Stock market traders responded with a “relief rally” to the previous Friday’s air strike on Syria when they realized it was limited in scope and after it did not trigger a military response from Russia.  Additionally, crude oil prices continued to rally with West Texas Intermediate crude moving closer to $70 per barrel, a price level not seen since November 2014.

 

The higher oil prices combined with stronger than forecast retail sales and housing data released during the week sparked inflation fears resulting in lower bond prices and higher yields.  Friday, the 10-year Treasury note traded with a 2.96% yield, the highest yield since January 8, 2014.

 

Retail Sales increased 0.6% in March versus a consensus forecast of +0.4%, ending a streak of three consecutive monthly declines.  Housing Starts and Building Permits for the month of March were also strong with Housing Starts reported at a seasonally adjusted annualized rate of 1.319 million, compared to expectations for 1.267 million.  Building Permits reached a rate of 1.354 million, 33,000 greater than forecasts.

 

However, while the headline data was strong in both reports, the underlying trend wasn’t quite as positive as single-family units actually declined on a month-over-month basis with a drop of 3.7% in Starts and a decline of over 5% in Permits. However, multi-family unit starts and permits were both higher by double-digit percentages.

 

From the mortgage industry, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed a rise in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 4.9% during the week ended April 13, 2018.  The seasonally adjusted Purchase Index increased 6.0% from the week prior while the Refinance Index increased by 4.0%.

 

Overall, the refinance portion of mortgage activity fell to 37.6% from 38.4% of total applications from the prior week, its lowest level since September 2008.  The adjustable-rate mortgage share of activity increased to 6.6% from 6.3% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.66% with points remaining at 0.46.

 

For the week, the FNMA 4.0% coupon bond fell 57.8 basis points to close at $101.688 while the 10-year Treasury yield increased 13.54 basis points to end at 2.9602%.  The major stock indexes managed to move modestly higher during the week.

 

The Dow Jones Industrial Average gained 102.80 points to close at 24,462.94.  The NASDAQ Composite Index advanced 39.48 points to close at 7,146.13.  The S&P 500 Index added 13.84 points to close at 2,670.14.  Year to date on a total return basis, the Dow Jones Industrial Average has fallen 1.04%, the NASDAQ Composite Index has gained 3.52%, and the S&P 500 Index has lost 0.13%.

 

This past week, the national average 30-year mortgage rate increased to 4.58% from 4.50%; the 15-year mortgage rate rose to 3.95% from 3.89%; the 5/1 ARM mortgage rate increased to 3.77% from 3.68% while the FHA 30-year rate moved from 4.25% to 4.37%.  Jumbo 30-year rates rose to 4.59% from 4.51%.

 

Economic Calendar – for the Week of April 23, 2018

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

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($101.688, -57.8 bp) traded within a narrower 55.6 basis point range between a weekly intraday high of $102.328 on Tuesday and a weekly intraday low of $101.672 on Friday before closing the week at $101.688 on Friday.

 

Mortgage bond prices continued to retreat during the week on renewed inflation fears and a resilient stock market with investors preparing for what many believe will be a strong 1st Quarter earnings season that is just getting underway.  Although mortgage bond prices moved slightly higher on Monday and Tuesday, they declined the remainder of the week, falling below the $102 support level.  The $102 level now becomes a resistance level with additional resistance found at the 25-day and 50-day moving averages at $102.3588.  Support is found at $101.563, a low from September 5, 2013.

 

The bond now finds itself significantly “oversold,” but there are no evident signs of a reversal at the present time.  The chart is “bearish” and we could see a continuing decline for a test of support at $101.563.  Should this happen, we would see a slight deterioration in mortgage rates this coming week.

 

 

 

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Rising interest rates may slow down home buyers from CNBC.

 

 

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Builders Need Builders

Apr 18, 2018

Welders. Electricians. Machinists. Framers. Skilled tradesmen and women are at their most lacking ever, according to the Manpower Group. But just wait a few years. The skills gap is likely to become more pronounced.

