Good Friday AM,
No news or data today and Bonds are showing some support this morning. The 10-yr is still at 3.07% and maybe we found a bottom and get to start our climb back up. Potentially we could retrace half of what was lost or about 60bps. If so, that would also bring the 10-yr right back to that 3% pivot point. Not much on the calendar until next Wednesday when the FOMC will announce their rate decision (spoiler alert, .25% rate hike is a pretty solid expectation). Please don’t think of that as a date when mortgage rates will go up. The market has already and long ago adjusted for the September rate hike. Right now, we are looking forward to December and beyond. As for locking, well the real professionals are all saying to lock and I am sure they are right. I do see a chance for some improvement though. I would say to wait until the end of the day to make a call. If pricing has improved maybe wait until Monday. If pricing is flat at the close, I would likely agree to lock.
Pretty positive information from the Mortgage Bankers Association this morning. It shared that home purchase mortgage applications in recent weeks have started to increase again. We saw average year over year growth of around 4.5 percent from January to June 2018. Additionally, as a large swathe of the US population approaches home buying age, and as older home owners potentially look to move or downsize, we expect housing demand to continue to increase. This has been supported by a strong economy and hot job market, as we have seen signs of more significant wage growth, especially for prime age workers. Two main factors have held purchase activity back. First, there is a low inventory of homes for sale, impacted by slow growth in new housing starts and a low number of existing homes being listed for sale. Second, affordability challenges have emerged, caused by a combination of rapid home price growth (outpacing income growth) and increasing mortgage rates. Even with these impediments to more rapid growth in the purchase market, we expect home purchase originations to increase by around four percent (based on dollar volume) in 2018 and in 2019
Enjoy the weekend and first, make today great!
Bonds are getting a small bounce which will hopefully continue and give us some relief/retracement of up to 50bps in the next days. It is technical in nature as the tea leaves are pointing to higher rates though the end of the year, but this is also a bit misleading as the market is currently showing a record amount of short sellers in Treasuries, and those are artificially pushing prices down and rates up. When those trades unwind, I am hopeful we will not only see the rebound, but also have a glimpse into what our direction will be. The news this morning was mixed with the biggest surprise being the Philly FED index which beat expectations by a large margin. When I feel down about bonds, the chart below is a great pick me up. It gives a view to where rates have been over the last 30 years and how low rates are today. Really worth taking a look.. There is nothing to guarantee we will stay in between the yellow lines forever, but we have been there for 30 years. There is pressure for rates to increase, that is for sure, however, spikes like we are seeing are an exception and typically smooth out quickly. It is a tough call right now, but if you haven’t locked, I am suggesting maybe waiting it out today/tomorrow to see how the dust settles is a reasonable play. In any case, good idea to stay alert.
Make today great!
Good Morning on This Yom Kippur Wednesday,
If you are fasting, I hope you have an easy and meaningful fast. We have about 10 more hours before the book is sealed.
Over the summer I complained about bonds being stagnant, boy in retrospect, was that foolish. We haven’t been stagnant in September, that’s for sure. The 10-yr is up 25bps and mortgage bond prices are off 100 bps in 3 weeks (really 2 weeks). If there is an end in sight (which of course there is), I can’t see it. We have not been this low (prices not rates) in recent years, so I don’t even have a chart to show where the next line of support is. Maybe support will be at 3.13% on the 10-yr (the previous high)… if so, we are at 3.08% now so we could be there soon. Today housing starts beat expectations, but permits dropped. This is not good, as it is a sign that builders plan on building less homes in the future. Tariffs don’t seem to be a concern despite the cost of everything going up (this will lead to higher inflation). The Fed is going to raise rates next week and likely again in December. Stocks continue to make new highs based on last week’s CPI, unemployment and GDP data. With the recent move up in rates, the inverted yield curve becomes a bit less concerning. That’s the positive takeaway and where I’m leaving it.
One of the more concerning statistics I have read in a long time… 29% of households have less than $1,000 saved in any type of account.
Make today great!
Good Tuesday A.M.,
Still waiting for that bounce, it doesn’t look like it is going to be today. Despite lots of new tariffs on both sides of the Pacific, we continue to struggle to breakout of the downward trend. Instead of seeing he tariffs as an impediment to growth, traders are seeing it as a call to action that will lead to increased prices and pressure inflation The 10-yr is at 3.04% and I have to admit I’m a little scared. Mortgage bonds are off another 20bps this a.m. which brings us to 80 or so this month. That’s a sizable move and we are now in a trading channel that could take the 10=yr to 3.11% and beyond. We need a bounce soon or we risk falling below support. This morning the only scheduled news release was NAHB, and it slightly beat expectations, but held flat from August.
Here is some interesting demographics:
- From Experian.. Only 39 percent of millennials without a home loan have a prime or better score, and the majority are facing higher delinquency rates on personal loans.
- According to Fannie Mae, a mere 24% of Americans feel that now is a good time to buy a house. Looking back to 2013, when 54% of consumers were confident about the housing market, it feels as if a lot has changed in a small amount of time.
Make today great!
Good Monday A.M.,
This week is a bit lighter as it relates to data. We will have some housing info later this week but for the most part, markets will be left to their own devices. Mr. Trump talking about increasing tariffs on China (maybe as early as today) and then China will retaliate with the same. Concern over currency contagion seems to be muted, so any flight to safety assets (bonds, we hope) is more like a stroll or a meander than a flight. The Fed is going to raise short term rates next week and the question will be, what happens next? The Fed is also scheduled to ratchet back their bond purchases in October which (and the ECB will be doing the same) does leave a cloud looming overhead that the lessening demand will push rates even higher. The 10-yr is at 2.99% this a.m. (mortgage bonds making are doing serious work, huge comeback being +2bps) . It is very important we stay below 3.01% on the 10-yr note. A close over 3.01% quickly turns to 3.11% (no I’m not doing a Copperfield illusion, just trying to read the tea leaves) and that pushes rates up another .125%. The positive spin is that we are due for a bounce… as in life, it is just about timing.
Make today great!