News/Blog

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

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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

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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

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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

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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

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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

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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)

Steady Fed Policy – January 2020 Edition

While there was a wide range of important economic news this week, there were no significant surprises. The major economic growth and inflation data came in right on target, and Wednesday’s Fed meeting was in line with expectations. Since it’s still too early to judge the extent of the effects of the coronavirus, a small shift to safer assets helped mortgage rates end near the lowest levels since 2016.

Investors were closely watching the news about the spread of the dangerous new coronavirus this week. For mortgage rates, the main question is how much global economic growth will slow due to decreased travel and other activities. There still is far too much uncertainty to forecast the outcome with a high degree of accuracy, however, so investors generally have continued to reduce the level of risk in their portfolios.

Gross domestic product (GDP), the broadest measure of economic activity, increased 2.1% during the fourth quarter, which was the same growth rate as the third quarter. Early estimates for the first quarter of this year are a little lower, partly due to an expected slowdown from the coronavirus.

The PCE price index, the inflation indicator favored by the Fed, revealed that core inflation was 1.6% higher than a year ago, which was the same annual rate of increase as last month.

As widely expected, the Fed held the federal funds rate steady and its statement released after the meeting was very similar to the prior one. In short, the message still is that Fed policy is unlikely to change any time soon, barring any major new developments to shift the economic outlook. When asked about the coronavirus, Fed Chair Powell reassured investors that officials are closely monitoring the situation but that it is too soon to forecast its ultimate economic impact.

Looking ahead, 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 be released on Monday. The ISM national services index also will come out on Friday. In addition, news about the coronavirus, the US elections, or the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.15
Dow fell 500
NASDAQ fell 100
Calendar
Mon 2/3 ISM Manufacturing
Fri 2/7 Employment
Fri 2/7 ISM Services

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Focus on New Virus – January 2020 Edition

The primary influence on mortgage rates this week came from a very unexpected source. Concerns about a new virus spreading in China had a positive impact on rates, while the reaction to the economic data was small. As a result, rates ended the week a little lower.

Last weekend, news stories emerged about the spread of the dangerous new coronavirus in China. As the number of reported cases increased, investors grew more concerned that global economic growth could slow due to decreased travel and export activity in the region. Since slower growth reduces future inflationary pressures, this was positive for mortgage rates.

The most significant economic data released this week came from the housing sector, and lower mortgage rates have helped boost sales activity. In December, sales of previously owned (existing) homes increased more than expected from November and were 11% higher than a year ago. National median existing-home prices were up 8% from a year ago.

A lack of inventory remained a headwind in many regions, as the number of homes for sale fell to just a 3.0-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. Inventory is now at the lowest levels since tracking began in 1982.

Thursday’s European Central Bank (ECB) meeting was in line with investor expectations and had little impact on US mortgage rates. As expected, European benchmark rates were held steady. The ECB announced that it will launch the first strategic review of its policy objectives and tools since 2003.

Looking ahead, New Home Sales will be released on Monday. The next Fed meeting will take place on Wednesday. Investors expect that there will be little change in the Fed’s guidance about future policy, but any surprises could affect mortgage rates. First-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. In addition, news about the coronavirus, the US elections, or the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.10
Dow fell 200
NASDAQ rose 25
Calendar
Mon 1/27 New Home Sales
Wed 1/29 Fed Meeting
Thu 1/30 GDP

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