The major stock market indexes once again recorded new all-time highs during the week while bond prices also recorded modest gains to send yields slightly lower.

 

Political events during the week seemed to create crosscurrents within investor sentiment.

An announcement of a couple of indictments and a conviction last Monday by Special Prosecutor Robert Mueller in his investigation into Russian interference in the 2016 presidential election seemed to dampen investor sentiment, but this was offset by the release of the “Tax Cuts and Jobs Act” by Republican House leaders.   This bill calls for an immediate cut in the top corporate tax rate to 20% which should stimulate the economy and create more jobs.  Additionally, President Trump announced last Thursday he was nominating Federal Reserve Governor Jerome Powell to succeed Janet Yellen as the next chairman of the Federal Reserve.  Powell is viewed more as a monetary policy “dove” than a “hawk” will likely have a carefully measured approach to rate increases and this news was well received by the bond market.

 

The week’s economic news was mixed.  Personal Spending increased by a more than expected +1.0% in September while the Conference Board reported Consumer Confidence in October reached its highest level in nearly 17 years with a reading of 125.9.  The ISM Manufacturing Index, while strong at 58.7, slightly missed expectations of 59.0.  Employment costs crept higher with the 3rd Quarter Employment Cost Index increasing by a greater than forecast 0.7% while Unit Labor Costs gained a higher than expected 0.5%.  The closely watched Employment Situation Summary for October (Jobs Report) showed fewer jobs (261,000) were created than forecast (300,000), but this was thought to be due to negative effects of the recent hurricanes causing volatility in jobs data.  The unemployment rate fell to 4.1% from 4.2% while October average hourly earnings were flat at 0.0% after increasing 0.5% in September.  Over the last 12 months, average hourly earnings have increased 2.4%, versus 2.9% for the 12 months ending in September.

 

As for mortgages, mortgage application volume decreased during the week ending October 27.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell by 2.6%.  The seasonally adjusted Purchase Index decreased 1.0% from the prior week while the Refinance Index decreased 5.0%.

 

Overall, the refinance portion of mortgage activity decreased to 48.7% of total applications from 45.5% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.8% of total applications from 6.4%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.22% from 4.18% with points increasing to 0.43 from 0.42.

 

For the week, the FNMA 3.5% coupon bond gained 43.7 basis points to close at $103.00.  The 10-year Treasury yield decreased 8.30 basis points to end at 2.3325%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 105.00 points to close at 23,539.19.  The NASDAQ Composite Index increased 63.18 points to close at 6,764.44 and the S&P 500 Index advanced 6.77 points to close at 2,587.84.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 19.11%, the NASDAQ Composite Index has advanced 25.66%, and the S&P 500 Index has added 15.59%.

 

This past week, the national average 30-year mortgage rate fell to 3.96% from 4.06%; the 15-year mortgage rate decreased to 3.27% from 3.34%; the 5/1 ARM mortgage rate dropped to 3.18% from 3.22% and the FHA 30-year rate decreased to 3.60% from 3.75%.  Jumbo 30-year rates decreased to 4.15% from 4.24%.

 

Economic Calendar – for the Week of November 6, 2017

 

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.00, +43.7 bp) traded within a 39.1 basis point range between a weekly intraday high of $103.00 on Friday and a weekly intraday low of $102.609 on Wednesday before closing the week at $103.00 on Friday.

 

Mortgage bond prices continued to move higher last week following the new buy signal from October 27.  The bond moved above a couple of resistance levels at $102.73 and $102.806 and these levels now revert to support levels.  There isn’t much in the way of economic news this coming week to influence the bond market, so there is greater likelihood for the market to be influenced by technical signals.  Technically, the slow stochastic oscillator indicates the bond is not yet “overbought” so the bond has more time to move higher before reaching an overbought level where it would be more susceptible to a downturn.

 

Therefore, we should see the bond continue to move higher to challenge a dual layer of resistance at $103.06 and $103.13.  A break above these levels will lead to an improvement in bond prices and mortgage rates.  However, a failure to break above resistance should result in rates remaining close to where they currently are.

 

 

 

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The majority of stock market indexes continued to advance into record territory led by a surge in earnings from technology companies Alphabet (Google), Amazon, Intel, and Microsoft.  Strong 3rd Quarter earnings reports from 3M, Caterpillar, Corning, and General Motors also provided a market boost to the S&P 500 and the overall market.  The week’s economic reports were favorable suggesting a stronger future economy, and this dampened investor sentiment in the bond market with the realization the Federal Reserve might institute more rate hikes next year than currently anticipated.  The probability for a December rate hike is currently 99.9%, up from 93.1% last week.

