Treasuries and mortgage rates improved yesterday, this morning more improvement in early activity. The 10 yr at 2.89% at 9:00 AM ET -2 bps from yesterday and MBS prices at +14 bps from yesterday’s close. We have been noting the bond market is due for some correction and consolidation at present levels, but we do not expect a change in the overall bearish outlook for interest rates. The 10 yr is widely believed to have technical support at 3.00% area, the recent high rate for the 10 yr climbed to 2.96% on Wednesday.
This week’s Treasury auctions now behind, the three auctions were modest at best with demand not as firm as in the last few months. There are no economic releases scheduled today. Three Fed officials on the podium today; Wm. Dudley, NY Fed at 10:15, Cleveland Fed’s Loretta Mester at 1:30 (she is being considered for the vice chair at the Fed), at 3.40 SF Fed’s John Williams.
In pre-open trading, the US stock indexes all traded higher this morning after another choppy, wide range yesterday. Volatility will continue to remain high with investors re-adjusting positions after the sharp selloffs two weeks ago.
No particular momentary news so far today. Tomorrow Warren Buffett will release his annual letter to stockholders and is expected to lead the cheer for economic growth. He will likely comment that Berkshire recently has not been able to find good investments in equities. Berkshire has been piling substantial amounts of cash into treasuries, mostly T-Bills. It has $100B in cash that has to make a little money and nothing interesting to buy Buffet is giving it to the US government to hold. According to an article in the WSJ today Berkshire held $109 billion in cash as of Sept. 30, up from $86 billion at the end of 2016 and more than double what it had at the end of 2006. Nearly all of that was invested in short-term bills, according to Mr. Buffett. T-Bills defined as terms less than 1 year. Berkshire held more bills around the end of the third quarter than large countries such as China and the U.K. It also had more at that time than the $13.5 billion held collectively by a group of 23 primary bond dealers that are obligated to underwrite U.S. government debt sales. The release of his stockholder letter tomorrow may have impacts on markets on Monday.
Inflation fears continue, driven recently in large part by the increasing average hourly earnings. The conventional belief, that if wages increase businesses will have more pricing power to increase prices. Yesterday Sec of Treasury Mnuchin commented that higher wages don’t automatically mean higher overall prices. He's leading the cheer with comments like that in order to temper the present inflationary fears that have markets by the throat now.
Focus the rest of the day will be what the three Fed officials say. Usually, nothing expressively new but where they put their focus is key. Absent any surprises the bond and mortgage markets will likely hold at current levels the rest of the day.
PRICES @ 10:00 AM
10 yr note: +10/32 (31 bp) 2.88% -4 bp
5 yr note: +4/32 (12 bp) 2.63% -3 bp
2 Yr note: +1/32 (3 bp) 2.23% -2 bp
30 yr bond: +23/32 (72 bp) 3.17% -3 bp
Libor Rates: 1 mo 1.620%; 3 mo 1.943%; 6 mo 2.168%; 1 yr 2.449%
30 yr FNMA 4.0 Mar: @9:30 102.41 +19 bp (+17 bp from 9:30 yesterday)
15 yr FNMA 3.5: @9:30 101.84 +18bp (+10 bp from 9:30 yesterday)
30 yr GNMA 4.0: @9:30 102.67 +22 bp (++1`8 bp from 9:30 yesterday)
Dollar/Yen: 106.81 +0.07 yen
Dollar/Euro: $1.2297 -$0.0032
Dollar Index: 89.96 +0.24
Gold: $1328.90 -$3.80
Crude Oil: $62.84 +$0.07
DJIA: 25,090.25 +127.77
NASDAQ: 7251.10 +41.01
S&P 500: 2721.38 +17.42
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.
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Yesterday afternoon in the FOMC minutes from the Jan meeting the bond and stock markets came under strong selling; the 10 yr yield increased to 2.96% at about 3:30 PM ET, MBS prices yesterday down 37 bps and stock indexes fell. The minutes were not much of a surprise but confirmed what markets were thinking about inflation and economic growth. Overall, we saw little in the way of new news from the Fed. Three rate increases expected this year, the first likely next month at the March meeting. Stock markets increasingly aware that as interest rates increase borrowing costs will escalate; yesterday the DJIA before the 2:00 pm releases of the minutes traded +330. As rates across the curve increased selling in equity markets increased.
