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

 

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

 

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

 

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

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

 

The number of mortgage applications showed an increase according to the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased by 4.5% during the week ended January 19, 2018.  The seasonally adjusted Purchase Index increased 6.0% from a week prior while the Refinance Index advanced 1.0%.

 

Overall, the refinance portion of mortgage activity decreased to 49.4% of total applications from 52.2% in the prior week.  The adjustable-rate mortgage share of activity was unchanged at 5.2% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.36% from 4.33%, with points remaining unchanged at 0.54.

 

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

 

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

 

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

 

Economic Calendar – for the Week of January 29, 2018

 

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

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

 

The FNMA 30-year 3.5% coupon bond ($101.281, +1.5 bp) traded within a 45.3 basis point range between a weekly intraday high of $101.578 on Thursday and a weekly intraday low of $101.250 on Thursday before closing the week at $101.281 on Friday.

 

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

 

 

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Anyone visiting a weekend open house knows that most for-sale properties today have been “staged” to show them at their best and most appealing. Some would-be home sellers have wondered whether it might be better to go one step beyond staging and do a remodel of their home to increase its value. After all, who’s not impressed by a brand new, state-of-the-art kitchen and bathroom?

The remodeling industry chalked up sales of more than $340 billion in 2017—a 7.5% increase from the previous year. Are these homeowners onto some financial secret? Can remodeling increase the value of a home?

The simple answer is yes—but it is unlikely that spending money on a major remodel will translate into a high enough sales price to justify the expense. According to a recent survey completed by Harvard University’s Joint Center for Housing Studies, the average recovery of remodeling costs is 56%. This means that spending $20,000 to update an older kitchen to a shiny new on will increase the value of the home by only about $11,200.

There are some improvements that may offer better numbers. Replacing and modernizing structural items, such as garage doors and windows, can give a return of 75% of their cost. Interior projects tend to have less favorable returns: adding a master suite, for example, may increase the value by 56.6% of its cost—and this represents a 14.7% drop from the previous year. Major kitchen upgrades return about 56%, down 10.9% from last year.

Reining in the cost and extent of remodels can provide better returns. A minor kitchen update can return up to 81% of its cost. Bathroom tune-ups are much the same. Buyers respond favorably to appliances and fixtures that are functional and new.

Many homeowners, aware of rising interest rates and prices, are turning to remodeling to avoid a move, choosing to spend money to make their homes more livable and attractive over a longer period, not so much for resale value.

If you are contemplating a remodel, you should decide whether you are hoping to increase the value of your home for resale in the immediate future, or whether you simply want to make your property more livable over a longer period. If you are planning to sell, you should think twice about spending the money, since you’ll only get a portion of it back in the form of a higher sales price.

 

Source: TBWS

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There are always people who seem to find scamming consumers to be a worthwhile career choice. This time, the miscreant is Michael Davenport, former bass player for pop-punk band, The Ataris. Davenport and his alleged co-conspirator, Cynthia Rawlinson, operated a telemarketing boiler room in Santa Barbara. According to the indictment, they collected more than $27 million dollars from unwary consumers over a seven-year period.

The scam was a common one: they placed ads on Craigslist offering houses for sale or rent at “favorable prices.” Hopeful consumers would pay $199 to be able to view the listings. Once the victim paid the fee, they would discover that many of the addresses did not exist.

Davenport and Rawlinson allegedly collected money from more than 100,000 people in all 50 states until their office was raided by FBI agents in October 2016. The indictment seeks forfeiture of $853,000 that was in a merchant processing account at the time of the raid, along with $104,000 in cash seized later fr0m Davenport at a Little Rock, Arkansas airport, where Davenport was arrested in December. If the two are convicted, they could face up to 30 years in prison.

This rental scam is not significantly different from the others. They all prey on the most vulnerable people who are facing ever-rising rents and prices. The best defense against scams like this one is simple: never pay a fee or subscription to see properties that seem too good to be true, and always verify that an owner’s representative is who they say they are. Scams like this one are always conducted by people hiding behind email addresses and mail drops, so the victims never meet the criminals trying to relieve them of their hard-earned money. Legitimate rental agents will always meet prospective tenants at the property and provide access.

