Good Monday AM,

MBS is doing OK on the day but down from Friday. This makes sense as we hit major resistance on Friday. We have already tested and failed at this level this morning. This is a sign that the next move will be to drift down and test the support (higher rates folks, see slide below). The ten-year is also down but holding the Fibonacci 50% retracement level. If it does not continue to hold, look for a test of the Fib 62% level which is another drop of 3 points in price and pushes the 10-yr to 1.70. This morning we learned that Factory orders came in just a bit better than expected. The big news comes on Friday, which is non-farm Payrolls. This is the biggest news of the month and while we have a few days between now and then, for right now, I would not recommend floating into it. The Fed has said tapering could begin in November. A strong jobs report assures that to happen.

Last, and this is important as last week inboxes were flooded with news of the “New Conventional loan limit of 625k”. This is factually incorrect (for the moment) but almost pragmatically indistinguishable. The insight is that the conforming loan limit is set by the Federal Housing Finance Agency (FHFA). Mortgages under that amount generally have the lowest effective rates, and in some cases are easier to qualify for. With prices appreciating rapidly in the past year, a big increase in the loan limit would be big news.  Prospective buyers would be able to widen their price range in many cases and homeowners whose loans exceed the previous loan limit might be able to refinance to a lower rate. Nothing in the conventional limit of $548,250 has changed yet! It will continue to be $548,250 until November 30th at the very earliest. Lenders, though, are pretty smart and the calculation for the maximum conventional loan amount is transparent. Lenders know when the new loan limit will be announced, and they know that it will almost certainly be higher than $625k.  Here’s why: Conforming loan limits are actually updated at the same time every year, immediately following the November release of FHFA’s House Price Index (HPI).  Specifically, the FHFA uses what they call the “expanded data HPI.”  Determining new loan limits is as simple as looking at the expanded HPI for Q3 2021 and comparing it to Q3 2020.Q3’s HPI number is scheduled to be released on November 30th.  Even if Q3 shows no improvement, prices have risen enough in the other 3 quarters to push the new loan limit over $618k.  But those are quarterly numbers, and FHFA actually releases monthly numbers that closely mirror the quarterly data.  Incidentally, the first month of Q3 was released this week, and it showed a gain of 1.4%–enough for the loan limit calculation to spit out $627,600 without any additional price appreciation in August or September.

So that’s that.

Please remain safe and healthy, make today great!