This morning a slight rebound in rate markets, at 8:30 am ET the 10 at 2.92% -2 bps from 3:00 levels yesterday, MBS prices at 8:30 +22 bps from yesterday’s close. Weekly jobless claims at 8:30 -7K to 222K, markets expecting claims to be unchanged; the 4-week average declined to 226K from 228.25K. Claims at a 45 year low but somewhat unreliable as six states had their claims estimated claims (California, Hawaii, Maine, Virginia, West Virginia and Wyoming); nevertheless, claims continue to support lower unemployment. Job quality (income) still dragging. Many jobs at the minimum wage levels and require two jobs to make ends meet. It was the 155th straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970 when the labor market was much smaller.
Yesterday the FOMC minutes from Jan meeting today the ECB released its minutes from Jan. Minutes revealed the ECB believes Trump is trying to engage in currency wars. Some ECB members pushed for a change in the bank’s communications, arguing economic conditions were now strong enough to drop a commitment to boost the quantitative easing program in the event of a slowdown. “Some members expressed a preference for dropping the easing bias regarding the [QE program] from the governing council’s communication as a tangible reflection of reinforced confidence in a sustained adjustment in the path of inflation,” the account said. “However, it was concluded that such an adjustment was premature and not yet justified by the stronger confidence.”
At 10:00 Jan leading economic indicators expected +0.7% increased 1.0%.
At 1:00 Treasury will complete the week’s auction with $29B of 7 yr notes, the 5 and 2 were not well bid on comparison to recent auctions.
10 yr moving closer to 3.0% where many believe is a critical longer-term indicator of whether the 35-year rate declines finally ends. We won’t go there but reminds that since 1982 interest rates in the US have fallen. 2 yr in 1982 at 20%, 10 yr at 18%, 30 yr mortgage rates 14%. 3.0% is a key level for the near term though, we expect 3.0% will require work and won’t occur as quickly as it currently appears to be now. Rate markets appear to be a little oversold now. The concern is increasing in markets that if (when) the 10 yr crosses 3.0% will have a negative impact on stocks, increasing business borrowing costs and lowering earnings. Given the level of the key indexes that view worth thinking about. More than half of the 59 analysts surveyed by Bloomberg this month say the 10-year yield will end 2018 at or below 3 percent. After all, the Fed’s own projections call for its target rate to climb just above 3 percent in 2020, before settling at a longer-term rate of 2.75 percent.
10 yr note: +12/32 (37 bp) 2.91% -3 bp
5 yr note: +5/32 (15 bp) 2.65% -3 bp
2 Yr note: +1/32 (3 bp) 2.26% -1 bp
30 yr bond: +20/32 (62 bp) 3.19% -3 bp
Libor Rates: 1 mo 1.602%; 3 mo 1.919%; 6 mo 2.145%; 1 yr 2.426%
30 yr FNMA 4.0 Mar: @9:30 102.23 +20 bp (-22 bp from 9:30 yesterday)
15 yr FNMA 3.5: @9:30 101.74 +11 bp (-8 bp from 9:30 yesterday)
30 yr GNMA 4.0: @9:30 102.48 +11 bp (-29 bp from 9:30 yesterday)
Dollar/Yen: 106.92 +0.26 yen
Dollar/Euro: $1.2330 +$0.0045
Dollar Index: 89.75 -0.37
Gold: $1330.00 -$2.10
Crude Oil: $62.04 +$0.36
DJIA: 24,975.37 +177.59
NASDAQ: 7260.29 +42.06
S&P 500: 2718.53 +16.82
Short week. Walmart is driving stock indexes lower this morning. Reporting a lower-than-expected quarterly profit and posting a sharp drop in online sales growth during the critical holiday period, its stock is down about 7.0% in early trading.
