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New Home Sales Surge

Monday, August 31st, 2020

It was a volatile week for mortgage rates with stronger than expected housing data, big news from the Fed, and a postponement of the new fee on refinances. The net effect was roughly offsetting, however, and rates ended the week little changed.
The swift rebound in housing market activity from the weakness due to the shutdown of much of the economy to slow the spread of the coronavirus has continued. Like last week’s surprisingly strong existing home sales report, Tuesday’s new home sales data far surpassed expectations. In July, new home sales rose 14% from June to the best level since 2006 and were 36% higher than a year ago.
In a highly anticipated speech on Thursday, Fed Chair Powell outlined a change in policy in which the Fed will be more willing to tolerate higher inflation to help support the labor market. The new policy is described as “average inflation targeting,” which means that inflation will be allowed to run above the Fed’s 2.0% goal “for some time” following periods when it has run below that target. As a result of the change, it is expected that the Fed will raise the federal funds rate at a slower pace than in the past when labor market conditions improve. Although this was a major announcement, it had been telegraphed to investors for weeks, so its impact on mortgage rates was minimal.
One reason for the shift in Fed policy is that the reduced economic activity resulting from the pandemic has caused a decline in inflation, which has helped keep mortgage rates low. In July, the core PCE price index was just 1.3% higher than a year ago, up from an annual rate of increase of 1.1% last month. Core PCE is the inflation indicator favored by the Fed.
On August 12, the Federal Housing Finance Agency (FHFA) unexpectedly announced that a new refinance fee of 0.5% will be assessed for cash-out andno-cash-out refinances sold to Fannie Mae and Freddie Mac beginning September 1. After severe opposition swiftly emerged from many members ofthe mortgage industry, the FHFA announced on Wednesday that the implementation date for the new 0.5% fee will be postponed from September 1 to December 1 and that refinance loans with loan balances below $125,000will be exempted. This was welcome news for consumers in the market for refinancing.
Looking ahead, investors will continue watching for news about medical advances, government stimulus programs, Fed monetary policy changes, andplans for reopening the economy. Beyond that, the monthly Employment report will come out on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. In addition, the ISM national manufacturing index will be released on Tuesday and the ISM national services index on Thursday.

Weekly Change
10yr Treasuryrose0.10
Dowrose600
NASDAQrose400
Calendar
Tue9/1ISM Manufacturing
Thu9/3ISM Services
Fri9/4Employment

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Massive Job Gains Continue

Tuesday, August 11th, 2020

This week’s important economic reports modestly surpassed
investor expectations, and the economic recovery has continued to be
faster than anticipated. Despite the strong data, though, mortgage
rates dropped slightly to fresh record low levels.Friday’s highly anticipated monthly labor market report revealed that the stronger than expected rebound from the unprecedented job losses caused by the partial shutdown of the economy has continued. In July, the economy added a massive 1.8 million jobs, which was above the consensus forecast for an increase of 1.5 million. For perspective, typical monthly readings were for job gains of around 200,000 in 2019.The data from other areas of the report was similarly
encouraging. The unemployment rate dropped sharply from 11.1% to 10.2%,
which was better than the consensus forecast of 10.5%. Average hourly
earnings, an indicator of wage growth, unexpectedly rose in July and
were 4.8% higher than a year ago. According to the Labor Department,
the greatest strength was seen in hospitality, government, retail,
business services, and health care.Two other major economic reports released this week also
exceeded expectations. The ISM national services index rose to 58.1,
which was well above the consensus forecast of 55.0, and was the
highest level since February 2019. Similarly, the ISM national
manufacturing index increased to 54.2, the highest level since March
2019. Readings above 50 indicate an expansion in the sector.Looking ahead, investors will continue watching for news
about medical advances, government stimulus programs, Fed monetary
policy changes, and plans for reopening the economy. Beyond that, the
Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely
followed monthly inflation report that looks at the price change for
goods and services. Retail Sales will be released on Friday. Since
consumer spending accounts for about 70% of all economic activity in
the US, the retail sales data is a key indicator of growth.All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Weekly Change
10yr Treasuryfell0.01
Dowrose800
NASDAQrose300
Calendar
Wed8/12CPI
Thu8/13Import Prices
Fri8/14Retail Sales

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Consumer Spending Surges Again-July 2020

Sunday, July 19th, 2020

While the most significant economic data was stronger than expected this week, investors remained more focused on the concerning spread of the coronavirus in many areas. Mortgage rates dropped slightly to fresh record low levels.

Due to the shutdown of much of the economy to combat the pandemic, consumer spending dropped sharply in March and April. A swift rebound has been taking place, however, as the latest results again far exceeded expectations. In June, retail sales jumped 7.5% from May, and strength was seen in a wide range of areas. Since consumer spending accounts for about 70% of all economic activity in the US, the retail sales data is a key indicator of current financial conditions.

