May 22nd, 2019 8:47 AM by Richard Sardella MLO.100007700/NMLS 233568
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.
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.
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