This week will be nearly absent of economic data; the only key data will be January existing home sales. The focus for bonds and MBSs this week is on Treasury auctions of 2s, 5s and 7s — a total of $92B, up from the usual $88B. With markets focused on the Fed and how high the federal funds rate will increase this year, the auctions carry more significance than usual. Wednesday we’ll get the minutes from the January FOMC meeting. Always interesting, but this one may be more so, pending the debates about increasing rates and the Fed’s discussion about inflation.
Last week the 10-yr note was essentially unchanged, up +1 bp to 2.87%. This morning it was at 2.90%, up +3 bps. MBS prices, after declining 20 bps last week, were down 12 bps at 9:00 am EST.
Including the 2,5, and 7 auctions, the Treasury is preparing to sell more than a quarter of a trillion dollars’ worth of new debt this week, which analysts said would be a key gauge of international investors’ appetite for U.S. assets. This is after a broad sell-off on worries over the United States’ ballooning fiscal deficit. The dollar is doing better this morning after weakening to three year lows last week. If the demand for the auctions is strong, look for the dollar to increase against the dollar index. The dollar has weakened since the beginning of the year, driven mainly by inflation concerns even as interest rates have increased (customarily that would support the buck). Also crippling the dollar, and we have emphasized a number of times, is the exploding of US debt under the Trump Administration’s tax cuts, infrastructure spending, and the wide certainty that entitlements will not be cut but increased. This year, federal deficit could be as high as $1 trillion, up from $655B in 2017.
At 9:30 am the DJIA opened -113, NASDAQ -20, S&P -8. 10-yr at 9:30 was 2.90%, up +3 bps.
The 50-point decline in the DJIA this morning was due to Walmart declines. Stocks rallied all week last week; just as the declines were too rapid for us, the increase last week also too quick. A lot of forced sales took place, then bargain hunters emerged. Look for the equity markets to continue with increased volatility as a base is built around new assessments on valuations with higher interest rates and Fed tightening.
This week the bond market will be driven by Treasury auctions and the FOMC minutes. The only key data point is that January existing home sales are thought to be up 1.5% to 5650K units.
The markets are still technically and fundamentally bearish; attention to the 10-yr; the trading range clearly defines the path and the potential daily ranges. The channel is well defined and carries a lot of interest to day traders.
This Week’s Calendar:
1:00 pm $28B 2-yr note auction
7:00 am weekly MBA mortgage applications
10:00 am Jan existing home sales (5650K +1.5%)
1:00 pm $35B 5-yr note auction
2:00 pm FOMC minutes from January meeting
8:30 am weekly jobless claims (230K unchanged from last week)
10:00 am January leading indicators (+0.6%)
1:00 pm $29B 7-yr note auction
10 yr note: -6/32 (18 bp) 2.896% +1.5 bp
5 yr note: -4/32 (12 bp) 2.66% +3 bp
2 Yr note: -2/32 (6 b) 2.23% +3 bp
30 yr bond: -6/32 (18 bp) 3.14% +1 bp
Libor Rates: 1 mo 1.595%; 3 mo 1.892%; 6 mo 2.118%; 1 yr 2.398%
30 yr FNMA 4.0 Mar: @9:30 102.38 -9 bp (-8 bp from 9:30 Friday)
15 yr FNMA 3.5: @9:30 101.77 -4 bp (-12 bp from 9:30 Friday)
30 yr GNMA 4.0: @9:30 102.88 -11 bp (+4 bp from 9:30 Friday)
Dollar/Yen: 107.17 +0.58 yen
Dollar/Euro: $1.2350 -$0.0057
Dollar Index: 89.58 +0.39
Gold: $1343.80 -$12.40 (stronger dollar)
Crude Oil: $61.82 +$0.14
DJIA: 25,065.11 -154.27
NASDAQ: 7244.37 +4.90
S&P 500: 2723.17 -9.05
You never know where good news will come from, but by 8:30 am EST, January housing starts and permits were reported to be much stronger than forecasts. Starts were 1326K against estimates of 1232K, and December starts were revised higher to 1209K from 1192K, +7.8% from the revised December starts. January permits that were expected +1300K increased to 1396K, up +6.9%. This heralds the second highest in the present expansion, most in multi-family starts. Permits have been outperforming starts and continue to do so, also surging in January for the best showing of the expansion. Once again multi-units are catching up, rising very sharply to one of the highest readings of the expansion and offsetting a small decline for single-family units where permits are, nevertheless, just off at their expansion high. Single family starts +3.7%, single family permits declined 1.7%. Multi-family starts in January were up +23.7% while permits gained to +26.5%. The key takeaway from the report is that it points to a larger supply coming in the housing market.
