CHM Blog

Daily Market Analysis

Many thought early this week that the prolonged flat spot in long-term rates would end the downtrend since November. The technical people -- chartists -- were right that the tension between downtrend and flat would break, but I don’t know anyone who thought it would break down this way.

Perhaps that’s why the break is so violent.

One piece at a time: the 10-year Treasury yield has crashed down to 2.30%. There’s a whole bunch of resistance in 2017 to hold 10s in the 2.20s or above, but there are issues in play for which market rules do not apply.

Signal: mortgages have not followed, which is the marker of overseas money buying Treasurys, not much caring for MBS. But the 10s move is so big that MBS is likely to catch up in the next days. In another overseas marker, German 10s have fallen to negative 0.117%, the lowest since 2016. A great deal of money all over the world is running for cover.

All of this began last night, the initial catalyst the tanking of the survey of Japan’s purchasing managers, back to contraction. However, the camel was already overloaded. Yesterday was a big day, reaction delayed.

Yesterday the Fed’s minutes of its May 1 meeting were “present, not voting.” Patient, sure, but non-responsive to trade tensions, insistent on transient low inflation, clutching the 2% inflation in the Dallas Trimmed Mean, and in twelve tight pages not a glimmer of adapting to a new world. If you’re the Fed and markets are priced for a cut, and you stonewall and then long-term yields stone-drop... that’s the whole fool world telling you that you’re wrong. More on that tomorrow.

More signals... one element pushing down on bond yields has been military risks in Iran and elsewhere. More than odd: gold never did move up. It’s up today in general market chaos, but still down fifteen bucks in May and sixty since February. And oil fell out of bed. Those moves say that a lot of money is worried more about economic slowdown than war.

The Dow is off $327 but not closed, certainly pushing down on bond yields.

Moments like this usually look uglier than they are. Today’s moves reflect anxiety far more than an actual slowdown.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 24th, 2019 9:25 AM
Daily Market Analysis

The 10-year is back to 2.39%, mortgages essentially unchanged for the last three weeks.

Today’s rate “drop” -- down by 0.035% -- began first thing this morning, entirely in place by the release of the Fed’s meeting minutes. The minutes themselves caused a real-time increase in 10s, back up by 0.005%.

I am of course making fun here, but the bond market knows that the Fed is lost, and knows that the Fed knows that it is lost. The global economy has passed it by, not the Fed’s fault. New clarity and Fed action will come but could take months to years.

So markets look elsewhere: the threats of conflict, the unknown effects of the trade war, and the administration making all of it harder.

To housing. Several in the financial media think that housing is soft, and that softness is a precursor to a recession. And the Fannie-haters are on the loose again -- and the issues are linked.

Here is an alternate universe. The real one.

1. Home values have compounded at a 6% annual pace going back at least to 2012, which does crowd out some would-be buyers. But the crowd-out is traditional, “drive until you qualify,” not a bubble in process.

2. That search for an affordable home is complicated, sales crimped by three things. First and most powerful is the most potent US migration since the post-war move to the sunbelt, and maybe more powerful than that. We are evacuating the countryside in favor of urban and near-urban living. As of 2014, 61% of US counties had more people moving out than moving in. Every metropolitan area is receiving enormous population pressure, and none has much land to build on: little supply, few sales, and rising prices.

3. Second, the migrants are the most talented people in the countryside, the ones able to leave, often IT-savvy or getting there. All job growth has been in urban areas since 2008. The countryside is boring, repellant to the typical IT sort who wants to walk to substantial evening entertainment. IT pays well, which makes them tough to compete with in the housing market. When some authority says that housing is soft because it is not affordable, ask “For whom?”

4. Third, back in action is the reliable crew which hates government and therefore Fannie, and says that housing is “an inefficient and excessive use of resources.” They say that Fannie is a risk to taxpayers. One new accusation: Fannie is making too many loans at risky debt-to-income ratios. In reality (often a tough subject), mortgage underwriting has become more stringent in recent history. As one result, mortgage delinquency last month reached the lowest level on record (2000). We approve loans at high ratios because credit is tough, not easy: it is commonplace to exclude one spouse or partner because newly-self-employed, or some other quirk in income; or to exclude one because a 739 Fico instead of 740 would hurt the rate available to the other borrower alone. Debt-to-income in closed files is not always what it seems!

