Market Update – 08/08/2019

Alright, so I missed my Monday Update. Apologies. We’ve had massive volatility this week. The stock market had a rough Monday but seems to be climbing out of its funk and we may even see it return its losses before the week is over—but we gotta get through today and tomorrow, don’t we? Mortgage Bonds have had a similar bounce around starting out the week strong and ending its run yesterday afternoon with a sharp decline. but RATES ARE STILL HISTORICALLY LOW!

If you are looking to refinance, now is the time. Especially if you purchased in 2017 or 2018. Those of you who jumped in during the last refi boom are still sitting pretty. Those looking to buy should also seriously consider getting back out there to see if there is anything that works for you. Houses are sitting a little longer (particularly at price points above $1MM) so you may be able to make a deal for something you can’t live without. There’s still quite of bit of activity in the $750k-$900k price range and therefore less room to negotiate for homes in select neighborhoods (think excellent school ratings, easier commutes, etc).

The big story this week has been the rhetoric around trade tariffs and the resulting currency moves made by China. Brexit is looming also, and the European economy is tenuous at best. There is quite a bit of discussion about the impending recession with historical support in the indicators (Yield curve flattening for those market geeks among us). For the rest of us, a flattened Yield Curve means the market prefers shorter term risk to longer term risk—a traditional signal for a recession.

Keep in mind that the jobs report was strong, and the housing market is too, based on recent reports. Those two things when combined with bigger market indicators, tends to be confusing, so here’s the takeaway:

If you are looking to buy, get out there now. The short Fall selling season is about to begin and the home of your dreams could slip away before your very eyes. Homes sitting for longer may be open to negotiating on contingencies or price and maybe both. As an agent I know recently said: “Write an offer. Put something on a piece of paper and let me take it to my seller. I can’t negotiate without something specific.” Go find your dream home but before you do, please get yourself approved for a loan amount that you know you can afford. I am hearing from a few agents that they are seeing lots of buyers at open houses that have not even submitted a loan application. In my opinion this is a recipe for disappointment. Don’t let that happen to you and if you are an agent showing property without an approval or at the very least, a pre-qualification, you might be a bit disappointed too.

If you are looking to refinance, call me. We can work through your specific goals. Now is the time to position yourself for the rate that you want. Waiting until you see a rate you want, may mean missing it all together. Get your loan application and docs submitted to underwriting so you can be ready to hit the button when your rate is available. Turn times are still good but we are busy so don’t wait!

Good luck out there and let me know how I can help you achieve your objectives!!

Your Weekly Technical Review Starts here:

The major stock market indexes recorded their worst weekly performance so far this year after investors were disappointed with the outcome of the Federal Reserve’s policy meeting a week ago Wednesday along with the post-meeting press conference conducted by Fed Chair Jerome Powell. Also dealing a blow to the stock market was an announcement last Thursday afternoon that the U.S. would levy a new 10% tariff on all remaining Chinese imports (about $300 billion worth of goods) not currently facing duties on September 1st. This announcement seemed to catch Wall Street and China by surprise. However, a couple days prior it was announced China was not living up to promises made at the G-20 summit in late June. The new tariff announcement will certainly get the attention of Chinese trade negotiators and will hopefully prompt more meaningful negotiations resulting in a deal both nations can accept.

As for the Fed’s monetary policy meeting, the Fed announced a quarter-point cut in the federal funds target rate, which was widely expected, and now ranges from 2.00% to 2.25%. The Fed also announced it would remove some upward pressure on longer-term interest rates by ending its balance sheet reduction efforts two months ahead of schedule. This should be beneficial for prospective home buyers by putting at least some temporary downward pressure on mortgage rates. However, investors were less thrilled with Fed Chair Powell’s post-meeting press conference in which he stated policymakers were thinking of the rate cut “as a mid-cycle adjustment to policy.” Market participants interpreted this statement as meaning an easing cycle had not yet begun and further rate cuts in coming months wouldn’t be considered. Powell then confused everyone by suggesting further rate cuts were still possible.

The remainder of the week’s economic news revealed the economy continues to chug along with the July employment report showing another ample gain (164,000 vs. 160,000 expected) in nonfarm payrolls. The unemployment rate held steady at 3.7% while average hourly earnings climbed 0.3% for a year-over-year rate of 3.2%, slightly more than forecast.