 

On Wednesday, the Commerce Department reported Durable Goods Orders increased by a greater than forecast 2.2% in September, the largest gain in three months, versus expectations for a 1.3% increase.  Friday, the Commerce Department released their Advance GDP report for the 3rd Quarter showing the economy had unexpectedly grown at an annualized rate of 3.0% despite the negative impact of two major hurricanes.  This was a surprise as economists had only forecast a 2.4% growth rate.  Although these reports pressured bond prices lower (yields higher), the bond market saw some price relief on Friday following rumors that President Trump was favoring Fed Governor Jerome Powell as the central bank’s next chair.  Powell is viewed more as a monetary policy “dove” by bond market participants and would likely continue Janet Yellen’s measured approach in raising short-term interest rates.

 

 

The week’s housing reports were strong overall.  The Census Bureau announced New Home Sales surged higher in September to a seasonally adjusted annual rate of 667,000, a 18.9% month-over-month increase over August’s  rate of 561,000.  The median sales price of new homes sold in September 2017 increased 1.6% year-over-year to $319,700 with the average sales price jumped 5.2% to $385,200.  New home inventory at the end of September stood at 279,000 representing a supply of 5.0 months at the current sales rate.

The National Association of Realtors reported Pending Home Sales was unchanged in September at the lowest level since the start of 2016 as Hurricane Irma slowed sales in the southeast while tight inventory levels of available homes for sales limitied sales activity elsewhere.  August Pending Home Sales were revised lower by -0.2% to -2.8% from -2.6%.  Lawrence Yun, NAR’s chief economist, said “While most of the country, except for the South, did see minor gains in contract signings last month, activity is falling further behind last year’s pace because new listings aren’t keeping up with what’s being sold.”

As for mortgages, mortgage application volume decreased during the week ending October 20.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell by 4.6%.  The seasonally adjusted Purchase Index decreased 6.0% from the prior week while the Refinance Index decreased 3.0%.

 

Overall, the refinance portion of mortgage activity increased to 49.5% of total applications from 48.6% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.4% of total applications from 6.1%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.18% from 4.14% with points decreasing to 0.42 from 0.44.

 

For the week, the FNMA 3.5% coupon bond lost 10.9 basis points to close at $102.563.  The 10-year Treasury yield increased 3.28 basis points to end at 2.4155%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 105.56 points to close at 23,434.19.  The NASDAQ Composite Index increased 72.21 points to close at 6,701.26 and the S&P 500 Index advanced 5.86 points to close at 2,581.07.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.58%, the NASDAQ Composite Index has advanced 24.49%, and the S&P 500 Index has added 15.29%.

 

This past week, the national average 30-year mortgage rate rose to 4.06% from 3.98%; the 15-year mortgage rate increased to 3.34% from 3.28%; the 5/1 ARM mortgage rate was unchanged at 3.22% and the FHA 30-year rate increased to 3.75% from 3.60%.  Jumbo 30-year rates increased to 4.24% from 4.17%.

 

Economic Calendar – for the Week of October 30, 2017

 

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

 

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.563, -10.9 bp) traded within a 62.5 basis point range between a weekly intraday high of $102.797 on Monday and a weekly intraday low of $102.172 on Wednesday before closing the week at $102.56 on Friday.

 

The bond managed to push just above the key 200-day moving average resistance level last Monday, but was unable to advance as further nearby resistance from the 38.2% Fibonacci retracement level stopped the advance dead in its tracks.  The bond then moved lower during the week until bouncing back on Friday on rumors that President Trump was strongly considering Fed Governor Jerome Powell to replace Janet Yellen as the central bank’s next chair.

 

Friday’s trading action from a support level triggered a new buy signal from a positive crossover in the slow stochastic oscillator.  If this technical signal proves true, we should see bond prices climb to test the identified resistance levels once more.  A move above the resistance levels would lead to a slight improvement in mortgage rates, while range-bound trading between current support and resistance should maintain rates close to where they currently are.

 

 

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The stock market continued to advance into new record-high territory last week on better than expected third quarter corporate earnings reports.  The Dow Jones Industrials in particular benefited from earnings reports from IBM, Johnson & Johnson, and UnitedHealth that helped send the Dow over 23,000.  Several equity market analysts with a macro view are predicting the stock market will continue to rise with the Dow eventually reaching the 50,000 mark.

 

Positive economic data during the week and passage of a budget resolution by Congress paving the way for a tax reform package that would further stimulate economic growth through tax cuts also helped stocks to move higher while sending bond prices lower and Treasury yields higher.

