From: Richmond Times Dispatch

The housing market in the Richmond area and surrounding counties is closing in on its fifth year of year-over-year growth, according to a report released Tuesday by the Central Virginia Regional Multiple Listing Service.

Residential sales in the immediate Richmond area — the city and Chesterfield, Hanover and Henrico counties — rose 6 percent in the third quarter from the same period a year ago.

The median price in the area, with half the homes selling for less and half for more, was $234,097 in the third quarter, up 4 percent from the same period a year ago.

The city of Richmond led the area in sales growth with 781 sales, up 16 percent from last year — marking the sharpest quarterly year-over-year percentage sales increase the city has seen in three years, according to the report.

In the 16 jurisdictions that make up the region, home sales — which totaled 5,224 in the third quarter — rose 8 percent from the same period a year ago  READ FULL STORY

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Weekly Review

 

Both the stock and bond markets showed modest improvement during the week on “mixed” economic and third quarter corporate earnings reports.

 

Several economic reports showed manufacturing remains tenuous.  The New York Fed reported the October New York Empire State Manufacturing Index continued its recent decline by dropping to -6.8 from September’s reading of -2.0.  The consensus forecast had called for rise to 2.0.  Readings below zero indicate a contraction in manufacturing activity and October’s was the weakest reading since May.

 

The Philadelphia Federal Reserve Bank reported its Manufacturing Index for October fell to a reading of 9.7 after reaching a 19 month high in September with a reading of 12.8.  However, a greater pullback was expected as various consensus forecasts for October ranged from 5.5 to 7.0.

 

The Federal Reserve reported Industrial Production increased by 0.1% month-over-month for September, but this was below the consensus forecast calling for a 0.2% gain.  Capacity Utilization declined to 75.4% from 75.5% and was below the consensus forecast of 75.6% while trending 4.6% below its long-term average.  This report revealed Industrial Production remains fragile while Capacity Utilization continues to be weak.

 

However, several reports on the housing sector revealed this area of the economy remains strong.

 

The National Association of Home Builders reported their October Housing Market Index, a measure of home builder sentiment, retreated a couple of points to 63 after hitting a decade high of 65 in September.   NAHB Chairman Ed Brady remarked “Even with this month’s drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress.  However, builders in many markets continue to express concerns about shortages of lots and labor.”

 

The Commerce Department reported Housing Starts fell to their lowest level in 18 months at an annual rate of 1.047 million when the consensus forecast had estimated 1.168 million.  However, builders shifted their emphasis to building single-family homes from apartments as single-family housing starts rose 8.1% to an annual rate of 783,000, the highest in seven months.  Starts for buildings with five or more units fell 39%.  This emphasis on single-family construction is a sign of greater confidence in the economy.  There is now the largest number of single-family homes under construction since October 2008.

 

Moreover, the decline in Housing Starts was mostly offset by a strong showing in Building Permits suggesting a stronger rate of future construction.  Building Permits were reported at 1.255 million in September, a 6.3% monthly gain and the highest number since November.

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Furthermore, the National Association of Realtors (NAR) reported Existing Home Sales increased 3.2% during September at a seasonally adjusted annual rate of 5.47 million, exceeding the consensus forecast of 5.30 million.  First-time home buyers led the surge in sales as this group accounted for 34% of all purchase transactions, the largest percentage of existing sales in four years.  The median sales price rose to $234,200 in September for a 5.6% year-over-year gain.  However, at the current sales rate existing housing inventory remains tight with just a 4.5 month supply of unsold homes.

201610242

 

As far as mortgages are concerned, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 14th showing the overall seasonally adjusted Market Composite Index increased 0.6%.  The seasonally adjusted Purchase Index rose 3.0% from the prior week, while the Refinance Index decreased 1.0%.  Overall, the refinance portion of mortgage activity decreased to 61.5% of total applications from 62.4% in the prior week.  The adjustable-rate mortgage share of activity accounted for 4.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.68% to 3.73% with points increasing to 0.36 from 0.35.

