Monday Market Update – 07/15/2019

Good Monday afternoon to you. Whoa! What a ride we had last week! Rates were down, then up. Still, we ended the week with HISTORICALLY LOW RATES. I meant to use all those capitals, not because I am yelling at you but because I want you to know that NOW is STILL a GREAT TIME TO BUY!

There are some that believe we are in a buyers’ market…some sellers believe that pricing is still based on last year’s market. What’s the result? There’s a bit of a mismatch. Buyers are not totally in control and sellers may need to rethink their selling strategies/pricing expectations. The reality is we’re in a normalizing market and have been since the end of 2018. Buyers no longer need to make non-contingent offers (for the most part) and sellers may have to get comfortable with a slightly longer selling cycle or offers at asking price and even contingent offers. Keep in mind that if the perfect house comes available in the perfect neighborhood at the right price, a non-contingent offer, over asking price, might make sense. It’s situational and that’s where a trusted advisor and trained professional are going to make a big difference in your house hunt. Need one? Ask me for a referral. I know some exceptional realtors.

What does the future hold? My crystal ball isn’t any clearer than yours but some of the smartest people I know in this business think that we will continue to see rates bounce along where they are today with some moderate ups and downs for the balance of 2019—read: Rates should remain relatively stable for the remainder of the year, barring any unforeseen events or circumstances.

As you will see below in the commentary from MBS Highway, we’ll likely see a ¼ point cut in the federal overnight rate before the end of the month and another ¼ point cut before the end of the year. Please keep in mind that this does not mean mortgage rates will drop by the same amount or at all based on these moves — if they happen. In fact, when the Fed does cut rates, that indicates they see the market slowing and are trying to give it a nudge to keep moving positively. The result is the stock market mostly benefits from these moves and the bond market (where mortgage rates are derived) tends to get punished. In reality, the markets have already priced a lot of this into their calculations so, we’ve probably already seen the effects of these perceived moves.

If you have a HELOC, you may see a drop in your interest rate on these loan products based on actual moves, depending on how your rate is derived. If you do have a HELOC, NOW is the time to REFINANCE! In fact, many loans that were originated in 2018 (did you buy something last year?) can benefit from a refinance. Want to know if you can benefit? Contact me today and we can run some scenarios for you.

Have a great week!!!

Your Weekly Review begins here:

It was a busy week, highlighted by Fed Chair Jerome Powell’s remarks in front of the House and Senate. Powell said that since June, uncertainty continues to weigh on the economy. He also said that inflation pressure remains muted and that the Fed will act as appropriate to sustain the expansion. This was a signal that the Fed will still be cutting rates at their meeting July 31st, something that was in question after the very strong June Jobs Report that was released earlier this month. That was all the Stock and Bond markets needed to hear, with both moving higher in reaction. Stocks, in fact, set record highs, with the S&P 500 breaking above 3,000 for the first time ever.

In economic news, Housing Wire published an article that said that more than 8.2 million borrowers can now benefit from refinancing their mortgages, according to Black Night Financial. This is 1.5 million more than before the recent rate drop and the biggest number in almost 3 years. There are now almost 4.5 times more refinance candidates that there were in November 2018. Of the 8.2 million mortgages that can benefit, 35% of them were originated in 2018.

According to Black Night, borrowers who refinanced could reduce their mortgage by 0.75% with an average savings of $266 per month. Use our Refinance Comparison and Debt Consolidation calculators to show your clients the benefits of refinancing.

CoreLogic released their Loan Performance report for the month of April, and there were some big improvements. Loans 30-days or more past due improved significantly from 4.0% to 3.6%, while seriously delinquent loans, which is defined as 90-days or more, dropped from 1.4% to 1.3%. Seriously delinquent homes in foreclosure were unchanged at 0.4%. Incomes and home price growth continue to support strong loan performance.

The Mortgage Bankers Association reported their Mortgage Application data for last week, as they do every Wednesday. Overall, Mortgage Application volume was down 2.4%. Applications to purchase a home were up 2.0% and are up 5.5% from this time last year, which is a decline from the 10% year over year gain seen last week. Refinances were down 7.0% but are still up a very healthy 88.0% year over year. There was an adjustment for the 4th of July Holiday, which could be affecting the numbers a bit. This should be smoothed rout by next week. The Refinance share of mortgage activity decreased from 51.0% to 48.7% of total applications. Adjustable Rate Mortgages or ARMs increased 5.3% of all applications.

The average 30-year mortgage decreased from 4.07% to 4.04% week over week, but rates are about 72bp or almost ¾ lower than this time last year. Remember that the rate the MBA cites typically has some amount of decimal points included.

On the inflation front, the Consumer Price Index (CPI), which measures inflation on the consumer level, showed that overall inflation increased in June, but moderated on a year over year basis. The headline reading was up 0.1% for the month and decreased from 1.8% to 1.6% year over year. But this was almost all due to gasoline prices, which dropped 3.6%.

Looking at the more important Core rate, which strips out food and energy prices, increased 0.3% for the month and on a year over year basis increased from 2.0% to 2.1%. Bonds moved slightly lower after the hotter than expected inflation data…although, still, it remains relatively tame.

Within the report, rents rose by 0.3% for the month and are increasing at a rate of 3.9% on a yearly basis, which is a pretty big jump from 3.7% last month. Medical care costs rose by 2% year over year, which is down from 2.1%.

Economic Calendar – for the Week of June 24, 2019

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

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

Mortgage Bonds moved lower over the course of the week, breaking beneath some important technical levels. Bonds fell under the 102.274 Fibonacci level, as well as their 25-day Moving Average. These levels will now act as ceilings on the way up. Bonds have a significant amount of space to the downside until reaching the next floor of support, all the way down at the 50-day Moving Average. For now, they are testing the aforementioned ceiling at the 25-day Moving Average.

The 10-year moved back up to 2.10% also breaking some key technical levels. Yields broke above their 25-day Moving Average after breaking above 2.03% in the previous week. Yields find themselves in the middle of a very wide range between support at the 25-day Moving Average and overhead resistance at the 50-day Moving Average.

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