Manufacturing remained strong with better than forecast readings from the New York Empire State Manufacturing Index (30.2 vs. 21.0 expected) and the Philadelphia Fed Manufacturing Index (27.9 vs. 20.0 expected).  Furthermore, weekly jobless claims fell to their lowest level since 1973, when the labor force was roughly 60% of its current size.

 

In housing, the Commerce Department reported Housing Starts for September fell to a one-year low seasonally adjusted annual rate of 1.127 million while economists had estimated a rate of 1.160 million.  Housing Starts were negatively impacted by the disrupting effects to construction of single-family homes in the South by hurricanes Harvey and Irma.  Housing Starts in the Southern Region declined by 15.3% on a month-over-month basis.  Meanwhile, Building Permits declined 4.5% to a seasonally adjusted annual rate of 1.215 million, below the consensus forecast of 1.225 million.  Permits for building multi-family units led the decline with a 16.1% decrease.

A chart from Doug Short, Vice President of Research at Advisor Perspectives, that smooths out monthly volatility in Housing Permits and Starts as a percent of the population provides a longer-term view of the trends in Starts and Permits.

 

 

On Friday, The National Association of Realtors reported Existing Home Sales unexpectedly increased 0.7% in September to a seasonally adjusted annual rate of 5.39 million units.  Economists had forecast a more modest rate of 5.29 million units.  Available inventory remains limited and is 6.4% lower than the same period a year ago with only a 4.2 month supply at the current sales rate.  Coupled with an increase of 4.2% in the median existing home prices to $245,100 for all housing types and $246,800 in single-family home prices, affordability continues to be a concern and will inhibit future sales.  Indeed, first-time buyers fell to 29% of sales in September from 31% in August, comprising this group’s lowest portion of existing home sales since September 2015.

As for mortgage data, mortgage application volume increased during the week ending October 13.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose by 3.6%.  The seasonally adjusted Purchase Index increased 4.0% from the prior week while the Refinance Index increased 3.0%.

 

Overall, the refinance portion of mortgage activity decreased to 48.6% of total applications from 49.0% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.1% of total applications from 6.6%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.14% from 4.16% with points remaining unchanged at 0.44.

 

For the week, the FNMA 3.5% coupon bond lost 50.0 basis points to close at $102.672.  The 10-year Treasury yield increased 10.79 basis points to end at 2.3827%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 456.91 points to close at 23,328.63.  The NASDAQ Composite Index increased 23.25 points to close at 6,629.05 and the S&P 500 Index advanced 22.04 points to close at 2,575.21.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.04%, the NASDAQ Composite Index has advanced 23.15%, and the S&P 500 Index has added 15.02%.

 

This past week, the national average 30-year mortgage rate rose to 3.98% from 3.93%; the 15-year mortgage rate increased to 3.28% from 3.23%; the 5/1 ARM mortgage rate rose to 3.22% from 3.19% and the FHA 30-year rate increased to 3.60% from 3.50%.  Jumbo 30-year rates increased to 4.17% from 4.14%.

 

Economic Calendar – for the Week of October 23, 2017

 

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

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

 

The FNMA 30-year 3.5% coupon bond ($102.67, -50.0 bp) traded within a 53.1 basis point range between a weekly intraday high of $103.125 on Monday and a weekly intraday low of $102.594 on Friday before closing the week at $102.67 on Friday.

 

An increase in the likelihood of real tax reform passing Congress sent stock prices higher and bond prices lower.  Mortgage bond prices were not immune with the FNMA 30-year 3.5% coupon bond falling below support levels including the key 200-day moving average – a bearish event.  A new sell signal on Wednesday from a negative stochastic crossover led to the downward breach of the 200-day moving average on Friday.  The next support levels are found at $102.50 and $102.30 while the aforementioned 200-day moving average defines nearest overhead resistance.  The overall trend is down, and if bond cannot reclaim the 200-day moving average, it is likely mortgage rates will be pressured slightly higher in the coming week.

 

 

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

Economic Calendar – for the Week of October 9, 2017

 

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

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

 

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

 

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

 

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

 

 

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

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

 

Economic Calendar – for the Week of October 2, 2017

 

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

 

 

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

 

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

 

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

 

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Mortgage Rate Update

Sep 25, 2017

This past week the stock market ended “mixed” with the Dow Jones Industrial Average and S&P 500 indexes recording marginal gains while the NASDAQ Composite Index slipped modestly lower.  Investors were wary of continued rhetorical threats between President Trump and North Korean dictator Kim Jong-un who boasted North Korea would test a hydrogen bomb somewhere over the Pacific Ocean.  However, the strong words traded between the U.S. and North Korea took a back seat to the week’s most significant piece of economic news that arrived on Wednesday with the Federal Reserve’s September Federal Open Market Committee (FOMC) Policy Statement.

