Housing market increases

Daily Rate Update: September 8th-11th

Tuesday – September 8  

As the country continues to reopen and with just a few states on some sort of partial lock down, small businesses are trying to get back to some normalcy. The NFIB Small Business Optimism Index increased 1.4 points in August to 100.2, slightly above the historical 46-year average … a very good sign for business owners as well as workers. NFIB Chief Economist Bill Dunkelberg said, “We are seeing areas of improvement in the small business economy, as job openings and plans to hire are increasing, but many small businesses are still struggling and are uncertain about what the future will hold.”

The U.S. financial markets kick off the week with the unofficial end of summer now that Labor Day is in the rear-view mirror. The bond markets are higher but will have to digest a whopping $108 billion in Treasury securities this week beginning with today’s $50 billion 3-year Note auction. The U.S. stock markets are lower as investors look to book some profits after the massive gains seen since March. The economic calendar is light this week but there is a key report on consumer prices with the inflation reading Consumer Price Index on Friday.

Courtesy of Mortgage Market Guide

Wednesday – September 9  

Mortgage lenders were chained to their desks during the second quarter of 2020 with the highest quarterly origination volume on record with nearly $1.1 trillion in first lien mortgages originated in the quarter. Black Knight also reported that refinance volumes were up over 60% from Q1 2020 and more than 200% from the same time last year, accounting for nearly 70% of all first lien originations by dollar value. “Despite the nation being under pandemic-related lockdowns for much of the quarter, a record-breaking surge in mortgage originations occurred in Q2 2020, driven by the record-low interest rate environment,” said Data & Analytics President Ben Graboske.

The ultra-rate environment boosted mortgage application volume in the latest week, reports the Mortgage Bankers Association (MBA). The MBA reports that the Market Composite Index, a measure of total mortgage loan application volume, rose 2.9% for the week ending September 4, 2020. The Refinance and Purchase Index both increased by 3%. The 30-year fixed-rate mortgage was unchanged at 3.07% with 0.36 in points and fees. The survey covers over 75% of all U.S. retail residential mortgage applications.

After the three-day tech wreck, U.S. stocks are rebounding while bond prices are steady and near unchanged. The NASDAQ’s recent plunge pushed the index into correction territory with a 10% decline. The NASDAQ (10,847) closed below its 50-day Moving Average (10,880) yesterday but has “gapped” higher or opened above this support level to trade at 11,098. The index closed at 6,860 back on March 23 at the height of the pandemic.

Courtesy of Mortgage Market Guide

Thursday – September 10  

Americans filing for first-time unemployment benefits remained below the 1 million mark in the latest week though over 13 million remain unemployed – so there is “more wood to chop.” Weekly Initial Jobless Claims were unchanged at 884,000 and down from the 6 million mark seen in late March. Hopefully, Congress can come together to help those in need. There has been catastrophic losses in the restaurant and hospitality industry that might be averted or subdued, should Congress act swiftly.

Mortgage rates hit record lows in the latest survey due to a slight slowdown in economic activity at the end of the summer. Freddie Mac reports that the 30-year fixed-rate mortgage fell to 2.86% with 0.8 in points and fees. That is the lowest rate since records began in 1971. Low rates have been a big support for the positive gains in the housing market as of late but there could be a hurdle ahead for potential buyers. Sam Khater, Freddie Mac’s Chief Economist said, “Heading into the fall it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity.”

Gas prices remained low during the summer months and were the cheapest since 2004 at $2.15. The national average price for a regular gallon of gasoline has risen to $2.20 but as the fall and winter appear, Americans to drive less after the drop off in demand that has been seen since the pandemic began. A year ago the price was $2.56. “Summer may be fading into the rear-view mirror, but less expensive gas prices are not,” said Jeanette Casselano, AAA spokesperson. “Moving into fall we traditionally see a drop in demand and further savings at the pump. This year that means pump prices could possibly push even lower then we’ve already seen in 2020.”

Courtesy of Mortgage Market Guide

MMG Daily – Friday – September 11, 2020 – 9:48 a.m. ET

Current Trend Direction: Sideways

Advise Your Clients: Start day floating

Current Price of FNMA 2.5% Bond: $105.03, +3bp

Please remember the near 3,000 souls who perished on 9/11/2001.

The Fannie Mae 30-year 2% and 2.5% coupons had their monthly rollover yesterday with the effect being -16bp for both.  The rollover has zero impact on pricing and the Candlestick on chart must be taken with a grain of salt.

Consumer inflation edged higher in August due to a sharp rise in the used cars and trucks sector while prices for gasoline, shelter, recreation, and household furnishings also increased. The BLS reports that the Consumer Price Index (CPI) for August rose 0.4% versus the 0.3% expected with the Core CPI doubled expectations of 0.2% rising by 0.4%. The annual Core CPI increased 1.7%, the most since March.  At the moment, the market reaction is muted, but it won’t be should future readings see a continued rise in inflation.

Remember – the Fed has changed its approach to inflation.  They will allow it to run hot for some time before considering a rate hike.  In our eyes, CPI would have to run close to 3% and the Fed’s favored gauge on inflation, PCE would have to be closer to 2.5%.  CPI and PCE have different methodologies, and when we hear the Fed’s 2% target – it’s about PCE, which is currently at 1.3%, well below the 2.5% we think will be a level prices would have to stick at for a while before the Fed starts hiking.

Mortgage Bonds and Treasury prices are near unchanged as the 10-year yield is at .67%. Stocks are higher after yesterday’s extreme volatility with big gains seen in the morning only to close considerably lower after the Senate stimulus failed to pass.  The sad reality – we may not see a stimulus plan passed until after the election. That is how things run in Washington.

Next week is shaping up to be another big headline risk week. Some key data points from housing, manufacturing, consumer attitudes and the closely watched Retail Sales report will be delivered. The big event will be the two-day Fed meeting beginning on Tuesday and ending on Wednesday with the monetary policy statement at 2:00 p.m. ET accompanied by a set of economic projections with Fed Chair Powell’s news conference at 2:30.

The Fed will be purchasing up to $5.385B in mortgage-backed-securities today. There are three operations at 10:00 – 10:20 A.M. ET, 11:30 – 11:50 a.m. ET and 1:00 – 1:20 p.m. ET. The FNMA 30-yr 2% and 2.5% coupons will see the bulk of the buying. The Fed’s concentration in 2’s will continue to push mortgage rates lower.

Courtesy of Mortgage Market Guide