Monday Market Update – 07/22/2019

Whoa! Again! Just when you think things are settling down, you get strong opinions from multiple Fed presidents, with one even having his office walk back his comments last week. The mortgage bond and stock market have been anticipating a rate cut of 25 basis points (that’s 0.25% or a quarter percent for the rest of us non wall street people) this month. Then NY Fed President, John Williams, made comments indicating that a higher rate cut may be in order. His office quickly walked back the assertion, stating that his comments were part of, ” …an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting,” Will we see a 50 basis point cut? The mortgage market gurus don’t think so, believing that the Fed will hold that additional 25 basis points for a move later in the year. The gurus believe the Fed will opt for a measured approach to rate cutting.

The Fed is quiet this week in preparation for what moves will or won’t be made next week to the overnight rate ( the interest rate that banks charge other banks for lending them money from their reserve balances on an overnight basis.)

Here’s the takeaway for mortgage seekers: now is a great time to begin looking at refinancing or buying a home.

What does that mean for someone refinancing? It means get your paperwork in order. Talk a trained professional about your options. Once you understand them, consider getting pre-approved and then be ready to move on your financing. The rate you really want may only be available for a day or two and if you fumbling around trying to get your paperwork submitted, you might miss your window.

What’s does the above mean for a person buying? Same thing really. Get yourself fully underwritten for a purchase. Know your options. Understand your financing by working with a trained professional who can educate you. Do not wait until you’ve found your dream home to get approved and underwritten. The property could be in contract by the time you get your paperwork in order. Strong offers start with a conditionally approved loan, where the only conditions are a purchase contract, appraisal and clean title report.

Want to learn more about what this looks like for you or one of your clients? Reach out today and let me better understand your or their home finance goals so we can put a plan together that makes sense for you or them.

A word on the information contained below. The updates I send to you on Mondays come from Barry Habib of MBS Highway, a noted and well-recognized expert on the mortgage bond market. In short, he’s a Mortgage Market Guru. Barry recently stated on Fox Business News that we could see rates three-quarters of a point lower than they are today. Watch the interview here

Your Weekly Review Begins Here

The major stock market indexes began the week by setting new all-time closing highs on Monday, but then slid lower during the remainder of the week as second quarter earnings season got under way. Meanwhile, bond and U.S. Treasury prices pushed higher, sending yields slightly lower.

The week’s economic data were mostly encouraging. Retail Sales recorded a second month of solid gains in June rising 0.4% versus a consensus forecast of 0.2%. Regional manufacturing indexes were positive with the New York Empire State Manufacturing Index bouncing back to a reading of 4.3 from last month’s -8.6. The Philadelphia Fed Manufacturing Index was reported far higher than expected at 21.8 compared to expectations of just 5.0.

Rumors circulated during the week about the possibility of a 50 basis point rate cut by the Federal Reserve at its July 30–31 monetary policy meeting. Last week, Fed officials sent “mixed signals” over how aggressive they would be in cutting short-term interest rates. Fed Chairman Jerome Powell stated policymakers would “act as appropriate amid increased uncertainties,” while Dallas Fed President Robert Kaplan reported he only favored a “modest tactical adjustment” to rates which investors interpreted as meaning only one quarter-point cut this year. New York Fed President John Williams chimed in during a speech to say “it pays to act quickly to lower rates at the first sign of economic distress.” Fed Vice Chairman Richard Clarida then announced on Fox Business Network that “you don’t have to wait until things get so bad to have a dramatic series of rate cuts.” According to a report from The Wall Street Journal last Friday, the Fed is indicating it will go ahead with a quarter-point cut. By Friday’s close, the Fed Funds Futures markets were pricing in a 100% chance of a 25-basis point cut and a 22.5% chance of a 50-basis-point cut at the end of July.

In housing last Tuesday, the National Association of Home Builders (NAHB) released their latest Housing Market Index showing the Index increased to 65 this July from 64 in June. The July reading exceeded consensus market expectations of 64.

The sub-index for current single-family homes edged up to 72 from 71 in June while the measure for home sales over the next six months increased to 71 from 70. The sub-index for prospective buyers increased to 48 from 47.

The NAHB Housing Market Index in the United States averaged 50.40 from 1985 until 2019, reaching an all- time high of 78 in December of 1998 and a record low of 8 in January of 2009.