Housing patterns have changed, leading to the same kind of mistaken analysis which afflicts the Fed. Housing... watch the short supply and cost of land, the incomes of the buyers, not the average, and the absence of any sign of mortgage distress.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 23rd, 2019 9:30 AM
Daily Market Analysis

Rates are moving, and inevitably upward. Partly a technical phenomenon, partly fundamental economics.

The technical: the dreaded “wedge.” The 10-year T-note (mortgages following as usual) has been in decline since last November but then flattened in the last three weeks. For a declining trend to remain intact, it must continue to decline. If that long-term trend line collides with a short-term flat spot, the two chart lines form an angle -- a wedge -- and something has to give.

In this case, two sets of fundamentals have stopped the downward trend: an absence of new bad news, and a unanimous chorus from the Fed: “We ain’t gonna cut our rate, no matter what your silly futures market says.” Boston’s influential Eric Rosengren has been the latest to speak, today.

Hunch: the up-move now underway won’t go far, but we should pull all bets on lower. We are looking up, from 2.39% Friday to 2.41% yesterday to 2.44% this morning. Two protections: technically there’s a ton of support in the 2.50s and even more in the 2.60s. And fundamentally there is no resolution to the worries which brought rates so low (Iran, China, slowing outside the US, and too-low inflation here), the worries are just not uglier.

Still ugly: it’s not good to hear Xi Jinping say overnight, “We are here at the starting point of the Long March to remember the time when the Red Army began its journey.” Far too much conflict has followed periods of blustering far out of proportion to the original cause, long forgotten when things get hot.

In headlines today, sales of existing homes fell 0.4% in April from March. Know who your friends are and are not: the housing-hating Wall Street Journal says, “Compared with a year earlier, sales in April declined 4.4%, the 14th straight month of annual declines.” Mathematically correct, but annualized April sales were 5,190,000. A year-over-year 4.4% decline... about 19,000 monthly, more accounting error than a trend.

Housing did not “continue to soften” (WSJ), nor in NAR’s Lawrence Yun’s inability to describe, “underperforming in relation to economic performance, with job creation and mortgage rates.” Housing is fine, just flattening after a splendid seven-year run. Our principal problem: not enough to sell -- hardly a sign of distress. And given a supply shortage, seven years of rising prices have crimped demand but with no characteristics of an end-of-cycle bubble.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 22nd, 2019 8:47 AM
Rates At a Glance
Mortgage Rates
Currently Trending
7 Day Mortgage
Rate Forecast
This Week's
Potential Volatility

Neutral

Neutral

Average
(by Sigma Research)
Realtor Report

Increased Chinese trade tariffs about to hit home

Builder confidence in the market for newly-built single-family homes remained unchanged in April at a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

Trade wars never happen without consequences to those down the line, and the latest increase in Chinese tariffs is hitting both homebuilders and remodelers where they live. Whatever project you have in mind, save a little more to get it done in 2019.

According to CNBC’s Diana Olick, from tile to countertops, laminates to lighting (about 450 types of items used in remodeling projects) worth approximately $10 billion a year in expenditures nationwide — are on the list that just went from 10% tariffs to 25%. The additional costs, therefore, rose from $1 billion to $2.5 billion, according to an analysis by the National Association of Home Builders (NAHB).

“The increase is on goods shipped starting last Friday, so the hikes will not hit U.S. shores likely until the start of June,” says Olick. “This buys negotiators a bit more time. Still, the tariffs are already hurting the remodeling business.” she quotes NAHB’s chief economist Robert Dietz: “NAHB’s forecast calls for slowing growth, given declining home price appreciation and existing home sales volume, combined with rising construction costs.”

Building experts are predicting that because the price of every project is going to go up, there would be no way remodelers could absorb those costs and survive. They estimate a 7-8% increase to the consumer no matter how they try to tweak it.

This comes as a double-whammy, with the homebuilding industry already struggling with a labor shortage. Nearly three out of four remodelers this year reported higher prices for customers due to higher costs for labor, according to a new survey from the NAHB.

“Higher costs for both materials and labor are causing some consumers to reconsider their renovations,” says Olick. “Case said the size of the average project went down dramatically last year, as consumers tried to cut the budget.” Increased tariffs in 2019 will only make it necessary to budget more before tackling your home remodeling dreams.

