Housing

Housing Momentum Continues

Thursday, December 31st, 2020

Investors reacted this week to major economic data, Covid headlines, and negotiations in Congress for an additional aid package. Despite the wide range of news, however, it was a relatively quiet week for mortgage markets, and rates remained near record low levels.

While the solid rebound from unprecedented job losses caused by the partial shutdown of the economy has continued, the latest data released on Friday fell short of expectations. In November, the economy gained 245,000 jobs, below the consensus forecast of 450,000. Strength was seen in transportation, professional services, and health care. The economy has now recovered more than half of the 22 million jobs lost in March and April.

The other major areas of the report contained more optimistic news. From a level of 6.9% last month, the unemployment rate fell to 6.7%, matching expectations. Average hourly earnings, an indicator of wage growth, rose 0.3% from October, above the consensus for an increase of 0.1%, and were an impressive 4.4% higher than a year ago.

Another significant economic report released this week, the national manufacturing index from the Institute of Supply Management (ISM), was in line with expectations. In November, ISM came in at 57.5, the sixth straight month of readings above 50, meaning that the sector is expanding. Since many consumers are spending less money on travel and leisure activities due to the pandemic, they are buying more goods, which has boosted manufacturing activity.

Looking ahead, investors will continue watching Covid case counts, progress on vaccines, and negotiations for additional government stimulus. Beyond that, the Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The next European Central Bank meeting also will take place on Thursday.

Weekly Change
10yr Treasuryrose0.01
Dowrose300
NASDAQrose100
Calendar
Tue1/5ISM Manufacturing
Thu1/7ISM Services
Fri1/8Employment

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Housing Sector Shines

Wednesday, October 28th, 2020

Increased expectations for additional government stimulus were modestly negative for mortgage markets this week, while strong housing data had little impact. Rates ended a little higher but remained near record low levels.

The spectacular rebound in the housing sector from weakness during the spring due to the partial shutdown of the economy has continued. In September, Existing Home Sales increased 9% from August and were 21% higher than a year ago, at the best level since May 2006. The median existing-home price was 15% higher than a year ago.

Inventory levels were down 19% from a year ago and remained the primary obstacle to even stronger sales activity. The number of homes for sale was at just a 2.7-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. However, Tuesday’s report on housing starts contained encouraging news in this area. In September, single-family housing starts rose 9% from August and were 22% higher than a year ago. Similarly, single-family building permits, a leading indicator of future construction, were 24% higher than a year ago.

Lawmakers continue to negotiate an additional government aid package, and most investors expect a deal either before or shortly after the election. Increased fiscal stimulus would be unfavorable for mortgage rates for two primary reasons. First, government spending boosts economic activity, which raises the outlook for future inflation. In addition, the supply of bonds increases to fund the spending, so yields must rise to entice investors to purchase more bonds.

Investors will remain focused on medical advances to fight the coronavirus and negotiations for additional government stimulus measures. Beyond that, New Home Sales will be released on Monday. Third quarter gross domestic product (GDP), the broadest measure of economic activity, will come out on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday.

Weekly Change
10yr Treasuryrose0.10
Dowfell300
NASDAQfell200
Calendar
Mon10/26New Home Sales
Thu10/29GDP
Fri10/30Core PCE

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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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Focus on Trade Talks – May 2019 Edition

Monday, May 13th, 2019

The two main influences on mortgage rates this week, a lack of progress in the trade talks and weak inflation data, both were modestly positive for mortgage rates. As a result, rates ended a little lower.

Last week, senior administration officials suggested that a trade deal between the U.S. and China could be close, so investors were caught off guard on Tuesday when President Trump threatened to increase tariffs on Chinese goods. Trump also said that a good deal was a higher priority than a quick deal. Some analysts feel that this is an attempt by the Trump administration to apply pressure on China to speed up the negotiations, but investors are worried that Chinese officials will not back down and that an agreement may not be reached any time soon. Since trade restrictions such as tariffs slow global economic activity, which reduces the outlook for future inflation, the lack of progress was positive for mortgage rates.

The latest news on current inflation also was good for rates. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services, and it increased less than expected in April. Core CPI, which excludes the volatile food and energy components, was just 2.1% higher than a year ago. Despite solid economic growth, Core CPI has held steady close to this level for over a year.