 

As widely expected, the Fed held the fed funds interest rate at the current range of 1.00-1.25%, but hinted they would raise rates by 25 basis points (0.25%) at their December meeting while looking to raise rates three more times in 2018.  U.S. Treasuries and mortgage bond prices ended Wednesday on a sour note, falling in response to the September FOMC Statement.  Also in response, the fed funds futures market is now showing the implied probability of a rate hike in December has increased to 72.8% from 57.8% the previous week.

 

More importantly, the FOMC announced it will initiate the balance sheet normalization program beginning in October.  This program will allow the Fed to begin reducing its massive $4.5 trillion balance sheet, of which $1.8 trillion is held in mortgage backed securities, by not reinvesting in some of its Treasury and mortgage bonds as they mature. This “rolling off” of its bond holdings will begin with monthly reductions of $4 billion in mortgage securities and $6 billion in Treasuries with these levels rising every quarter until reaching $20 billion in mortgage securities and $30 billion in Treasuries per month.  So, how long will it take the Fed to reduce its $1.8 trillion in mortgage securities?  Current projections show it will take about seven years.

 

Fed Chair Janet Yellen said the Fed has no plans to tinker with this pace of balance sheet normalization, but would be willing to restart re-investments if the economic outlook deteriorates.

 

In housing, the National Association of Realtors reported Existing Home Sales fell 1.7% in August to a 5.350 million unit annualized pace; coming in lower than analyst expectations of 5.42 million. Inventory levels declined 2.1% to 1.88 million homes for sale while the median existing home price dropped to $253,500.  Hurricanes Harvey and Irma interrupted closings in the South to negatively impact the sales count nationwide, and will likely continue to do so in coming months.  At the current sales pace, it would take 4.2 months to sell the current home inventory in the market.  First-time buyers made up 31% of all sales, a one-year low, compared with 33% in July.  Homes typically sold in 30 days, compared with 36 days in August 2016 and 51% of homes sold in August were on market for less than a month.

 

The U.S. Census Bureau reported Housing Starts fell slightly by 0.8% in August from July to a seasonally adjusted annual rate of 1.180 million, driven by continued steep declines in multifamily building.  Although buildings with two or more units fell 6.5%, single-family starts increased by 851,000 or by 1.6% in August over July’s revised total of 838,000.  The report indicates single-family construction is gradually improving while multifamily construction is declining significantly due to an oversupply of apartments in many urban markets.  Meanwhile, Building Permits soared 5.7% to a seasonally adjusted annual rate of 1.300 million from an upwardly revised 1.230 million for July.  Ironically, the strength in permits was due to a 19.6% increase in multi-family permits while single-family permits fell by 1.5%

.

Mortgage application volume increased during the week ending September 15.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 9.7%.  The seasonally adjusted Purchase Index decreased 11.0% from the prior week while the Refinance Index fell 9.0%.

 

Overall, the refinance portion of mortgage activity increased to 52.1% of total applications from 51.0% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.8% of total applications from 6.7%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.04% from 4.03% with points remaining unchanged at 0.40.

 

For the week, the FNMA 3.5% coupon bond lost 4.7 basis points to close at $103.234.  The 10-year Treasury yield increased 5.11 basis points to end at 2.2534%.  The major stock indexes ended the week “mixed”.

 

The Dow Jones Industrial Average gained 81.25 points to close at 22,349.59.  The NASDAQ Composite Index fell 21.55 points to close at 6,426.92 and the S&P 500 Index gained 1.99 points to close at 2,502.22.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 13.09%, the NASDAQ Composite Index has advanced 19.39%, and the S&P 500 Index has added 11.76%.

 

This past week, the national average 30-year mortgage rate increased to 3.97% from 3.94%; the 15-year mortgage rate increased to 3.27% from 3.22%; the 5/1 ARM mortgage rate remained unchanged at 3.20% and the FHA 30-year rate rose to 3.60% from 3.50%.  Jumbo 30-year rates increased to 4.20% from 4.19%.

 

Economic Calendar – for the Week of September 25, 2017

 

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

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

 

The FNMA 30-year 3.5% coupon bond ($103.23, -4.7 bp) traded within a 28.1 basis point range between a weekly intraday low of $103.00 on Wednesday and a weekly intraday high of $103.281 on Tuesday and Wednesday before closing the week at $103.234 on Friday.

