Home equity hits record high, and here’s how homeowners are spending it – CNBC

Home equity hits record high from CNBC.

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The stock market began the New Year with a bang, with all of the major stock indexes reaching new all-time highs.  Although the Dow Jones Industrial Average is narrowly focused, containing just 30 large-cap stocks, it attracted considerable investor attention as it passed above the 25,000 mark on Thursday, less than a year after breaking above 20,000 for the first time.  The euphoria generated in the stock market resulted in some selling pressure in the bond market on Thursday and Friday.

 

However, this was not before bonds underwent a small rally on Wednesday following the release of minutes from the Federal Reserve’s December 12-13 policy meeting.  The minutes revealed some dissenting views from the vote to raise rates with two members concerned the December rate hike could slow economic growth and further inhibit inflation growth.  The minutes also showed the Fed remains committed to its objectives of maximum employment and a sustained return to two percent inflation.  Nevertheless, the probability for the next 25 basis point rate hike at the Fed’s policy meeting scheduled for March 21 is currently 68.1%, up from 51.7% last week.

 

The week’s most significant economic news was the December employment report.  Nonfarm payroll growth for December was reported well below the consensus forecast of 188,000, coming in at 148,000 while the two prior months were downwardly revised by 9,000.  The unemployment rate held steady at 4.1% while the labor participation rate remained at 62.7%. Hours worked were unchanged at 34.5.  Average hourly earnings gained .3% month-over-month, after increasing a downwardly revised 0.1% (from 0.2%) in November.  Over the last 12 months, average hourly earnings have gained 2.5% to match the 2.5% for the 12 months ending in November.

 

For a two week period ending December 29, 2017, the Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell by 2.8%.  The seasonally adjusted Purchase Index decreased 1.0% from two weeks prior while the Refinance Index declined 7.0%.

 

Overall, the refinance portion of mortgage activity increased to 52.0% of total applications from 51.8% in the prior week.  The adjustable-rate mortgage share of activity decreased to 5.3% from 5.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.25% with points increasing to 0.36 from 0.35.

 

For the week, the FNMA 3.5% coupon bond lost 23.5 basis points to close at $102.484.  The 10-year Treasury yield increased 6.53 basis points to end at 2.4763%.  The major stock indexes continued to trend higher during the week.

 

The Dow Jones Industrial Average soared 576.65 points to close at 25,295.87.  The NASDAQ Composite Index jumped 233.17 points to close at 7,136.56 and the S&P 500 Index gained 69.54 points to close at 2,743.15.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 2.33%, the NASDAQ Composite Index has advanced 3.38%, and the S&P 500 Index has added 2.60%.

 

This past week, the national average 30-year mortgage rate rose from 4.04% to 4.06%; the 15-year mortgage rate increased to 3.41% from 3.37%; the 5/1 ARM mortgage rate increased to 3.21% from 3.20% and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates increased to 4.21% from 4.19%.

 

Economic Calendar – for the Week of January 8, 2018

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 ($102.484, -23.5 bp) traded within a 28.1 basis point range between a weekly intraday high of $102.734 on Wednesday and a weekly intraday low of $102.453 on Tuesday and Friday before closing the week at $102.484 on Friday.

 

In another holiday-shortened week, bonds opened Tuesday below the 25-day and 50-day moving averages from a closing position above these levels on Friday, December 29.  The bond then popped back above these moving averages on Wednesday before moving back below them on Thursday and Friday as stocks surged higher.  The 25 and 50-day moving averages have not held up very well as support levels since the end of last September, and once again they serve as short-term resistance levels.  The bond is currently neither “overbought” nor “oversold” and remains trading from a sell signal generated last Thursday, so we could easily see a continuation lower for a test of support at 102.42.  A decline through the 102.42 level could result in a further decline toward the next support level at 102.17.  Should this scenario take place it would result in a slight rise in mortgage rates.

 

 

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New home sales up 17.5% in November from CNBC.

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The stock market advanced to new highs in anticipation both houses of Congress would reach an agreement on a tax cut bill.  It appeared on Friday the reconciliation process had run its course as House Ways and Means Chairman Kevin Brady stated the conference committee had completed its negotiations.  It now appears the Republican controlled congress has enough support to pass their tax reform bill with a final vote taking place sometime this coming week.

 

Bond yields were largely unchanged for the week although 10-year Treasury yields slipped a little lower on softer than expected inflation numbers from the release of November’s Consumer Price Index (CPI).  The November CPI came in at 0.4% as forecast but the Core CPI, which excludes volatile food and energy prices, was reported to have increased just 0.1% versus a consensus forecast of a 0.2% increase.  Elsewhere, the Federal Reserve voted to raise the fed funds target range by 25 basis points to 1.25%-1.50% on Wednesday, as widely expected.  While the Fed admitted overall inflation and core inflation have declined this year and are running below 2.0%, Fed members still anticipate three additional rate hikes in 2018 and two in 2019.