Looking ahead, 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 is a key indicator of growth. Industrial Production, another important indicator of economic growth, also will come out on Wednesday. Housing Starts will be released on Thursday. Investors also will be watching for news about the trade negotiations between the U.S. and China.

Weekly Change
10yr Treasury fell 0.08
Dow fell 900
NASDAQ fell 400

 

Calendar
Wed 5/15 Retail Sales
Wed 5/15 Industrial Production
Thu 5/16 Housing Starts

 

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GDP Jumps – April 2019 Edition

Monday, April 29th, 2019

The big news this week was Friday’s GDP report, and it was favorable for mortgage rates. As a result, rates ended a little lower, ahead of several major economic releases next week.

While the headline figure for first quarter GDP, the broadest measure of economic growth, was much stronger than expected, mortgage rates declined after its release. This was due to the details of the report. First quarter GDP increased 3.2%, which was far above the consensus forecast of 2.3%, and was up from 2.2% growth during the fourth quarter. This was the best reading for Q1 since 2015, and it took place despite an estimated 0.3% loss in growth resulting from the government shutdown.

However, a closer look revealed a couple of factors which were much more positive for mortgage rates. First, the broad measure of inflation contained in the report was much lower than expected during the first quarter. In addition, the surprising strength was seen in inventories and exports, which are volatile from quarter to quarter and thus are viewed by investors as less informative. The “core” components such as consumer spending and business investment, which better reflect the underlying trend in the economy, showed slower growth than during the previous quarter, and the housing sector again was weak.

The other news from the housing sector released this week was mixed. In March, sales of previously owned (existing) homes were weaker than expected and 5% lower than a year ago. On the other hand, sales of new homes surprised to the upside and were at the highest level since November 2016. Since new home sales represent signed contracts, while existing home sales are based on actual closings, the new home sales report is a more forward-looking indicator of housing market activity.

Looking ahead, it will be a packed week. The next Fed meeting will take place on Wednesday. No change in rates is expected, and investors will be looking for guidance about future monetary policy. The monthly Employment report will be released on Friday. As usual, 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 core PCE price index, the inflation indicator favored by the Fed, will be released on Monday. The ISM national manufacturing index will come out on Wednesday and the ISM national services index on Friday.

Weekly Change
10yr Treasury fell 0.06
Dow fell 100
NASDAQ rose 100
Calendar
Mon 4/29 Core PCE
Wed 5/1 Fed Meeting
Fri 5/3 Employment

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Steady Inflation – March 2019 Edition

Wednesday, April 3rd, 2019

It was a light week for economic news with few surprises, and mortgage rates ended nearly unchanged.

One big reason that mortgage rates have improved in recent weeks, and that the Fed has shifted toward looser monetary policy, is that inflation has held steady. Despite a very tight labor market by historical standards, wage growth has been moderate, and overall inflation levels in the economy have been constrained.

This trend continued in January, as the core PCE price index, the inflation indicator favored by the Fed, was just 1.8% higher than a year ago. The Fed’s stated target for annual core inflation is 2.0%, and core PCE has held in a narrow range at or just below this level for the past year.

The latest figures on home construction were not encouraging, although unusually bad weather influenced the results. In February, overall housing starts fell 9% from January, which was far below expectations. Single-family starts posted an even larger decline of 17% from January to the lowest level since May 2017. Permits to build single-family homes, a leading indicator, were roughly unchanged. Builders point to rising land, labor, and materials costs, as well as high regulatory standards, as obstacles to additional construction.

Looking ahead, the important monthly Employment report will be released on Friday. As usual, 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, Retail Sales will be released on Monday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. The ISM national manufacturing index will come out on Monday and the ISM national services index on Wednesday. In addition, news about the British exit (Brexit) from the European Union could affect mortgage rates.

Weekly Change
10yr Treasury fell 0.02
Dow rose 300
NASDAQ rose 75
Calendar
Mon 4/1 ISM Manufacturing
Mon 4/1 Retail Sales
Fri 4/5 Employment

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

Favorable ECB Meeting – March 2019 Edition

Tuesday, March 12th, 2019

A dovish message from the European Central Bank was favorable for mortgage rates this week, while the major U.S. economic data had little net impact, and rates ended the week lower.