 

Mortgage bonds continued lower during the week to test support levels at the 50-day ($103.21) and 100-day ($103.05) moving averages.  Friday, the bond bounced higher off of the 100-day moving average support level resulting in a slow stochastic crossover buy signal while being deeply “oversold.”  This suggests the bond could continue higher toward the 25-day moving average resistance level in the coming week to send mortgage rates slightly lower.

 

 

 

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This past week investors were rewarded with the three major stock indexes reaching new record all-time highs.  The rally began last Monday following early reports that damages from Hurricane Irma were not as severe as first projected when Irma was classified as a category 5 before slamming into Florida.  Also, the equity markets shrugged off another launch of a ballistic missile by North Korea that flew over the northern Japanese island of Hokkaido on Friday to continue the week’s safe-haven sell off.

 

The week’s most significant economic news arrived Thursday from a Commerce Department report showing the Consumer Price Index (CPI) rising by a greater than expected 0.4% in August resulting in a year-over-year increase of 1.9%.  The consensus estimate had called for a 0.3% increase in the August CPI.  This report led investors to consider the Federal Reserve’s view that the recent weaker than forecast inflation data was temporary might be true.  Expectations are now significantly increasing for another interest rate hike at the Fed’s December 13 FOMC policy meeting.  In fact, the Fed Funds futures market shows the probability of another rate hike by year end has jumped higher to 57.8% from 27.3% last week while the current implied probability for a rate-hike at the June 2018 FOMC meeting increased to 76.9% from last week’s 47.1%.

 

In housing, mortgage application volume increased during the week ending September 8.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 9.9%.  The seasonally adjusted Purchase Index increased 11.0% from the prior week while the Refinance Index advanced 9.0%.

 

Overall, the refinance portion of mortgage activity increased to 51.0% of total applications from 50.9% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.7% of total applications from 7.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.03% from 4.06% with points increasing to 0.40 from 0.38.

 

For the week, the FNMA 3.5% coupon bond lost 54.7 basis points to close at $103.28.  The 10-year Treasury yield increased 14.82 basis points to end at 2.2023%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 470.55 points to close at 22,268.34, a new all-time high.  The NASDAQ Composite Index added 88.28 points to close at 6,448.47 and the S&P 500 Index gained 38.80 points to close at 2,500.23.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 12.68%, the NASDAQ Composite Index has advanced 19.79%, and the S&P 500 Index has added 11.68%.

 

This past week, the national average 30-year mortgage rate increased to 3.94% from 3.84%; the 15-year mortgage rate increased to 3.22% from 3.12%; the 5/1 ARM mortgage rate moved higher to 3.20% from 3.10% and the FHA 30-year rate rose to 3.50% from 3.35%.  Jumbo 30-year rates increased to 4.19% from 4.10%.

 

Economic Calendar – for the Week of September 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 ($103.28, -54.7 bp) traded within a 54.7 basis point range between a weekly intraday low of $103.703 on Monday and a weekly intraday high of $103.156 on Thursday before closing the week at $103.28 on Friday.

 

The stock market continued to move higher while bonds sold off in response.  Mortgage bonds fell below last week’s nearest support levels and these now become resistance levels.  The bond is no longer severely “overbought” and the slow stochastic oscillator is now moving toward an “oversold” level, but has not yet reached this position.  Technically it appears the bond will continue a little lower to test support at the 50-day and 100-day moving averages.  As a result, mortgage rates may rise slightly in the coming week.  Also, bond traders will be focusing on this coming week’s Federal Reserve FOMC meeting on Tuesday and Wednesday.  It is widely anticipated Fed Chair Janet Yellen will announce the beginning of a gradual reduction of assets, including mortgage bonds, to shrink its huge balance sheet resulting from its response to the 2008 financial crisis.  While Yellen is unlikely to “upset the apple cart” with such an announcement, you never know how traders will respond to the Fed’s plan for shrinking their balance sheet by selling bonds.

 

 

 

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This past week investors were more focused on macro events than on individual economic reports. Stock market sentiment was negatively impacted by continuing geopolitical troubles with North Korea and its nuclear weapons testing program, the weekend arrival of potentially catastrophic Category 5 hurricane Irma in Florida, and waning confidence in Congress to enact meaningful tax reform that would ignite the US economy.  In particular, reports were circulating that the conservative House Freedom Caucus was beginning to write its own version of a tax reform plan, and the prospect of multiple, competing plans appeared to weigh on sentiment last Thursday.

