Market Commentary

 

For the week of April 24, 2017

Last Week in Review

"It's coming down. Snow pains on the motor veins. Keeps your business on the ground." Trip Shakespeare. Inclement weather during March in the Midwest and Northeast sent a chill in residential new home construction after the unseasonably warm weather in February. 

The Commerce Department reported that Housing Starts in March fell nearly 7 percent from February to an annual rate of 1.215 million annualized units, below the 1.256 million expected. February's reading was revised higher to 1.303 million from 1.288 million. From March 2016 to March 2017, Housing Starts were up 9 percent.


Hopefully, the weather will hold for future construction, as Building Permits in March were up 3.6 percent from the revised February reading and 17 percent above March 2016.

Builder confidence remained solid in April, though it did fall three points to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index. The index gauges builder perceptions of current single-family home sales, sales expectations for the next six months and traffic of prospective buyers. Readings over 50 indicate positive sentiment.

The National Association of REALTORS® reported that Existing Home Sales hit their highest pace in over 10 years in March, with sales climbing 4.4 percent from February to a seasonally-adjusted annual rate of 5.71 million units. March's sales pace is 5.9 percent above a year ago and surpasses January as the strongest month of sales since February 2007. However, demand continues to outweigh supply with inventories down 6.6 percent from a year ago.

Forecast for the Week

First quarter economic growth is expected to be weak when reported at week's end.

  • Housing data this week comes from the S&P/Case-Shiller Home Price Index and New Home Sales on Tuesday. Pending Home Sales will be released on Thursday.
  • Consumer Confidence will be released on Tuesday followed by the Consumer Sentiment Index on Friday
  • Durable Goods Orders and weekly Initial Jobless Claims will be delivered on Thursday.
  • On Friday, Gross Domestic Product and the Chicago PMI 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 reached their best levels of the year in recent days, keeping home loan rates near historic lows.

Chart: Fannie Mae 3.0% Mortgage Bond (Friday Apr 21, 2017)


 

For the week of April 17, 2017

Last Week in Review

"I like spending my money." The Beach Boys. Consumers were holding back on purchases again in March, while home loan rates hit their lowest levels of the year.

Retail Sales fell for the second month in a row, the worst two-month stretch in two years. The Commerce Department reported March Retail Sales decreased 0.2 percent from February. January to February also was revised from the previously reported increase to a decrease of -0.3 percent. These negative numbers could be significant once first quarter Gross Domestic Product is released later this month, as consumer spending makes up two-thirds of overall economic activity. Despite the declines, total sales for the first quarter were up 5.4 percent from the same period a year ago.

Inflation was tame in March on both the wholesale and consumer levels. The Producer Price Index decreased 0.1 percent in March while the Consumer Price Index fell 0.3 percent, the Bureau of Labor Statistics reported. Tame inflation is typically good news for Bonds, as inflation reduces the value of fixed investments. Since home loan rates are tied to Mortgage Bonds, they can also benefit when inflation remains cool

In other important news, uncertainty over the tensions surrounding global events caused investors to move their money into the safer haven of the Bond markets before heading into the holiday weekend.

Forecast for the Week

Housing and manufacturing reports will dominate a busy week, along with continued uncertainty around the globe.

  • Manufacturing data kicks off the week with the Empire State Index on Monday, followed by the Philadelphia Fed Index on Thursday.
  • Housing numbers will come from the NAHB Housing Market Index on Monday, Housing Starts and Building Permits on Tuesday, and Existing Home Sales on Friday.
  • The Fed's Beige Book will be delivered on Wednesday.
  • As usual, weekly Initial Jobless Claims will be released on Thursday.

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 pushed to 2017 price peaks, driving home loan rates to their lowest levels of the year.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Apr 14, 2017)