Even prior to 8:30 AM EDT data, the 10-yr. note yield had increased to 2.26% +4 bps from yesterday’s close. The North Koreans announced they now are not going to target Guam, and the belligerent rhetoric was softened a bit. It was expected that cooling would back the two sides away from those rash comments that flooded markets last week; what purpose to start a war that will likely kill 2 million people and bring the world to the brink of catastrophe? Stock indexes rallied, following through from yesterday on the relaxing of tensions.
Then came 8:30 with three key data points--the most important July retail sales. Sales boomed: expected up 0.3%, sales doubled that at 0.6%. Excluding auto sales, expectations were for an increase of 0.3%; sales ex-autos increased 0.5%. A huge increase in sales in July reviving the view that the consumer isn’t dead yet. Not only double the forecasts, but revisions to June from -0.2% to +0.3%; May revised to unchanged from -0.1%. The upward revisions to June and May will be positives for second-quarter GDP revisions.
8:30 added the August NY Empire State manufacturing index. Expected unchanged from July at 9.8, the index leaped to 25.2. New orders in August, at 20.6 equaled March this year and before that all the way back in April 2010. The 6-month outlook, at 45.2, is up more than 10 points in the month and back at its expansion highs. Employment up slightly to 6.2 and unfilled orders -4.7. Like retail sales, this was a strong number even if it is a narrow geographical sample and is highly subject to wild swings.
Finally, at 8:30; July import and export prices. Import prices thought to be +0.2% up 0.1%; export prices also expected up 0.2% were up 0.4%. Yr./yr. import prices +1.5% unchanged from June, yr./yr. export prices +0.8% up from +0.6% in June. Crude caused the increase in oil: export prices increased on increased agriculture prices.
By 9:00 am, the 10-yr. at 2.28% +6 bps and FNMA 3.5 30 yr. coupon -17 bps on the day.
At 10:00 the August NAHB housing market index increased to 68 from 64 in July, the forecast was for 65. The June business inventories increased 0.5%, slightly better than 0.4% expected.
Not a good start so far today; still, our technicals remain slightly positive, although weakening with the price declines today on better retail sales and the relaxing of geopolitical tensions. MBS prices are a little better at 10:10 than at 9:30: +5 bps. The stock indexes slipping back at 10:15 after trading strong in early morning futures trading.
PRICES @ 10:10 AM
10 yr note: -12/32 (37 bp) 2.26% -4 bp
5 yr note: -6/32 (18 bp) 1.81% +4 bp
2 Yr note: -1/32 (3 bp) 1.34% +2 bp
30 yr bond: -24/32 (75 bp) 2.85% +6 bp
Libor Rates: 1 mo 1.227%; 3 mo 1.314%; 6 mo 1.450%; 1 yr 1.717%
30 yr FNMA 3.5 Sept: @9:30 103.05 -16 bp (-16 bps from 9:30 yesterday)
15 yr FNMA 3.0: @9:30 102.96 -20 bp (-15 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 103.95 -14 bp (-10 bp from 9:30 yesterday)
Dollar/Yen: 110.63 +1.00 yen
Dollar/Euro: $1.1707 -$0.0070
Dollar Index: 94.01 +0.55
Gold: $1276.00 -$14.40
Crude Oil: $47.19 -$0.40
DJIA: 21,985.80 -7.91
NASDAQ: 6328.79 -11.44
S&P 500: 2464.08 -1.76
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.
New Construction Expected to Increase
The biggest issue with our housing market over the past two years is a huge shortage of available inventory with supply sitting well below 7 months at current sales paces. So, it is welcome news that construction rates of new home builds are projected to hit 1.4 million units on a yearly basis.
