The major stock market indexes traded to new all-time highs during a holiday shortened week characterized by light trading volumes.  The week’s economic data were mixed, but strong housing data reported on Tuesday from the latest Existing Home Sales report helped spark a market rally.

 

Existing Home Sales increased 2.0% month-over-month in October to a seasonally adjusted annual rate of 5.48 million compared to a consensus forecast of 5.42 million and a downwardly revised 5.37 million reading for September.  The median existing home price for all housing types increased 5.5% to $247,000 while the median price for single-family homes climbed 5.4% from a year ago to $248,300.  October was the 68th consecutive month of year-over-year gains.

 

The inventory of existing homes for sale at the end of October fell 3.8% to 1.80 million and is 10.4% lower than the year ago period.  The inventory of existing homes for sale has now dropped year-over-year for 29 consecutive months.  At the current sales pace, unsold inventory is at a 3.9 month supply compared to 4.4 months a year ago.  This continues to be considerably lower than the 6.0-month supply typically seen in a more balanced market.  First-time home buyers were responsible for 32% of the sales in October, up from 29% in September but down from 33% a year ago.

 

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In other news, Weekly Initial Jobless Claims were reported near historic lows at 239,000 to match the consensus estimate, but October Durable Goods Orders weakened by 1.2% for the month, failing to reach the consensus forecast calling for a 0.4% gain.  Wednesday afternoon, the minutes from the Federal Reserve’s last monetary policy meeting were released in what was viewed by Fed watchers as a “dovish” report.  The minutes indicated several Fed officials were concerned about the persistence of below-target inflation, and this triggered a sharp rally in bond prices as inflation erodes the value of fixed bond returns.  The prospect of persistently low inflation preserves the value of bonds.

 

In the realm of mortgages, mortgage application volume increased very slightly during the week ending November 17.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) increased 0.1%.  The seasonally adjusted Purchase Index increased 5.0% from the prior week while the Refinance Index decreased by 5.0%.

 

Overall, the refinance portion of mortgage activity decreased to 49.9% of total applications from 51.3% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.5% of total applications from 6.4%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.20% from 4.18% with points increasing to 0.42 from 0.40.

 

For the week, the FNMA 3.5% coupon bond gained 7.8 basis points to close at $102.781.  The 10-year Treasury yield decreased 0.51 basis points to end at 2.3401%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average rose 199.75 points to close at 23,557.99.  The NASDAQ Composite Index gained 106.37 points to close at 6,889.16 and the S&P 500 Index advanced 23.57 points to close at 2,602.42.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 19.20%, the NASDAQ Composite Index has advanced 27.98%, and the S&P 500 Index has added 16.24%.

 

This past week, the national average 30-year mortgage rate fell to 3.96% from 3.97%; the 15-year mortgage rate was unchanged at 3.30%; the 5/1 ARM mortgage rate decreased to 3.17% from 3.21% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates decreased to 4.15% from 4.16%.

 

Economic Calendar – for the Week of November 27, 2017

 

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.781, +7.8 bp) traded within a 36 basis point range between a weekly intraday high of $102.891 on Wednesday and a weekly intraday low of $102.531 on Monday before closing the week at $102.781 on Friday.

 

After pulling away lower from the 25-day moving average last Monday, mortgage bond prices rebounded on Tuesday and Wednesday to break above multiple resistance levels, only to pull back to these levels during an abbreviated trading session on Friday.  The bond is now sitting at resistance, but is not oversold while remaining on a buy signal from last Wednesday.  With a number of potential catalysts coming in the way of economic news, we could see the bond continue to advance to challenge further resistance at the 50 and 100-day moving averages resulting in stable to slightly improved mortgage rates this week.

 

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The major stock market indexes traded mostly flat to modestly lower to end the week “mixed” with the Nasdaq Composite Index managing to record a gain while the Dow Jones Industrial Average and the S&P 500 Index saw small losses.  Trading volumes began to shrink as the week progressed as market participants turned their attention toward the pending Thanksgiving holiday season.

 

There was one record worth mentioning.  The S&P 500 Index had a 50-day run of avoiding a daily decline of greater than 0.50% heading into last Wednesday when it was ended with a 0.55% decline.  This was the longest such streak since 1965.

 

The week’s economic reports were mostly favorable for the markets.  Retail Sales increased by a greater than expected 0.2% in October while Housing Starts and Permits recorded unexpectedly stronger than forecast gains, rising 13.7% and 5.9%, respectively.  The October Producer Price Index increased 0.4% in October, more than the 0.1% expected by economists.  However, the Consumer Price Index only increased by 0.1% for October with the core rate (excluding food and energy prices) rising 0.2% to match expectations.

 

As far as mortgages were concerned, mortgage application volume increased during the week ending November 10.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) increased 3.1%.  The seasonally adjusted Purchase Index increased 0.4% from the prior week while the Refinance Index increased 6.0%.

 

Overall, the refinance portion of mortgage activity increased to 51.3% of total applications from 49.0% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.4% of total applications from 6.6%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.18% with points increasing to 0.40 from 0.38.