 

Because these jobs are more physically demanding than the typical job, it comes as no surprise that the skilled trades have far fewer 65-and-older workers than the total labor force (1.9 percent to 4.8 percent). So unlike other occupations, many skilled trades workers can’t hold off on retirement because they need the money or simply enjoy working.

 

According to a recent Forbes article, the heavy proportion of older skilled-trade workers puts into focus more than just the pending retirement for baby boomers. It also illustrations how American high schools have largely shifted their focus to preparing students for four-year colleges rather than vocational school. And while it may not be sexy or even a good fit for some students to become a welder or computer controlled machine operator, pursuing a college degree doesn’t fit every student’s skill set either. It’s just that you probably can’t convince their baby boomer parents of that as they fork over enormous amounts of tuition money or see their kids go into student loan debt for decades of their lives.

 

The notion of a work-force education somehow got left in the proverbial construction dust. What many a young person may not know, however, is that a two-year institution (a vocational or trade school) costs less, and the average work-force student can come out of that program with prospects of immediate employment.

 

Nearly 60 percent of all skilled-trade workers are employed in manufacturing. Another 17 percent work in construction – the two sectors that lost the most jobs during the recession, when the skilled trades suffered most, declining 13% in employment from 2007-2009. Skilled-trade professions have rebounded since the recession and in some states, employment in the skilled trades is growing with demand is relatively high. The biggest issues seem to be replacing the many older workers in these fields who could soon retire, however.

 

A big part of the equation is what manufacturers and other employers are willing, or can afford, to pay. A telltale sign of a true skills gap is an increase in wages to make up for a shortage of labor. But researchers are finding that manufacturing wages have only gone up in a paltry few areas around the country. Hard for young people to choose to invest in training for jobs that pay fast-food wages.

 

For many of the skilled trades, however, the median wage is $20.25 an hour, with even the bottom 10 percent earning $13.14 an hour, according to reports. As older workers move out of these positions, companies will often replace them with younger (and cheaper) workers. But that’s only if they can find them.

 

There is hope, however. In a recent Medium blog post, tech writer Jenny Fielding writes about a day where a high-quality house will be constructed in only 6 weeks by unskilled workers in an affordable manner. Some new high-tech plants are popping up in the rust belt in an effort to help the economies of towns that suffered after the last housing crisis. “These factories, using robots to fill the void of skilled human labor, are able to develop and produce the majority of the home in a controlled and efficient environment,” she writes. “Then the individual chunks of the home (e.g., entire bathrooms including the drywall and tile) are transported to the construction site and assembled in no time. But this not your grandmother’s pre-fab… these new modular houses are about quality, rather than quantity — a mantra that resonates with millennials who cannot afford nor identify with the ‘McMansions’ of the past.” She adds that the future of the connected home is incorporating technology into the design and building phases so that smart technology lives in the walls.

 

 

Source: EMSI, Forbes,TBWS

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The stock market continued its gains today while the long end of the yield curve (10s, 20s, 30s and MBSs) also improved. The 10 finds technical support when it has moved up to 2.90% area and equally resistance when it has moved below 2.80%. Since April 2nd when the 10 rate fell to 2.72% its rate had moved to 2.88% and now backing off to 2.81% this afternoon. There isn’t much that has shaken the strength of long-term rates, trade wars, inflation beliefs spreading like dandelions in springtime, Fed officials uniformly talking about rate increases, the Fed forecasting strong economic growth, the IMF today chimed in with strong growth forecasts even in the face of trade tariffs. Recently China has threatened to stop buying US treasuries, although unlikely, not even that threat has roiled rate markets much. No matter how we explore it, this should not be occurring, rates should be moving higher….but they’re not.