The LegalShield Housing Activity Index rose 3.9 points to 115.3 in July, driven by improvements in both the foreclosure and real estate components of the Law Index. The Housing Activity Index is up 1.8% for 2017 and is currently at its highest point since May 2006. Housing starts improved in June (as the Index has been signaling for several months) but remain below forecast levels, and year-over-year growth is essentially flat. The housing market continues to face significant headwinds, including higher prices for inputs (particularly lumber) and regional shortages of both skilled construction labor and land. However, the combination of existing home inventories near historic lows and nationwide housing prices now exceeding pre-recession levels should lead to increased housing activity. If the housing supply finally picks up to match current demand, construction investment should rise, and housing starts may climb to an annual rate of 1.4 million or more by the end of the year.
"The LegalShield Housing Activity Index has a strong record of closely tracking U.S. housing starts over the last 15 years – and the Index continues to suggest that housing starts should be stronger than they currently are," said James Rosseau, LegalShield's chief commercial officer. "The Index is consistent with the fact that U.S. consumers are employed – as underscored by a strong June employment report – with solid credit, manageable debt levels, and heightened confidence about the economy. These factors, combined with historically low home inventories, point to a revival in housing activity."
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market improved by +13bps. This may've been enough to slightly improve mortgage rates or fees. Mortgage rates showed relative low volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that bond traders will be paying the most attention to and have the greatest ability move mortgage rates. 1) Geopolitical, 2) Fed and 3) Domestic.
1) Geopolitical: While the headlines continue to stream this weekend's news out of VA. The bond market will focus on North Korea. MBS prices traded at very elevated levels last week in large part due to a flight to safety over the ever-escalating talk from both sides. If the rhetoric pulls back, then the flight to safety will pull back. Also on the radar is this week's NAFTA meeting between the U.S., Canada, and Mexico which starts Wednesday. The bond market is also very much concerned about the debt ceiling which is very quickly approaching this month and will be sensitive to any news on that front.
2) Fed: We will get the Minutes from their last FOMC meeting on Wednesday. We will be combing through the comments to see if there is any further direction on timing of them tapering their massive amount of purchases of Treasuries and MBS. We also hear from voting members Neel Kashkari and Robert Kaplan this week but we also heard from them last week and don't expect anything new out of them.
3) Domestic: Retail Sales will get the most focus this week. This has been very stubborn as of late as it not showing an increase in sales that correlates in any way with the consistent rise in wages. This is the only piece of economic data that has the gravitas to move the needle of mortgage rates. We also get some housing news with Weekly Mortgage Applications, Home Builder's Sentiment, Housing Permits and Building Starts. On the manufacturing side, we get regional reports from NY, Philly, and Hotlanta as well as Industrial Production and Cap Utilization.
China (number 2 economy): Their Retail Sales came in at 10.4% vs est of 10.8%.
Japan (number 3 economy): Their 2nd QTR GDP was red hot at 4.0% vs est of 2.5%.
This Week's Potential Volatility: Average
Mortgage rate volatility has the potential to spike depending on what happens with any of the three things above. Today we're looking for mortgage rates to move sideways with relatively low volatility.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Geopolitical tensions eased over the weekend. The Pentagon commenting there should be more discussions and less hardball talk; somewhat the same sentiment that was expressed in many comments over the weekend. Last week, there was a huge increase in fears, although markets were not that unsettled. This morning, prior to the 9:30 AM EDT open in the stock market, the indexes were pointing to a strong opening. Media relaxing. Last week the DJIA saw a minor pullback (-135 and NASDAQ -95), Those were inconsequential moves on a percentage basis.
The overriding news this morning in markets is the relaxing of the rhetoric from North Korea and the US. Tensions eased as the idea of a mass war finally is sinking in. There is little North Korea can gain, and the US isn’t about to make a move unless provoked by a military action from North Korea.
The dollar a little stronger this morning. Crude oil unchanged, gold down a little after increasing $32.00 last week on safe hedging against all the geopolitical chatter.