 

In housing, mortgage application volume decreased during the week ending December 8.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) decreased 2.3%.  The seasonally adjusted Purchase Index decreased 1.0% from the prior week while the Refinance Index fell by 3.0%.

 

Overall, the refinance portion of mortgage activity increased to 52.4% of total applications from 51.6% in the prior week.  The adjustable-rate mortgage share of activity decreased to 5.6% of total applications from 5.7%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.20% from 4.19% with points decreasing to 0.39 from 0.40.

 

For the week, the FNMA 3.5% coupon bond lost 1.6 basis points to close at $102.797.  The 10-year Treasury yield decreased 2.66 basis points to end at 2.3512%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 322.58 points to close at 24,651.74.  The NASDAQ Composite Index advanced 96.50 points to close at 6,936.58 and the S&P 500 Index added 24.31 points to close at 2,675.81.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 23.11%, the NASDAQ Composite Index has advanced 27.07%, and the S&P 500 Index has added 18.43%.

 

This past week, the national average 30-year mortgage rate fell to 3.96% from 3.97%; the 15-year mortgage rate decreased to 3.30% from 3.31%; the 5/1 ARM mortgage rate dropped to 3.20% from 3.21% and the FHA 30-year rate fell to 3.55% from 3.60%.  Jumbo 30-year rates decreased to 4.12% from 4.14%.

 

Economic Calendar – for the Week of December 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 ($102.80, -1.60 bp) traded within a 59.4 basis point range between a weekly intraday high of $102.875 on Monday and a weekly intraday low of $102.281 on Wednesday before closing the week at $102.797 on Friday.

 

There was an increase in volatility early in the week centered on tax reform news and the Federal Reserve’s Federal Open Market Committee meeting on Tuesday and Wednesday.  However, when it was all said and done, mortgage bonds ended the week very close to where they began.  Stubborn resistance continues to be found at the 38.2% Fibonacci retracement level at $102.806 while a band of support is found just below at converging 25-day and 50-day moving averages highlighted in the chart below.

 

There was a new buy signal on Thursday from a positive stochastic crossover and the bond is not yet “overbought” so we should see the bond challenge resistance at 102.806 once more early this week.  A successful break above this level could propel the bond toward the next level of resistance at the 100-day moving average at $103.02 resulting in a slight improvement in mortgage rates.  However, if the bond fails and is turned away from resistance it would likely result in sideways to lower movement with rates remaining largely unchanged to slightly worse than they are currently.

 

 

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The song remains the same.  The stock market again ended “mixed” this past week with the Dow Jones Industrial Average and S&P 500 Index setting new all-time highs.   Meanwhile, the NASDAQ Composite Index stumbled very slightly to close the week seven and a half points lower.  The optimism seen in the equity markets began when the markets opened on Monday after the U.S. Senate passed their version of a tax reform bill over the weekend.  The final bill is presently undergoing a reconciliation process between the House and Senate with expectations for passage on or before December 22.

 

Economic news was generally supportive for the financial markets with the Employment Situation Summary (Jobs Report) for November showing there were 228,000 new jobs created during the month.  While this was higher than the consensus forecast of 190,000 jobs, a smaller-than-expected increase in average hourly earnings (+0.2% vs. forecast of +0.3%) helped to support the bond market.  The key takeaway here is job growth remains strong while wages, which are positively correlated with inflation, continue to be checked.  This scenario can be beneficial for both stocks and bonds as it suggests there can be stable economic growth without the inflationary fears that normally go along with such growth.

 

In housing, mortgage application volume increased during the week ending December 1.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) increased 4.7%.  The seasonally adjusted Purchase Index increased 2.0% from the prior week while the Refinance Index increased by 9.0%.

 

Overall, the refinance portion of mortgage activity increased to 51.6% of total applications from 48.7% in the prior week.  The adjustable-rate mortgage share of activity decreased to 5.7% of total applications from 6.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.19% from 4.20% with points increasing to 0.40 from 0.34.

 

For the week, the FNMA 3.5% coupon bond gained 15.7 basis points to close at $102.813.  The 10-year Treasury yield increased 1.45 basis points to end at 2.3778%.  The major stock indexes ended the week “mixed” with the Dow and S&P 500 both moving higher while the NASADQ Composite Index slightly declined.

 

The Dow Jones Industrial Average added 97.57 points to close at 24,329.16.  The NASDAQ Composite Index lost 7.51 points to close at 6,840.08 and the S&P 500 Index gained 9.28 points to close at 2,651.50.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 23.1%, the NASDAQ Composite Index has advanced 27.1%, and the S&P 500 Index has added 18.4%.

