Monday Market Update – 09/30/2019

Good Monday to you! I hope you had a great weekend. The weather around my house sure turned abruptly to Fall this weekend. Crisper mornings, longer shadows in the afternoon. Soon the days will be short and nights long. Boo. And I’m not talking about Halloween.

So, what’s happening with rates? The market saw just about a 0.5% worsening in the 30-year fixed rates in the last ten days or so. What’s driving the volatility? Geopolitical and economic uncertainty. Between the impeachment inquiry, trade negotiations with China, Brexit and Iran’s instability, we have quite a bit to contend with from a volatility standpoint. Add in that employment numbers are strong (we’ll see what happens this coming Friday…more on that below), inflation looks like it could be raising its head and you have a complex cocktail that is making even the mortgage market gurus shrug their shoulders. We just don’t know which of these variables is going to impact rates from one day to the next. What we continue to hear from the experts is that rates are generally on the downward trend but they may be up or down a little one day to the next depending on the variables mentioned above and what the various players do or say.

So, I said above, “We’ll see what happens this coming Friday.” The jobs report is due, as this is the first Friday of the month—the traditional day for this report. Unemployment stands at 3.7% and hourly wage growth year over year is 3.2% Both of these indicators are expected to remain steady but any significant changes will impact mortgage rates. Stronger than expected jobs reports tend to impact mortgage rates negatively. So too does wage growth, which can be an indicator of inflation—the other enemy of mortgage rates.

You’ll see below in the technical review that housing continues to be very strong across the United States. Locally, though, days on market is increasing, price adjustments are more common, and we’re seeing fewer non-contingent offers. Now, if the house you love is in a great neighborhood, with good schools and priced to sell, you can anticipate that offers will need to be more “competitive”.

Looking to buy, refinance or just learn more about your home finance options? Call me today!

Your Weekly Technical Review begins here…

The major stock market indexes recorded moderate losses while the bond and U.S. Treasuries markets notched minimal gains and slightly lower yields as investors wrestled with political and China trade uncertainty. The stock market would have had a relatively “flat” trading week if it were not for two events, one political and one trade related. First, House Speaker Nancy Pelosi officially announced the launch of what appears to be a rather unconvincing impeachment inquiry on President Trump last Tuesday. Wall Street investors reacted in “knee-jerk” fashion, but they are more concerned about the uncertainty and impact the political drama might have on trade negotiations with China. One concern is impeachment pressure might encourage the White House to strike a weaker trade deal with China before the November 2020 election.

The second event occurred Friday when Bloomberg reported a possible “leak” that the White House was considering restricting U.S. investment in China and forcing U.S. stock exchanges to delist the shares (in the form of American Depositary Receipts) of Chinese companies. This rumored “news” may be a negotiating ploy engineered by the White House to get China to more readily strike a trade deal. However, this news could also complicate trade talks set to resume on October 7 through October 11.

In housing news, the S&P CoreLogic Case-Shiller U.S. National Home Price Index was released last Tuesday showing home prices rose 3.2% annually in July, unchanged from the gain reported in June. The 10-City Composite Index increased 1.6% annually, down from 1.9% reported in June. The 20-City Composite Index recorded a 2% annual gain, down from 2.2% in June.

The hottest cities for home price appreciation were Phoenix, Las Vegas and Charlotte, North Carolina. Home prices in Phoenix increased 5.8% year-over-year. In Las Vegas, home prices were up 4.7%, and they were 4.6% higher in Charlotte. Seven of the 20 cities reported greater price increases in the year ending July 2019 versus the year ending June 2019.

Overall, home price gains are strongest in the Southwest (Phoenix and Las Vegas) and the Southeast (Charlotte and Tampa). Elsewhere, other cities recorded solid gains including Minneapolis, up 4.2% annually, and Detroit, up 4.1%. Seattle was the only city to show an annual price decline, down 0.6%. 

Meanwhile, U.S. house prices rose in July, up 0.4 percent from the previous month, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 5.0 percent from July 2018 to July 2019. The previously reported 0.2 percent increase for June 2019 remains unchanged.

For the nine census divisions, seasonally adjusted monthly house price changes from June 2019 to July 2019 ranged from +0.1 percent in the Middle Atlantic division to +1.2 percent in the Mountain division.

The 12-month changes were all positive, ranging from +3.6 percent in the Middle Atlantic division to +7.6 percent in the Mountain division.

Wednesday, the Commerce Department reported New Home Sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units. The consensus among economists had forecast New Home Sales increasing 3.5% to a rate of 660,000 units in August.

New home sales surged 7.1% month-over-month to a seasonally adjusted annual rate of 713,000 units from an upwardly revised 666,000 in July.

August trailed only June as the highest-paced sales month since October 2007. Regionally, sales were down 5.9% in the Northeast; down 3.0% in the Midwest; up 6.0% in the South; and were up 16.5% in the West. The median sales price increased 2.2% year-over-year to $328,400. The average sales price increased 6.1% to $404,200. Based on the August sales rate, the inventory of new homes for sale stands at a 5.5-months’ supply versus 5.9 months in July.

