Monday Market Update – 03/25/2019

Your Weekly Review Begins here:

The big news of the week was the Fed’s two-day meeting and Fed Chair, Jerome Powell’s, press conference. The Fed announced that there will not be any more rate hikes this year. Additionally, they downgraded their outlook on the economy and expect only 2.1% growth in 2019…a big drop from the 3% we saw in 2018.

On the Fed’s Balance Sheet – The big headline was that the Fed is going to stop Treasuries and MBS from running off their balance sheet. Currently there is a Maximum of $50B per month that rolls off each month from their proceeds of maturing Treasuries and principle payments on Mortgages.

The Fed is still going allow Mortgage Bonds to run off. They are going to take the proceeds from MBS and reinvest them into Treasuries. But they are going to be reinvested in a range of Treasuries, not just longer term. They said it will mimic their current holdings…and they are holding mostly shorter-term maturities. This means the Fed may reinvest mostly in shorter term maturities. As Treasuries move higher and yields move lower, there is a natural pull with Mortgage Bonds. This happens because as the spread widens, with Mortgage Bonds offering a higher yield, investors may start to contemplate if it’s worth taking a slightly higher risk for a better return. Because of this, Mortgage Bonds will move higher and interest rates may decrease a bit…but it’s not going to be the help we hoped for. There is not going to be direct buying by the Fed back in MBS.

In housing news, The NAHB (National Association of Home Builders) released their Housing Market Index, which is a real-time read on builder confidence for March. This week’s report came in at 62, which is a strong figure and unchanged from the February reading.

Looking at the three components – Current Sales increased 2 points to 68 and Future Sales increased 3 points to 71. Buyer Traffic fell 4 points to 44. Any reading over 50 signals expansion, so buyer traffic is the only one that is slightly weak.

“Builders report the market is stabilizing following the slowdown at the end of 2018, and they anticipate a solid spring home buying season,” said NAHB Chairman Greg Ugalde.

Existing Home Sales jumped nearly 12% in February, which is much higher than the 3.2% expected. Sales are down 1.8% year over year, but we expect strength in the coming months heading into the spring home buying season. The National Association of Realtors (NAR) attributed the large gain in February to lower rates, more inventory, rising incomes and higher consumer confidence.

The Median Home Price was reported at $249,500, up 3.6% year over year. Total inventory at the end of February increased to 1.63 million, up 3.2% from last year. At the current pace of sales, there is a 3.5-month supply, down from 3.9 in January.

According to the NAR, a typical homeowner accumulated an estimated $8,700 in housing equity through appreciation over the past 12 months and $21,300 over the past 24 months.  And that doesn’t include amortization.

Economic Calendar – for the Week of March 25, 2019

Week of March 25 – March 29 Consensus
Mar 2608:00S&P Case-Shiller Home Price IndexJan4.0%4.0%4.2%
Mar 2608:30Housing StartsFeb1200K1210K1230K
Mar 2608:30Building PermitsFeb1310K1308K1345K
Mar 2609:00FHFA Housing Price IndexJan0.2%0.3%0.3%
Mar 2610:00Consumer ConfidenceMar131.5132.0131.4
Mar 2707:00MBA Mortgage Applications Index03/23NANA1.6%
Mar 2708:30Trade BalanceJan-$60.0B-$57.5B-$59.8B
Mar 2708:30Current Account BalanceQ4NA-$126.6B-$124.8B
Mar 2710:30EIA Crude Oil Inventories03/23NANA-9.6M
Mar 2808:30Initial Claims03/23215K220K221K
Mar 2808:30Continuing Claims03/16NANA1750K
Mar 2808:30GDP – Third EstimateQ42.5%2.5%2.6%
Mar 2808:30GDP Deflator – Third EstimateQ41.8%1.8%1.8%
Mar 2810:00Pending Home SalesFeb0.7%0.5%4.6%
Mar 2810:30EIA Natural Gas Inventories03/23NANA-47 bcf
Mar 2908:30Personal IncomeFeb0.2%0.3%-0.1%
Mar 2908:30Personal SpendingFebNANANA
Mar 2908:30PCE Price IndexFebNANANA
Mar 2908:30Core PCE Price IndexFebNANANA
Mar 2908:30Personal SpendingJan0.2%0.3%-0.5%
Mar 2908:30Core PCE Price IndexJan0.2%0.2%0.2%
Mar 2910:00New Home SalesFeb610K618K607K
Mar 2910:00Univ. of Michigan Consumer Sentiment – FinalMar97.697.897.8

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

Mortgage Bonds moved significantly higher following the Fed’s announcement of the changes coming to the way they handle their balance sheet.  Bonds broke above an important technical celling at 102.618, a level that has not been broken since February 2018. Bonds now find themselves in a new range, within 102.618 now acting as support, the next ceiling is all the way up at 102.379, so there is plenty of room for Bonds to improve and move higher.

Looking at the stochastics chart, you can see Bonds have been in an overbought territory for the past two weeks. Should Bonds falter, a negative crossover could form, which usually accelerates the move to the downside. A lot will depend on the Stock market and if it can rebound from the losses suffered last week.  

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