8:30 am January import and export prices were both up; imports expected +0.6% increased 1.0%; export prices expected +0.3% increased 0.8%. Yr/yr import prices were up +3.6%, and export prices yr/yr gained +3.4%. A rare 0.5% price jump for imported vehicles is a key detail of the report as are higher prices for imported food & beverages. Year-on-year rates are back near their best readings of the expansion. Inflationary implications, however, are generally tied to the continual weakness in the dollar; the Fed will notice.
Notwithstanding the better than expected 8:30 data, the 10-yr note yield at 8:30 am at 2.87% lost -3 bps and MBS prices were up +22 bps from yesterday’s closing prices.
At 9:30 the DJIA opened slightly lower: -14, NASDAQ -12, S&P -3 and the 10-yr at 9:30 was down -3 bps to 2.86%.
By mid-morning EST, the U. of Michigan consumer sentiment index was expected at 95.5 from 95.7 on the final January read. Sentiment increased to 99.9 best since last October when it hit 100.70, a multi-year high.
There is a valid chart trend line that has held any improvements in the 10-yr going back to the end of December. Looking just at the trend line there is resistance at 2.84% if it holds. A penetration of 2.84% would suggest a move down to 2.78%, the 20-day moving average. Inflation concerns have increased this week on stronger CPI and PPI data; housing starts and permits can also be seen as another inflationary report for those expecting inflation to increase, climb above 2.0%, and force the Fed to move four times this year. We still think there will be just three increases, with the first one on March 21st at the next FOMC meeting. At the March meeting, the Fed will release its quarterly forecasts for inflation, and economic growth and Jerome Powell will hold his first press conference as Fed chair. The latest Reuters surveys of private sector economists, taken in the last week, show no change to the inflation outlook across major economies.
Better this morning for MBS prices but volatility already, at 9:30 +25 bps at 9:50 +14 bps. Stock indexes opened a little lower but by 9:50 the indexes had turned slightly positive. There is no change in our negative near-term outlook for interest rates. The bellwether 10-yr yield still not able to break the bearish technical bias in our models and most of the momentum oscillators we track.
PRICES @ 10:10 AM
10 yr note: +13/32 (41 bp) 2.86% -3 bp
5 yr note: +5/32 (15 bp) 2.62% -3 bp
2 Yr note: unch 2.19% unch
30 yr bond: +31/32 (97 bp) 3.11% -5 bp
Libor Rates: 1 mo 1.590%; 3 mo 1.872%; 6 mo 2.096%; 1 yr 2.381%
30 yr FNMA 4.0 Mar: @9:30 102.47 +25 bp (+31 bp from 9:30 yesterday)
15 yr FNMA 3.5: @9:30 101.89 +16 bp (+17 bp from 9:30 yesterday)
30 yr GNMA 4.0: @9:30 102.91 +11 bp (+26 bp from 9:30 yesterday)
Dollar/Yen: 106.26 +0.14 yen
Dollar/Euro: $1.2448 -$0.0058
Dollar Index: 88.96 +0.34
Gold: $1356.60 +$1.30
Crude Oil: $61.13 -$0.21
DJIA: 25,168.36 -32.01
NASDAQ: 7247.75 -8.68
S&P 500: 2726.83 -4.37
Inflation is moving up, markets telling us as interest rates increase. The increase is likely to be minor however, producers do not have pricing power so far and with the emerging markets and global economic recovery competition for goods and services will increase and keep somewhat of a lid on price increases. As a result, inflation won’t likely match the current undercurrent that has taken markets and likely the Fed thinking now. Potential Vice-chair of the Fed Loretta Mester, Cleveland Fed, saying essentially that the Fed will not have to increase the federal funds rate more than three times this year. Two of those increases already discounted in current rates.