 

For the week, the FNMA 3.0% coupon bond gained 39.1 basis points to end at $103.38 while the 10-year Treasury yield decreased 6.8 basis points to end at 1.7364%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 7.33 points to end at 18,145.71.  The NASDAQ Composite Index added 43.24 points to close at 5,257.40, and the S&P 500 Index rose 8.18 points to close at 2,141.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.97%, the NASDAQ Composite Index has added 4.76%, and the S&P 500 Index has advanced 4.54%.

 

This past week, the national average 30-year mortgage rate decreased to 3.54% from 3.58% while the 15-year mortgage rate decreased to 2.85% from 2.89%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.91%.  FHA 30-year rates decreased to 3.35% from 3.40% and Jumbo 30-year rates decreased to 3.70% from 3.73%.

 

Economic Calendar – for the Week of October 24, 2016

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Oct 25 09:00 Case-Shiller 20-city Index Aug 5.1% 5.0%
Oct 25 09:00 FHFA Housing Price Index Aug NA 0.5%
Oct 25 10:00 Consumer Confidence Oct 100.8 104.1
Oct 26 07:00 MBA Mortgage Index 10/22 NA -0.6%
Oct 26 08:30 International Trade in Goods Sept NA -$58.4B
Oct 26 10:00 New Home Sales Sept 610,000 609,000
Oct 26 10:30 Crude Oil Inventories 10/22 NA -5.247M
Oct 27 08:30 Initial Jobless Claims 10/22 259,000 260,000
Oct 27 08:30 Continuing Jobless Claims 10/15 NA 2,057K
Oct 27 08:30 Durable Goods Orders Sept 0.0% 0.0%
Oct 27 08:30 Durable Goods Orders Excluding Transportation Sept 0.3% -0.4%
Oct 27 10:00 Pending Home Sales Sept 0.6% -2.4%
Oct 28 08:30 Advance 3rd Qtr. GDP Qtr. 3 2.5% 1.4%
Oct 28 08:30 Advance 3rd Qtr. Chain Deflator Qtr. 3 1.4% 2.3%
Oct 28 08:30 Employment Cost Index Qtr. 3 0.6% 0.6%
Oct 28 10:00 Final Univ. Michigan Consumer Sentiment Index Oct 88.2 87.9

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.38, +39.1 basis points) traded within a  45 basis point range between a weekly intraday high of $103.47 on Thursday and a weekly intraday low of $103.02 on Monday before closing the week at $103.38.

 

The bond bounced back above the 23.6% Fibonacci retracement level at $103.19 and this level reverts back to nearest technical support.  A tough triple layer of overhead resistance is found beginning with the 100-day moving average at $103.50 followed by the 25-day and 50-day moving averages at $103.54 and $103.60 respectively.  The slow stochastic oscillator suggests a further advance could take place this coming week into that ceiling of resistance, but it will be difficult for the bond to move above these levels unless there is a significant meltdown in the stock market.  A more likely scenario is the bond trading in a range between its nearest support and resistance levels with little resultant change in mortgage rates this coming week.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

201610243

 

 

 

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The stock and bond markets both struggled this past week.  Stocks fell for the second consecutive week as some encouraging domestic economic news was offset by a China Trade Balance report showing a 10% drop in exports and a 2% decline in imports during September.  This report renewed investor worries of a possible slowdown in global growth.  Also, the third quarter corporate earnings season got off to a disappointing start when Alcoa reported lower than expected revenue and profits in addition to softer earnings guidance.

 

Favorable economic news included continued strength in the job market with Weekly Jobless Claims falling to 246,000, a decline of 9,000 below the consensus forecast of 255,000 claims.  The underlying trend remains consistent with healthy labor market conditions as claims have now been below the 300,000 level for 84 consecutive weeks.  The four-week moving average of claims fell by 3,500 to 249,250 claims last week.  Furthermore, the Commerce Department reported Retail Sales were robust in September, rebounding from disappointing sales in August.  Retail Sales increased 0.6% in September while Retail Sales excluding autos increased 0.5%.  Both readings matched their respective consensus forecasts.  The Retail Sales numbers eased investor concerns over the current status of discretionary spending and its potential impact on 3rd quarter GDP.