Our technicals remain positive in the near term. However, with less angst over North Korea and at these historic lows, continued economic improvement and stocks climbing, there is little reason to expect rates will decline. The one solid support keeping rates from rising much now is the lack of inflation; last week both PPI and CPI data were absent of any increase. The present price of the FNMA 3.5 30 yr. coupon is 103.20, support at 103.00; resistance at 103.50.
This Week’s Calendar:
PRICES @ 10:00 AM
10 yr note: -7/32 (22 bp) 2.22% +3 bp
5 yr note: -4/32 (12 bp) 1.77% +3 bp
2 Yr note: -1/32 (3 bp) 1.30% +1 bp
30 yr bond: -12/32 (37 bp) 2.80% +2 bp
Libor Rates: 1 mo 1.226%; 3 mo 1.315%; 6 mo 1.455%; 1 yr 1.724%
30 yr FNMA 3.5 Sept: @9:30 103.20 -9 bp (+1 bp from 9:30 Friday)
15 yr FNMA 3.0: @9:30 103.11 -12 bp ( +1 bp from 9:30 Friday)
30 yr GNMA 3.5: @9:30 104.06 +9 bp (+2 bp from 9:30 Friday)
Dollar/Yen: 109.67 +0.58 yen
Dollar/Euro: $1.1791 -$0.0031
Dollar Index: 93.36 +0.27
Gold: $1286.60 -$7.40
Crude Oil: $48.96 +$0.14
DJIA: 21,993.03 +134.71
NASDAQ: 6322.62 +66.07
S&P 500: 2462.69 +21.37
July CPI at 8:30 AM EDT this morning softer than expected and in line with the soft PPI yesterday. Overall CPI was thought to be +0.2% as reported up 0.1%; the core (ex-food and energy) expected +0.2%, also up just 0.1%. Yr./yr. CPI +1.7% from +1.8% in June; core yr./yr. +1.7% from +1.8% in June. Inflation isn’t increasing as the Fed, and many others have been betting on for months. Moderation in housing costs remains a major disinflationary force, increasing 0.1% higher for a yearly 2.8%, which is down 2 tenths from June. Wireless services continue to move lower, falling 0.3% on the month for a yearly decline of 13.3%. Auto prices down 0.5% from June. Apparel prices, which had been on a long negative streak, rose 0.3%, though the year-on-year rate remains negative at -0.4%.
The two inflation reports yesterday and this morning should keep the Fed on edge about beginning the tapering of its balance sheet that has been widely believed, and another increase in the Federal Funds rate in December is now in question. Yesterday in the Federal Funds futures markets, the trading was only a 33% chance of a Dec increase. It’s a long road though, between now and December, so we don’t want to put too much faith in that now.
On the release this morning, the 10-yr. note rate was unchanged from yesterday at 2.20%. Stock indexes after some selling yesterday were trading higher prior to the 9:30 open.
It's mid-August. Hearing a lot of talk that many believe it will be a quiet month ahead of the key Jackson Hole symposium at the end of the month. Usually, the conference of global central bankers gets news--what Yellen will say--but most of the focus should be on the ECB and what Draghi thinks about beginning to end the QEs and increasing the base rate, which is now negative, as is the base rate in Japan. On one side, there isn’t any inflation creep, and global economies have gained momentum; on the other side, central banks want to increase rates. Fed officials have made it clear they want to increase the Federal Funds rate, reasoning that inflation will increase and it would provide a cushion if a recession were to occur; the Fed would have the room to combat it by lowering again. The problem is, with no inflation and no evidence of wages increasing, the banks can’t move.
The economies of the world have gained momentum, but it isn’t likely to continue at the pace so far this year. The IMF, our own Fed, and now the Bank of England all have lowered GDP growth expectations from the optimistic outlooks a few months ago; not by much, but doesn’t imply a lot of enthusiasm, either.
