Monday Mortgage Update – 12/24/2018

Your local resource for mortgage rate indicators and real estate market data

Here’s your Local SF Bay Area Real Estate Market Information for select cities:
(Don’t see your city? Email me and I’ll add it)

Castro Valley • Danville • Fremont • Hayward • Lafayette • Oakland • Pleasanton
Redwood City • San Anselmo • San Carlos • San Francisco • San Leandro
San Jose • San Ramon • Santa Cruz • Walnut Creek

What is Santa’s favorite candy?   Jolly Ranchers.

Merry Christmas and best wishes to you for a prosperous New Year!

Your Market Update Starts Here

To say the stock market had another rough week is a huge understatement.  The major U.S. indexes set new yearly lows, and globally the eight largest stock exchanges entered into bear market territory after falling 20% or more from their 52-week highs.  U.S. equity markets are being battered by a multitude of concerns including rising interest rates, the ongoing trade fight with China, a fear the Federal Reserve could trigger a major recession by needlessly raising interest rates amid signs of slowing economic growth, and political turmoil in the US (“partial government shutdown”) and Great Britain (“Brexit”).  These concerns led to a flight to safety in U.S. Treasuries and bonds during the week pressuring yields lower.

Wednesday, the Federal Reserve’s Federal Open Market Committee (FOMC) decided to raise the target range for the fed funds rate to 2.25% to 2.50%, an increase of 25 basis points.  While this policy decision was widely expected, the financial markets were disappointed with Fed Chair Jerome Powell’s commentary during his press conference when he stated monetary policy does not need to be accommodative now and that the current policy is restrictive.  He further stated he doesn’t see the Fed changing its approach to balance sheet normalization and sees the preferred policy method being use of the fed funds rate.  However, the Fed in its economic projections reduced its forecast for the fed funds rate to 2.9% by the end of 2019 with two rate hikes and to 3.1% by the end of 2020 with one additional rate hike.

The latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 5.8% for the week ended December 14, 2018.  The seasonally adjusted Purchase Index decreased 7% from the week prior while the Refinance Index increased 2%.

Overall, the refinance portion of mortgage activity increased to 43.5% from 41.5% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 7.9% from 7.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.94% from 4.96% with points decreasing to 0.43 from 0.48 for 80 percent loan-to-value ratio (LTV) loans.

In Housing Monday, the NAHB Housing Market Index fell to a reading of 56 in December from 60 in November and well below the consensus market forecast of 61.  This is the lowest Index reading since May of 2015.

The sub-index for current single-family home sales slumped to 61 from 67.

The measure for home sales over the next six months went down to 61 from 65, and prospective buyers edged down to 43 from 45.

Historically, the NAHB Housing Market Index in the United States averaged 50.19 from 1985 until 2018, reaching an all-time high of 78 in December of 1998 and a record low of 8 in January of 2009.

Tuesday, the Housing Starts and Building Permits Report for November was reported stronger than forecast overall, but showed little to no growth for single-family units in both permits and starts.

Total starts increased 3.2% to a seasonally adjusted annual rate of 1.256 million units, but starts for single-family units dropped 4.6% to 824,000, the lowest since May 2017.  Total permits increased 5.0% to a seasonally adjusted annual rate of 1.328 million; however permits for single-family units were only 0.1% higher to 848,000.

Regionally, permits for single-units were 16.1% lower in the Northeast, 1.7% lower in the Midwest, 3.0% higher in the South, and 0.5% lower in the West.  Single-unit starts were 9.5% lower in the Northeast, 3.2% lower in the Midwest, 6.8% higher in the South, and 24.4% lower in the West.

Wednesday, Existing Home Sales were reported to have increased 1.9% month-over-month in November to a seasonally adjusted annual rate of 5.32 million, exceeding the consensus forecast of 5.20 million.  Total sales were down 7.0% from the same period a year ago.

The median existing home price for all housing types increased 4.2% year-over-year to $257,700.  The median existing single-family home price was up 5.0% year-over-year to $260,500.

Regionally, median home prices were +6.5% to $291,400 in the Northeast; +2.6% to $199,100 in the Midwest; +3.2% to $223,600 in the South; and +1.8% to $380,600 in the West.

Regionally, existing home sales were +7.2% in the Northeast; +5.5% in the Midwest; +2.3% in the South; and -6.3% in the West.

The inventory of homes for sale at the end of November fell to 1.74 million from 1.85 million but was 4.2% higher than a year ago.

Unsold inventory is at a 3.9-month’s supply versus 4.3 months in October and remains below the 6.0-month’s supply typically associated with a balanced market.

For the week, the FNMA 4.0% coupon bond gained 42.2 basis points to close at $101.453 while the 10-year Treasury yield decreased 10.1 basis points to end at 2.788%.  The Dow Jones Industrial Average lost 1,655.14 points to close at 22,445.37.  The NASDAQ Composite Index fell 577.68 points to close at 6,332.99.  The S&P 500 Index dropped 183.33 points to close at 2,416.62.  Year to date on a total return basis, the Dow Jones Industrial Average has declined 9.20%, the NASDAQ Composite Index has dropped 8.26%, and the S&P 500 Index has lost 9.61%.

This past week, the national average 30-year mortgage rate dropped to 4.65% from 4.72%; the 15-year mortgage rate declined to 4.21% from 4.28%; the 5/1 ARM mortgage rate fell to 4.61% from 4.70% while the FHA 30-year rate dropped to 4.24% from 4.25%.  Jumbo 30-year rates decreased to 4.41% from 4.46%.

Economic Calendar – for the Week of December 24, 2018

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

Date Time
Event /Report /Statistic For Market Expects Prior
Dec 26 09:00 S&P Case-Shiller Home Price Index Oct 5.0% 5.1%
Dec 27 07:00 MBA Mortgage Applications Index 12/22 NA -5.8%
Dec 27 08:30 Initial Jobless Claims 12/22 225,000 214,000
Dec 27 08:30 Continuing Jobless Claims 12/15 NA 1,688K
Dec 27 09:00 FHFA Housing Price Index Oct NA 0.2%
Dec 27 10:00 New Home Sales Nov 560,000 544,000
Dec 27 10:00 Consumer Confidence Index Dec 133.7 135.7
Dec 27 11:00 Crude Oil Inventories 12/22 NA -0.5M
Dec 28 08:30 Advance International Trade in Goods Nov NA -$77.2B
Dec 28 08:30 Advance Wholesale Inventories Nov NA 0.7%
Dec 28 08:30 Advance Retail Inventories Nov NA 0.9%
Dec 28 10:00 Pending Home Sales Nov 0.5% -2.6%

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.453, +42.2 bp) traded within a 68.8 basis point range between a weekly intraday high of $101.688 on Wednesday and a weekly intraday low of 101.000 on Monday before closing the week at $101.453 on Friday.

Mortgage bond prices moved higher Monday through Wednesday, rising above the 200-day moving average (MA) resistance level, before backing off on Thursday and Friday.  The move above the 200-day MA is usually considered a bullish sign and this level now reverts to closest technical support.  However, the bond remains extremely overbought and Thursday’s trading completed a three-day “Evening Star” candlestick pattern – a bearish signal.  There was also a bearish signal from a negative stochastic crossover.

If bond prices can remain above their 200-day MA, we could see an advance toward the next level of resistance at the 61.8% Fibonacci retracement level ($101.856) and a slight improvement in mortgage rates.  A move below the 200-day MA could result in a continuation lower toward support at the 76.4% Fibonacci retracement level ($100.914) and a slight worsening in rates.

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