 

The Wednesday release of the minutes from the Federal Reserve’s September FOMC meeting triggered some bond market volatility with the yield of the benchmark 10-year Treasury note rising to 1.80%, its highest level in four months.

 

The minutes showed “Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected.  It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.”  Among the participants who supported awaiting further evidence of continued progress toward the committee’s objectives, several stated that the decision at this meeting was a “close call.”  Based on the current prices of fed funds futures, the market is now pricing in a 64.3% chance of a rate increase by the Fed’s December 14 FOMC meeting.  The bond market was also hit with some selling pressure on Friday when Fed Chair Janet Yellen remarked in a speech that she was comfortable with the Fed “overshooting” their inflation target.

 

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 7th showing the overall seasonally adjusted Market Composite Index decreased 6.0%.  The seasonally adjusted Purchase Index fell 3.0% from the prior week, while the Refinance Index decreased 8.0%.  Overall, the refinance portion of mortgage activity decreased to 62.4% of total applications from 63.8% in the prior week.  The adjustable-rate mortgage share of activity decreased to 4.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.62% to 3.68% with points increasing to 0.35 from 0.32.

 

For the week, the FNMA 3.0% coupon bond lost 54.7 basis points to end at $102.98 while the 10-year Treasury yield increased 6.9 basis points to end at 1.8048%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 102.11 points to end at 18,138.38.  The NASDAQ Composite Index dropped 78.25 points to close at 5,214.16, and the S&P 500 Index lost 20.76 points to close at 2,132.98.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.93%, the NASDAQ Composite Index has added 3.97%, and the S&P 500 Index has advanced 4.17%.

 

This past week, the national average 30-year mortgage rate increased to 3.58% from 3.53% while the 15-year mortgage rate increased to 2.89% from 2.85%.  The 5/1 ARM mortgage rate rose to 2.91% from 2.90%.  FHA 30-year rates increased to 3.40% from 3.35% and Jumbo 30-year rates increased to 3.73% from 3.68%.

 

Economic Calendar – for the Week of October 17, 2016

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Oct 17 08:30 New York Empire State Manufacturing Index Oct 2.0 -2.0
Oct 17 09:15 Industrial Production Sept 0.2% -0.4%
Oct 17 09:15 Capacity Utilization Sept 75.6% 75.5%
Oct 18 04:00 Net Long-Term TIC Flows Aug 0.3% $103.9B
Oct 18 08:30 Consumer Price Index (CPI) Sept 0.2% 0.2%
Oct 18 08:30 Core CPI Sept 59.0 0.3%
Oct 18 10:00 NAHB Housing Market Index Oct NA 65
Oct 19 07:00 MBA Mortgage Index 10/15 NA NA
Oct 19 08:30 Housing Starts Sept 1,168K 1,142K
Oct 19 08:30 Building Permits Sept 1,164K 1,139K
Oct 19 10:30 Crude Oil Inventories 10/15 NA 4.900M
Oct 19 14:00 Fed’s Beige Book Oct NA NA
Oct 20 08:30 Initial Jobless Claims 10/15 249,000 246,000
Oct 20 08:30 Continuing Jobless Claims 10/08 NA 2,046K
Oct 20 08:30 Philadelphia Fed Manufacturing Index Oct 5.5 12.8
Oct 20 10:00 Existing Home Sales Sept 5.30 5.33M

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.98, -54.7 basis points) traded within a  53 basis point range between a weekly intraday high of $103.47 on Tuesday and a weekly intraday low of $102.94 on Friday before closing the week at $102.98.  The potential breakout pointed out in last week’s newsletter took place this week, and unfortunately it was a downward rather than an upward breakout despite the stock market losing ground.  The bond appears to be settling into a new trading range between technical resistance at its 23.6% Fibonacci retracement level and support at the 200-day moving average at $102.73.  A continuing move toward support this coming week will result in slightly higher mortgage rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

chart110172016

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Mortgage bond and U.S. Treasury prices finished the week close to where they began, although the yield curve steepened somewhat as shorter-term yields declined slightly.  Early in the week, Treasury yields increased, but then dropped when weaker economic data provided investors more assurance the Fed will not raise interest rates until their December 14 FOMC meeting.