Source: CNBC, NAHB, TBWS

This Week's Mortgage Rate Summary

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 to slightly higher this morning.  Last week the MBS market improved by +20bps.  This may've been enough to move rates or fees slightly lower last week. We saw moderate rate volatility throughout the week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Fed, 2) Trade War and 3) Geopolitical.

1) Fed: We are fast approaching the June FOMC meeting, and the bond market will be focused intently on the collective message that this week's talking feds send out. We get the Minutes from the last FOMC meeting. We will also get the Minutes from the last ECB meeting and have a speech from ECB President Draghi. Here is the very packed schedule for the week:

  • 05/20 Raphael Bostic, Patrick Harker, Richard Clarida, Jerome Powell and the Chicago Fed's National Activity Index
  • 05/21 Raphael Bostic, Charles Evans and Eric Rosengren
  • 05/22 James Bullard and the Minutes from the last FOMC meeting
  • 05/23 Robert Kaplan, Tom Barkin, Raphael Bostic, Mary Daly and the Fed's Balance Sheet

2) Trade War: China says that it is in "no rush" to resume trade talks but has invited U.S. Treasury Secretary Mnuchin back to China. Meanwhile, on the Huawei front, Google's Alphabet has announced that it will cut off Huawei Mobile's access to most of its Android operating system offerings. Also, German chipmaker Infineon Technologies said it would suspend deliveries to Huawei.

3) Geopolitical: Tensions continue to escalate between the U.S. and Iran and will be closely watched. But it's Europe that may have a more immediate impact. The EU Parliament will start four days of elections on Thursday.

This Week's Potential Volatility: Average

The bond market will be paying close attention to the geopolitical events and the overall tone of the Fed speakers. We're not expecting rates to push out of the current tight range unless something unexpected happens geopolitically.

Bottom Line:

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.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 20th, 2019 11:10 AM
Daily Market Analysis

In an environment as rich with news as this, paralysis in markets is peculiar. The 10-year T-note this week traded between 2.41% and 2.38%, which of course meant mortgages rates stayed relatively unchanged.

To be unable to go lower makes sense, as 10s are in the center of the Fed’s range for the cost of money. That’s a hard bottom unless the Fed is going to cut or the economy faints. Another crucial level is 2.35%, touched in March and at the end of 2017 -- very tough to break, although if so a cascade following.

The harder question: why so low?

The stock-tariff panic began on May 1st, in Dow terms from 26,438 to bottom on Monday 1,100 points below, and has rebounded 300 since. A bad stock market interval will pull down the 10-year, but there’s been nothing bad about stocks this week.

Tensions with Iran are high, but the White House leaks make clear that the president does not want a war. North Korea is still dead silent. There is no follow-on to the flubbed coup in Venezuela. The top hawk in the administration looks lonesome (Bolton), and there are still adults around -- Gina Haspel at CIA, Dan Coats the Director National Intelligence, and the Joint Chiefs.

Which leaves economics, and the world is a big place. But there is very little negative news to hold down long-term interest rates. Smoldering all over the place: global trade seems to be contracting, Japan is still toast, Europe in irons... but no fire.

The Fed is entangled in its underwear, models busted with no replacement theory, and several officials speaking. Truly bright and able Lael Brainerd supported allowing inflation slip above 2% for a couple of years, but I don’t know a soul inside markets or out who cares. If you’re putting together next year’s business plan, say software sales or purchases, do you care if inflation is 1.9% or 2.4%?

A favorite at the Fed to needle is John Williams, NY Fed, old-model math guy whose fumbles may be trouble with communication, not thinking, but words have meaning. Williams is the king of the “neutral rate of interest,” shorthand r* spoken as “r-star.” Neutral is the linchpin of old theory, the Fed rate above inflation which neither stimulates nor slows the economy. Its two terminal flaws: there is no way to measure r*, and inflation measurement itself is in doubt.

Nevertheless, Williams this week in an opening paragraph: “Shifting demographic trends and a slowdown in productivity are driving slower trend growth and historically low levels of real interest rates across the globe.” Okay, not bad, but an entire speech without mentioning the effects of IT, so ably done by Dallas’ Kaplan last week? But Williams continued, “This experience of slow recovery and persistently low inflation is a symptom of a deeper problem afflicting advanced economies -- the root cause of which is a combination of low neutral interest rates and the lower bound on interest rates....”