In recent weeks, there have been substantial downgrades to the growth forecast for Europe from a wide range of sources. With this in mind heading into Thursday’s European Central Bank (ECB) meeting, investors were anticipating that the ECB would adopt a more dovish (in favor of looser monetary policy) stance. In fact, the ECB did shift in this direction, and even more than expected. First, it extended the minimum period for which it will not raise benchmark rates by several months to the end of 2019. In addition, it will provide a fresh batch of cheap long-term loans to banks to encourage more lending and thus help boost economic activity. The ECB also sharply reduced its own forecast for GDP growth in 2019 from 1.7% to 1.1%. This news caused global bond yields, including U.S. mortgage rates, to decline.

Friday’s Employment report offered a reminder that in an economy with about 150 million jobs, what may appear to be a large miss versus the expected levels still represents just a tiny fraction of the total pool of jobs. Against a consensus forecast of 175,000, the economy added just 20,000 jobs in February. Bad weather likely was one major factor behind the shortfall, as the Construction and Leisure & Hospitality sectors were particularly weak.

The unemployment rate declined from 4.0% to 3.8%, below the consensus of 3.9%. This was mainly due to workers returning after the end of the government shutdown. Wage growth was stronger than expected in February, with average hourly earnings 3.4% higher than a year ago, up from 3.2% the prior month, and at the highest level since April 2009.

Another closely watched economic report released this week clearly beat to the upside. The services sector accounts for more than 85% of U.S. economic activity, and the ISM national services index unexpectedly jumped to 59.7, which was well above the consensus of 57.0. Readings above 50.0 indicate an expansion in the sector, and readings above 60.0 have been extremely rare since record keeping for this index began in 2008.

Looking ahead, Retail Sales will be released on Monday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. The Consumer Price Index (CPI) will come out on Tuesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Durable Orders, an important indicator of economic activity, will be released on Wednesday. In addition, Treasury auctions on Tuesday and Wednesday could influence mortgage rates. Investors also will be watching for signs of progress in the trade talks between the U.S. and China.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.

Weekly Change
10yr Treasury fell 0.10
Dow fell 700
NASDAQ fell 200
Calendar
Mon 3/11 Retail Sales
Tue 3/12 CPI
Wed 3/13 Durable Orders

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

Retail Sales Dive – February 2019 Edition

Monday, February 18th, 2019

Weaker than expected retail sales data was offset by progress on a government funding agreement this week, and mortgage rates ended nearly unchanged.

Consumer spending accounts for about 70% of all economic activity in the U.S., so the retail sales data is a key indicator of growth. The report for the important holiday shopping period was delayed by the government shutdown, but it finally was released on Thursday, and it was very disappointing. Since weaker growth reduces the outlook for future inflation, the data was positive news for mortgage rates.

In December, retail fells fell a massive 1.2% from November, far below the consensus for a small increase, and the largest monthly drop since September 2009. This was especially surprising since they have increased an average of about 0.4% per month since 2009. However, retail sales tend to be volatile month to month, and information from other sources such as the major credit card companies suggested that stronger spending took place around the holidays.

The most recent major inflation data came in very close to the expected levels and had little impact on mortgage rates. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. Investors generally prefer to look at core CPI, which excludes the volatile food and energy components, to get a better sense of the underlying trend. In January, core CPI was 2.2% higher than a year, and it has held steady close to this annual rate of increase for many months.

Uncertainty generally causes investors to shift from riskier assets such as stocks to safer ones such as bonds, including mortgage-backed securities (MBS). As a result, the recent difficulties in reaching a government funding agreement have increased the demand for MBS, which has been positive for mortgage rates. This week, however, the effect was reversed as the two parties in Congress put forth a last-minute compromise bill to avert another government shutdown, and it was signed by President Trump.

Looking ahead, it’s going to be a very light week for economic data. The minutes from the January 30 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. Durable Orders, an important indicator of economic activity, and Existing Home Sales will be released on Thursday. Mortgage markets will be closed on Monday in observance of Presidents Day.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.