 

Weaker economic data released during the week included Retail Sales falling 0.3% in August while Industrial Production for August showed a 0.4% decline as did manufacturing, which accounts for 80% of total industrial output.

 

Still, the Labor Department reported inflation edged higher at the consumer level with the August Consumer Price Index (CPI) rising 0.2% compared to the consensus forecast of a 0.1% gain.  Rising rents (+0.3%) and healthcare costs (+1.0%) were cited as reasons for the unexpected increase in the CPI.  On an annual basis through August, the CPI has increased 1.1%.  When excluding volatile food and energy costs, the so-called Core CPI increased 0.3%, the largest increase since February.  The consensus forecast had called for only a 0.2% increase in the Core CPI.  The Core CPI has now increased 2.3% during the past 12 months through August.

 

However, the financial markets have virtually rejected a rate increase next week as the Fed Funds Futures market is now showing the implied probability of a rate hike has only increased to 15.0% on Friday from 12.0% on Thursday.  Many economists now expect the Fed will hike interest rates by 25 basis points in December as the probability of a rate hike at the December FOMC meeting has increased to 45.4% from 39.6% on Thursday.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 10th showing the overall seasonally adjusted Market Composite Index increased 4.2%.  The seasonally adjusted Purchase Index rose 9.0% from the prior week, while the Refinance Index increased 2.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

 

For the week, the FNMA 3.0% coupon bond lost 3.1 basis points to end at $103.47 while the 10-year Treasury yield increased 1.94 basis points to end at 1.6943%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 38.35 points to end at 18,123.80.  The NASDAQ Composite Index gained 118.66 points to close at 5,244.57, and the S&P 500 Index rose 11.35 points to close at 2,139.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.86%, the NASDAQ Composite Index has added 4.52%, and the S&P 500 Index has advanced 4.45%.

 

This past week, the national average 30-year mortgage rate increased to 3.47% from 3.46% while the 15-year mortgage rate increased to 2.82% from 2.80%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.90%.  FHA 30-year rates increased to 3.30% from 3.25% and Jumbo 30-year rates increased to 3.62% from 3.60%.

 

Economic Calendar – for the Week of September 19, 2016

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Sept 19 10:00 NAHB Housing Market Index Sept 59 60
Sept 20 08:30 Housing Starts Aug 1,186K 1211K
Sept 20 08:30 Building Permits Aug 1,160K 1152K
Sept 21 07:00 MBA Mortgage Index 09/17 NA 4.2%
Sept 21 10:30 Crude Oil Inventories 09/17 NA -0.559M
Sept 21 14:00 FOMC Rate Decision Sept 0.375% 0.375%
Sept 22 08:30 Initial Jobless Claims 09/17 262,000 260,000
Sept 22 08:30 Continuing Jobless Claims 09/10 NA 2,143K
Sept 22 09:00 FHFA Housing Price Index July NA 0.2%
Sept 22 10:00 Existing Home Sales Aug 5.50M 5.39M

 

 

 

 

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.47, -3.1 basis points) traded within a narrower 56 basis point range between a weekly intraday high of $103.61 on Monday and a weekly intraday low of $103.05 on Tuesday before closing the week at $103.47.

 

The bond bounced higher off of support provided by the 100-day moving average at $103.23 and advanced toward overhead resistance located at the 25-day moving average at $103.64.  The slow stochastic oscillator is continuing to trend higher after showing a positive crossover buy signal this past Wednesday.  If stocks continue to show weakness this coming week, the bond should challenge resistance early in the week.  A break above resistance would result in a slight improvement in rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

chart092620151

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Mortgage bond and U.S. Treasury prices finished the week close to where they began, although the yield curve steepened somewhat as shorter-term yields declined slightly.  Early in the week, Treasury yields increased, but then dropped when weaker economic data provided investors more assurance the Fed will not raise interest rates until their December 14 FOMC meeting.

 

Weaker economic data released during the week included Retail Sales falling 0.3% in August while Industrial Production for August showed a 0.4% decline as did manufacturing, which accounts for 80% of total industrial output.