The stock market continued to rebound today; the fifth day stock indexes have increased. The selling ended as abruptly as it began two weeks ago. That said, we doubt the volatility will drop again to the under 10 readings that characterized the VIX for almost a year. Complacency is gone now, and high leverage positions also erased. Although volatility has ebbed and stocks have had a nice rebound; both the selling and now the buying seem to be occurring too rapidly. More weakness expected but not the quickness as we just experienced. Look for equity markets in the US to settle own and trade in a more sideways move.
Economic outlook continues to improve with Trump tax cuts and huge deficit spending expected. Warren Buffett turned bullish today announcing he is buying Apple. The last five sessions for the DJIA, after the anticipated 10% correction we expected the index has increased 1,340 points, the other indexes also recovering from last week’s declines. DJIA and the other indexes have recovered half of their losses 5.0% and about 5.0% lower than the highs three weeks ago.
Tomorrow more key data points; Jan housing start and permits at 8:30 AM ET; starts expected at 1232K +3.2%, permits 1300K down 0.2%. Key n the report will be single-family start and permits. Also at 8:30 Jan import and export prices, another way to look into inflation; (imports expected +0.6%, export prices +0.3%) both higher than in Dec. . The current decline in the dollar will increase import prices and support export prices. The dollar index now the lowest since 2014.
The mid-month U. of Michigan consumer sentiment index at 10:00 tomorrow expected at 95.5 from 95.7 at the end of January.
No change in the bearish outlook for interest rates. Still expecting the 10 yr will test 3.00% before some recovery can be expected. One thing though, if another rapid sell-off in equity markets happens the rate markets will see improvement. During the recent decline, the rate markets saw no recognizable flights to safety. The correction in stocks was widely expected, if another sell binge happens investors will likely run to safety in Treasuries and gold.
PRICES @ 4:00 PM
10 yr note: unch 2.90% unch
5 yr note: -2/32 (6 bp) 2.65% +1 bp
2 Yr note: -2/32 (6 bp) 2.19% +2 bp
30 yr bond: +5/32 (15 bp) 3.16% -1 bp
Libor Rates: 1 mo 1.588%; 3 mo 1.850%; 6 mo 2.062%; 1 yr 2.338%
30 yr FNMA 4.0 Mar: 102.20 +11 bp (+4 bp from 9:30)
15 yr FNMA 3.5: 101.74 +3 bp (+2 bp from 9:30)
30 yr GNMA 4.0: 102.72 +9 bp (+7 bp from 9:30)
Dollar/Yen: 106.10 -0.89 yen
Dollar/Euro: $1.2504 +$0.0052
Dollar Index: 88.55 -0.46
Gold: $1357.10 -$0.90
Crude Oil: $61.61 +$1.01
DJIA: 25,200.37 +306.88
NASDAQ: 7256.43 +112.81
S&P 500: 2731.20 +32.57
Inflation is getting more attention; the Jan CPI this morning a little hotter than forecasts. The core CPI was thought to be +0.2%, yr/yr +1.7%; as reported +0.3% and yr/yr +1.8%. Markets have increased concern recently that inflation will finally increase to the Fed’s 2.0% soon. In the meantime, an increase in the view that the Fed is behind the curve in increasing rates. Been a lot of opinions that the Fed would have to move four times in 2018, today’s Jan CPI added more concern. Inflation worries may be too fearful now. Four federal funds rate increases this year will cause the Fed to increase rates every other meeting, the first March 21st.
Jan and Dec retail sales, however, were weaker than estimates suggesting spending wasn’t as strong as expected. The sales report outwardly ignored by traders pushing the 10 yr note to 2.92% a new US high rate. Following in the footsteps of the CPI crude oil increased $1.60 today after declining $8.00 over the prior two weeks. Gold, an inflation hedge increased a $27.00.
The Atlanta Fed GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 3.2 percent on February 14, down from 4.0 percent on February 9. The nowcast of first-quarter real consumer spending growth fell from 3.0 percent to 2.0 percent after this morning's retail sales report from the U.S. Census Bureau and this morning's Consumer Price Index release from the U.S. Bureau of Labor Statistics. The slippage back to 3.2% is still above the survey from economists at 2.7%.