Um, sir... the slowdown causes low rates or low rates cause the slowdown? Everybody in the bond market knows that the Fed is lost in the briar patch, and some of us have compassion because we are lost, too. But that still does not explain why long rates are low.

The last driver on the agenda: trade and tariffs. New leaks about the breakdown in China negotiations appear to confirm China backing away from a deal -- including the China markup of the last pre-agreement draft.

The high-probability scenario ahead: more friction between the US and China. Some may be justified, as blacklisting Huawei may be. All of the things which we would like China to do and not do will not improve. Tariffs will be dislocating, but supply chains are already shifting and adopting camouflage. The WTO works mostly as an honor system. Who is to know for sure the source of an export? Ask any CPA about the reliability of business audits: they are if the business is honest. A true forensic inquiry into trade and then adjudication takes forever.

Why buy long-term bonds and hold rates down? Two reasons. Trade will continue to fester by US action on multiple fronts with low odds for benefits.

Second, history says that a dominant power facing the inevitable rise of a competitor (or successor) would be wise constantly to consult and negotiate the transition, and to keep as friends as many other nations as possible. (“Rise and Fall of the Great Powers,” Kennedy 1989).

---------------------------------------------------

The US 10-year T-note in the last year. The downtrend since November is intact, but has entered a chart trap (a “wedge”). It sounds silly, but to continue down, it must continue down -- if it flattens out as in the last weeks for much longer, the gods of charts say the yield will go up.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 20th, 2019 8:44 AM
Daily Market Analysis

Bare bones today: the 10-year T-note today fell below 2.40% for the first time since March 27, but hardly dramatic, all the way to 2.38%. The last time the 10-year T-note was lower than today and the March 27 resistance: December 2017. It will take significant events to break lower quickly.

Media focus today is on the 0.2% drop in April retail sales, but that’s not a serious indicator, especially not after the 1.7% bulge in March. Treasury yields began to decline during the night on weak data from China. Be careful: China data is always suspect, if only because no one there is allowed to question government reports, and the US economy is okay.

Long Treasurys respond to all sorts of things, sometimes clear and sometimes not. The feel in this one... the 10-year since March 27 never above 2.57%... why the paralysis? Bracket this market: 10s can’t drop until a Fed cut is in prospect. Do NOT pay attention to the Fed funds futures market (you can make good money betting against it.). Instead watch the 2-year T-note, which has slipped just below the bottom of the Fed’s 2.25%-2.50% target range, but at 2.17% is not yet a forecast of a cut.

On the other side: 10s are pulled down by low inflation numbers, the Fed in denial, and Powell a good internal guy but off to a bumpy start as a spokesperson. 10s are down also because of tariffs and threats of war (Iran, DPRK, Venezuela), and German and Japanese bonds again below zero.

One last thing, in deadly dangerous political ground, and meaning no offense to any reader. At bond desks, all politicians are regarded with contempt and so seldom matter. But this time, the peculiar paralysis in Treasurys in a situation made for volatility... President Trump is driving markets with simple Tweets. Markets are supposed to make sense of events, but there is no sense here. Thus anxiety pulls down rates but with no clarity.

If 10s break below 2.35% there is nothing on charts to stop a deeper drop, but the Fed is in the way. Any outbreak of peace and good sense, and we could quickly begin to chase 3.00%. You’ll rarely see days more uncertain.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 16th, 2019 8:57 AM
Daily Market Analysis

Long term trade war with China? Not one knows, but at the moment it is unsettling equity markets. While it's not necessary to re-cap yesterday, everyone knows what happened in the US stock market. This morning, in early activity in the futures markets, the stock indexes are holding very minor improvements. At 8:00 am ET the 10-yr note yield remained unchanged from yesterday at 2.40%.

April NFIB small business optimism index is expected at 102.4 from 101.8 increased to 103.5. Overall all of the interior components improved. The report data collected was before the breakdown in trade talks so we can't put much significance to it.

