic calendar was very light with little in the way of data to influence the markets.  As far

as mortgages were concerned, mortgage application volume was unchanged during the week ending November 3 from the prior week.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) remained unchanged.  The seasonally adjusted Purchase Index increased 1.0% from the prior week while the Refinance Index decreased 1.0%.

 

Overall, the refinance portion of mortgage activity increased to 49.0% of total applications from 48.7% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.6% 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 decreased to 4.18% from 4.22% with points decreasing to 0.38 from 0.43.

 

For the week, the FNMA 3.5% coupon bond lost 56.2 basis points to close at $102.438.  The 10-year Treasury yield increased 6.95 basis points to end at 2.4020%.  The major stock indexes ended the week lower for the first time in eight weeks.

 

The Dow Jones Industrial Average fell 116.98 points to close at 23,422.21.  The NASDAQ Composite Index dropped 13.50 points to close at 6,750.94 and the S&P 500 Index lost 5.54 points to close at 2,582.30.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.52%, the NASDAQ Composite Index has advanced 25.41%, and the S&P 500 Index has added 15.34%.

 

This past week, the national average 30-year mortgage rate rose to 4.01% from 3.96%; the 15-year mortgage rate increased to 3.31% from 3.27%; the 5/1 ARM mortgage rate increased to 3.20% from 3.18% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates increased to 4.18% from 4.15%.

 

Economic Calendar – for the Week of November 13, 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 ($102.438, -56.2 bp) traded within a 75.0 basis point range between a weekly intraday high of $103.141 on Tuesday and a weekly intraday low of $102.391 on Friday before closing the week at $102.438 on Friday.

 

Mortgage bond prices continued higher at the beginning of last week, moving above the 100-day moving average resistance level last Monday and Tuesday before being turned away by resistance at the 50-day moving average on Wednesday.  The bond then continued lower to fall below several support levels including the 25-day and 100-day moving averages along with the 38.2% Fibonacci retracement level.  These now become technical resistance levels.  New support levels have been identified at $102.428 and $102.17.  A sell signal was generated last Wednesday on a negative stochastic crossover, and since the bond is not yet “oversold” a continuing decline toward secondary support at $102.17 could occur.

 

Therefore, we could see the bond continue to move lower to test support levels, and a move below these levels would lead to slightly higher mortgage rates.

 

 

 

 

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The major stock market indexes once again recorded new all-time highs during the week while bond prices also recorded modest gains to send yields slightly lower.

 

Political events during the week seemed to create crosscurrents within investor sentiment.

An announcement of a couple of indictments and a conviction last Monday by Special Prosecutor Robert Mueller in his investigation into Russian interference in the 2016 presidential election seemed to dampen investor sentiment, but this was offset by the release of the “Tax Cuts and Jobs Act” by Republican House leaders.   This bill calls for an immediate cut in the top corporate tax rate to 20% which should stimulate the economy and create more jobs.  Additionally, President Trump announced last Thursday he was nominating Federal Reserve Governor Jerome Powell to succeed Janet Yellen as the next chairman of the Federal Reserve.  Powell is viewed more as a monetary policy “dove” than a “hawk” will likely have a carefully measured approach to rate increases and this news was well received by the bond market.

 

The week’s economic news was mixed.  Personal Spending increased by a more than expected +1.0% in September while the Conference Board reported Consumer Confidence in October reached its highest level in nearly 17 years with a reading of 125.9.  The ISM Manufacturing Index, while strong at 58.7, slightly missed expectations of 59.0.  Employment costs crept higher with the 3rd Quarter Employment Cost Index increasing by a greater than forecast 0.7% while Unit Labor Costs gained a higher than expected 0.5%.  The closely watched Employment Situation Summary for October (Jobs Report) showed fewer jobs (261,000) were created than forecast (300,000), but this was thought to be due to negative effects of the recent hurricanes causing volatility in jobs data.  The unemployment rate fell to 4.1% from 4.2% while October average hourly earnings were flat at 0.0% after increasing 0.5% in September.  Over the last 12 months, average hourly earnings have increased 2.4%, versus 2.9% for the 12 months ending in September.

 

As for mortgages, mortgage application volume decreased during the week ending October 27.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell by 2.6%.  The seasonally adjusted Purchase Index decreased 1.0% from the prior week while the Refinance Index decreased 5.0%.