 

Still, the Labor Department reported inflation edged higher at the consumer level with the August Consumer Price Index (CPI) rising 0.2% compared to the consensus forecast of a 0.1% gain.  Rising rents (+0.3%) and healthcare costs (+1.0%) were cited as reasons for the unexpected increase in the CPI.  On an annual basis through August, the CPI has increased 1.1%.  When excluding volatile food and energy costs, the so-called Core CPI increased 0.3%, the largest increase since February.  The consensus forecast had called for only a 0.2% increase in the Core CPI.  The Core CPI has now increased 2.3% during the past 12 months through August.

 

However, the financial markets have virtually rejected a rate increase next week as the Fed Funds Futures market is now showing the implied probability of a rate hike has only increased to 15.0% on Friday from 12.0% on Thursday.  Many economists now expect the Fed will hike interest rates by 25 basis points in December as the probability of a rate hike at the December FOMC meeting has increased to 45.4% from 39.6% on Thursday.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 10th showing the overall seasonally adjusted Market Composite Index increased 4.2%.  The seasonally adjusted Purchase Index rose 9.0% from the prior week, while the Refinance Index increased 2.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

 

For the week, the FNMA 3.0% coupon bond lost 3.1 basis points to end at $103.47 while the 10-year Treasury yield increased 1.94 basis points to end at 1.6943%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 38.35 points to end at 18,123.80.  The NASDAQ Composite Index gained 118.66 points to close at 5,244.57, and the S&P 500 Index rose 11.35 points to close at 2,139.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.86%, the NASDAQ Composite Index has added 4.52%, and the S&P 500 Index has advanced 4.45%.

 

This past week, the national average 30-year mortgage rate increased to 3.47% from 3.46% while the 15-year mortgage rate increased to 2.82% from 2.80%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.90%.  FHA 30-year rates increased to 3.30% from 3.25% and Jumbo 30-year rates increased to 3.62% from 3.60%.

 

Economic Calendar – for the Week of September 19, 2016

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Sept 19 10:00 NAHB Housing Market Index Sept 59 60
Sept 20 08:30 Housing Starts Aug 1,186K 1211K
Sept 20 08:30 Building Permits Aug 1,160K 1152K
Sept 21 07:00 MBA Mortgage Index 09/17 NA 4.2%
Sept 21 10:30 Crude Oil Inventories 09/17 NA -0.559M
Sept 21 14:00 FOMC Rate Decision Sept 0.375% 0.375%
Sept 22 08:30 Initial Jobless Claims 09/17 262,000 260,000
Sept 22 08:30 Continuing Jobless Claims 09/10 NA 2,143K
Sept 22 09:00 FHFA Housing Price Index July NA 0.2%
Sept 22 10:00 Existing Home Sales Aug 5.50M 5.39M

 

 

 

 

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.47, -3.1 basis points) traded within a narrower 56 basis point range between a weekly intraday high of $103.61 on Monday and a weekly intraday low of $103.05 on Tuesday before closing the week at $103.47.

 

The bond bounced higher off of support provided by the 100-day moving average at $103.23 and advanced toward overhead resistance located at the 25-day moving average at $103.64.  The slow stochastic oscillator is continuing to trend higher after showing a positive crossover buy signal this past Wednesday.  If stocks continue to show weakness this coming week, the bond should challenge resistance early in the week.  A break above resistance would result in a slight improvement in rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 chart109192016

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Bond and stock prices saw an increase in volatility this past week, rising early in the week before plunging over Thursday and Friday.  Treasury yields jumped on expectations for higher rates. The yield on the 10-year Treasury note reached its highest level since June as prices fell.

 

A surprising contraction in the Institute for Supply Management’s (ISM) Services Index propelled both bond and stock prices higher on Tuesday as traders felt the disappointing report would make the Federal Reserve less likely to raise interest rates at its upcoming meeting on September 21.

 

The ISM reported their Services Index retreated to 51.4 in August from July’s reading of 55.5.  The August ISM Services Index was the lowest since February 2010.  Digging a little deeper into the report showed the Business Activity Index falling considerably lower to 51.8 in August from 59.3 in July.  The New Orders Index also fell substantially to 51.4 from 60.3 in July and the Employment Index slipped to 50.7 in August from 51.4 in July.  The services sector of the economy is becoming more important as over 80% of Americans are employed in service-oriented businesses.

