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

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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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2018 COST VS VALUE REPORT

 

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House flipping is not for the faint of heart, and with today’s lack of housing inventory, competition is fiercer than ever. Compared to last year, the biggest difference in 2018 is that the increase in buyers might push home values even higher. In this market, finding a buyer usually isn’t the problem. Finding an affordable property to flip is.

 

With house flipping careful planning and patience reign supreme. If low inventory means you’re doing fewer flips this year, you’d better make sure your flips are second to none.

 

Experts point out what to keep in mind when flipping a home so that you are not caught flat-footed. First, set a maximum for the price home in which you would consider investing for the short term. Don’t leave out closing costs, a budget for staging, and carrying costs — things like insurance and taxes. In fact, it’s even more prudent to expect the worst while hoping for the best when flipping.

 

Next, set a budget for renovations. Best not to compare yourself to reality (fantasy) TV flippers, who can buy the worst home in the best neighborhood and gut it entirely. They have more resources and capital in their hands than most house-flippers, since they are tasked with entertaining you as they renovate. Have you ever watched the credits at the end of each show? You’ll see vendors doing things for free just to see their names scrolling past. Even in the real world, however, this is where relationships come in. Establishing a great buddy-contractor, one dedicated to helping you do high quality flips within a reasonable period of time (without taking on a bunch of side jobs at the same time) will go a long way to permitting you to sleep at night while your flip is in process.

 

Location, of course, is key. Choose a house in an up-and-coming neighborhood that may be on the brink of gentrification. Study these neighborhoods by driving around as well as pestering the planners at City Hall to check out what businesses, schools, facilities and infrastructure may be planned for the area.

 

The most important piece of homework you’ll do, however, is to study recent comparably-priced homes and sales in the neighborhood — homes that have closed escrow within the past 3-6 months, asking prices on homes currently for sale, DOM (days on market) and study keenly the ones that never sold to analyze why they failed to find love. A great exercise is to go to every open house you can on weekends in the area you are considering to check out demand as well as the buyer demographic.

 

Savvy house flippers are super sleuths. They look for houses not yet on the market, going straight to an owner, a bank auction or a housing wholesaler for a better deal. But often you can partner up with a good Realtor who specializes in the area in which you are considering investing. He or she knows the market like the backs of their hands, and may offer you expertise in exchange for being the listing agent after you pound that final nail.

 

When readying a flip for sale, those in the know advise you to concentrate on kitchens, bathrooms, systems, paint and flooring. Don’t get too fancy. New appliances and fixtures, as well as a bit of discount granite can go a long way to making a gem out of an ugly duckling. Buyers prefer hard surface flooring to carpeting, but there are so many inexpensive (gorgeous) options to tile and real hardwood. You’ll find buyers focusing how the house makes them feel as well as how their lives fit into it instead of whether the floors are real wood.

 

Lastly, set your expectations realistically. House flipping in general is not a get-rich-quick scheme, even if one good sale might pay off all your credit cards. Football games are won ten yards at a time before players do their happy dance in the end zone. The most cost-effective way to flip is to look at tidy profits rather than a fantasy. Steady house flippers stay the course, establishing a reputation for being prudent investors, all of which impresses local residents as well as real estate agents and makes it easier and easier to find financing.

 

Source: TBWS

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U.S. home prices increased 6.3 percent compared with December 2016, according to the much-watched S&P CoreLogic Case-Shiller national home prices index.

 

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The major stock market indexes were able to register a modest move higher this past week due to a late rally on Friday that erased losses recorded on Tuesday and Wednesday when the indexes displayed increased intra-day volatility.  Mid-week, investors were worried over recent market volatility, rising interest rates, and the S&P 500 Index breaking below its 50-day moving average of 2,726.

