Existing Home Sales a mixed bag, mortgage rates slightly worse to start the week

Owning your home is still one of the best ways to achieve wealth and as Plato once said “Wealth is known to be a great comforter.”  Happy Birthday to Plato who would have turned 1,592 years old today and he lived forever.

Mortgage Rates

We shifted to a locking bias last week and that proved to be the correct call.  Although mortgage note rates are mostly unchanged the pricing has worsened meaning the accompanying closing costs are modestly worse.

Home Sales

Earlier today the National Association of Realtors released the monthly existing home sales report.  It showed that the number of homes sold during April actually contracted by nationwide.  However, on the west coast the number of existing home sales actually accelerated by 1.8% from March.

Coincidentally, the average number of days on market contracted from 36 days down to 24.  There is no question that the housing market is less frantic than it was a couple years ago but demand remains strong.

The Week Ahead

This week’s economic calendar is relatively light.  On Wednesday we’ll get the minutes from the most recent Federal Reserve monetary policy meeting but no fireworks are expected.  On Thursday we’ll see numbers for new home sales.

Stock Market

In the absence of significant economic data I expect mortgage rates to take direction from the stock market.  If stocks rally then I expect home loan rates to worsen and vice versa.

Investors remain concerned over US-China trade talks and the ongoing Brexit saga.  Any signals that either of these story lines will resolve themselves sooner rather than later would be bad for mortgage rates.

Current Outlook: neutral

 

Mortgage rates trend lower, how long will this last?

If you feel the urge today is National Dance Like a Chicken Day.  Not sure where they come up with these but if the Blazers can win tonight in game one of the Western Conference Finals I will be dancing like a mother clucker!

Mortgage Rates

Mortgage rates continue to benefit from the trade dispute that is ongoing between the US and China.

Last week US stock indexes lost 2%-3% as investors braced for the economic fallout.  When stocks do poorly it tends to help mortgage rates improve.

Stocks are rebounding today which is placing upward pressure on home loan rates.

Loan Performance

CoreLogic released its monthly Loan Performance Insights report for February.  It showed that the number of mortgages in delinquency fell in every category relative to last year and are at 20-year lows.

This may influence lenders to accept more risk in their loan portfolios which means it may become easier for borrowers to borrow money and buy houses.

Technical Guidance

Financial markets tend to work in cycles and home loan rates are no different.

From late March to mid-April interest rates worsened.  Since then home loan rates have been on a winning streak for roughly the same duration.  I am concerned we may see rates reverse and cycle higher.

The Week Ahead

Looking ahead this week we’ll get retail sales on Wednesday, housing starts/ permits on Thursday, and consumer sentiment on Friday.  There are also a series of Fed speakers on the docket.

Current Outlook: locking bias

Home Loan Rates Stable, Home Prices increase at a decreasing rate

On this day in 1789 a crowd of 10,000 gathered outside the Federal Hall in New York City to witness George Washington being sworn is as the first president of the United States.

Washington’s salary as President was $25,000/ year which translates to $722,165 in 2019 dollars.  In comparison, President Trump’s annual salary is $400,000.  There is no data on how much income tax each President paid…..

Mortgage Rates

After increasing modestly last week home loan rates have stabilized and even improved very modestly this week.

The Federal Reserve

The Fed kicks off a regularly scheduled 2-day meeting today which will conclude tomorrow.  It is not expected that the Fed will make any changes to interest rates.

At this point US economic growth remains solid and inflation pressure is relatively muted.  However, the Fed’s post-meeting comments can move the markets so we’ll be listening.

Housing Market

The Case-Shiller Home Price Index was released earlier today.  The report showed that nationwide home price appreciation decelerated from February 2018 to February 2019.

For Portland, the report showed home prices increased by 2.9% from February 2018 to February 2019.  Home prices are still increasing.  However, they are increasing at a slower rate.

The National Association of Realtors released its monthly Pending Home Sales Index report earlier today.  Although the number of homes under contract is down from a year ago it did jump by 8.7% in the west during the month of March compared to February.

Stronger demand may show up next month when we get updated appreciation information.

The Week Ahead

The remainder of the week is busy in terms of economic news.  We’ll get the latest all-important jobs report this Friday.  Analysts are expecting +210,000 new jobs created for April.

We’ll also get the aforementioned Fed statement on Wednesday and other Fed speakers on Friday.

Current Outlook: floating bias

As stocks rally mortgage rates pressured higher

Think your life is busy?  Each year the IRS receives over 290 million tax returns which the IRS receives.  According to the IRS only .50% of all filed tax returns are audited.

The IRS also reports that over 9,000 tax returns are filed where the taxpayer makes more than $200,000/ year but pays $0 income tax.  Has the President released his tax returns yet?

Stock Market

Earnings season is underway and analysts expect in aggregate that corporations will report stable or declining profits compared to last year.

However, financial companies appear to be bucking that expectation.  Last Friday Chase Bank reported better than expected financial results and earlier today Bank of America did the same.

