Market Update – 08/26/2019

Good morning, some of you may have noticed a change to the way these emails are constructed. One of my mentors (someone who I have high regard for) offered some feedback a couple of weeks ago regarding the content and format of the message. I am so thankful for that coaching. Basically, she reminded me that not everyone in my audience is an expert on the bond market, real estate or mortgages. “They’re looking to you for an explanation of what the technical analysis means. Don’t expect them to understand all the gobbledygook contained in the technical analysis. Make it “bite-size” for your audience, so they can make informed decisions.” So, I will still send the technical analysis but I will also try to explain some of the technical stuff each week. More importantly, I’ll work to make the information meaningful for you—so you can use it!

So, about that trade war…the rhetoric around trade tariffs on goods imported and exported to and from China and other nations continues to play havoc with the stock market. Traders are in the stock market, traders are out of the stock market (and into the bond market) daily—mostly, depending on what it being said in the political sphere. That, generally, leads to volatility in rates.

The mortgage gurus believe that in the current market, rates are “like a yo-yo on a down escalator.” Meaning that we will continue to see volatility in the rates but that they are generally on a downward trend. Some even think that the Federal Reserve Board will make a larger rate cut to the overnight rate before the end of the year (we’ll see).

What does that downward rate trend mean? If you are looking to buy a house, now is the time. I keep hearing, “We’re going to wait and see where the market goes, before we buy.” I would ask one question: “How long do you plan on living in the home?” For most, these days, the average time in a home is about 7-10 years. With that in mind, here’s a couple more questions: “Why wouldn’t you want to get into a home now and start realizing the appreciation? “Do you think property will appreciate or depreciate over the next 7-10 years?” or “If you are a first time buyer, why wouldn’t you want to stop paying someone else’s mortgage and start paying your own?”

With that in mind, each of us have different purchase priorities. That’s what makes working with a trained professional so important. Your realtor should be an expert in your market. They should know the trends, the general condition of the housing stock, where the school district boundaries lie, if there are special taxing districts where you are looking, whether there are special inspection that need to take place as part of the sale (and that could add thousands in repairs that may need to be completed as part of the sale.) Want an introduction to a local expert in your market? Ask me. I know several great agents in just about every part of the bay area.

Buyers, now is a great time to be looking for homes. There are values to be had but if you’re not making an offer, you will never know. As a really great agent said to me the other day: “Just bring me an offer. I can’t negotiate for you if I don’t have something written down.” Some homes are sitting a little bit longer on the market. Motivated sellers may be willing to meet your terms. You’ll never know unless you write an offer.

On home finance, now is a great time to buy (or refinance). Rates are as low as they been since November of 2016. Did you buy in 2018? It may be a great time to restructure your loan and save some money on your monthly payment. If you can save $100 per month, refinancing could allow you to put that money in your 401k or pay down debts. You can use the savings cover your cable/internet bill or the kid’s music lessons or whatever makes the most sense to you. Want some help in figuring out if a refinance makes sense for you? Call me!

Your Weekly Technical Review

The major stock market indexes recorded their fourth consecutive week of losses as the U.S.-China trade war continued to weigh on investor sentiment. The stock market showed some early strength last week when the Trump administration announced on Monday it was temporarily halting a ban on U.S. firms doing business with Chinese telecommunications giant Huawei for 90 days. Then on Wednesday, stocks continued higher after the Federal Reserve released the minutes from its July 30–31 monetary policy meeting showing policymakers wanted to remain flexible in responding to economic data.

However, the markets plunged on Friday after China announced they would impose new tariffs on $75 billion worth of U.S. imports, including a 25% levy on U.S. autos, 5% on auto parts, and 5% to 10% on 5,078 products, including soybeans, coffee, whiskey, seafood and crude oil. The U.S. countered by announcing $250 billion of goods and products from China currently being taxed at 25% would be taxed at 30% and a remaining $300 billion of goods and products that were to be taxed at 10% will now be taxed at 15%. President Trump also announced, “We don’t need China and, frankly, would be far better off without them,” and “ordered” American companies “to immediately start looking for an alternative to China.”

The US Chamber of Commerce weighed in on the trade war by calling on the United States and China to “get back to the table” to discuss issues important to both sides, including intellectual property and market access. The Chamber’s statement read in part “Today’s Chinese retaliation is unfortunate, but not unexpected. The fact of the matter is that nobody wins a trade war, and the continued tit-for-tat escalation between the U.S. and China is putting significant strain on the U.S. economy, raising costs, undermining investment, and roiling markets.”

In housing last Wednesday, the National Association of Realtors reported Existing Home Sales increased 2.5% to a seasonally adjusted annual rate of 5.42 million units for July. June’s sales rate was revised slightly higher to 5.29 million units from a previously reported 5.27 million units. Total sales were 0.6% higher than the same period a year ago.

The median existing home price for all housing types rose 4.3% year-over-year to $280,800 to reach the 89th consecutive month of year-over-year price gains. The median existing single-family home price increased 4.5% year-over-year to $284,000.

Regionally, Existing Home Sales were 2.9% lower in the Northeast; 1.6% higher in the Midwest; 1.8% higher in the South; and 8.3% higher in the West.

Median home prices were 1.0% lower in the Northeast slipping to $305,800; 8.1% higher in the Midwest rising to $226,300; 5.2% higher in the South climbing to $245,100); and 3.7% higher in the West increasing to $408,000. Single-family home sales increased 2.8% month-over-month to a seasonally adjusted annual rate of 4.84 million and were 1.0% higher year-over-year.