 

The economic calendar was relatively quiet with the notable exception of Wednesday’s release of the minutes from the Federal Reserve’s January FOMC meeting.  The minutes showed a majority of FOMC members expect inflation to increase in 2018 with most members believing in stronger economic growth that will raise the “likelihood that further gradual policy firming would be appropriate.”  The stock and bond markets reacted negatively to the release with the yield on the benchmark 10-year Treasury note moving up to a four-year high on Wednesday to 2.94% before pulling back to 2.866% by Friday’s close to finish flat for the week.

 

However, stocks seemed to get a boost late Friday after the Fed released its semiannual Monetary Policy Report to Congress, indicating the Fed expects inflation to remain below their 2% target in 2018.  New Fed Chair Jerome Powell will be testifying about monetary policy before Congress this week.

 

Elsewhere, the National Association of Realtors reported Existing Home Sales fell 3.2% month-over-month during January to a seasonally adjusted annual rate of 5.38 million compared to December’s rate.  On a year-over-year basis, the decline in sales was an even worse 4.8%, the largest annual decline since August of 2014.  Although the inventory of homes for sale at the end of January increased 4.1% to 1.52 million units, it is 9.5% lower than the same period a year ago and remains a headwind for future Existing Home Sales.  Unsold inventory is at a 3.4-month supply at the current sales rate compared to 3.6 months a year ago.

 

Low inventory is also leading to higher home prices.  The median price for all categories of homes in January was $240,500, 5.8% higher than the same time a year ago and the 71st straight month of year-over-year gains in home prices.  The median price for existing single-family homes increased 5.7% from a year ago to $241,700.

 

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The number of mortgage applications showed a decrease 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) fell by 6.6% during the week ended February 16, 2018.  The seasonally adjusted Purchase Index decreased by 6.0% from the week prior while the Refinance Index decreased 7.0%.

 

Overall, the refinance portion of mortgage activity increased to 44.4% of total applications from 46.5% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.4% of total applications from 6.3%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.64% from 4.57% to its highest level since January 2014, with points increasing to 0.61 from 0.59.

 

For the week, the FNMA 4.0% coupon bond was unchanged to close at $102.469 while the 10-year Treasury yield decreased 0.71 basis points to end at 2.866%.  The major stock indexes moved modestly higher on the week.

 

The Dow Jones Industrial Average moved 90.61 points higher to close at 25,309.99.  The NASDAQ Composite Index added 97.93 points to close at 7,337.39 and the S&P 500 Index gained 15.08 points to close at 2,747.30.  Year to date on a total return basis, the Dow Jones Industrial Average has risen 2.39%, the NASDAQ Composite Index has gained 6.29%, and the S&P 500 Index has advanced 2.76%.

 

This past week, the national average 30-year mortgage rate was unchanged at 4.53%; the 15-year mortgage rate increased to 3.90% from 3.89%; the 5/1 ARM mortgage rate increased to 3.54% from 3.49% and the FHA 30-year rate was unchanged at 4.33%.  Jumbo 30-year rates increased to 4.55% from 4.53%.

 

Economic Calendar – for the Week of February 26, 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 ($102.469, unchanged) traded within a 65.6 basis point range between a weekly intraday high of $102.547 on Friday and a weekly intraday low of $101.891 on Wednesday before closing the week at $102.469 on Friday.

 

The bond traded in a “V” pattern during the holiday-shortened (Presidents’ Day) week.  After selling off hard on Wednesday following the release of the January FOMC meeting minutes, the bond rebounded off of support at the $102 level to erase Wednesday’s loss.  The bond ended the week unchanged and just below overhead resistance found at $102.49.

 

The economic calendar heats up this week with Wednesday, March 1 being a significant news day.  Personal Income, Personal Spending, and key inflation data from PCE and Core PCE Prices will be reported and could trigger a sizeable market reaction.  In all likelihood, bond prices will be driven more by economic news this week than by technical factors.  There was a weak buy signal on Friday and even though bonds are “oversold” they are bumping up against resistance, so it will take tame inflation numbers on Wednesday for bonds to have a chance to move higher.  If PCE and Core PCE Prices jump higher, bonds will sell off and move back toward support resulting in slightly higher mortgage rates.