Don’t be taken in by offers that appear to be too good to be true; there is always a catch.

 

Source: TBWS

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

 

 

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In June 2017, cybercriminals stole more than $14 million from unsuspecting people. Real estate transactions are especially vulnerable to these wily larcenists.

Real estate purchases routinely involve sending large sums of money by wire. This method is convenient, fast, and generally secure. Still, sophisticated criminals have been able to exploit people’s lack of familiarity with the real estate and escrow process.

One of the most common scams has been to convince an unwary buyer that the instructions for wiring funds have changed at the last minute “for security reasons.” The email, which appears to come from the title company or other settlement service provider, asks the buyer to wire their funds to a different link than previously agreed. The unsuspecting buyer who falls for this deception will discover, too late, that their money has been diverted to the scammer’s offshore account and is gone forever, along with the scammer.

The obvious advice is to avoid getting taken in by this kind of chicanery. Never wire funds without personally verifying with the title company or real estate closing lawyer that any change is genuine. For those unfortunates who may fall prey to the scam, there are some immediate actions that may offer a slim chance to recover the misdirected funds.

  • Contact the bank or other financial institution the funds were sent from. They may be able to stop the transfer.
  • Contact all parties involved in the real estate transaction, including the title and escrow people, the seller and the agents.
  • Inform the FBI immediately. You can file a complaint at www.ic3.gov. This should be done as quickly as possible. Even waiting just 72 hours could be too late for any recovery.

There are few experiences in life that are more stressful, emotional and confusing as buying a home. Criminals are well aware of this and will do their utmost to leverage those aspects to separate unsuspecting people from their money.

Knowledge is key.

Source: TBWS

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Home equity hits record high, and here’s how homeowners are spending it – CNBC

Home equity hits record high from CNBC.

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Since the development of the FICO credit scoring model in 1989, lenders—including mortgage lenders—have relied on that method for assessing the creditworthiness of people applying for mortgages and other types of loans. The FICO Classic score, developed by Fair, Isaacs & Co., ranges between 300 and 850. Lenders require a minimum of 620 for conventional loans (those that will ultimately sell to Fannie Mae or Freddie Mac), while borrowers with scores as low as 580 may qualify for a loan insured by the Federal Housing Administration (FHA) with as little as 3.5% down.

The FICO Classic does have some drawbacks for consumers. The three credit reporting agencies, Experian, Equifax and TransUnion, have collaborated to develop a new scoring system, called VantageScore, which also generates scores between 300 and 850. The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, is considering the use of this model. It has begun a comment period, which will be open until February 2018. Interested consumers can go to the FHFA’s Request for Information page.

Mortgage giants Fannie Mae and Freddie Mac currently own or guarantee half the mortgages in the United States.

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VantageScore claims that the use of the new model will open the credit window to 7.6 million potential borrowers who do not qualify under the current FICO model. While the specific number may be debatable, there are enough differences between the two scoring systems to allow more people to qualify.

Both scoring systems use the same criteria to generate their scores:

  1. Payment history
  2. Length of credit
  3. Types of credit
  4. Credit usage
  5. Recent inquiries

The differences have to do with how the information from the borrowers’ credit files is processed. Some of the differences may benefit consumers whose credit files are comparatively unseasoned or “thin” (few active accounts).

Both methods consider “hard” inquiries for credit in generating their scores. Too many of them may lower a borrower’s score considerably. Because a consumer often shops around for financing, whether for consumer financing or a mortgage, FICO and Vantage perform “deduplication” of inquiries. This means that they consider multiple inquiries for the same purpose over a certain period to be the same as just one. For FICO, the deduplication period is 45 days. For Vantage, the time is shortened to just 14 days.

FICO requires at least six months’ history before issuing a score. Vantage would shorten that period to just one month. This is of particular interest to younger borrowers just beginning to establish credit.

FICO judges delinquent payments on all types of credit in essentially the same manner, while Vantage treats late payments on mortgages more harshly.