The inventory of homes for sale at the end of July declined to 1.89 million from 1.92 million in June while inventory was 1.6% lower than a year ago. Unsold inventory fell to a 4.2-months’ supply at the current sales rate versus 4.4 months for June.

Friday, the Census Bureau released their latest New Home Sales report showing sales declined 12.8% month-over-month to a seasonally adjusted annual rate of 635,000 in July. This was below the consensus forecast of 645,000. However, June’s New Home Sales report of 645,000 was revised significantly higher to 728,000. Year-over-year, New Home Sales were 4.3% higher.

Regionally, New Home Sales were 50.0% higher in the Northeast; 11.1% lower in the Midwest; 16.1% lower in the South; and 14.2% lower in the West.

The median new home price fell 4.5% year-over-year to $312,800 while the average sales price declined 1.1% to $388,000. The inventory of new homes for sale increased to 6.4 months at the July sales rate from 5.5 months in June. Although there was a significant upward revision for June Sales, there was no follow-through sales momentum during July even with low mortgage rates and lower median home sales prices. Sales were notably lower in three of the four national regions and the total number of new homes sold was below the 646,000 annual sales rate originally reported for June.

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 0.9% for the week ended August 16, 2019. The seasonally adjusted Purchase Index decreased 4% from a week prior while the Refinance Index increased 0.4%. Overall, the refinance portion of mortgage activity increased to 62.7% from 61.4% of total applications from the prior week. The adjustable-rate mortgage share of activity increased to 6.4% from 6.0% 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 3.90% from 3.93% with points remaining unchanged at 0.35 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 12.5 basis points lower to close at $101.656 while the 10-year Treasury yield decreased 3.54 basis points to end at 1.5266%. The Dow Jones Industrial Average fell 257.11 points to close at 25,628.90. The NASDAQ Composite Index dropped 144.22 points to close at 7,751.77. The S&P 500 Index lost 41.57 points to close at 2,847.11. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 9.87%, the NASDAQ Composite Index has gained 16.83%, and the S&P 500 Index has advanced 13.57%.

This past week, the national average 30-year mortgage climbed to 3.63% from 3.58%; the 15-year mortgage rate increased to 3.33% from 3.25%; the 5/1 ARM mortgage rate rose to 3.42% from 3.40%; and the FHA 30-year rate increased to 3.30% from 3.25%. Jumbo 30-year rates increased to 3.75% from 3.69%.

Economic Calendar – for the Week of August 26, 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 26 08:30 Durable Goods Orders Jul 1.2% 2.0%
Aug 26 08:30 Durable Goods Orders excluding transportation Jul 0.1% 1.2%
Aug 27 09:00 FHFA Housing Price Index Jun NA 0.1%
Aug 27 09:00 S&P Case-Shiller Home Price Index Jun 2.7% 2.4%
Aug 27 10:00 Consumer Confidence Index Aug 129.6 135.7
Aug 28 07:00 MBA Mortgage Applications Index 08/24 NA -0.9%
Aug 28 10:30 EIA Crude Oil Inventories 08/24 NA -2.7M
Aug 29 08:30 Adv. Intl. Trade in Goods Jul NA -$74.2B
Aug 29 08:30 Adv. Retail Inventories Jul NA -0.1%
Aug 29 08:30 Adv. Wholesale Inventories Jul NA 0.2%
Aug 29 08:30 2nd Estimate of GDP Qtr. 2 2.0% 2.1%
Aug 29 08:30 2nd Estimate of GDP Deflator Qtr. 2 2.4% 2.4%
Aug 29 08:30 Initial Jobless Claims 08/24 215,000 209,000
Aug 29 08:30 Continuing Jobless Claims 08/17 NA 1,674K
Aug 29 10:00 Pending Home Sales Jul 0.1% 2.8%
Aug 30 08:30 Personal Income Jul 0.3% 0.4%
Aug 30 08:30 Personal Spending Jul 0.5% 0.3%
Aug 30 08:30 PCE Price Index Jul 0.2% 0.1%
Aug 30 08:30 Core PCE Price Index Jul 0.2% 0.2%
Aug 30 09:45 Chicago Purchasing Managers Index (PMI) Aug 48.2 44.4
Aug 30 10:00 Final Univ. of Michigan Consumer Sentiment Index Aug 92.4 92.1

Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond

The UMBS 30-year 3.0% coupon bond ($101.656; -12.5 bp) traded within a narrower 37.5 basis point range between a weekly intraday low of $101.422 on Thursday and a weekly intraday high of 101.797 on Friday before closing the week at $101.656 on Friday.

Mortgage bonds continued to trade in a “sideways,” range-bound direction this past week, trading down to touch technical support on Thursday before bouncing a little higher on Friday. The bond is currently trading on a sell signal from a negative slow stochastic crossover occurring last Tuesday. However, the bond is no longer “overbought” and is slightly less susceptible to a pullback. The stock market has become more volatile of late and selling pressure may continue this week after last Friday’s sharp sell-off unless bargain-hunters step in to buy stocks. Should the stock market continue to correct, we could see investors move money into perceived safer-haven assets like Treasuries, mortgage bonds, and precious metals. This would improve bond prices and slightly reduce yields resulting in slightly lower interest rates. Mortgage rates should remain stable.

Leave a Reply

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