How does last week’s Fed Rate Cut Impact You?
Does the Fed Rate Cut mean mortgage rates are going down? Maybe. Do you have an adjustable mortgage that is in its adjustment phase? How about a home equity line of credit (HELOC)? If so, then probably? I ended that sentence with a question mark on purpose because I don’t really know if the rate cut will impact the mortgage or home financing your currently have in place. What I can tell you is that any adjustments to mortgage rates were already in place prior to the cuts being announced. The Fed does a great job of telegraphing its intentions to the market or maybe more accurately, the market does a great job of interpreting Fed-Speak. In short, the really smart guys already planned for the cut. These propeller heads not only look at what the Fed is doing but also a bunch of other economic data here in the US and abroad.
If you read nothing else in this article, read this: Twice in the last four months we had the lowest rates of the year and in both instances, those rates lasted one day. Yep. One. Day. Here’s the really good news though: RATES ARE STILL HISTORICALLY LOW! You want to buy a house? Do it! You want to refinance? Do it!
This is your action plan, if you have any interest at all in purchasing something new or refinancing your home loan, get your documents to your lender and complete a loan application. You are not obligated to the take the loan until you sign and with a refinance, you have a three day right of rescission (unless it’s a second home or investment property). I have seen a few people miss the rate they really wanted because there was not enough time to get the loan underwritten, an appraisal completed, and all the loan conditions met.
With rates where they’ve been since July, so many people have been taking advantage. This leads to longer turn times because there are more people in line for home loans. The key to capitalizing on the opportunity is to be in position to get the rate you want. If your file has been underwritten and all you are waiting for is an appraisal, we can lock your loan, get your appraisal completed and then deal with any conditions that need to be met, like updating your income and asset information.
Want to learn more about how the Fed Rate Cuts impact you? You can read more here
Your Weekly Review Begins Here
The major stock market indexes ended higher, setting new all-time highs. Mortgage Bonds were also higher for the week, surviving an action-packed news week and stronger than anticipated Jobs Report.
The Bureau of Labor Statistics (BLS) reported that there were 128,000 jobs created in the month of October, which higher than the 90,000 expected. Additionally, there were, 95,000 in positive revisions to the previous two months – August was revised higher by 51,000 and September was revised higher by 44,000.
The Unemployment Rate ticked up from 3.5% to 3.6%. Let’s look at why – There are two different surveys within the Jobs Report – The Business Survey, where the headline jobs figure is derived from, and the Household Survey, from where the Unemployment Rate is derived. The Household Survey also has a job creation component, which said that there were 241,000 job creations. But there is another component that goes into the Unemployment rate – The labor force increased by 325,000, and since the job creation component was smaller than the gains in the labor force, the unemployment rate increased.
Average hourly earnings increased from 2.9% year over year to 3.0%. Average Weekly earnings, which is even more important, remained stable at 2.7% year over year.
In housing news, the Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that home prices were up 3.2% year over year in August. Even though appreciation has moderated, 3.2% is still a meaningful level for wealth creation. Remember – On a $300,000 home, a 3.2% gain in appreciation translates to $9,600 over the course of the year. Add to that what you paid down over that same time, realized in interest offset and that you could paint your walls any color you see fit and you can see why buying a home could improve your overall financial picture—minus the paint.
Pending Home Sales, which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales, were up 1.5% in September. This reading was stronger than expectations of a 0.7% gain and the second-best number in the last 12 months. The gains were broad based, with sales up in every region. Pending Home Sales are now up 3.9% annually, up from 2.5%. Housing data has been and remains very strong.
The advanced or first look at Q3 GDP showed that it dropped slightly from 2% to 1.9% but was stronger than expectations of 1.7%. Consumer Spending was up 2.9%, which was slightly stronger than the 2.6% expected.
The Mortgage Bankers Association reported their Mortgage Application data, showing that overall Mortgage Application volume was up 0.6%. Applications to purchase a home were up 2% for the week and are still up 10.0% from this time last year. Refinances were down 1.0%, but they are up 134% year over year. The Refinance share of mortgage activity decreased from 58.5% to 58.0%. ARM’s made up 5.2% of all applications. 12% of loans were FHA.
The average 30-year mortgage increased from 4.02% to 4.05% week over week, bringing rates about 105 bp or about 1.0% lower than this time last year. Remember that the rate the MBA cites typically has some fraction of points included.
The Fed cut rate by 0.25% for the third time this year. They removed the language that ‘The Fed will act as appropriate to sustain the expansion’ and replaced it with ‘Will assess the appropriate path of the Fed Funds Rate’. This means instead of certain future cuts; the Fed will be data dependent. The reasons for the cut were global developments and muted inflation. Powell also said that the 3 cuts this year were insurance cuts and he is not thinking about taking them back, which the markets really seemed to like.
Personal Income and Spending was released for the month of September, showing that incomes were up 0.3%, which was in-line with estimates. Spending was up 0.2%, which was also in-line with expectations.
The highly anticipated Personal Consumption Expenditures (PCE) Report, which is the Fed’s favored measure of inflation, showed that headline inflation dropped from 1.4% to 1.3%, which was lower than estimates of 1.4%.
The Core rate, which strips out food and energy prices and is the most important reading that we focus on, was reported at 1.7%, which was lower than August’s reading of 1.8%.
Economic Calendar – for the Week of October 28, 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|
|Nov 5||9:45||PMI Services Index||Oct||50.9|
|Nov 5||10:00||ISM Non Mfg||Oct||52.6|
|Nov 6||07:00||Mortgage Applications||11/1||NA||0.6%|
|Nov 6||1:00||10-Year Note Auction||NA||NA||NA|
|Nov 7||08:30||Initial Jobless Claims||11/2||218k|
|Nov 7||1:00||30-Year Bond Auction||NA||NA||NA|
Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond
Mortgage Bonds ended the week higher, breaking above the 100, 25, and 50-day Moving Averages. On Friday they moved lower after the strong Jobs Report but were able to remain just above the dual floor of support, formed by the 50 and 25-day Moving Averages. Bonds will try to remain above these levels but may have some difficulty with optimism that an initial trade deal with China may be signed in the next few weeks. As a result, Stocks will likely rally. Keep a close eye to make sure support holds for Bonds, otherwise rates could move a bit higher.