Weekly Change

10yr Treasury

rose

0.03

Dow

rose

600

NASDAQ

rose

150

Calendar

Wed

2/20

Fed Minutes

Thu

2/21

Durable Orders

Thu

2/21

Existing Home Sales

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Quiet Week February 2019 Edition

Tuesday, February 12th, 2019

Sandwiched between recent major economic events and several more later in the month, there was little significant economic news this week, and mortgage rates ended slightly lower.

Investors were mostly focused on bigger picture economic conditions this week, and their primary questions concerned the outlook for global growth. While the forecast for U.S. gross domestic product (GDP) growth in 2019 has held relatively steady around 2.5%, many other regions have been downgraded recently, particularly in Europe. This week, the primary governing body for the European Union (EU) reduced its forecast for 2019 GDP growth in the EU from 1.9% to 1.3%. Germany was cut from 1.8% to 1.1% and the UK from 1.7% to 1.2%.

Two geopolitical issues also will remain on the radar of investors in coming weeks. First, the trade negotiations between the U.S. and China appear to be progressing very slowly. U.S. tariffs are set to be increased again on March 1 if no deal is reached, and the latest report from the Wall Street Journal says that the two sides are “far from an agreement.” Second, the British exit from the EU (Brexit) is scheduled to occur on March 31. The terms of the departure have not yet been decided, and a high level of uncertainty remains about what the effects will be after the deadline.

The most significant economic report released this week was the national services index from the Institute of Supply Management (ISM). The index declined to 56.7, slightly below the consensus of 57.0, and there was little reaction to the data. Readings above 50 indicate an expansion in the sector.

Looking ahead, the JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Fed officials value this data to help round out their view of the strength of the labor market. 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 is scheduled to be released on Thursday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.

Weekly Change
10yr Treasury
fell
0.05
Dow
fell
100
NASDAQ
fell
25
Calendar
Tue
2/12
JOLTS
Wed
2/13
CPI
Thu
2/14
Retail Sales

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Fed and Labor Market – February 2019 Edition

Wednesday, February 6th, 2019

Major economic events made this a volatile week. Wednesday’s Fed meeting was strongly positive for mortgage rates, while Friday’s Employment report was modestly negative. The net result was a decline in rates for the week.

As expected, the Fed held the federal funds rate steady, but the tone of its statement was more dovish (in favor of looser monetary policy) than expected. In particular, the Fed now will be “patient” in deciding if additional rate hikes are needed. At their last meeting in December, officials clearly believed that more rate hikes would be appropriate, but on Wednesday the Fed said that “the case for raising rates has weakened.” These comments caused investors to sharply reduce their outlook for rate hikes in 2019.

Another significant change noted in the statement is that the Fed will reconsider the size of the reduction in its massive bond portfolio, suggesting that it may sell fewer Treasuries and mortgage-backed securities (MBS) than expected. A smaller supply of MBS would increase their value, which would be good for mortgage rates.

At first glance, the headline figure for Friday’s Employment report made it look like January was another blowout with job gains above 300,000 for a second consecutive month. However, nearly everything that followed in the remainder of the report brought the results back toward the anticipated levels. Throw in distortions from the government shutdown, weather effects, and revisions, and in the end, investors viewed the data as just a little stronger than expected.

Against a consensus forecast of 160,000, the economy added a massive 304,000 jobs in January. However, downward revisions subtracted 70,000 jobs from the results for prior months. Strength was seen in the leisure/hospitality and construction sectors, partly due to unusually warm weather in many regions early in the month. The unemployment rate unexpectedly increased from 3.9% to 4.0%, but this was primarily due to the effects of the government shutdown. Average hourly earnings, an indicator of wage growth, fell short of expectations with just a slight increase from December. They were 3.2% higher than a year ago, roughly the same annual rate seen over the last few months. Despite the shortfall in wage growth, the overall strength of the report raised the outlook for future inflation, which was negative for mortgage rates.

Looking ahead, it will be a light week for economic data. Of note, the ISM national services index will come out on Tuesday. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the impacted data will be ready to be released.

Weekly Change
10yr Treasury fell 0.07
Dow rose 400
NASDAQ rose 150
Calendar
Mon 2/4 Factory Orders
Tue 2/5 ISM Services
Wed 2/6 10yr Auction

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.