 

Sentiment may also have been subdued by a speech by Minneapolis Fed President and FOMC member Neel Kashkari.  Considered a Fed “dove,” Kashkari said recent Fed rate hikes have been detrimental to the U.S. economy.  Kashkari’s comments sparked a rally in Treasuries that helped to push long-term Treasury yields lower.

 

Declining long-term Treasury yields and diminished expectations for another short-term rate hike from the Fed in December led to a decline in the U.S. dollar during the week.  The dollar fell to its lowest level against a basket of major foreign currencies since the beginning of 2015 and has fallen 10% against the euro in less than eight months.

The Fed Funds futures market currently shows a probability of another rate hike this year at just 27.3%, down from 40.8% last week.  The current implied probability for a rate-hike at the June 2018 FOMC meeting fell to 47.1% from last week’s 58.3%.

 

In housing, CoreLogic reported their Home Price Index (HPI) showed home prices increased significantly both month-over-month and year-over-year in July.  Nationally, the average cost of a single-family house increased nearly 0.9% from this time last month and 6.7% from this time last year.  The CoreLogic HPI Forecast suggests the trend of higher home prices will continue, leading to another 5% national gain in home prices year-over-year by July 2018.

 

CoreLogic CEO Frank Martell stated “Home prices in July continued to rise at a solid pace with no signs of slowing down.  The combination of steadily rising purchase demand along with very tight inventory of unsold homes should keep upward pressure on home prices for the remainder of this year. While mortgage interest rates remain low, affordability cracks are emerging as over a third of U.S. top cities are now overvalued.”

 

As for mortgages, mortgage application volume increased during the week ending September 1.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 3.3%.  The seasonally adjusted Purchase Index increased 1.0% from the prior week while the Refinance Index advanced 5.0%.

 

Overall, the refinance portion of mortgage activity increased to 50.9% of total applications from 49.4% in the prior week.  The adjustable-rate mortgage share of activity increased to 7.2% of total applications from 6.9%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.06% from 4.11% with points decreasing to 0.38 from 0.43.

 

For the week, the FNMA 3.5% coupon bond gained 35.9 basis points to close at $103.828.  The 10-year Treasury yield decreased 11.16 basis points to end at 2.0541%.  The major stock indexes ended the week lower.

 

The Dow Jones Industrial Average lost 189.77 points to close at 21,797.79.  The NASDAQ Composite Index dropped 75.14 points to close at 6,360.19 and the S&P 500 Index fell 15.12 points to close at 2,461.43.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 10.3%, the NASDAQ Composite Index has advanced 18.15%, and the S&P 500 Index has added 9.94%.

 

This past week, the national average 30-year mortgage rate decreased to 3.84% from 3.90%; the 15-year mortgage rate decreased to 3.12% from 3.18%; the 5/1 ARM mortgage rate moved lower to 3.10% from 3.18% and the FHA 30-year rate fell to 3.35% from 3.50%.  Jumbo 30-year rates decreased to 4.10% from 4.18%.

 

Economic Calendar – for the Week of September 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 ($103.828, +35.6 bp) traded within a 37.5 basis point range between a weekly intraday low of $103.578 on Tuesday and a weekly intraday high of $103.953 on Thursday and Friday before closing the week at $103.828 on Friday.

 

The bond managed to move higher this past week despite very choppy trading and while continuing to be extremely “overbought.”  The holiday-shortened week’s trading action was highlighted by alternating days of the bond moving higher, then lower.  This choppy trading also resulted in alternating daily buy and sell signals from positive and negative crossovers in the slow stochastic oscillator.

 

It is difficult if not impossible to forecast directional movement in such a choppy trading environment.  Given that September is historically the worse performing month for the stock market; we could see mortgage bond and Treasury prices continue to improve slightly resulting in stable to slightly lower rates.  However, from a purely technical perspective, mortgage bonds are not likely to remain at such extremely overbought levels for much longer and will be susceptible to a move lower toward support levels resulting in rates edging a little higher from current levels.

 

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The stock market ended higher for the week while bond prices moved ever so slightly higher resulting in the yield on the 10-year Treasury note to fall by less than one basis point on the week.

Investors were bombarded by a bevy economic reports, the most significant of which were the inflation measuring core PCE Price Index for July and the August Employment Situation Summary.

The inflation data contained within both of these reports helped to alleviate investor concerns of another rate hike by year end as the numbers were below expectations.