 

Economic data is good in general, inflation is easing higher, and now Q1 1 earnings are starting with most economists and analysts believing earnings will remain strong. Strong earnings equal higher equity prices. Increased talk around also that companies are going to increase buying back their stocks; lots of cash with nowhere to use it. War threats are edging up, might be that has some support to the bond market. The idea of a world war however is almost impossible to believe. Putin, in a phone call to his Iranian counterpart, warned that the world will see ‘chaos’ if Syria is attacked again. Putin wants the UN Security Council involved…so he can veto anything he wants.

 

U.S. homebuilding increased more than expected in March amid a rebound in the construction of multi-family housing units, but weakness in the single-family segment suggested the housing market was slowing. March housing starts and permits; starts at 1319K compared to 1264K consensus and Feb starts were revised higher from 1236K to 1295K. Permits also better, 1354K compared to 1315K expected, also Feb revised better to 1321K from 1298K. Percentage wise starts were up 1.9% from the revised Feb level, permits +2.4% from the revised Feb level. That is the positive news; the less positive; single-family units are soft with starts down 3.7% to an 867,000 rate and with permits down 5.5% to an 840,000 rate in a result offset by a large upward revision to February. Housing completions were down 5.1%; not good given the lack of supply. March existing home sales out next Monday and March new home sales next Tuesday. The same story, builders are not building as needed. Higher prices for products and a lack of developed land.

 

Fed officials today: San Francisco Fed President Williams (FOMC voter and the incoming NY Fed Pres.) says he sees inflation getting to 2.0% this year and staying at, or above, 2.0% for another couple of years. Chicago Fed President Evans (non FOMC voter) says he is okay with raising rates patiently in the absence of inflation. Larry Kudlow, the new National Economic Adviser, says additional Russia sanctions are still under consideration.

 

Some news floating that North and South Korea may announce the end of their war that began in 1950.

 

ECB chief economist Praet says ample degree of policy stimulus is still necessary; the ECB is widely believed to be considering lessening its stimulus and low rate levels.

 

Tomorrow MBA weekly mortgage applications at 7:00 am ET. At 2:00 tomorrow afternoon the Fed will release its Beige Book, detailed economic data from all 12 Fed districts.

 

 

Source: TBWS

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The stock market bounced back this past week as concerns about a possible trade war with China faded after several U.S. officials, including Treasury Secretary Steven Mnuchin, and Chinese President Xi Jinping downplayed talk of a retaliatory trade war.  In fact, Xi Jinping stated in a speech at the Boao Forum on Tuesday that he “plans to significantly cut tariffs on imported automobiles, reduce duties on other imported goods, and improve the intellectual property rights of foreign firms.”  Fears of a trade war with China were then replaced with rising geopolitical tension between the U.S. and Russia.

 

A suspected chemical attack from the Russian-supported Syrian government on the rebel-held town of Douma, Syria on April 7th brought strong condemnation and threats of a retaliatory strike against Syria from the U.S., Great Britain, and France.  Russia replied last Wednesday that it would shoot down any missiles fired at Syria prompting President Trump to state “get ready Russia, because they will be coming.”  And come they did late Friday evening when a military coalition from the U.S., Great Britain, and France struck several chemical weapons sites in Syria.  As a result, we will likely see a sharp increase in volatility this week in the financial markets with the rising tensions between Russia and coalition forces and the uncertainty that comes from military action in Syria.

The week’s economic reports took a backseat to geopolitical news, receiving a muted response from investors.  Minutes from the Fed’s March FOMC meeting were released containing no surprises.  The latest round of inflation data from the March Producer Price Index (PPI) and Consumer Price Index (CPI) reports revealed a stiffening inflation trend with the PPI rising +0.3% while the core CPI advanced 0.2% for the month.  This will keep the Fed on plan to raise rates at least two more times this year with the next 25 basis point hike likely to occur at the June FOMC meeting with a probability of 95.0%.

 

According to the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey, there was a decline in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased by 1.9% during the week ended April 6, 2018.  The seasonally adjusted Purchase Index decreased by 2.0% from the week prior while the Refinance Index also decreased by 2.0%.