April import and export prices at 8:30 am; import prices were expected to increase 0.7%. As reported they were up just 0.2%. Yr/yr they were expected to be down -0.3% but declined -0.2%. Exports were expected to be up +0.5%, but reported were up only 0.2%. Yr/yr they were thought to be +0.7% but added just 0.3%. Prices of petroleum imports were expected to rise, and they did, up 6.1 percent in April, but prices of non-petroleum imports fell sharply, down 0.6 percent in a specific result that points to downward pressure on core prices. Export prices were pulled down by an unexpectedly steep 1.5 percent decline in prices of agricultural exports in a result that is not positive for the US farm sector. Year-on-year agricultural export prices are down 2.8 percent in what offers a baseline measure going into the US-China tariff actions of May. The data that we've seen for April, whether continued weakness in portfolio management fees or apparel or airfares or import prices, all point to continued sub-par readings for core prices and with that a greater likelihood that, however distant, the next move for rate policy will be down not up.

More confusing news on the trade discussions; China and the United States have agreed to keep talking about their trade dispute, the Chinese government said this morning, as U.S. President Trump said he thought recent discussions in Beijing would be successful. "My understanding is that China and the United States have agreed to continue pursuing relevant discussions. As for how they are pursued, I think that hinges upon further consultations between the two sides," Chinese Foreign Ministry spokesman Geng Shuang said….he went on saying "We hope that the U.S. side does not misjudge the situation and not underestimate China's determination and will to safeguard its interests." The U.S. Trade Representative's office said it planned to hold a public hearing next month on the possibility of imposing duties of up to 25% on a further $300B worth of imports from China.

At 9:30 the DJIA opened +100, NASDAQ +50, S&P +12. The 10-yr stood at 2.41%, unchanged from yesterday, and earlier this morning the rate was lower at 2.38%.

CoreLogic is saying this morning that prices increased by 1% between February and March 2019. The HPI Forecast indicates prices will increase by 4.8% by March 2020. Home-price growth is still trending upward, but at a slower pace than a year ago.

Rates have declined over the last two weeks but MBS prices, although better, have lagged the move in treasuries. Stocks are taking hits on the significant turn in sentiment on trade. Until Sunday the consensus in markets was that a deal was imminent, but that hasn't happened. Investors are re-thinking what to do with the outlook for equities and are becoming less bullish if the trade issues continue. The 10-yr, although better, hasn't had the reaction we would have expected given the turmoil. There is a possibility the Fed may have to lower rates and stocks will be pressured; the 10 still has not fallen to test the drop to 2.36% at the end of March before yields increased and are now declining.

PRICES @ 10:00 AM

10 yr. note: -1/32 (3 bp) 2.41% unch

5 yr. note: unch 2.18% unch

2 Yr. note: unch 2.18% unch

30 yr. bond: -4/32 (12 bp) 2.84% unch

Libor Rates: 1 mo. 2.439%; 3 mo. 2.518%; 6 mo. 2.587%; 1 yr. 2.672% (5/13/19)

30 yr. FNMA 4.0: @9:30 102.78 +2 bp (+5 bp from 9:30 yesterday)

15 yr. FNMA 3.5: @9:30 102.58 +4 bp (+6 bp from 9:30 yesterday)

30 yr. GNMA 4.0: @9:30 103.31 unch (-4 bp from 9:30 yesterday)

Dollar/Yuan: $6.8760 -$0.0023

Dollar/Yen: 109.60 +0.30 yen

Dollar/Euro: $1.1212 -$0.0011

Dollar Index: 97.49 +0.14

Gold: $1299.00 -$2.80

Crude Oil: $61.57 +$0.51

DJIA: 25,447.50 +124.69

NASDAQ: 7689.71 +42.61

S&P 500: 2829.20 +17.33

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 14th, 2019 9:33 AM
Rates At a Glance
Mortgage Rates
Currently Trending
7 Day Mortgage
Rate Forecast
This Week's
Potential Volatility

Lower

Neutral

Average
(by Sigma Research)
Realtor Report

Trailing edge millennials face growing obstacles to home ownership

There is always a lot of talk about millennials, their lifestyles, and their penchant to become homeowners. Real estate gurus try to predict what they will do next, while the final wave of them is now making the news. Publications like Forbes Real Estate is making its predictions, with writer Brenda Richardson saying that it’s about to get even harder for trailing-edge millennials to buy their first homes.