It is unlikely that there will be any changes to credit scoring in the immediate future, but it is important for consumers to be aware of the mechanism for any credit scoring system so that they can adjust their financial behavior accordingly.

Source: TBWS

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The stock market began the New Year with a bang, with all of the major stock indexes reaching new all-time highs.  Although the Dow Jones Industrial Average is narrowly focused, containing just 30 large-cap stocks, it attracted considerable investor attention as it passed above the 25,000 mark on Thursday, less than a year after breaking above 20,000 for the first time.  The euphoria generated in the stock market resulted in some selling pressure in the bond market on Thursday and Friday.

 

However, this was not before bonds underwent a small rally on Wednesday following the release of minutes from the Federal Reserve’s December 12-13 policy meeting.  The minutes revealed some dissenting views from the vote to raise rates with two members concerned the December rate hike could slow economic growth and further inhibit inflation growth.  The minutes also showed the Fed remains committed to its objectives of maximum employment and a sustained return to two percent inflation.  Nevertheless, the probability for the next 25 basis point rate hike at the Fed’s policy meeting scheduled for March 21 is currently 68.1%, up from 51.7% last week.

 

The week’s most significant economic news was the December employment report.  Nonfarm payroll growth for December was reported well below the consensus forecast of 188,000, coming in at 148,000 while the two prior months were downwardly revised by 9,000.  The unemployment rate held steady at 4.1% while the labor participation rate remained at 62.7%. Hours worked were unchanged at 34.5.  Average hourly earnings gained .3% month-over-month, after increasing a downwardly revised 0.1% (from 0.2%) in November.  Over the last 12 months, average hourly earnings have gained 2.5% to match the 2.5% for the 12 months ending in November.

 

For a two week period ending December 29, 2017, the Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell by 2.8%.  The seasonally adjusted Purchase Index decreased 1.0% from two weeks prior while the Refinance Index declined 7.0%.

 

Overall, the refinance portion of mortgage activity increased to 52.0% of total applications from 51.8% in the prior week.  The adjustable-rate mortgage share of activity decreased to 5.3% from 5.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.25% with points increasing to 0.36 from 0.35.

 

For the week, the FNMA 3.5% coupon bond lost 23.5 basis points to close at $102.484.  The 10-year Treasury yield increased 6.53 basis points to end at 2.4763%.  The major stock indexes continued to trend higher during the week.

 

The Dow Jones Industrial Average soared 576.65 points to close at 25,295.87.  The NASDAQ Composite Index jumped 233.17 points to close at 7,136.56 and the S&P 500 Index gained 69.54 points to close at 2,743.15.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 2.33%, the NASDAQ Composite Index has advanced 3.38%, and the S&P 500 Index has added 2.60%.

 

This past week, the national average 30-year mortgage rate rose from 4.04% to 4.06%; the 15-year mortgage rate increased to 3.41% from 3.37%; the 5/1 ARM mortgage rate increased to 3.21% from 3.20% and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates increased to 4.21% from 4.19%.

 

Economic Calendar – for the Week of January 8, 2018

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.484, -23.5 bp) traded within a 28.1 basis point range between a weekly intraday high of $102.734 on Wednesday and a weekly intraday low of $102.453 on Tuesday and Friday before closing the week at $102.484 on Friday.

 

In another holiday-shortened week, bonds opened Tuesday below the 25-day and 50-day moving averages from a closing position above these levels on Friday, December 29.  The bond then popped back above these moving averages on Wednesday before moving back below them on Thursday and Friday as stocks surged higher.  The 25 and 50-day moving averages have not held up very well as support levels since the end of last September, and once again they serve as short-term resistance levels.  The bond is currently neither “overbought” nor “oversold” and remains trading from a sell signal generated last Thursday, so we could easily see a continuation lower for a test of support at 102.42.  A decline through the 102.42 level could result in a further decline toward the next support level at 102.17.  Should this scenario take place it would result in a slight rise in mortgage rates.

 

 

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Jobs Report

Jan 5, 2018

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