 

This past week, the national average 30-year mortgage rate fell to 3.97% from 3.98%; the 15-year mortgage rate decreased to 3.31% from 3.32%; 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 4.14% from 4.16%.

 

Economic Calendar – for the Week of December 11, 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 ($102.81, +15.70 bp) traded within a 51.5 basis point range between a weekly intraday high of $102.984 on Thursday and a weekly intraday low of $102.469 on Monday before closing the week at $102.813 on Friday.

 

After opening -18.7 basis points lower on Monday as stocks rallied, the bond strongly recovered to post a 3.2 basis point gain on the day.  Positive movement continued on Tuesday and Wednesday as the bond powered above multiple resistance levels, closing above the 25-day and 50-day moving averages.  These levels now become a zone of support.  Although the bond then slipped lower on Thursday and Friday, it remains at support.  There was a new buy signal last Tuesday and with the bond trading at support but not “overbought,” we could see a bounce higher off of support toward resistance located at $103.03.  Should this occur as the chart suggests it could result in slightly lower mortgage rates.

 

 

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The stock market ended “mixed” this past week while showing greater volatility although the major indexes once again set new all-time highs during the week.  The Dow Jones Industrial Average and S&P 500 rallied almost 1% on both Tuesday and Thursday on increasing investor sentiment optimism that the Senate will soon pass their version of a tax-reform bill.

 

However, an increase in volatility showed up on Friday to trim weekly market gains when it was reported that President Trump’s former national security advisor, Mike Flynn, made a plea bargain to testify about possible Russian interference in the 2016 election.  This news should be “taken with a grain of salt” as much of the news reporting on supposed collusion by the Trump campaign with Russia has so far been disingenuous.

 

Economic news for the week was encouraging.  Third-quarter GDP was upwardly revised to 3.3% showing the strongest period of economic growth in three years.  Personal Income increased 0.4% in October as wages and salaries increased by 0.3%.  Personal Spending also increased by 0.3%, as forecast.  On a year-over-year basis, real disposable personal income was up 1.6%.  Inflation remained tame with the PCE Price Index up 0.1%, as expected, leaving it 1.6% higher year-over-year, versus up 1.7% in September.  The core PCE Price Index, which excludes food and energy, increased 0.2%, as expected.  Housing data continued to show strong growth.

 

The Commerce Department reported New Home Sales in October rose 6.2% for the month to a seasonally adjusted annual rate of 685,000, the fastest pace in a decade.  This was significantly greater than the economic consensus forecast of 629,000, and easily surpassed September’s downwardly revised rate of 645,000.  The median sales price increased 3.3% year-over-year to $312,800 while the average sales price jumped 13.6% to $400,200.  Based on the current sales rate, the inventory of new homes for sale dropped to a 4.9-months’ supply versus 5.2 months in September and the year-ago period.  Regionally, large increases in the Northeast (+30.2%) and Midwest (+17.9%) led the sharp increase in overall sales.

 

Furthermore, the National Association of Realtors (NAR) reported Pending Home Sales in October rose by 3.5%, the most in eight months, led by a rebound in Southern regions affected by hurricanes.  The consensus forecast had called for only a 0.6% increase.  The NAR’s chief economist, Lawrence Yun, stated “Home shoppers had better luck finding a home to buy in October, but slim pickings and consistently fast price gains continue to frustrate and prevent too many would-be buyers from reaching the market.  Until new home construction climbs even higher and more investors and homeowners put their home on the market, sales will continue to severely trail underlying demand.”

 

As for mortgages, mortgage application volume decreased during the week ending November 24.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) decreased 3.1%.  The seasonally adjusted Purchase Index increased 2.0% from the prior week while the Refinance Index decreased by 8.0%.

 

Overall, the refinance portion of mortgage activity decreased to 48.7% of total applications from 49.9% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.2% 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 held steady at 4.20% with points decreasing to 0.34 from 0.42.

 

For the week, the FNMA 3.5% coupon bond lost 12.5 basis points to close at $102.656.  The 10-year Treasury yield increased 2.32 basis points to end at 2.3633%.  The major stock indexes ended the week “mixed” with the Dow and S&P 500 both moving higher while the NASADQ Composite Index retreated.

 

The Dow Jones Industrial Average rose 673.60 points to close at 24,231.59.  The NASDAQ Composite Index lost 41.57 points to close at 6,847.59 and the S&P 500 Index gained 39.80 points to close at 2,642.22.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 22.6%, the NASDAQ Composite Index has advanced 27.2%, and the S&P 500 Index has added 18.0%.