 

For the week, the FNMA 3.5% coupon bond gained 26.5 basis points to close at $102.703.  The 10-year Treasury yield decreased 5.68 basis points to end at 2.3452%.  The major stock indexes ended the week “mixed.”

 

The Dow Jones Industrial Average fell 63.97 points to close at 23,358.24.  The NASDAQ Composite Index gained 31.85 points to close at 6,782.79 and the S&P 500 Index lost 3.45 points to close at 2,578.85.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.19%, the NASDAQ Composite Index has advanced 26.00%, and the S&P 500 Index has added 15.19%.

 

This past week, the national average 30-year mortgage rate fell to 3.97% from 4.01%; the 15-year mortgage rate decreased to 3.30% from 3.31%; the 5/1 ARM mortgage rate increased to 3.21% from 3.20% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates decreased to 4.16% from 4.18%.

 

Economic Calendar – for the Week of November 20, 2017

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.703, +26.5 bp) traded within a 42 basis point range between a weekly intraday high of $102.841 on Wednesday and a weekly intraday low of $102.42 on Monday before closing the week at $102.703 on Friday.

 

Mortgage bond prices successfully tested support on Monday and continued higher during the week to test overhead resistance on Wednesday before pulling back on Thursday and Friday.  The bond is not yet overbought and is positioned to make another run higher to further test nearby resistance at $102.77 and $102.806.  If the bond can manage to break above the dual levels of resistance it should lead to a slight improvement in mortgage rates.  If the bond is turned away from resistance, the bond would likely trade between the resistance and support levels identified on the chart resulting in relatively stable mortgage rates this coming week.

 

 

 

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The major stock market indexes reached new record highs on Monday and Wednesday before ending the week modestly lower to snap an eight week winning streak.  There was some profit taking on Thursday and Friday to coincide with Thursday’s release of the Senate’s version of a tax reform bill that seemed to depress investor sentiment.

 

The Senate’s version of tax reform called for a one year delay in cutting the corporate tax rate to 20% from 35% and maintained deductions related to mortgages and state and local property taxes.  While the House and Senate versions are now headed toward a reconciliation process to hammer out their differences, uncertainty surrounding the ability of Congress to do just that created a cloud over the financial markets.

 

Investors are now more doubtful about the prospects for real tax reform.  The House version tries to offset the steep cuts in the corporate tax rate by limiting the mortgage deduction and deductibility of state and local property taxes, and these proposals are proving to be highly controversial.  Here’s a thought – pay for the tax cuts by cutting federal spending.

 

The economic calendar was very light with little in the way of data to influence the markets.  As far

as mortgages were concerned, mortgage application volume was unchanged during the week ending November 3 from the prior week.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) remained unchanged.  The seasonally adjusted Purchase Index increased 1.0% from the prior week while the Refinance Index decreased 1.0%.

 

Overall, the refinance portion of mortgage activity increased to 49.0% of total applications from 48.7% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.6% of total applications from 6.8%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.18% from 4.22% with points decreasing to 0.38 from 0.43.

 

For the week, the FNMA 3.5% coupon bond lost 56.2 basis points to close at $102.438.  The 10-year Treasury yield increased 6.95 basis points to end at 2.4020%.  The major stock indexes ended the week lower for the first time in eight weeks.

 

The Dow Jones Industrial Average fell 116.98 points to close at 23,422.21.  The NASDAQ Composite Index dropped 13.50 points to close at 6,750.94 and the S&P 500 Index lost 5.54 points to close at 2,582.30.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 18.52%, the NASDAQ Composite Index has advanced 25.41%, and the S&P 500 Index has added 15.34%.

 

This past week, the national average 30-year mortgage rate rose to 4.01% from 3.96%; the 15-year mortgage rate increased to 3.31% from 3.27%; the 5/1 ARM mortgage rate increased to 3.20% from 3.18% and the FHA 30-year rate remained unchanged at 3.60%.  Jumbo 30-year rates increased to 4.18% from 4.15%.

 

Economic Calendar – for the Week of November 13, 2017

 

 

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.438, -56.2 bp) traded within a 75.0 basis point range between a weekly intraday high of $103.141 on Tuesday and a weekly intraday low of $102.391 on Friday before closing the week at $102.438 on Friday.

 

Mortgage bond prices continued higher at the beginning of last week, moving above the 100-day moving average resistance level last Monday and Tuesday before being turned away by resistance at the 50-day moving average on Wednesday.  The bond then continued lower to fall below several support levels including the 25-day and 100-day moving averages along with the 38.2% Fibonacci retracement level.  These now become technical resistance levels.  New support levels have been identified at $102.428 and $102.17.  A sell signal was generated last Wednesday on a negative stochastic crossover, and since the bond is not yet “oversold” a continuing decline toward secondary support at $102.17 could occur.

 

Therefore, we could see the bond continue to move lower to test support levels, and a move below these levels would lead to slightly higher mortgage rates.

 

 

 

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Economic Calendar – for the Week of November 6, 2017

 

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

 

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

 

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

 

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

 

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

 

 

 

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