 

Overall, the refinance portion of mortgage activity fell to 38.4% from 38.5% of total applications from the prior week, its lowest level since September 2008.  The adjustable-rate mortgage share of activity fell to 6.3% from 6.5% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.66% from 4.69% with points increasing to 0.46 from 0.43.

 

For the week, the FNMA 4.0% coupon bond fell 32.8 basis points to close at $102.266 while the 10-year Treasury yield increased 4.95 basis points to end at 2.8248%.  The major stock indexes moved higher during the week.

 

The Dow Jones Industrial Average gained 427.38 points to close at 24,360.14.  The NASDAQ Composite Index advanced 191.54 points to close at 7,106.65.  The S&P 500 Index added 51.83 points to close at 2,656.30.  Year to date on a total return basis, the Dow Jones Industrial Average has fallen 3.18%, the NASDAQ Composite Index has gained 0.17%, and the S&P 500 Index has lost 2.59%.

 

This past week, the national average 30-year mortgage rate increased to 4.50% from 4.48%; the 15-year mortgage rate rose to 3.89% from 3.86%; the 5/1 ARM mortgage rate increased to 3.68% from 3.65% while the FHA 30-year rate was unchanged at 4.25%.  Jumbo 30-year rates rose to 4.51% from 4.50%.

 

Economic Calendar – for the Week of April 16, 2018

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

.

  

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($102.27, -32.8 bp) traded within a wider 60.9 basis point range between a weekly intraday high of $102.625 on Monday and a weekly intraday low of $102.016 on Thursday before closing the week at $102.266 on Friday.

 

Mortgage bonds lost ground during the week as the stock market advanced and failed to remain above a declining 50-day moving average while also falling below the 25-day moving average.  These two moving averages now form a tight band of overhead resistance.  However, Friday’s trading resulted in a potentially bullish two-day Harami candlestick pattern signaling a possible change in market direction higher that will require confirmation on Monday with a positive candlestick with a higher closing price.

 

With a coalition of U.S., Great Britain, and French military forces striking chemical weapons installations in Syria late Friday evening to significantly increase geopolitical tensions with Syrian ally Russia, we will likely see increased volatility in the stock and crude oil markets with investors moving money from stocks into bonds in a “flight to safety” trade.  If this anticipated reaction is strong enough, it would be bullish for mortgage bonds and would perhaps send prices above both resistance levels resulting in a slight improvement in mortgage rates this coming week.

 

 

 

 

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Home sales are still going strong and the National Association of Realtors says they could have been even higher if there were more homes for sale. Seems there is a critical shortage of listings, especially in higher price ranges. And out in the trenches, homebuilders are struggling to keep up with demand amid higher land prices and labor shortages.

Homes sales in the West, where prices are highest, are seeing the biggest gains. Nationally, sales of homes priced above $750,000 were up nearly 19 percent from a year ago. New tax laws limit the mortgage interest deduction. Borrowers can now deduct interest paid on up to $750,000 in mortgage debt. Previously, the limit was $1 million in mortgage debt.

Sales for homes priced under $100,000, were down 16.5 percent compared with a year ago. This where the supply shortage is worst.

The paradox in a market like this is that Realtors are hearing very few concerns from buyers about rising mortgage rates or the new tax laws —even fewer concerns than in December, when the tax laws were in final debate. Buyers who are afraid of rates heading higher, are spurred to step up and lock in with a purchase and a funding rate, according to Peter Boockvar, chief investment officer at Bleakley Advisory Group.

But that is not the case for potential sellers. Lawrence Yun, chief economist at the NAR, speaks of the “interest rate lock effect,” where sellers are increasingly telling agents that they do not want to move because they will lose their record-low fixed mortgage rate.

”Mortgage rates are at their highest level in nearly four years, at a time when home prices are still climbing at double the pace of wage growth,” added Yun. “Homes for sale are going under contract a week faster than a year ago, which is quite remarkable given weakening affordability conditions and extremely tight supply. To fully satisfy demand, most markets right now need a substantial increase in new listings.”