Thursday, the National Association of Realtors (NAR) announced their Pending Home Sales Index increased more than expected in August by increasing 1.6% to 107.3, a 2.5% year-over-year increase.

Regionally, Pending Home Sales were led by the West Region with a monthly increase of 3.1% and an annual increase of 8.0%.

The Northeast increased 1.4% monthly and 0.7% higher than a year ago. The Midwest saw sales increase 0.6% monthly and 0.2% higher annually. Sales in the South increased 1.4% monthly and 1.8% annually.

NAR’s chief economist Lawrence Yun remarked “It is very encouraging that buyers are responding to exceptionally low interest rates. The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in the absence of more supply. The NAR is forecasting home sales to increase 0.6% in 2019 and another 3.4% in 2020. Housing starts are projected to increase by 2.0% in 2019 and soar an additional 10.6% in 2020, which in turn raises GDP to growth at 2.0% in 2020.

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) declined 10.1% for the week ended September 20, 2019. The seasonally adjusted Purchase Index decreased 3% from a week prior while the Refinance Index decreased 15%. Overall, the refinance portion of mortgage activity decreased to 54.9% from 57.9% of total applications from the prior week. The adjustable-rate mortgage share of activity increased to 5.1% from 5.0% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.02% from 4.01% with points decreasing to 0.26 from 0.29 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the UMBS 3.0% coupon bond finished 4.70 basis points higher to close at $101.391 while the 10-year Treasury yield decreased 3.40 basis points to end at 1.687%. The Dow Jones Industrial Average declined 114.82 points to close at 26,820.25. The NASDAQ Composite Index dropped 178.04 points to close at 7,939.63. The S&P 500 Index fell 30.28 points to close at 2,961.79. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 14.97%, the NASDAQ Composite Index has gained 19.66%, and the S&P 500 Index has advanced 18.15%.

This past week, the national average 30-year mortgage decreased to 3.75% from 3.79%; the 15-year mortgage rate decreased to 3.39% from 3.45%; the 5/1 ARM mortgage rate decreased to 3.40% from 3.43%; and the FHA 30-year rate increased to 3.44% from 3.42%.  Jumbo 30-year rates decreased to 3.75% from 3.81%.

Economic Calendar – for the Week of September 30, 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
Sep 30 09:45 Chicago Purchasing Managers Index (PMI) Sept 50.8 50.4 
Oct 01 10:00 ISM Manufacturing Index Sept 50.2 49.1
Oct 01 10:00 Construction Spending Aug 0.4% 0.1%
Oct 02 07:00 MBA Mortgage Applications Index 09/28 NA -10.1% 
Oct 02 08:15 ADP Employment Change Sept 150,000 195,000 
Oct 02 10:30 EIA Crude Oil Inventories 09/28 NA +2.4M
Oct 03 08:30 Initial Jobless Claims 09/28 215,000 213,000
Oct 03 08:30 Continuing Jobless Claims 09/21 NA 1,650K
Oct 03 10:00 Factory Orders Aug 0.0% 1.4%
Oct 03 10:00 ISM Non-Manufacturing Index Sept 55.4 56.4
Oct 03 10:30 EIA Natural Gas Inventories 09/28 NA +102 bcf
Sep 27 08:30 Nonfarm Payrolls Sept 150,000 130,000
Sep 27 08:30 Nonfarm Private Payrolls Sept 120,000 96,000
Sep 27 08:30 Average Hourly Earnings Sept 0.3% 0.4%
Sep 27 08:30 Unemployment Rate Sept 3.7% 3.7%
Sep 27 08:30 Average Workweek Sept 34.4 34.4
Sep 27 10:00 Balance of Trade Aug -$54.4B -$54.0B

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

The UMBS 30-year 3.0% coupon bond ($101.391; +4.70 bp) traded within a narrower 48.4 basis point range between a weekly intraday high of $101.578 on Tuesday and a weekly intraday low of 101.094 on Wednesday before closing the week at $101.391 on Friday. 

Mortgage bonds moved slightly higher to challenge technical resistance every day last week except Thursday and were unable to make a break above to gain additional upward momentum. The bond is now trading on a sell signal but is neither “overbought” nor “oversold.” The bond appears to be “marking time” ahead of any breaking significant political, geopolitical, or economic news that may surface this coming week– whether it is impeachment rhetoric, Middle East troubles, China trade rumors or Friday’s September Employment Situation Report.

Regardless of the news, if the bond fails to break above the band of resistance highlighted in the chart below, we could see a subsequent move toward support at the 100-day moving average ($100.755). Should this occur mortgage rates would edge slightly higher. However, a break above resistance would lead to an improvement in rates. At the moment though, the path of least resistance is a move toward support unless a catalyst appears to push investors toward risk-off, safer-haven investments such as bonds and Treasuries.

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