US vs North Korea got stock markets churned up yesterday; the DJIA -204, NASDAQ -135. Not big moves from a percentage view, and there isn’t any follow-through this morning, with stock indexes opening higher and the 10-yr. note yield slipping back. Trading the VIX (volatility) increased it to 16.04, up from less than 10 earlier this week, this morning, volatility is lower, to 14.89. This morning, Trump increased his rhetoric against North Korea, but the general view being formed is that there won’t be any war unless North Korea makes a move. The consensus is developing that the rogue nation won’t act. The bond and stock markets this morning backing away from the fear that had increased recently.
At the end of trading yesterday, after 4:00 pm the 10-yr. yield increased 2 bps from 4:00 pm and MBS prices declined. Increased volatility now in financial markets. MBS prices declined to give up all the gains that existed at 4:00 pm. Our work is still bullish, but unless safety trades occur the road to lower rates will be bumpy.
10 yr note: -3/32 (9 bp) 2.21% +1 bp
5 yr note: +2/32 (6 bp) 1.76% -1 bp
2 Yr note: +1/32 (3 bp) 1.32% -1 bp
30 yr bond: -6/32 (18 bp) 2.80% +1 bp
Libor Rates: 1 mo 1.228%; 3 mo 1.309%; 6 mo 1.452%; 1 yr 1.728%
30 yr FNMA 3.5 : @9:30 103.20 -3 bp (-14 bps from 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.13 +3 bp (+2 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 103.89 -5 bp (-16 p from 9:30 yesterday)
Dollar/Yen: 109.10 -0.10 yen
Dollar/Euro: $1.1795 +$0.0026
Dollar Index: 93.37 -0.04
Gold: $1291.50 +$1.40
Crude Oil: $48.29 -$0.30
DJIA: 21,878.52 +34.51
NASDAQ: 6238.10 +21.23
S&P 500: 2441.75 +3.54
At 8:30 AM EDT this morning, July PPI was weaker than most estimates; expected to have increased 0.1%, it declined 0.1%; the core (ex-food and energy) was expected +0.2%; it was down 0.1%. Yr./yr. overall PPI +1.9%, yr./yr. core +1.8%, both yr./yr. Readings were lower than yr./yr. reported in June. PPI less food, energy, and trade services was expected +0.2%, as reported 0.0%. Yr./yr. +1.9% down from +2.0% in June. Wholesale prices reported adding additional evidence that inflation isn’t increasing. The initial reaction in the bond and mortgage markets pushed prices slightly higher: MBS prices 15 minutes after the 8:30 release had mortgage prices +8 bps from yesterday’s close and the 10-yr. note at 2.23% -1 bp from yesterday’s close.
Yesterday, an important technical day. The 10 traded at 2.23% in the morning, where key technical resistance resides. In the afternoon some pressure, as the stock market began recovering from morning lows pushed the 10 back to 2.24%, still down 4 bps on the day though. We stress the technicals because it is where the rubber meets the road. Regardless of the underlying fundamentals and news, it is how markets are moving that is key.
Also at 8:30 am EDT, weekly claims very stable, +3K to 244K and about where they were expected. The 4-week average at 241K, down from 242K last week.
Yesterday’s 10-yr. note auction was so-so; not strong enough to advance the decline in its rate and the yield edged up from the morning levels. The auction went off at 2.25%.
Tensions between North Korea and the US remain a focal point; lots of highly charged rhetoric flying back and forth. Global markets watching but not reacting much; no panic buying of safety in the bond market and so far, no big selling in equity markets, although the uncertainty is keeping safe trades in US treasuries and has momentarily stalled the global equity markets.
The price of gold continues to increase; global tensions adding to the moves to safe havens for some investors. No US or global inflation that usually pushes gold higher, it’s a safety move generated by the increasing concerns hanging over the N. Korea/US threat battles. More importantly, gold has met some major technical levels on the recent decline and now appears ready for more increases.
This afternoon at 1:00 pm EDT, Treasury will complete its quarterly refunding with $15B of new 30 yr. bonds.