Dec business inventories expected +0.3% increased 0.4% matching the increase in Nov. December's build was centered among manufacturers where inventories rose 0.5 percent and also wholesalers at 0.4 percent. Retailers held down the total, up 0.2 percent for the fourth straight soft reading. Retail inventories are low, but given the softness and downward revisions to this morning's retail sales data, the need to build these inventories doesn't appear to be urgent.
Once the 10 yr moved to a new high today, MBS prices sank, down 48 bps for Fannie 4.0 coupon and down 29 bps from 9:30 AM EST this morning when investors set morning prices.
Tomorrow Jan PPI kind of an afterthought after the retail CPI data today. Feb NAHB housing market index, Feb Philly Fed business index and industrial production and factory use. PPI expected +0.4%, core +0.2%; NAHB housing market index at 72 unchanged from January; Feb Philly Fed business index 21.0 from 22.2 in Jan; Jan industrial production +0.2%, factory use 78.0% from 77.9% in Dec.
The 10 yr note is headed to 3.0%, 2.92% the high today. The bond and mortgage markets have been negative in our models and other technical indicators since mid-Dec.
10 yr note: -21/32 (65 bp) 2.91% +8 bp
5 yr note: -15/32 (47 bp) 2.64% +10 bp
2 Yr note: -3/32 (9 bp) 2.16% +4 bp
30 yr bond: -37/32 (115 bp) 3.17% +6 bp
Libor Rates: 1 mo 1.587%; 3 mo 1.838%; 6 mo 2.057%; 1 yr 2.326%
30 yr FNMA 4.0 Mar: 102.11 -47 bp (-28 bp from 9:30)
15 yr FNMA 3.5: 101.68 -36 bp (-18 bp from 9:30)
30 yr GNMA 4.0: 102.59 -37 bp (-23 bp from 9:30)
Dollar/Yen: 106.99 -0.83 yen
Dollar/Euro: $1.2455 +$0.0102
Dollar Index: 89.21 -0.53
Gold: $1357.10 $26.70
Crude Oil: $60.76 +$1.57
DJIA: 24,893.49 +253.04
NASDAQ: 7143.62 +130.10
S&P 500: 2698.63 +35.69
Couples able to afford more homes than singles
A couple with a combined household income of $80,800 could afford 82% of all US homes and would be able to save their down payment in just 5 years.
But for singles, its another story.
An analysis from Zillow calculates that less than half of all US homes are affordable for a single buyer based on a median household income of $34,500. And since they don't have the help of a spouse, it could take up to 11 years to save up enough for a standard down payment.
"Nearly two-thirds of Americans agree that buying a home is a central part of living the American Dream, but for unmarried or un-partnered Americans, that dream is increasingly out of reach," said Zillow senior economist Aaron Terrazas. "Single buyers typically have more limited budgets, which means they are likely competing for lower-priced homes that are in high demand. Having two incomes allows buyers to compete in higher priced tiers where competition is not as stiff."
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 lower so far today. Last week the MBS market worsened by -11bps. This may've moved mortgage rates slightly higher last week. Mortgage rate volatility was very high last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three things that have the greatest ability to move mortgage rates this week: 1) Domestic, 2) Across the Pond and 3 ) Geopolitical.
1) Domestic: Inflation Watch. The biggest event of the week is the CPI report on Wednesday. It is unusual because it is released this week before PPI which is released the next day. It is usually the other way around. This report is expected to show inflation at above 2%. The higher it is, the worse it will be for mortgage rates. We also have Retail Sales that same day which will be important to watch. Also, with bonds focusing on increased deficits (which are always inflationary), Monday's Treasury Budget will get a lot of attention as it will be the first budget that has the tax cut in it.
2) Across the Pond: Besides the Olympics, there's plenty going on overseas. In the order of the largest economies (besides the U.S.): China - Chinese New Year, Japan - GDP, Germany - GDP, CPI, Great Britain - PPI, CPI and Retail Sales, Eurozone - GDP.
3) Geopolitical: The bond market is hedging towards global central banks tightening in the near future along with tapering bond purchases, we also have our own infrastructure and budget/deficit concerns with the 2019 budget proposal out of the White House.