 

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The major stock market indexes experienced a rapid decline with each losing about 5% in volatile trading.  Surprisingly, the bond market also lost ground as investors failed to seek the “safe haven” bonds usually provide when the stock market sells off in such dramatic fashion.  This past week’s selloff was again associated with fears about rising interest rates.  Congress didn’t help matters much by passing a two-year budget deal that will increase spending by approximately $390 billion over the next two years while extending the debt ceiling until 2019.

 

The growth in spending will force the government to borrow over $1 trillion in the coming fiscal year and the likelihood of increased Treasury borrowing also fueled fears of higher bond yields and interest rates.  Investors were already expecting a rise in Treasury debt issuance due to the recent changes in the U.S. tax code and the lack of fiscal discipline shown by Congress intensifies concerns about rising yields and interest rates.

 

The Fed Funds Futures market still expects the next rate hike will occur at the March FOMC meeting as Fed officials downplayed this week’s sell off by continuing to underline a course of gradual rate increases.  The probability of a March rate hike currently stands at 71.9%, down slightly from last week’s 76.1%.

In housing, the number of mortgage applications showed an increase 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 0.7% during the week ended February 2, 2018.  The seasonally adjusted Purchase Index remained unchanged from the week prior while the Refinance Index increased 1.0%.

 

Overall, the refinance portion of mortgage activity decreased to 46.4% of total applications from 47.8% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.1% 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 4.50% from 4.41%, with points increasing to 0.57 from 0.56.

 

For the week, the FNMA 3.5% coupon bond lost 29.6 basis points to close at $99.938 while the 10-year Treasury yield increased 1.55 basis points to end at 2.8566%.  The major stock indexes continued to crater during the week.

 

The Dow Jones Industrial Average fell 1330.06 points to close at 24,190.90.  The NASDAQ Composite Index dropped 366.46 points to close at 6,874.49 and the S&P 500 Index lost 142.58 points to close at 2,619.55.  Year to date on a total return basis, the Dow Jones Industrial Average has retreated 2.14%, the NASDAQ Composite Index declined 0.42%, and the S&P 500 Index has dropped 2.02%.

 

This past week, the national average 30-year mortgage rate rose to 4.50% from 4.45%; the 15-year mortgage rate increased to 3.86% from 3.79%; the 5/1 ARM mortgage rate increased to 3.45% from 3.42% and the FHA 30-year rate climbed to 4.30% from 4.25%.  Jumbo 30-year rates increased to 4.55% from 4.50%.

 

Economic Calendar – for the Week of February 12, 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 ($99.94, -29.6 bp) traded within a 117.20 basis point range between a weekly intraday high of $100.969 on Monday and a weekly intraday low of $99.797 on Thursday before closing the week at $99.938 on Friday.

 

The bond made a nice reversal by opening and trading higher last Monday before running into what proved to be stiff resistance at the 61.8% Fibonacci retracement level at 100.929.  The bond subsequently pulled back and traded lower for the rest of the week even though the stock market was undergoing a sharp correction, the magnitude of which has not been seen for a couple of years.  The bond remains oversold while seeking a bottom and if support levels can hold we should see rates remain relatively stable this coming week.

 

On Friday, the S&P 500 index moved down to test its 200-day moving average, which appeared to be a technical “line in the sand” that triggered automated buying programs to kick in resulting in sharp rebound off of session lows.  It will be interesting to see if Friday’s rebound off of the key 200-day moving average will have staying power and signal a turn higher in the stock market.  A number of momentum indicators flashed buy signals from oversold positions as a result of Friday’s trading action so we could see stocks attempt a rally off of Friday’s bounce.

 

The economic calendar picks up some strength this coming week and investors will be closely watching a couple of inflation reports – the consumer price and producer price indexes.  The markets have recently become fearful of the prospects of inflation so these two reports could trigger strong market reactions in both stocks and bonds.

 

 

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