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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

Economic Calendar – for the Week of October 9, 2017

 

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

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

 

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

 

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

 

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

 

 

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

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

 

Economic Calendar – for the Week of October 2, 2017

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Conventional loans

 

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

 

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

 

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

 

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

 

A possible loophole

 

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

 

FHA and VA loans

 

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

 

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

 

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

 

What to make of this

 

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

 

Source: TBWS

 

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