Continuing near-term bullish bias, but finding resistance at 2.23% on the 10-yr. note with near term support at 2.32%. FNMA 3.5 coupon price resistance at 103.53, support at 103.04; tomorrow the coupon roll-over that will drop the current coupon price down 20 bps as markets move from August to September for the current coupon.
10 yr note: +4/32 (12 bp) 2.226% -1.5 bp
5 yr note: +4/32 (12 bp) 1.78% -2 bp
2 Yr note: +1/32 (3 bp) 1.33% -1 bp
30 yr bond: +12/32 (27 bp) 2.81% -2 bp
Libor Rates: 1 mo 1.228%; 3 mo 1.309%; 6 mo 1.452%; 1 yr 1.727&
30 yr FNMA 3.5 Aug: @9:30 103.36 +9 bp (-3 bp from 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.11 +7 bp (-1 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.03 +14 bp (-6 bp from 9:30 yesterday)
Dollar/Yen: 109.61 -0.45 yen
Dollar/Euro: $1.1748 -$0.0011
Dollar Index: 93.54 +0.04
Gold: $1290.00 +$10.70
Crude Oil: $49.66 +$0.10
DJIA: 21,949.85 -98.85
NASDAQ: 6299.92 -52.41
S&P 500: 2456.66 -17.36
At the end of the session yesterday, FNMA prices ended 5 bps better than at 9:30 yesterday morning.
Yesterday, not news now, but rhetoric increased between North Korea and President Trump. North Korea now has a missile that can carry a small nuke and claims it can now launch it into Guam, where the US long range bombers are stationed. Trump said ‘fire and fury’ would rain down on North Korea. All talk now, and the intensity of it suggests tensions are increasing, but it still seems highly unlikely either country is anywhere near action. Nevertheless, as we have noted, the tensions and the lack of any concerns presently about inflation increasing have underpinned the US bond market, thus supporting mortgage rates. For over three weeks, no real change in mortgage rates or the 10-yr. note. This morning, a nice price improvement and lower yield on the 10.
We believe that interest rates will continue to improve only if the stock indexes finally decline in a long-overdue technical correction and the North Korea uncertainty continues. The lack of inflation fears in the near term removes a major impediment for long term fixed rate assets. That said, there is an increasing belief among inflation hawks that inflation increases are close to beginning to increase. That view is founded on the belief that the global economic growth will continue. I don’t completely buy that at the moment; yes, Q2 earnings have been solid, but I don’t expect Q3 earnings in stocks in the US and globally will be able to match Q2’s strong performances.
Q2 preliminary productivity and unit labor costs were released this morning. Worker productivity up 0.9% with forecasts of 0.8%; Q1 productivity revised from 0.0% to +0.1%. Q2 unit labor costs +0.6% against estimates of +1.4%. Q1 labor costs revised from +2.2% to +5.4%; output in the first quarter was revised only slightly to 1.8%, unit labor costs were revised sharply higher, reflecting a sharp upward revision in compensation to a 5.5% rate. Still, when adjusted for inflation, compensation rose a less sharp 2.3%, with second-quarter real compensation at 1.9%. The key takeaway from the report, which also included revisions for the first quarter 2014 through the first quarter 2017, is that productivity continues to be weak, which is an impediment for an increased standard of living. In fact, with the revisions, it was shown that productivity decreased 0.1% in 2016. This is the first annual decrease since a 1.0% decrease in 1982. No inflation fears in this data.
Early this morning, weekly mortgage applications from MBA: better than last week’s decline. Overall, apps +3.0% from the prior week’s decline of 2.8%; purchase apps +1.0% and refinance apps +5.0%. Yr./yr. apps from the same week last year +7.0%. The wider perspective based on MBA is showing a strong year-on-year growth pace, and purchase applications point to a robust housing market. Supply still a significant drag, but mortgage rates are likely to remain low when scoped from a historical perspective.