 

Overall, the refinance portion of mortgage activity decreased to 48.7% of total applications from 45.5% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.8% of total applications from 6.4%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.22% from 4.18% with points increasing to 0.43 from 0.42.

 

For the week, the FNMA 3.5% coupon bond gained 43.7 basis points to close at $103.00.  The 10-year Treasury yield decreased 8.30 basis points to end at 2.3325%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 105.00 points to close at 23,539.19.  The NASDAQ Composite Index increased 63.18 points to close at 6,764.44 and the S&P 500 Index advanced 6.77 points to close at 2,587.84.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 19.11%, the NASDAQ Composite Index has advanced 25.66%, and the S&P 500 Index has added 15.59%.

 

This past week, the national average 30-year mortgage rate fell to 3.96% from 4.06%; the 15-year mortgage rate decreased to 3.27% from 3.34%; the 5/1 ARM mortgage rate dropped to 3.18% from 3.22% and the FHA 30-year rate decreased to 3.60% from 3.75%.  Jumbo 30-year rates decreased to 4.15% from 4.24%.

 

Economic Calendar – for the Week of November 6, 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 ($103.00, +43.7 bp) traded within a 39.1 basis point range between a weekly intraday high of $103.00 on Friday and a weekly intraday low of $102.609 on Wednesday before closing the week at $103.00 on Friday.

 

Mortgage bond prices continued to move higher last week following the new buy signal from October 27.  The bond moved above a couple of resistance levels at $102.73 and $102.806 and these levels now revert to support levels.  There isn’t much in the way of economic news this coming week to influence the bond market, so there is greater likelihood for the market to be influenced by technical signals.  Technically, the slow stochastic oscillator indicates the bond is not yet “overbought” so the bond has more time to move higher before reaching an overbought level where it would be more susceptible to a downturn.

 

Therefore, we should see the bond continue to move higher to challenge a dual layer of resistance at $103.06 and $103.13.  A break above these levels will lead to an improvement in bond prices and mortgage rates.  However, a failure to break above resistance should result in rates remaining close to where they currently are.

 

 

 

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Home buyers today are faced with a fundamental choice: should they buy a home in an established neighborhood? Or is it better to go for a never-lived-in home in a new development? Each has its advantages and drawbacks. Here are some of the top decision points.

An “older” home—a better term would be “resale home”—will typically be in a neighborhood that is well-established. Many of the neighbors may’ve lived there for decades. The character of the neighborhood may be evident: for example, do most of the other homeowners have teenagers, or small children, or are many nearing retirement age?

Older homes were built when land was less expensive, so they tend to have larger lots than today’s newer developments, which places larger homes on small lots, with very little space between buildings.

Trees, lawns and other vegetation will be mature compared to new developments, which can seem comparatively sparse and open.

On the other hand, older homes may have some functionally obsolete features, such as older kitchens and baths, and floor and window coverings that need updating. There are some aspects of older homes that do not lend themselves well to modernization, such as floor plans, smaller rooms, and closets.

Older homes may also be located closer to the center of town—and that convenient location may mean commanding a higher price per square foot than a newer development located miles from the center of the town or city.

On the other hand, buyers may find brand-new appliances, roofs and other amenities with builder warranties to be attractive features. Newer homes may be equipped with high-tech upgrades (built-in wi-fi and Bluetooth, anyone?) that may be impractical to install in an older home. Also, as building codes have evolved over the years, new homes typically are more energy-efficient, so they may be less expensive to heat and cool.

Because cities and towns tend to expand outward, living in a new development may involve more driving to work, shopping and entertainment. For many buyers, this has been an acceptable trade-off.

Buyers have been increasingly opting for new homes; sales in that portion of the market spiked 17% from 2016, even though there are 9% fewer homes on the market from last year. Nationally, the median price of a new home reached $319,700 for new homes, compared to $245,100 for existing properties. Only 13% of the new homes sold in 2016 were under $200,000. Most were priced between $200,000 and $400,000. 19% were $500,000 and above.

Although the inventory of new and resale homes is still tighter than it has been in the past, buyers can still enjoy historically low-interest rates and a wide variety of financing choices, regardless of their choice of new or “old” home.