“Nearly 45 million Americans will reach the typical age for first-time home buyers within the next 10 years, 3.1 million more than the past decade, creating stumbling blocks in an already challenging market for those racing for a spot in the starter home market,” she says. She continues by saying that the median first-time home buyer in the U.S. is 34 years old with 44.9 million Americans aged 24 to 33, compared with 41.8 million people ages 35 to 44.

Richardson’s research relies on studies by Zillow, which now say that starter homes have gained 57.3% in value over the past five years, a median increase of $47,600, while for-sale inventory in this price range has dropped 23.2%. Over the same period, the most expensive third of starter homes gained 26% in value, and homes in the middle third appreciated 36.8%.

Non-institutional lender Mr. Cooper (a leading mortgage lender) says reasons millennials might want to own a home include security, independence, building equity, stability, and financial flexibility. But saving for a down payment is an issue. It is documented that today’s first-time buyers need 18 months longer than they did 30 years ago to secure a loan and that nearly four times as many first-time buyers who obtained a mortgage last year were denied at least once (29%) compared to repeat buyers (8%).

“The Mr. Cooper report found that 58% of aspiring homeowners lack the funds for a down payment,” says Richardson. “Nearly half (43%) don’t have a financial plan in place to purchase a home someday; 75% would be willing to work a side job if it meant owning a home sooner, and 36% would have a roommate if it meant being able to afford a home sooner.”

If you’re looking to buy your first home and feel you can establish yourself just about anywhere for employment, the 3 best markets in the 2019 home shopping season are Tampa, Las Vegas and Phoenix, according to the article, citing relatively affordable markets with median home values well under $300,000. Price cuts in those markets are helping, offering first-time buyers a tad more bargaining power.

On opposite coasts, San Diego and Boston are expected to see the largest jumps in potential first-time buyers with both metros slated to see a nearly 20% increase in the next wave of potential first-time home buyers compared with the previous wave.

Richardson explains how buyers making the transition from renting to homeownership help ease rental demand, which holds down rent-price growth. But if those trailing-edge millennials can’t purchase homes, it could drive up rent prices as well as home values.

Source: Forbes, Zillow, TBWS

This Week's Mortgage Rate Summary

How Rates Move:

Conventional overnment (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: Lower

Mortgage rates are trending slightly lower so far today.  Last week the MBS market worsened by -7bps.  This caused rates to move sideways for the week. We saw low rate volatility for the week.

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Trade War, 2) Across the Pond and 3) Domestic.

1) Trade War: On Friday, the U.S. increased the tariff rate from 10% to 25% on $200B of Chinese goods and announced plans to include another round of tariffs on Chinese goods that have not yet had a tariff. China has now issued their response which is to tariff $60B of U.S. Goods which breaks down to 2,493 specific items, but some of these tariffs are not new. 595 items were already tariffed at the rate of 5% and will remain at that rate. 974 new items will receive a 10% tariff, and 1,078 items will move up to a new tariff rate of 20%. Also, while not an official announcement, China has allowed its media to "speculate" that other future auction could include dumping some U.S. Treasuries.

2) Across the Pond: We have some really big economic releases this week that could change perception on global growth and inflation which is a huge factor in demand for long bonds.

  • China: Retail Sales, NPS Press Conference
  • Japan: Trade Balance
  • Germany: CPI, GDP
  • Eurozone: GDP, Employment Change, Trade Balance, CPI
  • Great Britain: Unemployment Rate

3) Domestic Flavor: The biggest report of the week is the Retail Sales report on Wednesday. It's really the only domestic release that can impact rates. But this report has seen some wild swings lately and has been viewed with a lot of skepticism by economists.

This Week's Potential Volatility: Average

Last week we saw rates and volatility remain flat. While we're headed a bit lower so far today on elevated volatility, we don't expect rates to move significantly lower for the week. However, if the trade war dramatically escalates we could see rates move lower.

Bottom Line:

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.

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 13th, 2019 12:39 PM
Daily Market Analysis

US stock indexes at 8:00 am ET were down -456. The 10-yr note stood at 2.42%, down -4 bps, breaking below last week’s resistance at 2.45%. Mortgage prices at 8:00 am were up +13 bps from Friday’s close. US/China trade talks dominated last week and over the weekend as expected China announced it would increase its tariffs on US goods imported into China. Last week the trade talks broke down when optimism was running high going into the week.