The housing market also has been recovering more quickly than expected. In June, housing starts surged 17% from May, while building permits, a leading indicator of future construction, rose modestly from May. The NAHB housing index showed that home builder confidence shot up from 58 to 72, which was far above the consensus forecast. Several large home building companies have commented that they are hiring back workers and restoring disrupted supply chains for materials as quickly as possible to help meet the unexpectedly large demand for homes. Since a lack of inventory has been holding back home sales in many regions, this news was very encouraging.

Thursday’s European Central Bank (ECB) meeting revealed no policy changes or significant surprises. ECB officials expect rates to remain at their “present or lower” levels until they see the outlook for inflation rise to their target level of 2.0%, and they project that European economic growth will decline by 8% to 10% this year.

Looking ahead, investors will continue watching for news about medical advances, Fed actions, government fiscal stimulus programs, and plans for reopening the economy. Beyond that, the housing data will be the focus during a light week for economic data. Existing Home Sales will be released on Wednesday and New Home Sales on Friday.

Weekly Change
10yr Treasury fell 0.02
Dow rose 600
NASDAQ fell 200
Calendar
Wed 7/22 Existing Home Sales
Thu 7/23 Jobless Claims
Fri 7/24 New Home Sales

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Improving Housing Market – June 2020 Edition

Monday, June 29th, 2020

The housing and inflation data released this week contained no major surprises, and investors were mostly focused on the concerning increase in the spread of the coronarvirus in several states. It was a quiet week for mortgage markets, and rates ended slightly lower.

While the housing market data released this week was mixed, it clearly supported the case that a faster than expected recovery in the sector is taking place. First, the bad news was that existing home sales in May were weaker than expected with a decline of 10% from April and were 12% lower than a year ago.

The existing home sales report confirmed that housing market activity dropped sharply in March and April due to the shutdown of much of the economy. Existing home sales measure closings, and this was the period when buyers would be signing contracts for homes which would close in May.

The encouraging news was that the data which reflects more recent activity was much better. In May, new home sales, which are based on contracts signed during the month, unexpectedly surged 17% from April and were significantly higher than a year ago.

In addition, both Freddie Mac and the Mortgage Bankers Association reported that average rates for 30-year fixed-rate mortgages remained near record low levels this week. In addition, the MBA revealed that applications to purchase a home were a solid 18% higher than a year ago at this time, and refinance applications were a stunning 76% higher.

The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has helped keep mortgage rates low. In May, the core PCE price index was just 1.0% higher than a year ago, which was the same annual rate of increase as last month. Core PCE is the indicator favored by the Fed, and officials have stated that their target level for annual inflation is 2.0%.

Looking ahead, investors will continue to watch for news about medical advances, government stimulus programs, Fed monetary actions, and plans for reopening the economy. In addition, the monthly Employment report will be released on Thursday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will be released on Wednesday. Mortgage markets will be closed on Friday in observance of July 4.

Weekly Change
10yr Treasury fell 0.03
Dow fell 600
NASDAQ fell 150
Calendar
Tue 6/30 Consumer Confidence
Wed 7/1 ISM Manufacturing
Thu 7/2 Employment

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Fed Helps Bonds – June 2020 Edition

Tuesday, June 16th, 2020

While it was a volatile week for stocks, the mortgage market remained relatively calm. Wednesday’s Fed meeting contained favorable news for bonds, and mortgage rates ended the week lower.

Since the middle of March, the Fed has bought over $2 trillion in Treasuries and mortgage-backed securities (MBS) to help support the economy and to maintain market stability, but it has been slowly reducing the quantity of its purchases each week. Wednesday, the Fed announced that going forward it will buy bonds “at least at the current pace,” signaling an end to the gradual reductions. This unexpected increase in future demand for MBS from the Fed helped push mortgage rates lower.

In addition, the Fed held the federal funds rate close to zero and projected that there will be no rate increases through at least 2022. Fed officials forecasted that the economy will shrink 6.5% in 2020 but will then grow by 5.0% in 2021 as it bounces back from the effects of efforts to fight the pandemic. Fed Chair Powell repeated the message that the Fed will use all of its tools for as long as needed to support the economic recovery.

One reason that Fed officials are comfortable with maintaining loose monetary policy is that the reduced economic activity resulting from the pandemic has caused a sharp decline in inflation. In May, the core CPI price index, which excludes the volatile food and energy components, was just 1.2% higher than a year ago, down from an annual rate of increase of 2.4% in February. Tame inflation has helped keep mortgage rates low.

Looking ahead, investors will continue to watch for news about medical advances, government stimulus programs, Fed monetary actions, and plans for reopening the economy. Beyond that, Retail Sales will be released on Tuesday. Since consumer spending accounts for about 70% of all economic activity in the US, the retail sales data is a key indicator of financial conditions. Housing Starts will come out on Wednesday.