 

Source: TBWS

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The majority of stock market indexes continued to advance into record territory led by a surge in earnings from technology companies Alphabet (Google), Amazon, Intel, and Microsoft.  Strong 3rd Quarter earnings reports from 3M, Caterpillar, Corning, and General Motors also provided a market boost to the S&P 500 and the overall market.  The week’s economic reports were favorable suggesting a stronger future economy, and this dampened investor sentiment in the bond market with the realization the Federal Reserve might institute more rate hikes next year than currently anticipated.  The probability for a December rate hike is currently 99.9%, up from 93.1% last week.

 

On Wednesday, the Commerce Department reported Durable Goods Orders increased by a greater than forecast 2.2% in September, the largest gain in three months, versus expectations for a 1.3% increase.  Friday, the Commerce Department released their Advance GDP report for the 3rd Quarter showing the economy had unexpectedly grown at an annualized rate of 3.0% despite the negative impact of two major hurricanes.  This was a surprise as economists had only forecast a 2.4% growth rate.  Although these reports pressured bond prices lower (yields higher), the bond market saw some price relief on Friday following rumors that President Trump was favoring Fed Governor Jerome Powell as the central bank’s next chair.  Powell is viewed more as a monetary policy “dove” by bond market participants and would likely continue Janet Yellen’s measured approach in raising short-term interest rates.

 

 

The week’s housing reports were strong overall.  The Census Bureau announced New Home Sales surged higher in September to a seasonally adjusted annual rate of 667,000, a 18.9% month-over-month increase over August’s  rate of 561,000.  The median sales price of new homes sold in September 2017 increased 1.6% year-over-year to $319,700 with the average sales price jumped 5.2% to $385,200.  New home inventory at the end of September stood at 279,000 representing a supply of 5.0 months at the current sales rate.

The National Association of Realtors reported Pending Home Sales was unchanged in September at the lowest level since the start of 2016 as Hurricane Irma slowed sales in the southeast while tight inventory levels of available homes for sales limitied sales activity elsewhere.  August Pending Home Sales were revised lower by -0.2% to -2.8% from -2.6%.  Lawrence Yun, NAR’s chief economist, said “While most of the country, except for the South, did see minor gains in contract signings last month, activity is falling further behind last year’s pace because new listings aren’t keeping up with what’s being sold.”

As for mortgages, mortgage application volume decreased during the week ending October 20.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell by 4.6%.  The seasonally adjusted Purchase Index decreased 6.0% from the prior week while the Refinance Index decreased 3.0%.

 

Overall, the refinance portion of mortgage activity increased to 49.5% of total applications from 48.6% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.4% of total applications from 6.1%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.18% from 4.14% with points decreasing to 0.42 from 0.44.

 

For the week, the FNMA 3.5% coupon bond lost 10.9 basis points to close at $102.563.  The 10-year Treasury yield increased 3.28 basis points to end at 2.4155%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 105.56 points to close at 23,434.19.  The NASDAQ Composite Index increased 72.21 points to close at 6,701.26 and the S&P 500 Index advanced 5.86 points to close at 2,581.07.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.58%, the NASDAQ Composite Index has advanced 24.49%, and the S&P 500 Index has added 15.29%.

 

This past week, the national average 30-year mortgage rate rose to 4.06% from 3.98%; the 15-year mortgage rate increased to 3.34% from 3.28%; the 5/1 ARM mortgage rate was unchanged at 3.22% and the FHA 30-year rate increased to 3.75% from 3.60%.  Jumbo 30-year rates increased to 4.24% from 4.17%.

 

Economic Calendar – for the Week of October 30, 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 ($102.563, -10.9 bp) traded within a 62.5 basis point range between a weekly intraday high of $102.797 on Monday and a weekly intraday low of $102.172 on Wednesday before closing the week at $102.56 on Friday.

 

The bond managed to push just above the key 200-day moving average resistance level last Monday, but was unable to advance as further nearby resistance from the 38.2% Fibonacci retracement level stopped the advance dead in its tracks.  The bond then moved lower during the week until bouncing back on Friday on rumors that President Trump was strongly considering Fed Governor Jerome Powell to replace Janet Yellen as the central bank’s next chair.

 

Friday’s trading action from a support level triggered a new buy signal from a positive crossover in the slow stochastic oscillator.  If this technical signal proves true, we should see bond prices climb to test the identified resistance levels once more.  A move above the resistance levels would lead to a slight improvement in mortgage rates, while range-bound trading between current support and resistance should maintain rates close to where they currently are.