Shortage on the lower end is likely why first-time homebuyers have been pulling back as affordability and supply are weighing more heavily on them now.

“To get to those levels, demand needs to stay hot, builders need to continue ramping up new home activity and more sellers need to feel comfortable selling. Threading that needle has so far proven difficult,” says Aaron Terrazas, senior economist at Zillow.

According to the latest issue of Barron’s, the new home sales boom is far from over, citing how shares of several homebuilders look attractive as the U.S. housing market could strengthen further.

With a continuing strong demand, a dearth of inventory and modest annual price gains, industry observers see this going for several years unless mortgage rates spike, according to the article.

The SPDR S&P Homebuilders (ETF) has fallen 9 percent this year. Homebuilder shares recently traded for 10 times 2018 profit estimates, compared to the overall market’s P/E ratio of 17, even though the companies are expected to have double-digit earnings growth this year and next, the article said.

As we have mentioned frequently here, the future behavior patterns of millennials are crucial in determining whether housing starts will close the gap from being 35% under the normalized trend. The resolution of the millennial question is important but hard to estimate: builders are a critical element and indicator for the economy.

 

 

Source: Thomson/Reuters, Barron’s, NAR,TBWS

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For all the fanfare about how millennials were poised to be the biggest home buying generation yet, there are still a few things that have to happen to get them out of their parents’ basements or shared rentals. Interest in buying, however, is not the issue. According to new data from Apartment List, 80% of millennials do have the desire to buy their own homes, but economic factors are delaying the process for up to two decades if they must continue to assume they must save up for a 20% down payment. Even if this was reduced by half, however, only 33% of millennials would be able to save that amount in five years or less.

 

For those millennials serious about buying a home, the process will look much different than for previous generations. One reason for this is the relatively new introduction of virtual reality (VR) technology into the real estate market. This newer technology is more than a videographer doing 360-degree fish-eye lens panoramas of the interior of a home for sale. They are an interactive walk-through the buyers themselves can experience, stopping to examine every floor vent, cutting edge cooktop, or even watching the pool sweep as it Roombas through blue waters. (If you want to get a taste of VR at it most potentially-scary best, head to the movie-plex for Spielberg’s Ready Player One.)

 

Let’s face it. The millennial generation grew up with computers as appliances and fed on video games as their parents shook their heads thinking it was all in good fun while wondering why their kids abandoned bicycles and stopped watching old horror movies on TV. What they turned out, however, were adult children who now demand a high quality VR experience. This next gen of homebuyers will wonder how their parents were ever able to put up with a world that did not offer it.

It is estimated by VR manufacturer Matterport, a company founded in 2011, that potential buyers spend three to six times more time examining a real estate ad listing when they study VR ads. It’s what marketing types call “sticky” advertising. Touring real estate listings is not only livelier, but also more fun. Homes listed using this technology come with a 3-D walkthrough, making a digital copy of the inside of the house as well as its outdoor spaces. Matterport supplies a dimensionally accurate model of the space precisely as the human eye would see it, whether it’s land, office building spaces, or homes, and the future includes (just like the Spielberg movie), being able to attach a VR headset to your phone.

 

Using VR to showcase homes is something that many high-end real estate agencies are already doing, given that 95% of buyers use the internet to look for homes, and 51% buy homes that they have found using the internet, adding VR to the mix seems inevitable. This technology as a means to show homes is already becoming a touchstone for many luxury home buyers, done without those buyers ever having stepped foot onto a property, especially where in-person showings simply are not feasible. Not only will millennials expect this service to be made available to them for ALL types of home sales; they will likely demand an increasingly higher quality experience overall than today’s Realtor online presentations with music playing in the background or 25 still photos attached to a listing.

 

And then there is social media— something millennials cut their teeth on. The driving factor behind Facebook’s decision to buy Oculus Rift was its potential for use in the platform’s marketplace. Considering that Facebook is heavily invested in the growth of person-to-person sales, this can have a serious impact on the amount of time it takes to buy a house. Savvy agents will have to get behind this as the globe and its technology spin ever faster.