The US Stock market has now completely recovered the declines it incurred at the end of 2018 and the S&P 500 is only 35 points away from all-time highs.  If profits fail to grow and stock prices continue to rally it may reignite concern over valuations which I wrote about last summer (HERE).

Mortgage Rates

As stocks rallied last Friday it pushed mortgage rates up by ~.125%.  See why HERE.

10-year treasury note

The yield on the US 10-year treasury note is currently trading at 2.58% which just below an important technical layer of resistance.  If yields break above this level then I expect mortgage rates to increase an additional .125%.

The Week Ahead

The economic calendar is heavy on new residential construction this week.  Earlier today the Home Builders’ Index was released and showed greater optimism amongst home builders compared to last month.

On Friday we’ll see fresh numbers for building permits and new housing starts.

Current Outlook: locking bias

Mortgage Rates Hold Steady at Multi-Month Lows

In 1930 two men spent $70,000 to buy 365 acres from Fruitland Nurseries Inc. with the vision of building a new golf course.  They hired an architect from Scotland by the name of Alistair MacKenize and by 1933 the course was ready for play.

Fast forward to today and Augusta National Golf Club is one of the most exclusive golf courses in the world.  Starting on Thursday it will play host, as it does each April, to the Masters Tournament and the champion golfer will don the signature green jacket on Sunday afternoon.

Mortgage Rates

Home loan rates are holding steady from last week.  Similarly the yield on the US 10-year treasury note has been almost flat at ~2.5% since the beginning of April.

Jobs Report

Last Friday the Bureau of Labor Statistics released the monthly employment report. It showed that 196,000 jobs were created during March and the unemployment rate held steady at 3.8%.

For the financial markets the results were “Goldilocks” in that they were not too hot, which could have pressured rates higher, and not too cold which may have stoked fears of an economic slowdown.

Brexit

With the original Brexit date of March 29th come and gone EU leaders are meeting on Wednesday to decide if an extension will be granted.  Without an extension Britain will leave the EU on Friday without a trade deal.  Most analysts think an extension will be granted but for how long is not known.

Uncertainty from the Brexit proceedings have helped US interest rates remain low.  Any signals for a quick and orderly exist could pressure rates higher.

The Week Ahead

This week’s economic calendar heats up on Wednesday when the Consumer Price Index and minutes from the last Federal Reserve meeting are released. Recently mortgage rates have not reacted well to Fed meeting minutes.  Speaking of the Fed, Chairman Powell is schedule to give three speeches this week.  His comments can always influence the markets.

Current Outlook: floating

Mortgage rates remain at 9 month lows

Later tonight President Trump will deliver his State of the Union address to a joint session of Congress.  Generally the US president will use the address to communicate the state of the national budget, economy, and layout priorities for the coming year.

In other words, it’s a great night to binge watch “Friends from College” season 2.

Mortgage Rates

Interest rates remain at the best levels since April of last year.  Will they reverse course and move higher?  Or might they go even lower?

Technical Signals

The economic calendar is relatively light this week so I expect interest rates to react to technical trading patterns.

Currently, the yield on the US 10-year treasury note is trading up against its 3-month trailing trend line.  I will be watching to see if the yield can bounce lower off this level.  If so I expect home loan rates to improve.

If not, watch out as rates will likely increase by .125%-.25% in the coming week.

Home Prices

Core Logic released its monthly Home Price Index report earlier today.  It showed that on average home prices across the US increased by +4.6% from last year.  This confirms trends seen in similar housing data.

Home prices continue to increase but at a pace that is declining.  This is much like a car that is slowing.  Home prices continue to move ahead but at a slower speed than they have previously.  Home prices are not reversing and going backwards despite the media’s spin.

Outlook

I expect mortgage rates to react based on the aforementioned technical trading patterns.  What may make it difficult for mortgage rates to improve this week is that the US Treasury is scheduled to auction ~$84 billion in fresh bond supply.  Last year at this time the US government only had to auction ~$66 billion to funds its budget.

Read THIS LINK to learn how this can adversely impact home loan rates.

Current Outlook: cautiously floating

Uncertainty keeps mortgage rates at low levels

Think “fake news” is a new phenomenon?

Back in 1935 an organization called the Clark Foundation based in Cooperstown, NY publicized a false story claiming that US Civil War hero Abner Doubleday invented the game of baseball in that town 100 years earlier.

Despite the story being inaccurate it helped the organization raise money to build the baseball hall of fame which inducted its first members on this day in 1936.

Every year around this time baseball fans eagerly await the election results to see which former players will be inducted in that year’s class.

Brexit uncertainty

The financial markets are eagerly awaiting a vote in the British Parliament today which will set the stage for Brexit which is currently scheduled to take place on March 29th.

Britain still does not have an approved trade agreement with the European Union and if Brexit takes place in the absence of one it is likely Britain will fall into recession.

Many analysts are predicting Brexit will get delayed so an agreement can be reached but there is still much uncertainty.

…more uncertainty

Political uncertainty is not contained to Britain.  Here in the US we recently reopened the Federal government after the longest shutdown in history.  The threat of another shutdown looms three weeks away and it is not a clear that a longer funding bill will get passed in time.

