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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The major stock market indexes were overdue for a pause, and pause they did, by registering their largest weekly declines since 2016.  The Dow Jones Industrial Average fell 4.1%, the NASDAQ dropped 3.5% and the S&P 500 lost 3.9%.  Bonds did not fare much better with a sharp drop in prices sending the yield on the 10-year Treasury note to its highest level in almost four years.

 

Good economic news, including a rise in Pending Home Sales and a strong Employment Situation (Jobs) report for January, led to an increase in investor expectations for rising inflation.  Although the Federal Reserve‘s Federal Open Market Committee (FOMC) unanimously voted on Wednesday to leave the fed funds target range unchanged at 1.25%-1.50%, they changed their statement on inflation.

 

The FOMC admitted inflation expectations recently increased, and said it expected the rate of price changes “to move up this year” and stabilize around its 2% objective “over the medium term.”  Additionally, the 10-year inflation breakeven rate has risen to its highest level in over three years.  According to the FOMC policy statement, the economy continues to strengthen and inflation is expected to move higher while the FOMC continues to anticipate further gradual increases in short-term rates.

The Fed Funds futures market continues to predict (with an implied probability of 77.5%) the most likely time for the next 25 basis point rate-hike announcement will take place at the next FOMC meeting on March 21, and suggests there will be an additional two hikes before the end of the year.

 

In housing news, Pending Home Sales increased 0.5% during December according to the National Association of Realtors (NAR).  This was the highest reading since last March.  Pending Home Sales were also 0.5% higher on a year-over-year basis.  The NAR stated the December data suggests the housing market will start 2018 with “a small trace of momentum” but expect the recent tax-law changes to weigh on home sales in 2018.

 

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) decreased by 2.6% during the week ended January 26, 2018.  The seasonally adjusted Purchase Index decreased 3.0% from a week prior while the Refinance Index fell 3.0%.

 

Overall, the refinance portion of mortgage activity decreased to 47.8% of total applications from 49.4% in the prior week.  The adjustable-rate mortgage share of activity increased to 5.7% of total applications from 5.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.41% from 4.36%, with points increasing to 0.56 from 0.54.

 

For the week, the FNMA 3.5% coupon bond lost 104.7 basis points to close at $100.234 while the 10-year Treasury yield increased 18.12 basis points to end at 2.8411%.  The major stock indexes plunged during the week to record their largest weekly declines since 2016.

 

The Dow Jones Industrial Average fell 1,095.75 points to close at 25,520.96.  The NASDAQ Composite Index dropped 264.82 points to close at 7,240.95 and the S&P 500 Index lost 110.74 points to close at 2,762.13.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 3.24%, the NASDAQ Composite Index has advanced 4.89%, and the S&P 500 Index has added 3.31%.

 

This past week, the national average 30-year mortgage rate rose to 4.45% from 4.28%; the 15-year mortgage rate increased to 3.79% from 3.65%; the 5/1 ARM mortgage rate increased to 3.42% from 3.34% and the FHA 30-year rate climbed to 4.25% from 4.05%.  Jumbo 30-year rates increased to 4.50% from 4.41%.

Economic Calendar – for the Week of February 5, 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 ($100.234, -104.7 bp) traded within a 114.10 basis point range between a weekly intraday high of $101.141 on Monday and a weekly intraday low of $100.00 on Friday before closing the week at $100.234 on Friday.

 

The bond opened lower on Monday before bouncing slightly upward from a support level.  However, this potentially positive action did not hold as the bond cascaded lower during the week on strong economic news that raised the fear of higher inflation moving forward.  A sell signal from January 26 remains intact with the bond at an extremely “oversold” position.  In fact, it can’t get any more oversold than it is with the %K and %D lines in the slow stochastic oscillator registering zeros, a very rare occurrence.  The economic calendar is very light this coming week and if bonds can bounce back from this extremely oversold position we should see rates attempt to stabilize this week.

 

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The three major stock market indexes finished higher for the fourth consecutive week and ended Friday with a set of new all-time highs while bond prices finished the week very close to where they ended the prior week.

 

However, the stock and bond markets were briefly rattled mid-week when Treasury Secretary Steven Mnuchin spoke at a press conference at the World Economic Forum in Davos on Wednesday saying the U.S. is open for business and welcomed a weaker dollar, saying that it would benefit the country.  Mnuchin stated “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” and added the currency’s short term value is “not a concern of ours at all.”  Mnuchin also said the government was committed to economic growth of 3% or higher and “Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency.”