 

Near the end of the week, the stock and bond markets were hit with selling following the European Central Bank’s (ECB) decision to maintain its zero interest rate policy while leaving its quantitative easing program at its current level.  The ECB left its deposit rate unchanged at -0.40%; its main refinance rate unchanged at 0.0%; the marginal lending rate unchanged at 0.25%; and its asset purchase program unchanged at 80 billion euros per month.  Traders were disappointed the ECB decided not to extend the program’s asset purchases beyond its March 2017 expiration date.

 

Also weighing heavily on investor sentiment were “hawkish” comments made by Boston Fed President and FOMC voting member Eric Rosengren, who is traditionally seen as a prominent Fed “dove.”  Rosengren said a rate hike may be necessary as a preventative measure so certain sectors of the economy won’t overheat.  Rosengren noted the labor market continues to “gradually tighten” and “the combination of the relatively strong domestic demand and the restocking of inventories should provide a basis for growth to exceed 2% over the next two quarters.”

 

Rosengren also said he would be in favor of gradual interest-rate hikes, saying waiting too long risks some asset markets, like commercial real estate, becoming “too ebullient.”  These comments coming from a Fed official normally seen as “dovish” increased the belief that the Fed seems determined on hiking interest rates even if the economic data continues to be inconsistent and not that supportive for a rate hike.  The 30-day Fed Funds futures prices are currently predicting the probability for a September 21 rate hike at 24.0%.

 

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 2nd showing the overall seasonally adjusted Market Composite Index increased 0.9%.  The seasonally adjusted Purchase Index rose 1.0% from the prior week, while the Refinance Index also increased 1.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

 

For the week, the FNMA 3.0% coupon bond lost 12.5 basis points to end at $103.50 while the 10-year Treasury yield increased 6.74 basis points to end at 1.6749%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 406.51 points to end at 18,085.45.  The NASDAQ Composite Index dropped 123.99 points to close at 5,125.91, and the S&P 500 Index lost 52.17 points to close at 2,127.81.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.65%, the NASDAQ Composite Index has added 2.31%, and the S&P 500 Index has advanced 3.94%.

 

This past week, the national average 30-year mortgage rate increased to 3.46% from 3.42% while the 15-year mortgage rate increased to 2.80% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.90% from 2.85%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.60% from 3.53%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.50, -12.5 basis points) traded within a wider 63 basis point range between a weekly intraday high of $104.08 on Wednesday and a weekly intraday low of $103.45 on Friday before closing the week at $103.50.

 

A sell signal on Thursday from a three-day Evening Star candlestick pattern forecast market weakness on Friday and turned out to be accurate as the bond continued to decline, falling below a dual level of support provided by the 50-day and 25-day moving averages at $103.74 and $103.72 respectively.  These moving averages will now revert to overhead resistance levels.  The next level of support is found at the 38.2% Fibonacci retracement level at $103.15.  Also, the slow stochastic oscillator now shows a negative crossover sell signal suggesting further market weakness lies ahead.  If this signal proves to be reliable we could see a slight worsening in mortgage rates this week.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

09122016chasrt1

 