 

Another of the consequences of millennials’ inability to purchase homes as early as previous generations is a major uptick in the single family and apartment rental industry. While single and attached home rentals are growing at an even faster pace, apartment rentals are being changed by the use of virtual reality. Time and labor-saving new tech practices enable rental managers to simply schedule live VR sessions, showing properties and answering questions as potential renters sip on soy chai lattes on their sofas. Using MARK.SPACE, a blockchain-powered 3D and VR open source platform for creation and integration of spaces and objects, they can also record showings and make those available to potential renters to view online.

 

What all this does is elevate the importance of in-person showings, since tire-kickers will be fewer and farther between. As more potential buyers are able to use virtual reality to tour potential homes online, fewer potential buyers will come to open houses or even in-person viewings with real estate agents. Buyers benefit from this because they can tour homes using VR and eliminate from consideration those listings that aren’t appealing based on what they see, translating into less time, travel and expense looking at homes. Sellers and agents benefit because they can sell homes faster and not waste time trying to market homes to tire kickers, but older real estate consultants who are slower to embrace and invest in technology as a driver in home sales may have a tough time making the transition to this type of buyer as they watch their younger brethren embrace it with great gusto.

 

Approximately 71% of millennials express very positive feelings regarding virtual reality. This generation can’t imagine having someone in a uniform fill up their cars, after all. They can’t even picture a world without online person-less checkout and virtual shopping carts. While members of older generations may need some convincing that VR adds value to the real estate process, millennials will be all over it.

 

As we said, more millennials are interested in homeownership than many people think. Economic factors may be delaying the process, but when millennials are ready to purchase a home, or even look for a rental, it’s not unfathomable that virtual reality will be an important part of the process, making purchasing a home simpler, more convenient, and less work.

 

 

Source: Forbes and TBWS

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Fears of an escalating trade war between the U.S. and China along with the prospects for rising interest rates weighed on investor sentiment resulting in significant stock market volatility during the week.  Trade officials in the U.S. and China went back and forth proposing new tariffs on each other’s imported goods.  Last Monday, China announced it would retaliate against U.S. aluminum and steel tariffs with $3 billion in new tariffs of its own targeting mostly U.S. agricultural exports.  On Tuesday, the U.S. countered with a new list of $50 billion in proposed tariffs on 1,300 Chinese products, and China promptly responded on Wednesday with its own $50 billion list of tariffs on U.S. aircraft, automobiles, and soybeans.  President Trump responded by asking U.S. trade officials to consider tariffs on another $100 billion worth of Chinese imports.

 

The recent volatility in the financial markets may be a sign investors are overreacting to the sentiment portrayed in the media about trade wars.  The President’s new economic advisor, Larry Kudlow, and Commerce Secretary Wilbur Ross downplayed the economic impact of the proposed tariffs by suggesting further negotiations with China will soon occur.  Also, there was a report by Bloomberg that President Trump may announce a possible agreement on a renegotiated North American Free Trade Agreement (NAFTA) at the Summit of the Americas meetings in mid-April.

 

Another factor moving the markets was the Labor Department’s Employment Situation Summary (Jobs Report) for March that showed a far smaller increase in new job creation than expected.  March saw the formation of 103,000 jobs versus a consensus estimate of 175,000.  This lower number might be the result of the enormous increase of 326,000 jobs in February.  Also, fears of future inflation were furthered by a solid 0.3% increase in Average Hourly Earnings for the month with an unemployment rate remaining at 4.1%.  This will not deter the Federal Reserve from its plan to continue bumping interest rates higher.  In fact, Fed Chairman Jerome Powell stated in a speech to the Economic Club of Chicago on Friday that he sees further gradual rate hikes on expectations that inflation will pick up this spring.

 

In the mortgage industry, the number of mortgage applications decreased according to the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased by 3.3% during the week ended March 30, 2018.  The seasonally adjusted Purchase Index decreased by 2.0% from the week prior while the Refinance Index decreased 5.0%.