Weekly Change
10yr Treasury fell 0.20
Dow fell 1,500
NASDAQ fell 200
Calendar
Tue 6/16 Retail Sales
Wed 6/17 Housing Starts
Thu 6/18 Jobless Claims

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Inflation Drops – May 2020 Edition

Monday, June 1st, 2020

While the stock market posted nice gains this week, mortgage markets were relatively quiet. Daily volatility remained low, and the change in rates for the week again was small.

One consequence of the reduced economic activity resulting from the pandemic has been a decline in inflation, which has helped keep mortgage rates low. In April, the core PCE price index, the indicator favored by the Fed, was just 1.0% higher than a year ago, down from an annual rate of increase of 1.7% last month. Fed officials have stated that their target level for annual inflation is 2.0%.

While the housing data released this week again confirmed that April was a terrible month for sales activity, it also contained some interesting results that hinted at pent up demand which could provide a lift in coming months. For example, April pending home sales, which measure contracts signed for previously owned homes, plunged 22% from March and were 34% lower than a year ago. By contrast, contracts signed for sales of new homes in April unexpectedly rose slightly from March and were just 6% lower than a year ago. While buyers and sellers often were hesitant about tours of existing homes during the pandemic, the greater availability of contactless visits offered by new homes appears to have made a big difference. In addition, the Mortgage Bankers Association (MBA) reported that mortgage applications to purchase a home have increased for six straight weeks and are up more than 50% from their April lows.

Looking ahead, investors will continue to watch for news about medical advances, Fed actions, government stimulus programs, and plans for reopening the economy. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. In addition, the ISM national manufacturing index will be released on Monday and the ISM national services index on Wednesday.

Weekly Change
10yr Treasury flat 0.00
Dow rose 800
NASDAQ rose 50
Calendar
Mon 6/1 ISM Manufacturing
Wed 6/3 ISM Services
Fri 6/5 Employment

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Housing Activity Slowed – May 2020 Edition

Thursday, May 28th, 2020

The housing data released this week confirmed that the anticipated massive decline in activity in April took place. However, there also were several encouraging signs that a substantial rebound already has begun. Daily volatility in mortgage markets remained low, and the change in rates for the week again was small.

In April, existing home sales fell 18% from March to the lowest level since September 2011 and were 17% lower than a year ago. Total inventory of existing homes available for sale was 20% lower than a year ago, while the median existing-home price was 7% higher. Housing starts in April declined by a record 30% from March to the lowest level since February 2015. Similarly, building permits fell 21% from March to the worst level since January 2015.

While the results for April were as bad as expected, the indicators which reflect more current data contained more positive news. The May sentiment index of builder confidence from the National Association of Home Builders (NAHB) rose to 37 from 30 last month. In addition, the Mortgage Bankers Association (MBA) reported that mortgage applications to purchase a home have increased for five straight weeks. At their lows, purchase applications had been down around 35% on an annual basis, but they are now at nearly the same level as they were one year ago.

To provide relief for those hurt by the pandemic, the government initiated the forbearance program in late March to allow people to postpone making their mortgage payments. The program did not address some important questions, however, including how to qualify borrowers with loans that are in or had been in forbearance. On Tuesday, the FHFA, the regulator of Fannie Mae and Freddie Mac, provided some additional clarity. It announced that borrowers in the forbearance program and those who have left it may now refinance or purchase a home with a new mortgage. The main condition to qualify is that the borrower must have made at least the last three consecutive months of payments, while previous guidelines required being current on their mortgage for at least a year, or have repaid the full amount of any payments missed.

Looking ahead, the coronavirus will remain the main focus. Investors will continue to watch for news about medical advances, Fed actions, government stimulus programs, and plans for reopening the economy. Beyond that, New Home Sales will be released on Tuesday and Durable Orders on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will come out on Friday. Mortgage markets will be closed on Monday in observance of Memorial Day.

Weekly Change
10yr Treasury flat 0.00
Dow rose 700
NASDAQ rose 250
Calendar
Tue 5/26 New Home Sales
Thu 5/28 Durable Orders
Fri 5/29 Core PCE

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Consumer Spending Slows – April 2020 Edition

Tuesday, April 21st, 2020

The coronavirus continued to be the focus for investors. This week’s data on consumer spending and housing starts reflected the anticipated decline in economic activity. Daily volatility in mortgage markets remained low, and the change in rates for the week again was small.

Thursday night, President Trump unveiled broad guidelines for a path to relaxing the restrictions which have been in place to limit the spread of the coronavirus. This process would occur over three “phases” as necessary conditions are met. It will be up to governors to decide when each state is ready to implement the steps.