Economic Calendar – for the Week of September 5, 2016

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Sept 13 14:00 Treasury Budget Aug NA -$64.4B
Sept 14 07:00 MBA Mortgage Index 09/10 NA 0.9%
Sept 14 08:30 Export Prices excluding agriculture Aug NA 0.3%
Sept 14 08:30 Import Prices excluding oil Aug NA 0.3%
Sept 14 10:30 Crude Oil Inventories 09/10 NA -14.513M
Sept 15 08:30 Initial Jobless Claims 09/10 263,000 259,000
Sept 15 08:30 Continuing Jobless Claims 09/03 NA 2,144K
Sept 15 08:30 Retail Sales Aug -0.1% 0.0%
Sept 15 08:30 Retail Sales excluding automobiles Aug 0.3% -0.3%
Sept 15 08:30 Producer Price Index (PPI) Aug 0.1% -0.4%
Sept 15 08:30 Core PPI Aug 0.1% -0.3%
Sept 15 08:30 Philadelphia Fed Manufacturing Index Sept 0.0 2.0
Sept 15 08:30 Current Account Balance 2nd Qtr. -$122.8B -$124.7B
Sept 15 08:30 New York Empire State Manufacturing Index Sept 0.0 -4.2
Sept 15 09:15 Industrial Production Aug -0.3% 0.7%
Sept 15 09:15 Capacity Utilization Aug 75.7% 75.9%
Sept 15 10:00 Business Inventories July 0.1% 0.2%
Sept 16 08:30 Consumer Price Index (CPI) Aug 0.1% 0.0%
Sept 16 08:30 Core CPI Aug 0.2% 0.1%
Sept 16 10:00 Univ. of Michigan Consumer Sentiment Index Sept 91.5 89.8

 

 

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Bond prices fell and yields rose, predominately on Friday, as a greater number of investors came to the realization that the Federal Reserve’s Federal Open Market Committee (FOMC) could raise interest rates as soon as their next meeting on September 20-21.  The financial markets essentially “tread water” during the week in anticipation of what Fed Chair Janet Yellen would say about future monetary policy during the Fed’s annual Jackson Hole symposium late Friday morning.

 

While Yellen didn’t specify when the FOMC might raise interest rates, she stated the FOMC “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.  Indeed, In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”  She also commented that the Fed still believes future rate increases should be “gradual” and data dependent.

 

Speaking of data dependency, Fed Vice Chair Stanley Fischer previously said the August Employment Situation Summary (Jobs Report) would be a major factor in determining the FOMC’s decision on whether or not to raise rates at their September meeting on September 21.  As a result, the next jobs report scheduled to be released on Friday, September 2 will take on added significance for investors.

 

In housing news, New Home Sales reached their highest level in almost nine years during July by climbing an extremely robust 12.4% to a seasonally adjusted annual rate of 654,000 units.  The consensus forecast had been for a reading of 580,000 homes.  June’s sales rate was revised lower to 582,000 units from the previously reported 592,000 units.  On an annual basis, New Home Sales were 31.3% higher than a year ago.  New home inventory fell 2.9% to 233,000 units, the lowest level since November 2015 and at July’s sales pace it would only take 4.3 months to clear the current supply of new houses on the market.  The median sale price for a new home was reported at $294,600, a 0.5% decline from a year ago.

 

Additionally, the US Federal Housing Finance Agency (FHFA) released their Housing Price Index for June showing a 0.2% increase following a 0.2% gain in May.  Economists had expected a slightly stronger gain of 0.3%.  According to the FHFA, housing prices have gained 5.6% from the second quarter of 2015.

 

Furthermore, the National Association of Realtors reported Existing Home Sales fell 3.2% in July to a seasonally adjusted annual rate of 5.39 million units.  Existing Sales were 1.6% lower than the year ago period and were below the consensus forecast of 5.54 million but still remain strong.  The median home price increased to $244,100, a 5.3% gain from the year ago period.  The dip in sales in July may be temporary however as there may have been a bottleneck in the sales process due to delays with appraisals.  Many real-estate agents have complained about delays with appraisals so if this problem gets resolved, sales going forward could pick up.

chart08292016#1

 

As for mortgage lending, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 19th showing the overall seasonally adjusted Market Composite Index decreased 2.1%.  The seasonally adjusted Purchase Index fell 0.3% from the prior week, while the Refinance Index decreased 3.0%.  Overall, the refinance portion of mortgage activity increased to 62.4% of total applications from 62.6%.  The adjustable-rate mortgage share of activity was unchanged from 4.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.64% to 3.67% with points increasing to 0.34 from 0.31.

 

For the week, the FNMA 3.0% coupon bond lost 1.5 basis points to end at $103.52 while the 10-year Treasury yield increased 4.81 basis points to end at 1.6279%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 157.17 points to end at 18,395.40.  The NASDAQ Composite Index dropped 19.46 points to close at 5,218.92, and the S&P 500 Index fell 14.83 points to close at 2,169.04.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 5.28%, the NASDAQ Composite Index has added 4.05%, and the S&P 500 Index has advanced 5.77%.