At 10:00 am EDT, June wholesale inventories were expected to have increased 0.6% from +0.4% in May; as reported, inventories +0.7%. The stock-to-sales ratio is unchanged at a lean 1.29. If there is an imbalance, it's inventories of autos, which rose 1.4%, while sales fell 0.5%.
This afternoon, a key Treasury auction: $23B of new 10-yr. notes auctioned at 1:00 pm. With the 10-yr. note at very key resistance levels this morning (2.22%), the demand will be closely observed. US 10-yr. yields still a lot higher than other key sovereign debt (German 10 yr. bund 0.42%, France’s 10 yr. OAT 0.71%, UK 10 yr. gilt 1.09%). Yesterday’s 3-yr. auction was met with good demand.
Our techs still holding positive outlooks for the near term. The bellwether 10-yr. at its resistance level at 2.22% and has gapped lower from yesterday’s 2.28% level. Momentum oscillators remain modestly better. In the stock market, an increase in the VIX this morning at 12.29; it has held below 10 for weeks. Increased volatility in stock indexes well overdue. No concerns though so far; pundits, money managers and hedge funds still betting on higher stock prices and higher interest rates. Can’t argue too much, but remind that every major turn in markets is built on excessive optimism that a trend will continue. Also, a change in the direction of any market begins with near term technical analysis.
10 yr note: +11/32 (34 bp) 2.23% -5 bp
5 yr note: +5/32 (15 bp) 1.79% -3 bp
2 Yr note: +1/32 (3 bp) 1.34% -2 bp
30 yr bond: +26/32 (81 bp) 2.81% -4 bp
Libor Rates: 1 mo 1.230%; 3 mo 1.309%; 6 mo 1.452%; 1 yr 1.730%
30 yr FNMA 3.5 Aug: @9:30 103.38 +16 bp (+21 bp from 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.12 +8 bp (+14 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.09 +14 bp (+15 bp from 9:30 yesterday)
Dollar/Yen: 109.91 -0.40 yen
Dollar/Euro: $1.1714 -$0.0038
Dollar Index: 93.65 +0.24
Gold: $1276.80 +$14.20 (safe haven buying)
Crude Oil: $49.44 +$0.27
DJIA: 22,039.87 -45.47 (opened -68)
NASDAQ: 6328.66 -41.80
S&P 500: 2468.38 -6.54
Rate markets opened unchanged this morning but slipped back by 9:30. Stock indexes in pre-open trading down fractionally. The DJIA has been up for 10 straight sessions now (two weeks).
This morning, the National Federation of Independent Business (NFIB) released its June small business index. It was exceptionally strong: expectations were for the index to slip to 103.2 from 103.6 in May; the index jumped to 105.2. Significant gains in hiring activity pushed the reading to the highest level since February and just short of the 12-year high set in January. The solid increase surprised most analysts, surpassing not only the consensus forecast but the upper limit of the range of forecasts. It was strong consumer demand that gave a boost to the index, according to the NFIB, which noted that business owners are feeling better about the economy because customers are feeling better about it. Among the 10 components making up the index, 7 improved, 2 fell and 1 remained unchanged. Leading the gains was the employment front, with job openings rising 5 points to 35 while job creation plans rose 4 points to 19.
This afternoon, Treasury will auction $24B of 3 yr. notes to start the quarterly refunding; tomorrow, a new 10-yr. note $23B, the more important auction in terms of our interest in the long end of the curve.
CoreLogic out this morning commenting on the performance of loan delinquencies. Early stage delinquencies at 17-yr. lows on strong employment and increasing home prices account for delinquencies being down 0.8% from May 2016. Those positives clash with the lack of supply that holds home buyers at bay, particularly first-time buyers. The 30-days or more delinquency rate for May 2016 was 5.3 percent. CoreLogic points out that the tighter underwriting since the meltdown has obviously had an impact on delinquencies. In May 2017, 4.5 percent of mortgages were delinquent by at least 30 days or more including those in foreclosure.