In housing last Tuesday, the National Association of Realtors (NAR) reported Pending Home Sales continued to increase in June to record gains over two consecutive months. Each of the four major national regions noted a rise in contract activity, with the West Region showing the greatest sales improvement. The Pending Home Sales Index moved 2.8% higher to 108.3 in June from 105.4 in May. Year-over-year contract signings surged 1.6%, ending a 17-month streak of annual decreases.

NAR Chief Economist, Lawrence Yun, commented the 2.8% increase can be attributed to the current favorable housing conditions and predicted the rise is likely the start of a positive trend for home sales.

“Job growth is doing well, the stock market is near an all-time high and home values are consistently increasing. When you combine that with the incredibly low mortgage rates, it is not surprising to now see two straight months of increases.”

Yun went on to remark “Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes. Furthermore, homeowners’ equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership.”

Regionally, the Northeast increased 2.7% to 94.5 in June and is now 0.9% higher than a year ago. In the Midwest, the index advanced 3.3% to 103.6 in June, 1.7% greater than June 2018. In the South Region, pending home sales increased 1.3% to 125.7 in June, a 1.4% higher reading than last June. The index for the West Region surged 5.4% in June to 96.8, an increase of 2.5% above a year ago.

Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased 1.4% from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 1.4% for the week ended July 26, 2019. The seasonally adjusted Purchase Index declined 3% from a week prior while the Refinance Index increased 0.1%. Overall, the refinance portion of mortgage activity increased to 50.5% from 49.8% of total applications from the prior week. The adjustable-rate mortgage share of activity was unchanged at 4.7% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.08% with points increasing to 0.34 from 0.33 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 3.5% coupon bond finished 39.0 basis points higher to close at $102.703 while the 10-year Treasury yield decreased 22.54 basis points to end at 1.8554%. The Dow Jones Industrial Average fell 707.44 points to close at 26,485.01. The NASDAQ Composite Index dropped 326.14 points to close at 8,004.07. The S&P 500 Index lost 93.81 points to close at 2,932.05. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 13.54%, the NASDAQ Composite Index has gained 20.63%, and the S&P 500 Index has advanced 16.96%.

This past week, the national average 30-year mortgage declined to 3.70% from 3.91%; the 15-year mortgage rate decreased to 3.38% from 3.56%; the 5/1 ARM mortgage rate fell to 3.60% from 3.70%; and the FHA 30-year rate dropped to 3.25% from 3.50%. Jumbo 30-year rates decreased to 3.80% from 3.91%.

Economic Calendar – for the Week of August 5, 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
Aug 05 10:00 ISM Non-Manufacturing Index Jul 55.4 55.1
Aug 06 10:00 JOLTS – Job Openings June NA 7.323M
Aug 07 07:00 MBA Mortgage Applications Index 08/03 NA -1.4%
Aug 07 10:30 EIA Crude Oil Inventories 08/03 NA -8.5M
Aug 07 15:00 Consumer Credit Jun $16.5B $17.1B
Aug 08 08:30 Initial Jobless Claims 08/03 213,000 215,000
Aug 08 08:30 Continuing Jobless Claims 07/27 NA 1,699K
Aug 08 10:00 Wholesale Inventories Jun 0.2% 0.4%
Aug 09 08:30 Producer Price Index (PPI) Jul 0.2% 0.1%
Aug 09 08:30 Core PPI Jul 0.2% 0.3%

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

The FNMA 30-year 3.5% coupon bond ($102.703; +39.0 bp) traded within a wider 67.1 basis point range between a weekly intraday low of $102.188 on Wednesday and a weekly intraday high of 102.859 on Thursday before closing the week at $102.703 on Friday.

Mortgage bonds continued to trade “sideways” within the yellow-shaded rectangle highlighted in the chart below until breaking above the rectangle on Thursday. The bond then traded down to this rectangular consolidation pattern on Friday before closing above it. The bond remains on a buy signal but is “overbought” and susceptible to some profit-taking that could send prices toward support at the 38.2% Fibonacci retracement level if the stock market manages to rebound. If this happens, mortgage rates could edge slightly lower in the week ahead. On the other hand, if the stock market continues to correct to the downside, bond prices could continue to improve even if overbought, resulting in a slight improvement in rates.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.