 

Overall, the refinance portion of mortgage activity fell to 38.5% from 39.4% of total applications from the prior week.  The adjustable-rate mortgage share of activity fell to 6.5% from 7.0% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained at 4.69% with points remaining unchanged at 0.43.

 

For the week, the FNMA 4.0% coupon bond lost 1.5 basis points to close at $102.594 while the 10-year Treasury yield increased 3.46 basis points to end at 2.7753%.  The major stock indexes moved lower during the week.

 

The Dow Jones Industrial Average declined 170.35 points to close at 23,932.76.  The NASDAQ Composite Index fell148.33 points to close at 6,915.11.  The S&P 500 Index lost 36.40 points to close at 2,604.47.  Year to date on a total return basis, the Dow Jones Industrial Average has fallen 3.18%, the NASDAQ Composite Index has gained 0.17%, and the S&P 500 Index has lost 2.59%.

 

This past week, the national average 30-year mortgage rate decreased to 4.48% from 4.51%; the 15-year mortgage rate declined to 3.86% from 3.89%; the 5/1 ARM mortgage rate increased to 3.65% from 3.64% and the FHA 30-year rate decreased to 4.25% from 4.30%.  Jumbo 30-year rates fell to 4.50% from 4.54%.

 

Economic Calendar – for the Week of April 9, 2018

 

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

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($102.59, -1.5 bp) traded within a narrower 40.6 basis point range between a weekly intraday low of $102.313 on Tuesday and Friday and a weekly intraday high of $102.719 on Friday before closing the week at $102.594 on Friday.

 

Mortgage bonds traded in a sideways direction within a narrow range between the 25-day and 50-day moving averages.  These two moving averages serve as nearest technical support and resistance levels respectively.

 

The chart shows the bond is just below the “overbought” level while showing a new buy signal from a positive stochastic crossover.  This suggests there is some room for price improvement with the prospects the bond will stay above its 50-day moving average.  If the bond can manage to stay above the 50-day moving average, mortgage rates should remain stable at current levels or may improve very slightly.

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Mortgage Rate Update

Apr 2, 2018

The stock market, although continuing to show significant volatility, reacted favorably to a decision by China to not implement retaliatory tariffs on its imports of U.S. soybeans and commercial aircraft, easing fears of a trade war at least for the time being.  There were also reports that U.S. and Chinese officials were negotiating to protect intellectual property rights of U.S. technology companies while opening China’s markets to U.S. goods.  The volatility seen in stocks during the week, and especially in the technology sector, prompted investors to seek a safer haven in the Treasury market as the yield on the benchmark 10-year Treasury note reached its lowest level since early February.

 

In housing, Pending Home Sales rebounded in February by 3.1% after falling by a downwardly revised 5% in January.  Economists had predicted only a 2.5% gain for the month.  However, even with February’s gain, Pending Sales are 4.1% lower from the prior year as available inventory has shrunk while home prices have climbed.  The National Association of Realtors chief economist, Lawrence Yun, remarked “The minuscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity.”  Last Tuesday, Standard & Poor’s reported its S&P CoreLogic Case-Shiller national home price index advanced 6.2% in January from a year earlier in addition to a 6.3% annual gain in December.

 

As for mortgage activity, the number of mortgage applications increased according to the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased by 4.8% during the week ended March 23, 2018.  The seasonally adjusted Purchase Index increased by 3.0% from the week prior while the Refinance Index increased 7.0%.

 

Overall, the refinance portion of mortgage activity rose to 39.4% from 38.5% of total applications from the prior week.  The adjustable-rate mortgage share of activity remained unchanged at 7.0% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.69% from 4.68% with points decreasing to 0.43 from 0.46.

 

For the week, the FNMA 4.0% coupon bond gained 25.0 basis points to close at $102.609 while the 10-year Treasury yield decreased 7.28 basis points to end at 2.7407%.  The major stock indexes moved higher for the week.