Furthermore, US and Chinese trade negotiators continue to meet periodically but by all accounts are still far from a comprehensive trade deal.

Political and economic uncertainty helps US mortgage rates remain low.  Should these issues get resolved I would expect mortgage rates to move higher by .25%-.50%.

Home prices still rising

The Case-Shiller Home Price index report was issued earlier today and showed that home prices nationwide increased by 5.2% from a year earlier.  Here in Portland home prices only increased by 4.4% from last year.  Many in the media are painting a doomsday scenario.

However, for a customer who puts 5% down on a $400,000 home ($20,000) and sees their home value increase by 4% in the first year (+$16,000) that is better than they could expect from the stock market.

Outlook

Still to come this week is the Fed monetary policy decision (no rate hike expected) and the all-important jobs report due out on Friday.  For now we can continue to float but I am concerned rates may have hit a bottom at current levels.

 Current Outlook: floating

Mortgage Rates at multi-month lows but expected to rise during 2019

Happy New Year!  77% of US citizens set financial goals for their new year’s resolutions.  Did you?  Unfortunately only 1 in 5 are able to see their resolutions through February.

I hope 2019 brings you good health and prosperity!

Mortgage Rates

Interest rates start off the new year at the best levels since the spring of 2018.  Weakness in the stock market helped mortgage rates improve during the final two months of 2018.

Trend line

A look at the chart of the US 10-year treasury note, which mortgage rates tend to follow, shows that yields fell from 3.22% at the beginning of November to 2.55% on January 2nd.  During that time home loan rates improved by .50%.

Currently the US 10-year treasury note is at 2.70% which is right up against the two month trend line.

Near-term Outlook

Should yields bounce lower off this trend line then mortgage rates are likely to improve by another .125%-.25%.  However, if the yield closes above 2.70% then I expect rates to move higher.

Longer-term Outlook

Most Wall Street Analysts believe that yields will increase by .50%-1.00% during 2019.  Therefore, I think the best buying opportunities will exist in the initial three to four months of the New Year!

 Current Outlook: locking bias

Stock market weakness helps mortgage rates

Think Portland has grown?  According to Wikipedia there are currently 647,805 residents inside the city limits.  

Comparatively, there are 102 cities in China with a population of 1 million or more.  Shanghai is the largest with 22 million people. The US currently has 10 cities with a population of 1 million or more.  

US Stock Market

Concern over the health of the Chinese economy and stalled trade talks contributed to sharp losses in the US stock market last week.  In fact, last week’s slump marked the biggest one week decline since February.

Mortgage Rates

When stocks do poorly it encourages investors to sell equity holdings and reinvest the proceeds into the bond market.  That additional demand for bonds is what drives yields lower. As a result, home loan rates tend to benefit when stocks sell off.  

Although mortgage note rates have not declined they have at least stalled which is a win compared to the sharp increases we saw during the first week of October.

What’s next?

Should stocks continue to sell off I would expect home loan rates to improve modestly.  However, if stocks gain footing and recover last week’s losses then it will put further pressure on mortgage rates to move higher.

According to the Case-Shiller price-to-earnings ratio the US stock market us currently trading at 31 times annual earnings.  

Dating back over 100 years there have only been two times when this metric has been above 30, 1929 and 1999.  In my view US stocks are still expensive which leads me to believe that values will correct at some point in the future which should help US interest rates.

The tricky part is forecasting when.

Current Outlook: floating bias

What goes up……might come down?

If you are a believer in the proverb “what goes up must come down” then last week doesn’t hurt so bad.

Home Loan Rates

Mortgage rates suffered the biggest increase in one week since the presidential election in November 2016.  Interest rates rose by +.25% last week.

Affordability

It seems obvious that as the cost of borrowing increases affordability of homes worsens.  But how much? For every 1% increase to interest rates purchasing power decreases by 12% for homebuyers.  

Therefore, homes got 3% more expensive in five short days.

Wages

The good news and bad news is that average hourly wages are increasing in the US.  Over the past year American workers have seen their pay increase by 2.9%.  That is good news because it allows households to afford higher mortgage payments but bad news because it helps contribute to higher interest rates via wage-based inflation.

Why are rates rising?

One of the primary reasons why we’re seeing mortgage rates rise is because the Fed is no longer supporting them.  I explained this concept back in February (HERE).  For years the Fed had been purchasing mortgage-backed securities via quantitative easing.  Instead of stopping the support immediately they gradually tapered their activity.

As recently as September they had been reinvesting some of their capital into the mortgage-backed securities market.  Starting on October 1st that activity has ceased and as a result interest rates have risen in order to attract capital from other places.

The week ahead

The economic calendar is relatively light this week.  There are three Fed officials speaking today.  Tomorrow we’ll see the producer price index and on Thursday we’ll get the consumer price index.  Since mortgage rates increased so sharply last week I am going to recommend floating this week in the hopes that what goes up must come down.  

Current Outlook: floating bias