Officials on the House and Senate tax committees are talking with the White House about a hybrid approach that would combine lasting tax code changes to deter offshore profit shifting by corporations with lower rates for a number of years, according to three people familiar with the discussions. (Bloomberg)
At 9:30 am EDT, the 10-yr. note rate at 2.27% +1 bp. MBS prices under pressure -6 bps from yesterday’s close and unchanged from 9:30 yesterday.
PRICES @ 9:30
10 yr note: -3/32 (9 bp) 2.26% +0.5 bp
5 yr note: -1/32 (3 bp) 1.82% +1 bp
2 Yr note: -1/32 (3 bp) 1.36% +1 bp
30 yr bond: -7/32 (22 bp) 2.85% +2 bp
Libor Rates: 1 mo 1.228%; 3 mo 1.311%; 6 mo 1.452%; 1 yr 1.732%
30 yr FNMA 3.5 Aug: @9:30 103.17 -6 bp (unch from 9:30 yesterday)
15 yr FNMA 3.0: @9:30 102.98 -2 bp (-1 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 103.94 -6 bp (-3 bp from 9:30 yesterday)
Dollar/Yen: 110.39 -0.26 yen
Dollar/Euro: $1.1812 +$0.0015
Dollar Index: 93.22 -0.11
Gold: $1267.30 +$2.60
Crude Oil: $49.11 -$0.28
DJIA: 22,086.60 -31.82
S&P 500: 2476.96 -3.95
Mortgage rates are trending sideways this morning. Last week the MBS market improved by -+22. This was may've been enough to improve mortgage rates or fees. Mortgage rates were volatile toward the end of the week.
Three Things: These are the three items that have the greatest ability to impact mortgage rates this week: 1 ) Fed, 2) Inflation and 3) Across the Pond.
1) Fed: We will hear from several key voting members this week. We will be paying close attention to the overall theme of the timing of starting their MBS taper this year.
2) Inflation: We get both PPI and CPI this week. The market is expecting PPI YOY to get back above 2.0%. However, that is not expected to flow through to Friday's CPI which is expected to hit 1.8%. The closer Friday's CPI data is to 2.0%, the worse it is for mortgage rates. The closer that reading is to 1.5%, the better it is for mortgage rates.
3) Across the Pond: We get some important economic data out of the world's second largest economy as we get China's Import and Export data as well as their PPI and CPI. We also get key data from Japan (number 3 economy), Germany (number 4) and Great Brittan (number 5).
Treasury Auctions This Week: (The 10 and 30 are not new auctions but reauctions of current debt).
Rounding Third: The bond market will also be paying close attention to Tuesday's OPEC meeting as well as geopolitical events. The United Nations voted 15-0 on Saturday to impose new and harsher sanctions on North Korea which will cripple its exports (and therefore the cash flow into the nation that would be presumably used for nuclear research). This has put concerns over a trade war between China and the U.S. at ease for the time being.
Mortgage rates are likely to be fairly stable through the first part of the week. However, we could see some volatility when we start getting inflation numbers on Wednesday and through the rest of the week.
Younger Americans More Likely to Rent:
With the national home ownership rate at 75.0%, younger Americans (35 and under) are far more likely to rent instead of making the leap into home ownership.
According to a new report compiled by Pew Research, the total number of households in the United States grew by 7.6 million between 2006 and 2016. But over the same period, the number of households headed by owners remained relatively flat.
Meanwhile, the number of households renting their home increased significantly during that span, as did the share, which rose from 31.2% of households in 2006 to 36.6% in 2016. The current renting level exceeds the recent high of 36.2% set in 1986 and 1988 and approaches the rate of 37.0% in 1965.
