News/Blog

Improving Housing Market – June 2020 Edition

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

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

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

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

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

Consumer Spending Slows – April 2020 Edition

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

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

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

More Monetary and Fiscal Stimulus – March 2020 Edition

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)

Central Banks Actions Expand – March 2020 Edition

Once again, the coronavirus dominated financial market news this week and caused extraordinary daily movements. For the second straight week, mortgage rates rose roughly one-half percent, meaning that they are now about one percent above the record low levels reached earlier this month.

Mortgage rates have increased over the last couple of weeks for two main reasons. First, many investors simply want to hold large amounts of cash during this period of uncertainty, so they are selling nearly every type of asset including mortgage-backed securities (MBS). The situation for MBS is amplified by the large amount of new issuance due to the recent surge in mortgage activity. The Fed has stepped in as a massive buyer, but supply still has been exceeding demand lately. In addition to bond purchases, global central banks have announced many other special operations to help address temporary strains in financial markets.

The second reason that investors may be reluctant to buy bonds is that government fiscal stimulus relief programs under consideration may add trillions of dollars to the budget deficit. This which would be funded by increased issuance of Treasury securities, and a larger supply of bonds would push yields higher.

The recently released economic data continued to show that the housing market had been performing very well prior to the epidemic. In February, sales of existing homes exceeded expectations with an increase of 7% from January to the highest level since February 2007. National median existing-home prices were up 8% from a year ago. The number of homes for sale was at just a 3.1-month supply nationally and was 10% lower than a year ago.

Looking ahead, the coronavirus will remain the main focus for investors. Daily announcements of special operations from the Fed and other global central banks are likely to continue, and investors will be watching for news about government fiscal stimulus relief programs. The major economic data will begin to reflect the negative impact of the epidemic to a greater degree.

Weekly Change
10yr Treasury rose 0.05
Dow fell 3,000
NASDAQ fell 700
Calendar
Tue3/24 New Home Sales
Wed3/25 Durable Orders
Fri3/27 Core PCE

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

Historic Week – March 2020 Edition

Once again, the coronavirus dominated financial market news this week and caused nearly unprecedented daily movements. While stocks posted enormous losses, bonds lost some of their appeal as an alternative, and mortgage rates rose roughly one-half percent from recent record low levels.

Since the outbreak of the coronavirus, investors generally have reduced risk in their portfolios by selling stocks and buying bonds, including mortgage-backed securities (MBS). This added demand for MBS helped mortgage rates decline. The heavy selling in the stock market continued this week, but it appears that many investors are hesitant to purchase bonds at current low yields and are instead choosing to let assets remain in cash. Part of the reluctance to buy them is due to expectations for additional government fiscal stimulus (see below), which would be funded by increased issuance of Treasuries. A larger supply of bonds would push yields higher.

Economists widely agree that the appropriate response to help offset the economic effects of the coronavirus involves both fiscal stimulus from governments and monetary stimulus from central banks. While the proposed government action will take some time to implement, global central banks quickly added monetary stimulus this week. The US Fed expanded its bond purchase program and provided much-needed liquidity. The European Central Bank (ECB) held rates steady at Thursday’s meeting but provided additional lending programs to support troubled businesses.

The most significant economic report released this week indicated that core inflation has remained stable in recent months, as expected. The Consumer Price Index (CPI) is a widely followed monthly indicator that looks at the price change for goods and services. In February, core CPI, which excludes the volatile food and energy components, was 2.4% higher than a year ago, up from an annual rate of increase of 2.3% as last month.

Looking ahead, the coronavirus will remain the main focus for investors. The next Fed meeting will take place on Wednesday and investors expect a rate cut. The biggest economic report will be Retail Sales on Tuesday. In addition, news about the US elections could have an influence.

Weekly Change
10yr Treasury rose 0.10
Dow fell 4,000
NASDAQ fell 1,300
Calendar
Tue 3/17 Retail Sales
Wed 3/18 Fed Meeting
Fri 3/20 Existing Home Sales

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

Stocks Plunge on Virus Concerns – February 2020 Edition

Concerns about the coronavirus caused a massive shift to less risky assets this week, while the economic data caused little reaction. As a result, the stock market posted enormous losses, and mortgage rates reached the lowest levels in years.

The reason that the coronavirus has been positive for mortgage rates is pretty straightforward. People have scaled back a wide range of activities such as going to work and traveling, which has slowed global economic activity and reduced the outlook for future inflation. Since no one knows how much more the disease will spread, it is still extremely difficult to forecast the extent of its economic impact. In response to the uncertainty, investors have continued to reduce the level of risk in their portfolios, which has been favorable for relatively safer assets such as mortgage-backed securities (MBS).

The latest report on inflation revealed that it already was holding steady at low levels even before the emergence of the coronavirus. In January, the core PCE price index, which excludes the volatile food and energy components, was just 1.6% higher than a year ago. This is the inflation indicator favored by the Fed, and Fed officials have stated that they would like to see it rise to an annual rate of 2.0%. Low current inflation and the uncertain economic impact of the disease have significantly raised investor expectations for the Fed to cut rates as soon as the next meeting on March 18.

The housing sector was a rare source of good news this week. Helped by the substantial decline in mortgage rates, sales of new homes in January rose far more than expected to the highest level since 2007. Since new home sales measure contracts signed, they are viewed as the most current indicator of housing market activity.

Looking ahead, the coronavirus will remain the main focus for investors. 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. Before that, the ISM national manufacturing index will come out on Monday and the ISM national services index on Thursday. In addition, news about the US elections could have an influence.

Weekly Change
10yr Treasury fell 0.30
Dow fell 4,000
NASDAQ fell 1,200
Calendar
Mon 3/2 ISM Manufacturing
Thu 3/5 ISM Services
Fri 3/6 Employment

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