Since consumer spending accounts for about 70% of all economic activity in the U.S., Wednesday’s retail sales data provided another key indication of the negative impact of the outbreak. Following a decline of 0.4% last month, Retail Sales in March sunk 8.7% from February, which was relatively close to expectations. While strength was seen in select areas such as grocery stores and pharmacies, consumers broadly cut back purchases overall.

In March, housing starts dropped 22% from February, which was a little more than expected. Building permits, a leading indicator of future construction, fell 7% from February. Despite the losses in March, though, both starts and permits were at higher levels than a year ago.

Also reflecting the impact of the coronavirus, China reported that its first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, contracted by 6.8%. This followed an increase of 6.0% in the fourth quarter and was the first decline on record. The report on US first quarter GDP growth will be released on April 29.

Looking ahead, the coronavirus will remain the main focus. Investors will be watching for news about additional Fed actions, government fiscal stimulus programs, and the reopening of the economy. For economic data, Existing Home Sales will be released on Tuesday and New Home Sales on Thursday. Durable Orders and Consumer Sentiment will come out on Friday.

Weekly Change
10yr Treasury fell 0.10
Dow rose 200
NASDAQ rose 400
Calendar
Tue 4/21 Existing Home Sales
Thu 4/23 New Home Sales
Fri 4/24 Durable Orders

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Fed Expands Lending Programs – April 2020 Edition

Friday, April 10th, 2020

The coronavirus continued to be the focus for investors this week. The biggest economic news was Thursday’s release of the details of the Fed’s plans to provide additional assistance to businesses and local governments. The stock market posted some welcome gains, with the Dow index adding over 2,500 points. For mortgage markets, daily volatility was significantly lower, and the net change in rates was relatively small.

On Thursday, the Fed announced a series of new actions to make available another $2.3 trillion of financing to businesses and local governments. The first massive $2 trillion fiscal stimulus relief package mostly targeted individuals and small businesses. This latest round of measures expands the amount of aid available to midsize companies and municipalities. In his press conference following the announcement, Chair Powell said that the Fed will act “forcefully, proactively, and aggressively” to do everything it can to “provide as much relief and stability” as possible during the crisis.

Thursday’s report on Consumer Sentiment showed a record one-month decline from 89 to 71, which was a little lower than expected and the weakest level since 2011. The sentiment index, which is based on a survey of consumers about their outlook for future economic conditions, noted greatly increased concerns about job security and income in coming months.

Filings for new Jobless Claims dropped from 6.9 million last week to 6.6 million this week, above the consensus forecast of 5.0 million. Typical readings before the outbreak were around 250,000. The US has lost 16 million workers, more than 10% of its workforce, over the past three weeks.

Looking ahead, the coronavirus will remain the main focus. Investors will be watching for news about additional Fed actions or government fiscal stimulus programs. Retail Sales will be released on Wednesday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data will provide another key indication of the negative impact of the outbreak. Housing Starts will come out on Thursday. Mortgage markets will be closed tomorrow in observance of Good Friday.

Weekly Change
10yr Treasury rose 0.10
Dow rose 2,700
NASDAQ rose 800
Calendar
Wed 4/15 Retail Sales
Wed 4/15 Industrial Prod.
Thu 4/16 Housing Starts

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More Monetary and Fiscal Stimulus – March 2020 Edition

Tuesday, March 31st, 2020

Once again, the coronavirus dominated financial market news this week. Both the Fed and the government are taking unprecedented actions to support the economy. Daily volatility remained extremely high, but the net change in mortgage rates for the week was relatively small.

On Monday, the Fed announced that it will purchase bonds “in the amounts needed” to support the economy and the smooth operation of financial markets. In short, this means that there is no limit to the size of the Fed’s purchasing power. Since agency mortgage-backed securities (MBS) are on the list of types of bonds that it will buy, this was positive news for mortgage rates.

As of Friday morning, the Senate had passed a massive $2 trillion fiscal stimulus relief package and a vote in the House is expected soon. This will provide some much needed relief to individuals and businesses, especially in the hardest hit areas. The supply of Treasuries issued by the government will increase to fund the spending, though, so this was negative for mortgage rates, roughly offsetting the news from the Fed.

The latest report showed that core inflation has been holding steady below the Fed’s target rate of 2.0%, and slowing economic activity due to the epidemic is expected to cause further declines. In February, the core PCE price index, which excludes the volatile food and energy components, was just 1.8% higher than a year ago.

Looking ahead, the coronavirus will remain the main focus. Investors will be watching for news about additional Fed actions or government fiscal stimulus programs. The major economic data is expected to reflect the negative impact of the epidemic to a greater degree. The monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month.

Weekly Change
10yr Treasury fell 0.10
Dow rose 2,500
NASDAQ rose 700
Calendar
Tue 3/31 Consumer Confidence
Thu4/2 ISM Manufacturing
Fri4/3 Employment

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)