Market Commentary

 

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)


 

For the week of January 8, 2018

Last Week in Review

"These are extraordinary times." Bon Jovi.  December marked the 87th month in a row for job growth, the longest stretch on record. However, there was some mixed news within the report. 

The Labor Department reported that 148,000 new jobs were created in December. While this was below the 188,000 expected, November's figure was revised higher to 252,000 new jobs from the 228,000 originally reported. This means that the economy produced 2 million jobs for seven straight years, which is a record! 

And there were more positive signs for the labor sector. The Unemployment Rate remained at 4.1 percent, a 17-year low. Average hourly earnings rose 0.3 percent from November's 0.2 percent and increased 2.5 percent year over year, above the 2.4 percent annually in November. Overall, this was a good report.

Home prices remained on the rise in November. Research firm CoreLogic reported that home prices nationwide, including distressed sales, jumped 7 percent from November 2016 to November 2017 and increased 1 percent month over month from October to November. However, price gains are expected to cool as CoreLogic forecasts a 4.2 percent increase from November 2017 to November 2018. CoreLogic's chief economist, Frank Nothaft, said, "Growing numbers of first-time homebuyers find limited for-sale inventory for lower-priced homes, leading to both higher rates of price growth for starter homes and further erosion of affordability." 

At this time, home loan rates remain attractive and near historic lows. 

Forecast for the Week

The second half of the week heats up with key reports on inflation and Retail Sales.

  • Look for a double dose of inflation news with the Producer Price Index on Thursday and the Consumer Price Index on Friday.
  • Weekly Initial Jobless Claims will also be reported on Thursday.
  • On Friday, Retail Sales and the Consumer Sentiment Index will be released.

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 been holding steady in recent days. Home loan rates remain attractive.  

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jan 05, 2018)