Trade remains the dominant concern in both stocks and bond markets as has been the situation for a couple of weeks. Last week began with President Trump threatening to increase tariffs after news over the weekend that trade discussions had broken down. This morning China did the expected, increasing their tariffs. Looks like both sides misread each other a couple of weeks ago when it was believed a deal would get done soon. Now the outlook is cloudy. Intellectual property rights and “unfair” competition in China is continuing to support state-owned businesses. China’s finance ministry said it plans to set import tariffs ranging from 5 percent to 25 percent on 5,140 U.S. products on a target list worth about $60 billion. It said the tariffs will take effect on June 1. “I say openly to President Xi and all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” President Trump wrote.

At 9:30 amthe DJIA opened down -454, the NASDAQ dropped -172, and the S&P was lower by -46. The 10-yr was at 2.42%.

No economic data today. This week has retail sales, housing starts and permits, and the University of Michigan consumer sentiment index as key data points. Trade, however, will continue to be the elephant in the room that dominates investors. We are surprised this morning that the markets appear to be shocked that China retaliated with its own tariffs. It was inevitable it would after Trump increased tariffs on Friday. Markets seem to be worried now that Trump will march on with his threat to increase tariffs on all of China exports to the US. A protracted trade war? Markets are chewing on it now; we doubt, however, that there will be a major lasting trade battle. In the end, both the US and China cannot sustain economic growth with tariff battles lasting too long. China to agree on the US demands will have to change its laws, which isn’t an easy or rapid progress even if it agrees to do so. China’s history on breaking deals is well documented and Trump is well aware of it.

Expect another day of volatility in the equity markets that will spill over to the bond markets, although the bond market won’t be as affected as the more emotional stock market. Technicals are looking better this morning although the momentum in these improvements has been subdued.

This Week’s Calendar:

Tuesday,

6:00 am April NFIB small business optimism index (102.0 from 101.8)

8:30 am April import and export prices (imports +0.7%, yr/yr +0.3%, export prices +0.6%)

Wednesday,

7:00 am weekly MBA mortgage applications

8:30 am April retail sales (+0.3%, ex auto sales +0.7%)

May Empire State manufacturing index (9.9 from 10.1)

9:15 am April Industrial production and capacity utilization ( production 0.0%, capacity utilization 78.8% unchanged from March)

10:00 am March business inventories (+0.1%)

Thursday,

8:30 am weekly jobless claims (219K -9K)

  • April housing starts and permits (starts 1200K +5.1%, permits +2.7% +2.7%)
  • May Philadelphia Fed business index (9.3 from 8.5)

Friday,

10:00 am U. of Michigan mid-month consumer sentiment index (97.6 from 97.2 in April)

  • April leading economic indicators (+0.3%)

PRICES @ 10:00 AM

10 yr note: +19/32 (59 bp) 2.40% -6 bp

5 yr note: +13/32 (41 bp) 2.19% -7 bp

2 Yr note: +5/32 (15 bp) 2.19% -7 bp

30 yr bond: +29/32 (90 bp) 2.84% -5 bp

Libor Rates: 1 mo 2.449%; 3 mo 5.278%; 6 mo 2.587%; 1 yr 2.693%

30 yr FNMA 4.0: @9:30 102.78 +12 bp (+12 bp frm 9:30 Friday)

15 yr FNMA 3.5: @9:30 102.52 +11 bp (+21 bp frm 9:30 Friday)

30 yr GNMA 4.0: @9:30 103.34 +13 bp (+19 bp frm 9:30 Friday)

Dollar/Yuan: $6.8776 +$0.535

Dollar/Yen: 109.09 -0.85 yen

Dollar/Euro: $1.1259 +$0.0024

Dollar Index: 97.07 -0.24

Gold: $1298.90 +$11.70

Crude Oil: $63.13 +$1.47

DJIA: 25,380.93 -557.29

NASDAQ: 7686.18 -231.36

S&P 500: 2815.43 -65.97

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 13th, 2019 9:12 AM
Daily Market Analysis

Overnight and early this morning the rate markets were unchanged from yesterday. Not much change this week with the focus on US/China trade negotiations.