This Week's Potential Volatility: High
Mortgage rates will pay close attention to the CPI report on Wednesday. Look for continued volatility, particularly if the stock market continues its wild swings.
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.
Skin-deep investments in a home’s exterior offer gratifying paybacks
It’s not about the updated kitchen. Or the state-of-the-art walk-in shower. Not to say that updating the interior of a home isn’t important. It’s just that because we mostly live inside our homes, updating and beautifying the outside seems to be placed on the back burner.
There are usually two reasons homeowners think about improving the curb appeal of their home (1) pride of ownership —they just want it to look more attractive, or (2) they are selling and want to get the highest price possible. Either is an excellent reason to value and update your home’s facade.
Many homeowners don’t realize that spiffing up their home’s exterior offers some of the best return on investment of anything they can do to their dwellings. Whether it’s just for the heck of it or to attract a buyer, curb appeal is what “gets them at hello” when people drive by a property.
The National Association of REALTORS® Remodeling Impact Report: Outdoor Features has some fascinating data illustrating how curb appeal and landscaping affects the value of a home, beating out nearly every indoor project for payback. Included are yard overhauls, such as adding a winding flagstone walkway, planters, flowering shrubs, a good-sized tree and new mulch. According to the study, the median cost for doing all of the above is $4,750. Return value? $5,000. Sweet.
Add more “softscape” items like trees, shrubs, perennials, mow strips and boulder accents and your home’s curb appeal is transformed. Now figure in lower utility bills, since placing trees in the right locations can produce savings on heating and cooling costs, and there are bonuses up the yin-yang. A new patio or deck? Even better.
So next time you think about where you want your remodeling dollars to go, it might be prudent to step across the street and take a look at your home from a different perspective. Shutters need painting? Does your front door make a statement? Would your house look better with more color around it? A little bit of attention to what meets the eye can make a world of difference.
Mortgage rates are trending sideways higher this so far today. Last week the MBS market worsened by -102 bps. This moved mortgage rates higher last week. Mortgage rate volatility was high last week.
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Government Shutdown 2) Fed and 3) Across the Pond.
1) Government Shutdown: Here we go, another deadline this week for a Government shutdown. Will we get yet another emergency measure to "kick the can" for another two weeks? Or with the two sides so far apart will we finally get the promised shutdown? Or will there be a miracle and both sides will come to a long-term agreement?
2) Fed: Yellen is gone. Today, Jerome Powell will officially be sworn in as our Fed Chair, and the new reign will begin. The bond market views him as a little more pragmatic than uber-dove Yellen. We are waiting to see who the new Vice Chair will be. Here is a list of speeches this week:
3) Across the Pond: The spotlight will be on the Bank of England's Central Bank meeting on Thursday. We will also hear from key BofJ and ECB representatives. There will also be some movement in the Brexit situation and key reports out of China.
Treasury Auctions this Week:
The manufacturing numbers are helping to push mortgage rates a bit higher today. The one thing that can help keep a lid on mortgage rates is the potential of a government shutdown. If that somehow gets resolved quickly, we could see mortgage rates push higher with increased volatility this week.
Tiny Houses May Become Large in New Homes
A recent survey showed that 53% of new home buyers would entertain the idea of a tiny home (600 square feet or less) in the future with Gen Xers and Millennials more open to the idea compared to baby boomers and seniors.
This is just one of the gems found in a recent survey by the National Association of Home Builders.
The survey also revealed that 65% of homebuyers do not think conditions (inventory shortages and affordability) will improve in 2018, with 79% of prospective buyers surveyed being able to afford only half of the homes in their markets. A majority of homebuyers believe availability and affordability issues will not ease in 2018; they remain committed to their goal of purchasing a home.
Rose Quint, assistant vice president of survey research for the NAHB, said the survey findings show that housing availability and affordability continue to be serious issues.
“These potential buyers see a problem with housing availability,” Quint said. “They know it’s a tough nut to crack, but they are not deterred. They are still planning to buy a house in the next 12 months.”