Young adults – those younger than 35 – continue to be the most likely of all age groups to rent. In 2016, 65% of households headed by people younger than 35 were renting, up from 57% in 2006. Rental rates have also risen notably among those ages 35 to 44. In 2016, about four-in-ten (41%) households headed by someone in this age range were renting, up from 31% in 2006.
Rental rates also went up among households headed by someone ages 45 to 64, rising from 22% of households in 2006 to 28% in 2016. But among the oldest Americans – those 65 or older – the rental rate remained steady at around 20%.
Even so, college graduates are the least likely group to be renters. In 2016, 29% of college-educated household heads were renters, compared with 38% of household heads with a high school degree only or some college experience and 52% of household heads who did not finish high school.
The increase in U.S. renters over the past decade does not necessarily mean that home ownership is undesirable to today’s renters. Indeed, in a 2016 Pew Research Center survey, 72% of renters said they would like to buy a house at some point.
About two-thirds of renters in the same survey (65%) said they currently rent as a result of circumstances, compared with 32% who said they rent as a matter of choice. When asked about the specific reasons why they rent, a majority of renters, especially nonwhites, cited financial reasons.
Mortgage rates are trending sideways this morning. Last week the MBS market improved by +45bps. This was enough to improve mortgage rates or fees. Last week volatility was relatively low.
Three Things: These are the three items that have the greatest ability to impact mortgage rates this week: 1) Fed, 2) Domestic and 3) Across the Pond.
1) Fed: Tuesday starts two days of Fed meetings that will culminate in a vote and the release of their interest rate decision and policy statement Wednesday at 2 pm PDT. The bond market is not even pricing a 50% chance that the Fed will raise rates again this year even though the Fed has communicated (via dot plot chart forecasts and speeches) that it will increase one more time this year. Regardless, the market does not expect it to do so at this meeting. The main reason (other than no inflation and slow growth) is that this is not one of their meetings where they have a live press conference afterward with Janet Yellen, and their economic forecasts will not be released at this meeting. So, with little chance of a rate hike, we are focused on learning more about the timing of the Fed starting to taper (purchase less) of MBS and Treasuries which they have said will start this year. Will they announce a start date at this meeting? That's what the markets want to know.
2) Domestic Flavor: We get a lot of housing news this week (Existing Home Sales, Case Shiller, Mortgage Applications and New Home Sales) but it will be Friday's first release of the 2nd QTR GDP that will carry the most weight for mortgage rates. The consensus estimates call for a very strong 2.8% growth rate. Generally, any reading above 2.5% is negative for long bonds but not in this case as the market is not convinced our economy can grow at a reasonable rate unless we get Tax and Regulatory reform.
3) Across the Pond: Monday's meeting between all the Oil Ministers will get a lot of attention. While no real action is expected, their recommendations that they issue for the next OPEC meeting will carry a lot of weight. As WTI Oil marches towards $50, it is negative for pricing (higher rates) as it is inflationary, if moves towards $40 then it is positive for pricing (lower rates) as it is deflationary. We also get key economic data from the world's largest economies such as Japan's Retail Sales, Unemployment Rate and Nikkei Manufacturing and Great Brittan's GDP.
Treasury Auctions This Week:
We're looking for mortgage rates to trade in a relatively tight range until Wednesday. The Fed releases their policy statement on Wednesday, and this could cause some mortgage rate volatility. Of course, the release of the 2nd quarter GDP on Friday could move markets as well.
Colorado Counties with Increases in Maximum Conforming Loan Limits for Fannie Mae and Freddie Mac:
County/State/Metropolitan Area/2016 Loan Limit/2017 Loan Limit (1 Unit)/Increase
Adams County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Arapahoe County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Boulder County CO BOULDER, CO $474,950 / $ 529,000 / $54,050
Broomfield County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Clear Creek County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Denver County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Douglas County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Elbert County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Gilpin County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500
Jefferson County CO DENVER-AURORA-LAKEWOOD, CO $458,850 / $ 493,350 / $34,500