Weekly Mortgage Rate & Market Review

Feb 1, 2016

Weaker economic data coupled with declining interest rates overseas resulted in bond prices moving higher and yields moving lower during the week.  The financial markets continued to be linked to the performance of crude oil.  High yield bonds and stocks were given at least a temporary boost when crude oil prices climbed to a three-week high on rumors that a meeting between Russia and OPEC sometime in February could lead to an agreement on production cuts.

OPEC delegates later denied there was a meeting planned with Russia.


Wednesday, stocks fell sharply while bond prices rose following the Fed’s FOMC meeting.  Although Fed policymakers left rates unchanged, as widely expected, their accompanying policy statement left open the possibility of a rate increase in March.  While the Fed recognized recent global economic weakness and financial volatility, they also pointed to continuing strength in the U.S. labor market.


Weaker U.S. economic data included the Commerce Department’s first reading on 4th Quarter GDP for 2015 at a meager 0.7%.  This was lower than expectations of 0.9% and much lower than the final 3rd Quarter output of 2.0%.  The average quarterly GDP gain for 2015 moved lower to 1.8%, the lowest since 2014.  This report reflected decelerating personal consumption and downturns in nonresidential fixed investment and exports.  Also, Durable Goods were reported down 5.1%.  This was much lower than expectations of +0.2%.  When stripping out transportation durable goods were -1.2%. This report showed that spending remained sluggish due to weak manufacturing and the recent drop in oil.


There were several favorable reports for the Housing Sector during the week.  The FHFA House Price Index, which measures prices on single family homes, with conforming loan amounts, was up 0.5% in November.  On a year over year basis, home prices increased by 5.9%.  The Case Shiller Home Price Index, which tracks the changes in the value of residential real estate in 20 metropolitan regions across the US, showed that home prices increased by 0.9% in November.  On a year over year basis, home prices are up 5.8%, the strongest annual read in 16 months.


Both of these were “goldilocks” housing reports showing solid gains that were “not too hot,” “not too cold,” “just right.  The reports indicated the underlying fundamentals are very sustainable and should provide a great opportunity for potential borrowers.


Furthermore, December New Home Sales were reported up 10.8% to a 544,000 annualized pace.  This was much stronger than estimates of 500,000, and was the third best reading since 2008.  Foot traffic was higher, builder sentiment was strong, and the unusually warm weather likely helped.  The median home price on new homes, which was a bit high, fell about 4% to $288,900.  Inventory levels also improved.




Pending Home Sales, which is a forward looking report since it measures signed contracts and not closings, was reported +0.1%, which was a bit of a miss from the 0.8% increase expected.  This was mostly due to low inventory, and because the number was for December, there may have been a slowdown toward the end of the month.




The latest Mortgage Bankers Association report showed mortgage applications for the week ending January 22nd increased by 9%.  Refinances were up 11% and Purchases rose by 5%.  One thing to note is the adjustment that was added for the Martin Luther King Holiday.  We do not know how big the adjustment was, but it could be overstating applications because a lot of businesses remained open, and it likely did not keep potential homebuyers from looking for homes.  We should expect a decline for the next report, however, because the snow storms that hit the East Coast most likely kept individuals from looking for homes.


For the week, the FNMA 3.5% coupon bond gained 64.0 basis points to end at $104.66 while the 10-year Treasury yield decreased 13.5 basis points to end at 1.923%.  Stocks ended the week with the Dow Jones Industrial Average climbing 372.79 points to end at 16,466.30.  The NASDAQ Composite Index added 22.77 points to close at 4,613, and the S&P 500 Index gained 33.34 points to close at 1,940.24.


Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 5.82%, the NASDAQ Composite Index has lost 8.53%, and the S&P 500 Index has lost 5.34%.  This past week, the national average 30-year mortgage rate decreased to 3.78% from 3.88% while the 15-year mortgage rate fell to 3.09% from 3.15%.  The 5/1 ARM mortgage rate increased to 3.08% from 3.05%.  FHA 30-year rates held steady at 3.50% while Jumbo 30-year rates decreased to 3.61% from 3.72%.


Mortgage Rate Forecast with Chart


For the week, the FNMA 30-year 3.5% coupon bond ($104.66, +64.0 bp) traded within a 75 basis point range between a weekly intraday low of $104.05 and a weekly intraday high of 104.80 before closing at $104.66 on Friday.  The bond enjoyed a steady climb higher on weaker economic news during the week, but traded down from its best level on Friday as the stock market surged higher when the Bank of Japan announced a surprising rate cut to send rates into negative territory.


The stochastic oscillators are at extremely overbought levels with maximum values of “100” – they can’t move any higher.  A test of support at $104.52 is more likely to take place before a test of resistance at $105.15.  As long as the bond trades between these two levels, mortgage rates should hold steady with minor fluctuations in either direction.


Chart:  FNMA 30-Year 3.5% Coupon Bond



Economic Calendar – for the Week of February 1, 2016


The economic calendar expands this coming week with several key releases including Monday’s Personal Income and Spending report with Core PCE Prices for December and the January Employment Situation Summary.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.


Date Time


Event /Report /Statistic For Market Expects Prior
Feb 01 08:30 Personal Income Dec 0.2% 0.3%
Feb 01 08:30 Personal Spending Dec 0.2% 0.3%
Feb 01 08:30 Core PCE Prices Dec 0.1% 0.1%
Feb 01 10:00 Construction Spending Dec 0.5% -0.4%
Feb 01 10:00 ISM Index Jan 48.3 48.2
Feb 03 07:00 MBA Mortgage Index 01/30 NA +8.8%
Feb 03 08:15 ADP Employment Change Jan 190K 257K
Feb 03 10:00 ISM Services Index Jan 55.0 55.3
Feb 03 10:30 Crude Oil Inventories 01/30 NA 8.383M
Feb 04 07:30 Challenger Job Cuts Jan NA -27.6%
Feb 04 08:30 Initial Jobless Claims 01/30 275K 278K
Feb 04 08:30 Continuing Jobless Claims 01/23 2253K 2268K
Feb 04 08:30 Prelim. 4th Qtr. Productivity Qtr. 4 -1.7% 2.2%
Feb 04 08:30 Prelim. 4th Qtr. Unit Labor Costs Qtr. 4 3.8% 1.8%
Feb 04 10:00 Factory Orders Dec -2.6% -0.2%
Feb 05 08:30 Nonfarm Payrolls Jan 188K 292K
Feb 05 08:30 Nonfarm Private Payrolls Jan 183K 275K
Feb 05 08:30 Unemployment Rate Jan 5.0% 5.0%
Feb 05 08:30 Hourly Earnings Jan 0.3% 0.0%
Feb 05 08:30 Average Workweek Jan 34.5 34.5
Feb 05 08:30 Balance of Trade Dec -$43.5B -$42.4B




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

March 2016 15-16, (Tuesday-Wednesday)* 16% Chance
April 2016 26-27, (Tuesday-Wednesday) 21% Chance
June 2016 14-15, (Tuesday-Wednesday)* 33% Chance
July 2016 26-27, (Tuesday-Wednesday) 35% Chance
September 2016 20-21, (Tuesday-Wednesday) * 43% Chance
November 2016 1-2, (Tuesday-Wednesday) 46% Chance
December 2016 20-21 (Tuesday-Wednesday)* 53% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 56% Chance


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

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




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