Monday Market Update – 01/07/2019

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

Happy New Year and welcome back, if you were off and great job to those of you who kept the fires going. May 2019 bring you all that you seek.

Here’s your weekly market update:

Significant stock market volatility continued this past week with sharp swings lower and higher, most notably on Thursday and Friday.  The stock market began the week to the upside on Monday, December 31 after President Trump released a tweet he and President Xi Jinping of China had made “big progress” in trade talks.  However, some weak economic data out of China ignited investor concerns to send stock indexes sharply lower when trading opened on Wednesday.  The downward move was temporary though as the market rallied during the afternoon to close modestly higher.

Pronounced market volatility continued on Thursday and Friday.  After Wednesday’s market close, Apple CEO Tim Cook warned investors in a letter that the company was lowering its quarterly revenue guidance for the first time in 15 years.  The company lowered its sales forecast from earlier estimates of $89 billion to $93 billion to $84 billion for the quarter ended December 29.  In response, Apple shares plunged as much as 10% on Thursday, pulling the large-cap indexes sharply lower.

Friday, a blockbuster Jobs Report for December and favorable commentary from Federal Reserve Chairman Jerome Powell reversed investor sentiment sparking a strong rally in stocks while pushing bond prices lower and yields higher.  However, despite surging Friday in response to the Jobs Report and Powell’s commentary, Treasury yields ended the week lower as investors pursued safe-haven assets in light of the continued volatility in equity markets.

Wednesday in housing news, CoreLogic released its Home Price Index (HPI) and HPI Forecast for November 2018, showing home prices increased both year-over-year and month-over-month.

Home prices increased nationally by 5.1% year-over-year from November 2017.  On a month-over-month basis, prices increased by 0.4% in November 2018.

As for the future, the CoreLogic HPI Forecast predicts home prices will increase by 4.8% on a year-over-year basis from November 2018 to November 2019.

On a month-over-month basis, home prices are forecast to decrease by 0.8% from November to December 2018.

Price gains in metropolitan cities show Las Vegas continues to surge with a gain of 11.7% followed by Denver with a gain of 6.6%. The Western Region from the Rockies to the West Coast show the largest gains compared to the remainder of the country.

As for mortgages, 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 9.8% for the week ended December 28, 2018.

The seasonally adjusted Purchase Index decreased 8% from two weeks prior while the Refinance Index decreased 12%.

Overall, the refinance portion of mortgage activity decreased to 42.7% from 43.6% of total applications from the prior week.  The adjustable-rate mortgage share of activity was unchanged at 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 4.84% from 4.86% with points decreasing to 0.42 from 0.47 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 26.6 basis points to close at $102.063 while the 10-year Treasury yield decreased 5.0 basis points to end at 2.668%.  The Dow Jones Industrial Average gained 370.76 points to close at 23,433.16.  The NASDAQ Composite Index added 154.34 points to close at 6,738.86.  The S&P 500 Index advanced 46.20 points to close at 2,531.94.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 0.45%, the NASDAQ Composite Index has gained 1.56%, and the S&P 500 Index has grown 1.00%.

This past week, the national average 30-year mortgage rate dropped to 4.54% from 4.63%; the 15-year mortgage rate declined to 4.11% from 4.19%; the 5/1 ARM mortgage rate fell to 4.40% from 4.59% while the FHA 30-year rate dropped to 4.17% from 4.22%.  Jumbo 30-year rates decreased to 4.32% from 4.39%.

Economic Calendar – for the Week of January 7, 2019

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 07 10:00 ISM Non-Manufacturing (Services) Index Dec 58.8 60.7
Jan 08 06:00 NFIB Small Business Optimism Index Dec NA 104.8
Jan 08 10:00 JOLTS Report on Job Openings Nov NA 7.079M
Jan 08 15:00 Consumer Credit Nov $18.0B $25.4B
Jan 09 07:00 MBA Mortgage Applications Index 01/05 NA -8.5%
Jan 09 10:30 EIA Crude Oil Inventories 01/05 NA UNCH
Jan 09 14:00 Federal Reserve FOMC Meeting Minutes Dec NA NA
Jan 10 08:30 Initial Jobless Claims 01/05 225K 231K
Jan 10 08:30 Continuing Jobless Claims 12/29 NA 1740K
Jan 11 08:30 Consumer Price Index (CPI) Dec -0.1% 0.0%
Jan 11 08:30 Core CPI Dec 0.2% 0.2%
Jan 11 14:00 Treasury Budget Dec NA -$23.2B

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

The FNMA 30-year 4.0% coupon bond ($102.063, +26.6 bp) traded within a wider 75.0 basis point range between a weekly intraday high of $102.469 on Thursday and a weekly intraday low of 101.719 on Monday before closing the week at $102.063 on Friday.

Mortgage bond prices surged above resistance Monday through Thursday (excluding New Year’s Day on Tuesday when the markets were closed) then backed off on Friday when the stock market reversed direction with a sharp rally.  Mortgage bonds remain extremely overbought and susceptible to a slide lower toward former resistance that is now nearest technical support at the 61.8% Fibonacci retracement level ($101.856).  If the stock market can continue to regain its footing this week, mortgage bond prices could be pressured lower as money flows out of bonds and back into stocks.  There was a sell signal on Friday from a negative stochastic crossover and if this signal proves accurate bond prices will move lower toward support.  Should this scenario play out, mortgage rates could move slightly higher.

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