 

This past week, the national average 30-year mortgage rate rose to 3.98% from 3.96%; the 15-year mortgage rate increased to 3.32% from 3.30%; the 5/1 ARM mortgage rate increased to 3.20% from 3.17% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates increased to 4.16% from 4.15%.

 

Economic Calendar – for the Week of December 4, 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 ($102.656, -12.5 bp) traded within a 53.1 basis point range between a weekly intraday high of $102.953 on Tuesday and a weekly intraday low of $102.422 on Thursday and Friday before closing the week at $102.656 on Friday.

 

After moving higher on Monday and Tuesday just above a couple of nearby resistance levels, the bond pulled back below several of these levels while displaying an increase in volatility on Thursday and Friday.  The bond is now beneath four resistance levels shown as a Resistance Zone between 102.73 and 102.86 on the chart.  This zone could prove to be a formidable area of resistance for the bond to overcome, and it appears the path of least resistance is a move lower toward support.  A new sell signal formed last Wednesday, and the bond is not yet “oversold” so we could see a continuing move lower to test support levels.  Such a move would result in slightly worse mortgage rates.

 

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The major stock market indexes traded to new all-time highs during a holiday shortened week characterized by light trading volumes.  The week’s economic data were mixed, but strong housing data reported on Tuesday from the latest Existing Home Sales report helped spark a market rally.

 

Existing Home Sales increased 2.0% month-over-month in October to a seasonally adjusted annual rate of 5.48 million compared to a consensus forecast of 5.42 million and a downwardly revised 5.37 million reading for September.  The median existing home price for all housing types increased 5.5% to $247,000 while the median price for single-family homes climbed 5.4% from a year ago to $248,300.  October was the 68th consecutive month of year-over-year gains.

 

The inventory of existing homes for sale at the end of October fell 3.8% to 1.80 million and is 10.4% lower than the year ago period.  The inventory of existing homes for sale has now dropped year-over-year for 29 consecutive months.  At the current sales pace, unsold inventory is at a 3.9 month supply compared to 4.4 months a year ago.  This continues to be considerably lower than the 6.0-month supply typically seen in a more balanced market.  First-time home buyers were responsible for 32% of the sales in October, up from 29% in September but down from 33% a year ago.

 

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In other news, Weekly Initial Jobless Claims were reported near historic lows at 239,000 to match the consensus estimate, but October Durable Goods Orders weakened by 1.2% for the month, failing to reach the consensus forecast calling for a 0.4% gain.  Wednesday afternoon, the minutes from the Federal Reserve’s last monetary policy meeting were released in what was viewed by Fed watchers as a “dovish” report.  The minutes indicated several Fed officials were concerned about the persistence of below-target inflation, and this triggered a sharp rally in bond prices as inflation erodes the value of fixed bond returns.  The prospect of persistently low inflation preserves the value of bonds.

 

In the realm of mortgages, mortgage application volume increased very slightly during the week ending November 17.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) increased 0.1%.  The seasonally adjusted Purchase Index increased 5.0% from the prior week while the Refinance Index decreased by 5.0%.

 

Overall, the refinance portion of mortgage activity decreased to 49.9% of total applications from 51.3% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.5% 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 4.20% from 4.18% with points increasing to 0.42 from 0.40.

 

For the week, the FNMA 3.5% coupon bond gained 7.8 basis points to close at $102.781.  The 10-year Treasury yield decreased 0.51 basis points to end at 2.3401%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average rose 199.75 points to close at 23,557.99.  The NASDAQ Composite Index gained 106.37 points to close at 6,889.16 and the S&P 500 Index advanced 23.57 points to close at 2,602.42.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 19.20%, the NASDAQ Composite Index has advanced 27.98%, and the S&P 500 Index has added 16.24%.

 

This past week, the national average 30-year mortgage rate fell to 3.96% from 3.97%; the 15-year mortgage rate was unchanged at 3.30%; the 5/1 ARM mortgage rate decreased to 3.17% from 3.21% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates decreased to 4.15% from 4.16%.

 

Economic Calendar – for the Week of November 27, 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 ($102.781, +7.8 bp) traded within a 36 basis point range between a weekly intraday high of $102.891 on Wednesday and a weekly intraday low of $102.531 on Monday before closing the week at $102.781 on Friday.

 

After pulling away lower from the 25-day moving average last Monday, mortgage bond prices rebounded on Tuesday and Wednesday to break above multiple resistance levels, only to pull back to these levels during an abbreviated trading session on Friday.  The bond is now sitting at resistance, but is not oversold while remaining on a buy signal from last Wednesday.  With a number of potential catalysts coming in the way of economic news, we could see the bond continue to advance to challenge further resistance at the 50 and 100-day moving averages resulting in stable to slightly improved mortgage rates this week.

 

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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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