The NAHB said that although housing starts rose by 9% year over year in 2017, home production was still affected by the lack of affordable, buildable lots and the scarcity of labor. Characteristics of new homes were also essentially unchanged in 2017. NAHB said that home sizes averaged 2,627 square feet in 2017, remaining largely the same as the 2,622-square-feet average size in 2016.
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -62 bps. This moved mortgage rates higher last week. Mortgage rate volatility picked up again last week.
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Geopolitical, 2) Central Bank Palooza and 3) Domestic.
1) Geopolitical: Our Government Shutdown is front and center this week. They are expected to try to vote in the Senate today for a stop-gap measure, but currently, the bond market is on hold until something happens.
2) Central Bank Palooza: This week we get the Bank of Japan's interest rate decision and policy statement. Their reduction in bond purchases (revealed in their balance sheet but not announced as a formal policy, had a negative impact on mortgage rates). Will we see a rate increase and an official taper announcment?
The European Central Bank also will give us their interest rate decision and policy statement. The bond market will pay close attention to the asset purchase plans.
3) Domestic: We get our first look at the 4th QTR GDP on Friday. So far both the 2nd and 3rd QTRS have seen growth at 3% or higher. This first initial release is projected to be at 2.9%. If we get a "3" handle on that reading, it will be very negative for bonds and mortgage rates.
Treasury Auctions this Week:
This Week's Potential Volatility: Average
Mortgage rates could see a bit of volatility this week with the government shutdown. If it continues through the week, look for mortgage rates to push a bit lower. However, it is not likely that the slight improvements will last longer term.
Number of Renting Households Decline for the First Time Since 2004
The 2017 Annual Rent Report prepared by ABODO showed that average Rents rose by 2.4% over the course of 2017. And for the first time since 2004, the number of households that rent instead of own, dropped.
Citing Harvard University’s Joint Center for Housing Studies (JCHS), ABODO said more than a third of US households are renters, with about $43 million households renting across the US as of the middle of 2017.
ABODO said 2017 marked the first decline, although slight, of renting households in 13 years, citing a JCHS report. The number of renting households had been continuously increasing since 2004.
The decline in renting households in 2017 came as rents rose over the same period. At the end of 2017, one-bedrooms had a national median rent of $1,040, a 2.4% increase. Meanwhile, the national median rent for two-bedroom apartments was $1,252 in December, an increase of 3% from its level in January.
As rents rise, it strengthens demand for home sales as very low mortgage rates and unemployment levels make the cost of owning an appreciating asset far more attractive then throwing away monthly rent payments.
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -19bps. This may've moved mortgage rates slightly higher last week. Mortgage rate volatility was relatively low.
Three Things: Here are the three areas that have the greatest ability to impact mortgage rates this week. 1) Geopolitical concerns, 2) Domestic and 3) Fed.
1) Geopolitical concerns: Front and center is the looming partial government shutdown that is less than two weeks away. This is supposed to be a "line in the sand" and not a "kick the can down the road" date. As you recall, we have just had two straight extensions. It is evident that the two sides of the aisle are very far apart on a number of key topics and unlike tax reform, this will take a considerable amount of support from both parties.
It's Kim Jong-un's birthday (we think...NK won't confirm his actual date of birth.. it's a government secret). Regardless, it puts his regime's threats in the spotlight - global financial markets do expect some sort of escalation but is unsure if that will come in the short term or longer term.
We will also continue to see concern over Brexit talks as PM May is reshuffling her Cabinet and we have significant instability in Spain and Italy.
2) Domestic: This week is backloaded with some very big economic releases which include retail sales, CPI and PPI. We will be watching CPI closely to see if the YOY core moves closer to that 2.0% mark, the headline CPI is already above 2.0%.
3) Fed: We are getting close to February when the still unconfirmed Jerome Powell will take over as Fed Chair. This week we will hear from a lot of Fed members including William Dudley which is also on his way out.
Treasury Actions this Week:
The economy continues to show positive signs which normally would push mortgage rates higher with a good deal of volatility. However, with geopolitical concerns and concerns over a government shutdown, mortgage rates remain in a tight channel. The economic data at the end of the week has the most potential to move mortgage rates,