Mortgage Market & Rate Review.

Jan 30, 2017

The major stock indexes advanced to new all-time highs benefiting from a midweek rally triggered by encouraging corporate earnings reports and greater sentiment for economic growth. The Nasdaq Composite Index led the way with a 1.86% weekly gain, but investor attention was captivated by the Dow Jones Industrial Average finally closing above the 20,000 level.


The week’s economic calendar featured December Existing Home Sales and New Home Sales, Advance fourth quarter GDP, and December Durable Goods Orders that were all somewhat disappointing, but the financial markets appeared to largely shrug them off by not showing much reaction.  However, Treasury bond yields reversed their upward trajectory established on Tuesday and Wednesday following Friday’s poor GDP report.  The week ended with the fed funds futures market showing rate hike expectations remain firm with implied probabilities for a 0.25% rate hike of 25.3% on March 15, 42.8% on May 3, and 71.9% on June 14.


There were a couple of meaningful reports on the housing sector released during the week.  First, the National Association of Realtors announced sales of Existing Homes fell 2.8% in December to a seasonally adjusted annual rate of 5.49 million units.  This was below the consensus forecast of 5.55 million and was the lowest level since 1999.  However, November’s Existing Home Sales were revised higher to 5.65 million units, the highest sales pace since February 2007, from an initially reported 5.61 million units.  For the year, Existing Home Sales increased to their highest level since 2006, reaching 5.45 million units in 2016 from 5.25 million units in 2015.  Inventory of homes for sale continued to decline falling to its lowest level since 1999.  Instead of a “normal” market with about a six-month supply of homes, there were only 1.65 million homes for sale at the end of December representing a 3 ½ month supply at the current sales pace.



New Home Sales in December were also disappointing as the Commerce Department reported a decline to a seasonally adjusted annual rate of 536,000.  This was lower than the consensus forecast of 589,000 plus 10.4% lower than an upwardly revised November pace of 598,000 and 0.4% lower than a year earlier.  The median home sale price in December was 4.3% higher than in November and 7.9% higher than in December 2015, rising to $322,500.  The decline in sales increased the new home supply to 5.8 months of available inventory.  However, looking back on the year, an estimated 563,000 new homes were sold in 2016, 12.2% higher than in 2015 and the best year for New Home Sales since 2007.  Mortgage application data suggests New Home Sales should remain close to December’s level for another couple months before rebounding toward 600,000 by April.



As for mortgages, mortgage application data for the week ending January 20 was released by the Mortgage Bankers Association (MBA) showing their overall seasonally adjusted Market Composite Index (application volume) increased by 4.0%.  The seasonally adjusted Purchase Index rose 6.0% from the prior week, while the Refinance Index edged 0.2% higher.  Overall, the refinance portion of mortgage activity decreased to 50.0% of total applications from 53.0% from the prior week.  The adjustable-rate mortgage share of activity accounted for 5.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 4.27% to 4.35% with points decreasing to 0.30 from 0.39.


For the week, the FNMA 3.5% coupon bond was unchanged at $102.03 while the 10-year Treasury yield increased 1.94 basis points to end at 2.4862%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 266.53 points to end at 20,093.78.  The NASDAQ Composite Index rose 105.45 points to close at 5,660.78, and the S&P 500 Index advanced 23.38 points to close at 2,294.69.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 1.65%, the NASDAQ Composite Index has advanced 4.90%, and the S&P 500 Index has advanced 1.43%.


This past week, the national average 30-year mortgage rate decreased to 4.24% from 4.25% while the 15-year mortgage rate decreased to 3.44% from 3.45%.  The 5/1 ARM mortgage rate fell to 3.05% from 3.08%.  FHA 30-year rates increased to 3.80% from 3.75% and Jumbo 30-year rates increased to 4.35% from 4.30%.


Economic Calendar – for the Week of January 30, 2017


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


Date Time


Event /Report /Statistic For Market Expects Prior
Jan 30 08:30 Personal Income Dec 0.4% 0.0%
Jan 30 08:30 Personal Spending Dec 0.4% 0.2%
Jan 30 08:30 Core PCE Prices Dec 0.2% 0.0%
Jan 30 10:00 Pending Home Sales Dec 1.3% -2.5%
Jan 31 08:30 Employment Cost Index Qtr. 4 0.6% 0.6%
Jan 31 09:00 S&P Case Shiller Home Price Index Nov 5.0% 5.1%
Jan 31 09:45 Chicago Purchasing Managers Index (PMI) Jan 55.0 54.6
Jan 31 10:00 Consumer Confidence Index Jan 112.5 113.7
Feb 01 07:00 MBA Mortgage Purchase Index 01/28 NA 4.0%
Feb 01 08:15 ADP Employment Change Jan 165,000 153K
Feb 01 10:00 ISM Index Jan 55.0 54.7
Feb 01 10:00 Construction Spending Dec 0.2% 0.9%
Feb 01 10:30 Crude Oil Inventories 01/28 NA +2.840M
Feb 01 14:00 FOMC Rate Decision Feb 0.625% 0.625%
Feb 02 07:30 Challenger Job Cuts Jan NA 42.4%
Feb 02 08:30 Initial Jobless Claims 01/28 250,000 NA
Feb 02 08:30 Continuing Jobless Claims 01/28 NA NA
Feb 02 08:30 Preliminary Productivity Qtr. 4 1.0% 3.1%
Feb 02 08:30 Unit Labor Costs Qtr. 4 1.9% 0.7%
Feb 03 08:30 Nonfarm Payrolls Jan 170,000 156,000
Feb 03 08:30 Nonfarm Private Payrolls Jan 175,000 144,000
Feb 03 08:30 Unemployment Rate Jan 4.7% 4.7%
Feb 03 08:30 Avg. Hourly Earnings Jan 0.3% 0.4%
Feb 03 08:30 Average Workweek Jan 34.3 34.3
Feb 03 10:00 Factory Orders Dec 1.4% -2.4%
Feb 03 10:00 ISM Services Jan 57.0 57.2

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


The FNMA 30-year 3.5% coupon bond ($102.03, unchanged) traded within a 101 basis point range between a weekly intraday high of $102.48 on Monday and a weekly intraday low of $101.47 on Thursday before closing the week at $102.03.  The chart shows the bond oscillated around resistance located at the 76.4% Fibonacci retracement level ($102.071) during the past week and is positioned once more to challenge this level.  The major stock indexes are “overbought” and showing signs of weakening so the bond market could benefit this coming week from a stock market consolidation or pause.   Should this occur, we could see a rise in bond prices (lower yields) leading to slightly lower mortgage rates.





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