 

Mnuchin’s statements may have been misinterpreted by the media and investors as the dollar temporarily fell to a three-year low while stocks and bonds both moved lower following his remarks.  A weaker dollar makes investment in U.S. stocks and bonds less appealing to foreign investors.  On Thursday, Mnuchin clarified his remarks along with President Trump who stated “Our country is becoming so economically strong again and strong in other ways, too, by the way, that the dollar is going to get stronger and stronger, and ultimately, I want to see a strong dollar.”  Following these comments, the markets began to rebound and move higher.

 

In housing news, Existing Home Sales fell more than forecast in December after rising to its highest level in November since February 2007.  The National Association of Realtors (NAR) reported Existing Home Sales declined 3.6% month-over-month in December to a seasonally adjusted annual rate of 5.57 million versus a consensus forecast of 5.70 million.  This was also lower than November’s downwardly revised 5.78 million annual sales pace.  The median existing home price for all housing types increased 5.8% to $246,800 – the 70th straight month of year-over-year gains.  The median existing single-family home price advanced 5.8% from a year ago to $248,100.  The inventory of 1.48 million homes for sale at the end of December dropped 11.4% and is 10.3% lower than the same period a year ago.  The inventory of existing homes for sale has fallen year-over-year for 31 consecutive months currently resulting in an unsold inventory at a 3.2-month supply, the lowest on record.

Also, the latest data from the Census Bureau and the Department of Housing and Urban Development showed a disappointing 9.3% decline in New Home Sales in December to a seasonally adjusted annual rate of 625,000.  The consensus forecast had called for an annual rate of was 679,000.  This was in addition to a large downward revision to November from an originally reported 733,000 to 689,000 in annual New Home Sales.  The median sales price increased 2.6% year-over-year to $335,400 while the average sales price increased 4.3% to $398,900.  Based on the current sales pace, the inventory of new homes for sale increased to a 5.7-months’ supply versus 4.9 months in November and 5.6 months in the year-ago period.

 

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 4.5% during the week ended January 19, 2018.  The seasonally adjusted Purchase Index increased 6.0% from a week prior while the Refinance Index advanced 1.0%.

 

Overall, the refinance portion of mortgage activity decreased to 49.4% of total applications from 52.2% in the prior week.  The adjustable-rate mortgage share of activity was unchanged at 5.2% 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 4.36% from 4.33%, with points remaining unchanged at 0.54.

 

For the week, the FNMA 3.5% coupon bond gained 1.5 basis points to close at $101.281 while the 10-year Treasury yield decreased 0.12 basis points to end at 2.6599%.  The major stock indexes continued to move higher during the week.

 

The Dow Jones Industrial Average climbed 544.99 points to close at 26,616.71.  The NASDAQ Composite Index climbed 169.39 points to close at 7,505.77 and the S&P 500 Index gained 62.57 points to close at 2,872.87.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 7.68%, the NASDAQ Composite Index has advanced 8.73%, and the S&P 500 Index has added 7.45%.

 

This past week, the national average 30-year mortgage rate rose to 4.28% from 4.23%; the 15-year mortgage rate increased to 3.65% from 3.59%; the 5/1 ARM mortgage rate increased to 3.34% from 3.29% and the FHA 30-year rate climbed to 4.05% from 4.00%.  Jumbo 30-year rates increased to 4.41% from 4.36%.

 

Economic Calendar – for the Week of January 29, 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 ($101.281, +1.5 bp) traded within a 45.3 basis point range between a weekly intraday high of $101.578 on Thursday and a weekly intraday low of $101.250 on Thursday before closing the week at $101.281 on Friday.

 

The bond traded sideways during the past week between technical resistance at $101.66 and support at $101.25 and ended the week close to where it finished the prior week.  A new sell signal was generated on Friday but the bond remains significantly “oversold.”  This coming week’s market direction could be determined by economic news.  The economic calendar is extensive this coming week and includes the always important January Employment Report.  If the economic news is favorable for bonds we could see a rebound in bond prices with a slight improvement in rates.  However, if the economic news is strong and continues to fuel the stock market, we could see bond prices slide lower with rates moving slightly higher.

 

 

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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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