 

The core PCE Price Index, which excludes food and energy prices, fell on a year-over-year basis to +1.4% from +1.5% in June to stay well below the Federal Reserve’s year-over-year target of 2.0%.  It now seems unlikely that the Fed will be able to fulfill its forecast of one more rate hike by year-end.  Furthermore, the August Employment Situation Summary (jobs report) also showed no sign of accelerating wage inflation as there was only a weak increase in average hourly earnings of 0.1% when economists were expecting a 0.2% reading.

 

The Fed Funds futures market currently shows a probability of another rate hike this year at just 40.8% while suggesting the June 2018 FOMC meeting as the next most likely time for a rate-hike  with a current implied probability of 58.3%.

 

In housing, Pending Home Sales for July fell for the fourth time in five months with a decrease of 0.8% in the Pending Home Sales Index to 109.1.  Economists were expecting an increase of 0.5%.  Furthermore, June’s initial reading of an increase of 1.5% in Pending Sales was revised lower to 1.3%.  Lawrence Yun, National Association of Realtors (NAR) chief economist, said “With the exception of a minimal gain in the West, pending sales were weaker in most areas in July as house hunters saw limited options for sale and highly competitive market conditions.  The housing market remains stuck in a holding pattern with little signs of breaking through.  The pace of new listings is not catching up with what’s being sold at an astonishingly fast pace.  The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves.”

 

As for mortgages, mortgage application volume decreased during the week ending August 25.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 2.3%.  The seasonally adjusted Purchase Index declined 3.0% from the prior week while the Refinance Index decreased 2.0%.

 

Overall, the refinance portion of mortgage activity increased to 49.4% of total applications from 48.7% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.9% 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 fell to 4.11% from 4.12% with points increasing to 0.43 from 0.39.

 

For the week, the FNMA 3.5% coupon bond gained 6.3 basis points to close at $103.469.  The 10-year Treasury yield decreased 0.37 basis points to end at 2.1657%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 173.89 points to close at 21,987.56.  The NASDAQ Composite Index jumped 169.69 points to close at 6,435.33 and the S&P 500 Index added 33.50 points to close at 2,476.55.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 11.3%, the NASDAQ Composite Index has advanced 19.42%, and the S&P 500 Index has added 10.6%.

 

This past week, the national average 30-year mortgage rate decreased to 3.90% from 3.95%; the 15-year mortgage rate decreased to 3.18% from 3.23%; the 5/1 ARM mortgage rate moved lower to 3.18% from 3.20% and the FHA 30-year rate fell to 3.50% from 3.60%.  Jumbo 30-year rates decreased to 4.18% from 4.23%.

 

Economic Calendar – for the Week of September 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 ($103.469, +6.3 bp) traded within a 39.1 basis point range between a weekly intraday low of $103.359 on Monday and a weekly intraday high of $103.750 on Friday before closing the week at $103.469 on Friday.

 

This past week we ended up pretty much with a sideways move although there were a couple of days during the week showing an increase in intra-day volatility, most notably on Tuesday and Friday.  The bond continues to be extremely “overbought” but is now more vulnerable to a turn lower as there is a new sell signal showing from a negative stochastic crossover as a result of Friday’s market action.  The bond closed on support on Friday, but any move lower will likely send prices toward the 25-day moving average leading to minimally higher mortgage rates in the coming week.

 

 

 

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The stock market posted gains for the week largely due to a solid rally on Tuesday that may have been triggered by a report from Politico stating Republican lawmakers were working behind the scenes on tax reform legislation. According to Politico, a consensus is emerging among top administration and congressional officials on ways to pay for individual and corporate tax cuts and reduced tax rates, including capping the mortgage interest deduction and eliminating the deduction for state and local tax payments. Also, businesses would no longer be able to deduct interest payments. Treasury prices increased during the week. The yield on the 10-year Treasury Note fell by 2.80 basis points to end at 2.1694%.

 

The week’s economic and housing data continued to be mixed. Durable Goods Orders declined by 6.8% in July, in sharp contrast to a gain of 6.4% during June. The decline was largely driven by a substantial reduction in aircraft orders. One encouraging piece of data came from the latest reading on core capital goods, a key measure of business investment, showing an increase of 0.4%. Weekly Initial Jobless Claims increased slightly from 232,000 to 234,000, but remained well under market expectations of 237,000 claims.

 

In housing, the Federal Housing Finance Agency (FHFA) House Price Index (HPI) released last Tuesday showed home prices increased by 1.6% during the second quarter of 2017 compared to the first quarter. For June 2017, the FHFA’s seasonally adjusted monthly index rose 0.1% from May. On an annual basis from the second quarter of 2016 to the second quarter of 2017, home prices have risen 6.6%. FHFA Senior Economist William Doerner remarked “U.S. house prices rose in most states during the second quarter. New home sales are climbing but, relative to the overall population, they still remain low from a historical perspective. The tight inventory is a major explanation for why house prices have been increasing every quarter over the last six years.”