 

 

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September new home sales increased by 18.9% in September, well above expectations.  This is another indicator of growing economy.

 

 

 

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Just about any news these days bolsters the US and global equity markets. Over the weekend, Japanese Prime Minister Shinzo Abe’s election victory lifted world stocks and the dollar this morning. His victory assures Japan will continue its quantitative easing, which means a weaker yen and stronger Japanese government bond prices.

 

Trump also saying that the re-appointment of Federal Reserve Chair Janet Yellen was still a possibility.

 

The 30 stocks in the DJIA continue to headline, but a more detailed look isn’t as shiny; last week the DJIA increased 1.73%, NASDAQ +23, S&P +22. If not for an increase of 24 points on Friday, the NASDAQ would have been unchanged on the week; S&P on Friday +13 points.

 

Last week, the Senate voted to pass a continuing resolution to add $15 trillion to the debt over 10 years. That cleared the way for tax cuts, but still a lot of discussion about how much and to whom. Democrats are not likely to vote for any plan put together by Republicans, and Republicans in each chamber are not on the same page about most anything. There is almost 100% agreement that a tax cut package should happen, but there isn’t anywhere close to that about who gets what and by how much.

 

On Thursday, the ECB meeting, at which it is widely expected the bank will announce the beginning of reducing its QE. Mario Draghi in his recent speeches and comments has prepared markets for the moves to lessen market support.

 

Doesn’t take much these days to push the indexes higher, especially the DJIA. The broader market taking a breather last week and looking at volumes of trading it has lessened recently. That said, no one appears to be outwardly nervous (not selling) even though remarks and statistics are warning of an extended equity market.

 

One data point this morning: the Chicago Fed National Activity Index, expected -0.10 increased 0.17 (August index -0.37). Not much until Wednesday.

 

The key 10 yr. note yield increased 6 bps Friday as the DJIA ran up 165 points; MBS price -24 bps. Very key technical support now for the 10 at 2.40%, tested three times since last May and has held. If the 10 moves above 2.40% it will add additional technical bearishness in the rate markets and will push mortgage rates higher. Nothing new here; as long as equity markets refuse to pull back there isn’t much to push rates down. Inflation remains subdued; that is helping and keeping rates generally stable recently. Our technical models remain bearish in the wider view, but it is all dependent on stock market trading.

 

Source: TBWS

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The stock market continued to advance into new record-high territory last week on better than expected third quarter corporate earnings reports.  The Dow Jones Industrials in particular benefited from earnings reports from IBM, Johnson & Johnson, and UnitedHealth that helped send the Dow over 23,000.  Several equity market analysts with a macro view are predicting the stock market will continue to rise with the Dow eventually reaching the 50,000 mark.

 

Positive economic data during the week and passage of a budget resolution by Congress paving the way for a tax reform package that would further stimulate economic growth through tax cuts also helped stocks to move higher while sending bond prices lower and Treasury yields higher.

Manufacturing remained strong with better than forecast readings from the New York Empire State Manufacturing Index (30.2 vs. 21.0 expected) and the Philadelphia Fed Manufacturing Index (27.9 vs. 20.0 expected).  Furthermore, weekly jobless claims fell to their lowest level since 1973, when the labor force was roughly 60% of its current size.

 

In housing, the Commerce Department reported Housing Starts for September fell to a one-year low seasonally adjusted annual rate of 1.127 million while economists had estimated a rate of 1.160 million.  Housing Starts were negatively impacted by the disrupting effects to construction of single-family homes in the South by hurricanes Harvey and Irma.  Housing Starts in the Southern Region declined by 15.3% on a month-over-month basis.  Meanwhile, Building Permits declined 4.5% to a seasonally adjusted annual rate of 1.215 million, below the consensus forecast of 1.225 million.  Permits for building multi-family units led the decline with a 16.1% decrease.

A chart from Doug Short, Vice President of Research at Advisor Perspectives, that smooths out monthly volatility in Housing Permits and Starts as a percent of the population provides a longer-term view of the trends in Starts and Permits.