Wednesday, the Commerce Department reported Housing Starts fell 0.9% month-over-month in June to a seasonally adjusted annual rate of 1.253 million units. This was below the consensus forecast of 1.270 million. Furthermore, Building Permits dropped 6.1% month-over-month to a seasonally adjusted annual rate of 1.220 million, and this was below the consensus forecast of 1.300 million.

In both Starts and Permits, the weakness was attributed to declines in multi-unit dwellings. Single-family starts improved by 3.5% month-over-month to 847,000 while single-family permits increased 0.4% month-over-month.

However, permits for multi-unit dwellings dropped 16.8% month-over-month in June, led by a 20.7% decline in dwellings with five or more units.

Starts for multi-unit dwellings declined 9.4% month-over-month in June. Regionally, single-family housing starts in June were 6.1% higher in the Northeast; 8.0% higher in the Midwest; 1.1% higher in the South, and 9.8% higher in the West.

Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased 1.1% from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 1.1% for the week ended July 12, 2019. The seasonally adjusted Purchase Index declined 4% from a week prior while the Refinance Index increased 2%. Overall, the refinance portion of mortgage activity increased to 50.0% from 48.7% of total applications from the prior week. The adjustable-rate mortgage share of activity decreased to 4.9% of total applications from 5.3%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.12% from 4.04% with points increasing to 0.38 from 0.37 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 3.5% coupon bond gained 23.5 basis points to close at $102.313 while the 10-year Treasury yield decreased 5.60 basis points to end at 2.05%. The Dow Jones Industrial Average fell 177.83 points to close at 27,154.20. The NASDAQ Composite Index dropped 97.65 points to close at 8,146.49.  The S&P 500 Index lost 37.16 points to close at 2,976.61. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 16.40%, the NASDAQ Composite Index has gained 22.78%, and the S&P 500 Index has advanced 18.74%.

This past week, the national average 30-year mortgage rate fell to 3.88% from 3.95%; the 15-year mortgage rate decreased to 3.59% from 3.63%; the 5/1 ARM mortgage rate fell to 3.65% from 3.70%; and the FHA 30-year rate dropped to 3.55% from 3.63%.  Jumbo 30-year rates decreased to 3.90% from 3.97%.

Economic Calendar – for the Week of July 22, 2019

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

Date Time ET Event /Report /Statistic For Market Expects Prior
Jul 23 09:00 FHFA Housing Price Index May NA +0.4%
Jul 23 10:00 Existing Home Sales Jun 5.30M 5.34M
Jul 24 07:00 MBA Mortgage Applications Index 07/20 NA -1.1%
Jul 24 10:00 New Home Sales Jun 660,000 626,000
Jul 24 10:30 EIA Crude Oil Inventories 07/20 NA -3.1M
Jul 25 08:30 Advance International Trade in Goods Jun NA -$74.5B
Jul 25 08:30 Advance Retail Inventories Jun NA 0.5%
Jul 25 08:30 Advance Wholesale Inventories Jun NA 0.4%
Jul 25 08:30 Durable Goods Orders Jun 1.0% -1.3%
Jul 25 08:30 Durable Goods Orders excluding transportation Jun 0.3% 0.3%
Jul 25 08:30 Initial Jobless Claims 07/20 215,000 216,000
Jul 25 08:30 Continuing Jobless Claims 07/13 NA 1,686K
Jul 26 08:30 Advance GDP Qtr. 2 1.8% 3.1%
Jul 26 08:30 Advance GDP Deflator Qtr. 2 1.8% 0.6%

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

The FNMA 30-year 3.5% coupon bond ($102.313; +23.5 bp) traded within a 43.8 basis point range between a weekly intraday low of $101.984 on Tuesday and a weekly intraday high of 102.422 on Thursday before closing the week at $102.313 on Friday.

Mortgage bonds made a move higher during the latter half of the week to break above the 25-day moving average and resistance provided by the 23.6% Fibonacci retracement level. As the bond is still trading on a buy signal generated last Tuesday and not yet “overbought,” we can anticipate further price appreciation toward $102.50 and perhaps secondary resistance located at $102.73. Should this scenario play out, mortgage rates would improve moving slightly lower.

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