 

New Home Sales for July disappointed by missing the consensus forecast of 615,000 with a seasonally adjusted annual reading of 571,000 that was 9.4% lower than an upwardly revised June rate of 630,000 (from an originally reported 610,000). July’s reading was also 8.9% lower from the same period a year ago. However, when taking into account the upward revisions that have taken place over the past three months that have collectively added 46,000 new home sales, the July sales pace was not really as bad as it first appeared.

 

The primary problem for New Home Sales appears to be a limited inventory of lower priced new homes for sale. Also, higher average selling prices continue to act as a constraining factor. The median sales price increased 6.3% year-over-year to $313,700 while the average sales price increased 4.6% to $371,200. Based on the rate of July sales, the inventory of new homes for sale is currently at a 5.8-months’ supply versus 5.2 months for June.

Furthermore, the National Association of Realtors (NAR) reported last Thursday that Existing Home Sales edged 1.3% lower in July to a seasonally adjusted annual rate of 5.44 million versus a consensus forecast of 5.56 million. Although the July’s sales rate was 2.1% above the year ago period, it was the lowest sales pace so far in 2017. NAR Chief Economist Lawrence Yun commented “Homes are selling fast” while Zillow Senior Economist Aaron Terrazas stated “The American housing market is stuck in its own kind of stagflation: Existing home sales have been flat since last fall, while home values are up more than 4% over the same period. For more than two years now, inventory has been has been contracting, pushing the housing market into an inventory crisis.”

 

Strong housing demand in July meant listings went into contract in under 30 days. It also pushed prices higher. The median existing home sales price in July was $258,300, a 6.2% increase compared to a year ago and the 65th straight month of year-over-year gains. Inventory (1.92 million) was 9% lower than a year ago, and has fallen year-over-year for 26 consecutive months. Unsold inventory is now at a 4.2-month supply at the current sales rate, versus 4.8 months a year ago and the 6.0-month supply typically associated with a more balanced real estate market.

 

One positive aspect was an increase in first-time home buyers who comprised 33% of buying volume compared to 32% in June. However, that’s still substantially lower than the 40% market share historically taken by first-time home buyers.

As for mortgages, mortgage application volume decreased during the week ending August 18. The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 0.5%. The seasonally adjusted Purchase Index declined 2.0% from the prior week while the Refinance Index increased 0.3%.

 

Overall, the refinance portion of mortgage activity increased to 48.7% of total applications from 47.8% in the prior week. The adjustable-rate mortgage share of activity decreased to 6.4% of total applications from 6.6%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.12% with points increasing to 0.39 from 0.38.

 

For the week, the FNMA 3.5% coupon bond gained 12.5 basis points to close at $103.406. The 10-year Treasury yield decreased 2.80 basis points to end at 2.1694%. The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average added 139.16 points to close at 21,813.67. The NASDAQ Composite Index rose 49.11 points to close at 6,265.64 and the S&P 500 Index gained 17.50 points to close at 2,443.05. Year to date on a total return basis, the Dow Jones Industrial Average has gained 10.38%, the NASDAQ Composite Index has advanced 16.39%, and the S&P 500 Index has added 9.12%.

 

This past week, the national average 30-year mortgage rate increased to 3.95% from 3.94%; the 15-year mortgage rate increased to 3.23% from 3.22%; the 5/1 ARM mortgage rate moved higher to 3.20% from 3.17% and the FHA 30-year rate remained unchanged at 3.60%. Jumbo 30-year rates increased to 4.23% from 4.22%.
Economic Calendar – for the Week of August 28, 2017

 

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

 

 

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

The FNMA 30-year 3.5% coupon bond ($103.406, +12.50 bp) traded within a 26.5 basis point range between a weekly intraday low of $103.188 on Tuesday and a weekly intraday high of $103.453 on Friday before closing the week at $103.406 on Friday.

Last week’s newsletter forecast range-bound trading with a sideways movement in mortgage bonds resulting in relatively stable mortgage rates for the week, and that was what we ended up with. Rates differed on average by just a few basis points from the prior week. At the risk of sounding like a broken record, not much has changed technically since last week. The bond continues to be extremely “overbought” and susceptible to a turn lower, but could continue to be range-bound and trade between the identified support and resistance levels shown in the chart.
Additional sideways movement in the bond should result in stable mortgage rates in the coming week.

 

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