At 8:30 am ET the April CPI was expected to be up +0.4%, better at 0.3%, yr/yr +2.0% on forecasts of 2.1%. The core expected +0.2%. As reported it was +0.1%, yr/yr 2.1% as expected. Housing and medical care, which together make up about half the CPI, both rose 0.3 percent in the month with respective yearly rates at 2.9 percent for housing and only 1.9 percent for medical care. On housing, rents continue to lead with a 0.4 percent monthly gain and the yearly at 3.8 percent. For homeowners, the equivalent measure rose 0.3 percent and 3.4 percent for the annual. For medical care, physician services rose 0.2 percent in April though the yearly rate remains at only 0.3 percent. Hospital services fell a monthly 0.5 percent with this year-on-year increase at 1.2 percent.

At 12:01 am tariffs against China were increased to 25% from 10% on $200B of US imports. U.S. Customs and Border Protection imposed a 25% duty on more than 5,700 categories of products leaving China after 12:01 a.m. EDT. Negotiators are in Washington, but so far nothing has changed this. President Trump is saying this morning he is no hurry to get a deal after yesterday’s more optimistic comments. It wasn’t likely any significant deal would be reached this week. Stock markets are falling, and interest rates are holding low levels, but there are no significant changes this week unless it occurs through the day today. China will retaliate as expected but hasn’t yet made an announcement. Without elaborating, China’s Commerce Ministry said it would take countermeasures. The added levy could reduce U.S. gross domestic product (GDP) by 0.3% and China’s by 0.8% in 2020, consultancy Oxford Economics said.

In Friday morning tweets, the president defended his decision to raise tariffs, saying there was no need to rush into a deal and added that the American economy would be boosted more by the levies than by an eventual deal. Tariffs that went into effect at midnight will likely hit Americans in the pocketbook, making $40B of consumer goods on retailers’ shelves more expensive. “We remain concerned that we’re shooting ourselves in the foot by imposing big new taxes on Americans,” said David French, senior vice president of government relations for the National Retail Federation. “To be clear, tariffs are taxes paid by businesses and consumers, not by China.”…. “I’m different than a lot of people,” Mr. Trump said at the White House. “I happen to think the tariffs for our country are very powerful.” More tariffs may be coming later this month that if implemented would put tariffs on all Chinese exports to the US.

At 9:30 am the DJIA opened down -76, the NASDAQ dropped -29, and the S&P was lower by -9. The 10-yr remained unchanged at 2.46%.

As far as interest rates are concerned there have been no changes in the bond and mortgage markets this week. The bond markets globally are taking all of the trade talks with aplomb, concerned more about the potential of increased inflation if the trade ends up to be a prolonged war.

Our near-term technical models remain neutral, neither bullish nor bearish. The 10 hasn’t moved this week, and the last two sessions have been in extremely tight ranges. We continue to note investors’ pricing does deviate from actual levels when pricing to originators.

PRICES @ 10:00 AM

10 yr. note: -2/32 (6 bp) 2.45% unch

5 yr. note: unch 2.24%

2 Yr. note: +1/32 (3 bp) 2.25% -0.5 bp

30 yr. bond: +8/32 (25 bp) 2.87% -1 bp

Libor Rates: 1 mo. 2.453%; 3 mo. 2.535%; 6 mo. 3.581%; 1 yr. 2.702% (5/9/19)

30 yr. FNMA 4.0: @9:30 102.67 unch (unch from 9:30 yesterday)

15 yr. FNMA 3.5: @9:30 102.32 -3 bp (-9 bp from 9:03 yesterday)

30 yr. GNMA 4.0: @9:30 103.14 unch (unch from 9:30 yesterday)

Dollar/Yuan: $6.8243 -$0.0032

Dollar/Yen: 109.71 -0.06 yen

Dollar/Euro: $1.1243 +$0.0028

Dollar Index: 97.21 -0.21

Gold: $1287.20 +$1.90

Crude Oil: $61.78 +$0.08

DJIA: 25,699.53 -135.23

NASDAQ: 7874.46 -31.13

S&P 500: 2858.05 -12.76

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted in:General
Posted by Richard Sardella MLO.100007700/NMLS 233568 on May 10th, 2019 1:13 PM

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