Market Commentary

 

For the week of January 22, 2018

Last Week in Review

"If I had a hammer, I'd hammer in teh evening, all over this land." The Weavers.  There was less hammering around the country in December, as construction of new homes saw a steep decline from November. 

December Housing Starts came in at 1.192 million annualized units, the Commerce Department reported, falling 8.2 percent from November and driven lower by a sharp decrease in single-family units. December's reading marked the largest monthly percentage drop since November 2006.

Single-family starts plunged nearly 12 percent from November, though they did increase 3.5 percent from December 2016. Multi-family dwellings rose 2.6 percent from November but plummeted 21 percent from the same time a year ago.

Building Permits, a sign of future construction, were essentially unchanged from November at an annual rate of 1.302 million units. Overall, this was a disappointing report for potential homebuyers facing inventory shortages around much of the country. 

Homebuilders are still feeling confident, however, as the January National Association of Home Builders Housing Market Index came in at 72, just below the 74 registered in December. The index measures data from a survey of homebuilders and asks respondents to rate conditions for current single-family home sales, sales in the next six months and traffic from prospective buyers. Any reading over 50 is considered positive sentiment. 

The markets were volatile in recent days as the threat of a government shutdown loomed, causing Mortgage Bonds to move lower. Though home loan rates have risen, they remain attractive and near historic lows. 

Forecast for the Week

News on the housing sector and economic growth dominate the second half of the week.

  • Look for housing data on Wednesday with Existing Home Sales, followed by New Home Sales on Thursday.
  • Weekly Initial Jobless Claims will also be released on Thursday.
  • On Friday, Durable Goods Orders and the first reading on fourth quarter 2017 Gross Domestic Product will be delivered.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.  

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.     

To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. 

As you can see in the chart below, Mortgage Bonds have fallen in recent days. Home loan rates still remain near historic lows. 

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jan 19, 2018)


 

For the week of January 15, 2018

Last Week in Review

"Hey, big spender. Spend a little time with me." Shirley Bassey. Consumer spending ended 2017 on a high note as Americans purchased an array of goods and products.

Retail Sales rose 0.4 percent in December, in line with estimates, the Commerce Department reported. November's reading was also revised higher to 0.9 percent from 0.8 percent. Overall, Retail Sales rose 4.2 percent in 2017 compared to the 3.2 percent increase in 2016. Consumer spending makes up more than two-thirds of U.S. economic activity, so this reading is an important measure when it comes to gauging the strength of our economy. 

Another important measure to watch is inflation, as inflation reduces the value of fixed investments like Mortgage Bonds and impacts the home loan rates tied to them. The closely-watched Core Consumer Price Index (CPI), which strips out volatile food and energy readings, saw its largest increase in 11 months, rising 0.3 percent compared to the 0.2 percent expected. Moreover, year-over-year Core CPI increased to 1.8 percent from the 1.7 percent registered in November. 

Wholesale inflation did remain tame in December, as the Producer Price Index declined 0.1 percent in December from November. This was the first decrease in nearly one-and-a-half years. It will be important to see which way the trend continues with inflation in the weeks and months ahead, as this could impact the direction of home loan rates.

Despite the mixed news, home loan rates still remain attractive and near historic lows. 

Forecast for the Week

Manufacturing and housing news will be the key reports to watch.

  • Look for manufacturing data in Tuesday's Empire State Index and Thursday's Philadelphia Fed Index.
  • The NAHB Housing Market Index will be released on Wednesday, followed by Housing Starts and Building Permits on Thursday.
  • As usual, weekly Initial Jobless Claims will be delivered on Thursday.
  • The Consumer Sentiment Index releases on Friday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based. 

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse. 

To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.  

As you can see in the chart below, Mortgage Bond prices dropped in recent days thanks in part to headlines from China. Home loan rates remain attractive.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jan 12, 2018)