 

 

On Friday, The National Association of Realtors reported Existing Home Sales unexpectedly increased 0.7% in September to a seasonally adjusted annual rate of 5.39 million units.  Economists had forecast a more modest rate of 5.29 million units.  Available inventory remains limited and is 6.4% lower than the same period a year ago with only a 4.2 month supply at the current sales rate.  Coupled with an increase of 4.2% in the median existing home prices to $245,100 for all housing types and $246,800 in single-family home prices, affordability continues to be a concern and will inhibit future sales.  Indeed, first-time buyers fell to 29% of sales in September from 31% in August, comprising this group’s lowest portion of existing home sales since September 2015.

As for mortgage data, mortgage application volume increased during the week ending October 13.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose by 3.6%.  The seasonally adjusted Purchase Index increased 4.0% from the prior week while the Refinance Index increased 3.0%.

 

Overall, the refinance portion of mortgage activity decreased to 48.6% of total applications from 49.0% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.1% of total applications from 6.6%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.14% from 4.16% with points remaining unchanged at 0.44.

 

For the week, the FNMA 3.5% coupon bond lost 50.0 basis points to close at $102.672.  The 10-year Treasury yield increased 10.79 basis points to end at 2.3827%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 456.91 points to close at 23,328.63.  The NASDAQ Composite Index increased 23.25 points to close at 6,629.05 and the S&P 500 Index advanced 22.04 points to close at 2,575.21.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.04%, the NASDAQ Composite Index has advanced 23.15%, and the S&P 500 Index has added 15.02%.

 

This past week, the national average 30-year mortgage rate rose to 3.98% from 3.93%; the 15-year mortgage rate increased to 3.28% from 3.23%; the 5/1 ARM mortgage rate rose to 3.22% from 3.19% and the FHA 30-year rate increased to 3.60% from 3.50%.  Jumbo 30-year rates increased to 4.17% from 4.14%.

 

Economic Calendar – for the Week of October 23, 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 ($102.67, -50.0 bp) traded within a 53.1 basis point range between a weekly intraday high of $103.125 on Monday and a weekly intraday low of $102.594 on Friday before closing the week at $102.67 on Friday.

 

An increase in the likelihood of real tax reform passing Congress sent stock prices higher and bond prices lower.  Mortgage bond prices were not immune with the FNMA 30-year 3.5% coupon bond falling below support levels including the key 200-day moving average – a bearish event.  A new sell signal on Wednesday from a negative stochastic crossover led to the downward breach of the 200-day moving average on Friday.  The next support levels are found at $102.50 and $102.30 while the aforementioned 200-day moving average defines nearest overhead resistance.  The overall trend is down, and if bond cannot reclaim the 200-day moving average, it is likely mortgage rates will be pressured slightly higher in the coming week.

 

 

 

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Natural disasters, like the storms that battered Texas, Florida and Puerto Rico, and the devastating wildfires in California, do far more damage than destroying people’s property and lives. They also disrupt local municipal budgets.

 

Some might say, local bureaucracy is far less important than people’s homes and possessions, remember that these local governments are responsible for police and fire protection, schools, roads and other aspects of local infrastructure.

 

One solution has been a long-standing federal program, Community Development Block Grants. Congress has used this program to help communities recover from major disasters. When superstorm Sandy descended on the New Jersey coastline in 2012, the state was able to be allocated portions of the $4.1 billion it received from the federal government to replace lost tax revenue and maintain services without having to enact steep tax increases.

 

Congress has approved some $50 billion in block grants over the last 25 years. The communities affected by recent storms Harvey and Irma stand to receive $7.4 billion in disaster relief funds under a new bill signed recently, with more expected as recovery continues.

 

Block grants are different from other types of disaster relief, in that there is more flexibility as to how the funds may be used. Local officials can allocate funds to compensate home and business owners and invest in various forms of economic development, along with working on infrastructure repair.

 

They may also be used to prepare for future disasters. After the water treatment plant in Galveston, Texas succumbed to the ravages of hurricane Ike in 2008, block grant funds were used to build a new facility. The new one successfully weathered hurricane Harvey.

 

The Northern California wildfires, which are only now being brought under control, have resulted in the destruction of more than 3,500 homes and businesses, including 22 wineries. Although it remains to be seen how much disaster relief will come from the federal government, the flexibility of the federal block grants will surely be an essential part of the recovery effort. Local governments, with their close personal ties to those who have been directly affected by the disasters, are better equipped to deploy these limited funds where they can do the most good.

 

Source: TBWS

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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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