 

The Dow Jones Industrial Average rose 569.91 points to close at 24,103.11.  The NASDAQ Composite Index climbed 70.77 points to close at 7,063.44.  The S&P 500 Index gained 52.61 points to close at 2,640.87.  Year to date on a total return basis, the Dow Jones Industrial Average has fallen 2.49%, the NASDAQ Composite Index has gained 2.32%, and the S&P 500 Index has lost 1.22%.

Economic Calendar – for the Week of April 2, 2018

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

 

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

 

The FNMA 30-year 4.0% coupon bond ($102.609, +25.0 bp) traded within a narrower 45.3 basis point range between a weekly intraday low of $102.188 on Monday and a weekly intraday high of $102.641 on Wednesday before closing the week at $102.609 on Thursday.

 

Mortgage bond prices were able to rise above their 25-day moving average resistance level ($102.34) that now reverts to nearest support, and continued higher toward their 50-day moving average ($102.69) where the next level of technical resistance is located.

 

The chart shows the bond is approaching the “overbought” level as it approaches the 50-day moving average, so while there is still room for price improvement, the bond may have a tough time breaking through this level.  If the bond can manage to move above the 50-day moving average, mortgage rates should improve slightly.  However, if the bond is turned away from this level, mortgage rates would hold steady near current levels.

 

 

 

 

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Big day today. Finally, at 2:00 am ET the FOMC statement: by 2:15 the 10 yr note rate +2 bp to 2.93%. At 2:30 Fed chair Powell had his news conference.

 

As expected, the Fed increased the Federal Funds rate by 0.25% to a range between 1.50% and 1.75%. As usual when the FOMC meets markets exhibit a good deal of volatility; the initial reaction sent the 10 yr note yield to 2.93% 4 bps higher than yesterday, MBS prices swung back and forth before settling. The 10 found support at 2.93% and by 4:00 back at 2.88% -1 bp. Fannie 4.0 30 yr coupon up 14 bps on the day and up 20 bps from 9:30. The stock market rallied initially then cooled, the DJIA ran up 237 points before giving back all of the knee-jerk reaction and went negative.

 

  • labor market has continued to strengthen and that economic activity has been rising at a moderate rate.
  • Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.
  • On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent.
  • The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong.
  • In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.
  • The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.

 

As far as more rate increases after a lot of back and forth from market participants it now looks like the Fed will do what we have been projecting; three hikes this year, not four as some were thinking. The initial reactions from media, as usual, talking in circles. Making more of the statement than is necessary. One thing not in the prepared statement, any inference or reference about the trade issues. Overall nothing new in the statement that has much direct significance. The same thing as usual; pending the economic performance and inflation will dictate what the Fed will do in the future.

 

The Fed increased its growth estimates somewhat for 2018; from 2.5% in Dec to 2.7% now; unemployment in Dec for 2018 was 3.9%, now 3.8%, 3.6 in both 2019 and 2020. Inflation in the data unchanged from Dec at 1.9%; also core inflation unchanged from Dec at 1.9%. The range of Federal Funds rate this year 2.1%, 2019 2.9%, 2020 3.4%.

 

Asked about whether there was a discussion in the meeting about the potential of trade problems, Powell said the belief at the Fed is that trade changes will not affect the Fed’s outlook for growth longer term. He remarked some members have spoken with business leaders and that businesses are not as confident as the Fed appears to be.

 

Feb existing home sales this morning were better than expected. Sales of single-family homes rose 4.2 percent in the month to a 4.960 million rate with this yearly reading at plus 1.8 percent. This offsets continued weakness for condo sales which fell a sharp 6.5 percent in the month for a year-on-year minus 4.9 percent. Supply increased to 1.590 mil +4.6%. On Friday, Feb new home sales will be released and expected to show improvement of 4.3% from Jan.

 

Tomorrow not much scheduled news; weekly jobless claims expected about unchanged from the prior week. Feb leading economic indicators thought to be up 0.3 percent.

 

Source: TBWS

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