 

This past week, the national average 30-year mortgage rate decreased to 3.41% from 3.42% while the 15-year mortgage rate decreased to 2.75% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.86% from 2.85%.  FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.51% from 3.53%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.52, -1.50 basis points) traded within a wider 44 basis point range between a weekly intraday high of $103.88 on Friday and a weekly intraday low of $103.44, also on Friday, before closing the week at $103.52.

 

The bond initially moved higher ahead of Janet Yellen’s speech Friday morning and continued to trade a little higher immediately afterward.  However, when traders heard subsequent comments made by Vice Chair Stanley Fischer during an interview on CNBC two hours later, they felt there was increased “hawkish” sentiment among Fed officials.  Fischer said the comments in Yellen’s speech “were consistent with the idea there could be a rate hike in September and again later in the year,” and this helped to trigger a sell-off in bonds Friday afternoon.

 

The day’s action resulted in move below the 25 and 50-day moving averages (MA) located at $103.696 and $103.61 respectively.  The 50-day MA reverts to closest resistance while the 38.2% Fibonacci retracement level at $103.15 becomes the next support level.  The slow stochastic oscillator now shows a solid negative crossover sell signal with the %K line falling below the %D line suggesting a continuing move lower in bond prices that may result in slightly higher rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 chart08292016#2

 

Economic Calendar – for the Week of August 29, 2016

 

The economic calendar features several reports on the labor sector highlighted by the August Employment Situation Summary (Jobs Report) on Friday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Aug 29 08:30 Personal Income July 0.4% 0.2%
Aug 29 08:30 Personal Spending July 0.3% 0.4%
Aug 29 08:30 Core PCE Prices July 0.1% 0.1%
Aug 30 09:00 Case-Shiller 20-city Index June 5.1% 5.2%
Aug 30 10:00 Consumer Confidence Aug 97.0 97.3
Aug 31 07:00 MBA Mortgage Index 08/27 NA NA
Aug 31 08:15 ADP Employment Change Aug 170K 179K
Aug 31 09:45 Chicago Purchasing Managers Index Aug 54.5 55.8
Aug 31 10:00 Pending Home Sales July 0.7% 0.2%
Aug 31 10:30 Crude Oil Inventories 08/27 NA NA
Sep 01 07:30 Challenger Job Cuts Aug NA -57.1%
Sep 01 08:30 Initial Jobless Claims 08/27 265K 261K
Sep 01 08:30 Continuing Jobless Claims 08/20 NA 2145K
Sep 01 08:30 Revised Productivity 2nd Qtr. -0.6% -0.5%
Sep 01 08:30 Unit Labor Costs – Revised 2nd Qtr. 2.1% 2.0%
Sep 01 10:00 Construction Spending July 0.6% -0.6%
Sep 01 10:00 ISM Index Aug 52.2 52.6
Sep 02 08:30 Nonfarm Payrolls Aug 180K 255K
Sep 02 08:30 Nonfarm Private Payrolls Aug 175K 217K
Sep 02 08:30 Unemployment Rate Aug 4.8% 4.9%
Sep 02 08:30 Hourly Earnings Aug 0.2% 0.3%
Sep 02 08:30 Average Workweek Aug 34.5 34.5
Sep 02 08:30 Trade Balance July -$43.0B -$44.5B
Sep 02 10:00 Factory Orders July 2.0% -1.5%

 

 

 

Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **

September 2016 20-21, (Tuesday-Wednesday) * 36.0% Chance
November 2016 1-2, (Tuesday-Wednesday) 38.3% Chance
December 2016 20-21 (Tuesday-Wednesday)* 46.1% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday) 45.5% Chance
March 2017          14-15 (Tuesday-Wednesday) * 44.0% Chance
May 2017          02-03 (Tuesday-Wednesday) 43.4% Chance
June 2017          13-14 (Tuesday-Wednesday) * 40.6% Chance
July 2017 25-26, (Tuesday-Wednesday) 40.2% Chance

 

* Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairman.

** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

 

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