Daily Rate Update: June 10th-14th

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Friday June 14, 2019

The consumer is alive and well in the US as May retail sales jumped 0.5% from the gain of 0.3% in April, which was revised higher from a -0.2% while March was also revised higher. When stripping autos, sales jumped 0.5% from the gain of 0.5% in April which was revised higher from 0.1%.

When April’s weak retail sales numbers were released, it was said by pundits that consumer confidence for spending was “shaken!” That theory has been flushed the drain. Consumers spent on a broad array of goods as the strong sales for April and May could boost Q2 Gross Domestic Product. The Goldilocks economy lives on with no signs of a recession in the foreseeable future or for all of 2019.

Applications to purchase new homes surged in May from the previous year due in part to solid consumer confidence as well as a strong labor market. The Mortgage Bankers Association reports that its Builder Application Survey for May showed a 20% increase for mortgage applications for new home purchases, up 0.1% month-over-month from April to May. Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting said, “Declining mortgage rates and more new entry-level supply are good news for the housing market this summer.”

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Thursday – June 13, 2019

After six straight weeks of declines, mortgage rates held steady this week and remain at lows seen in September 2017. Easing trade tensions with Mexico helped to stabilize the markets. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged at 3.82% today with an average 0.6 in points and fees. Freddie Mac says these historically low rates should provide continued opportunities for current homeowners to refinance their mortgages which, combined with new homebuyer activity, will help sustain the momentum in the housing market in 2019.

The US capital markets will be zeroing in on next week’s two-day Fed meeting which kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. There is a very small probability (20%) of a cut to the benchmark Fed Funds Rate but that surges to an 85% chance in July. The Fed will also release a summary of economic projections with the monetary policy statement.

Americans filing for first-time unemployment benefits remained near 50-year lows in the latest week as the labor market continues to tighten. Weekly Initial Jobless Claims rose by 3,000 in the latest week to 222,000. The four-week moving average of claims, which irons out seasonal abnormalities, increased 2,500 to 217,750 last week.

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Wednesday – June 12, 2019

Consumer inflation remained tame in May as rising food prices were offset by a decline in the price of gasoline at the pumps. The Consumer Price Index (CPI) rose just 0.1% in May after a 0.3% gain in April. The Core CPI, which strips out food and energy, matched estimates of 0.2%, as an increase in food prices were offset by declining prices at the gas pumps. Year-over-year CPI rose 1.8% from April’s 1.9% while the Core rate increased 2% from 2.1%. Low inflation will keep the Federal Reserve on course this year to cut interest rates. The uncertainty surrounding trade tensions with Mexico and China last week along with weaker than expected job growth pushed mortgage rates lower falling a sizable amount in the last two weeks. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell eleven basis points to 4.12% with 0.33 in points in the week ended May 31, 2019. In addition, the Refinance Index soared nearly 47% while the Purchase Index jumped 10%. The 30-year fixed-rate mortgage for jumbo loans fell to 4.04% with 0.17 in points. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. US stocks are lower this morning after the big gains seen in June thus far. The closely watched S&P 500 gained 6% from the close of 2,744 on June 3 until yesterday’s intraday high of 2,910 when the rally faded as investors looked to book some short-term profits. With stocks near all-time highs, small business and consumer confidence near record highs, low inflation and a growing economy, the “Goldilocks” economy marches on with the odds of a near-term recession low.

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Tuesday – June 11, 2019

Mortgage credit availability increased in May due in part to a fifth straight gain in the jumbo index. The Mortgage Bankers Association reports that its Mortgage Credit Availability Index (MCAI) rose 1.9% in May to 189.5. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. “Credit supply increased 2% in May, driven by the fifth straight gain in the jumbo index, which was up 7% and surpassed last month as the new all-time survey high,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.

Small business optimism roared back in May to near historic highs due in part to strong hiring, investment and sales. The NFIB Small Business Optimism Index rose 1.5 points in May to 105.0. The report went on to reveal that earnings, job creation and compensation remained strong in May. NFIB President and CEO Juanita D. Duggan said, “The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees, and the economy as a whole.”

Wholesale inflation remained tame in May as the Producer Price Index (PPI) rose 0.1%, in line with estimates while the Core PPI rate also met expectations. With trade headlines dominating the headlines, these minor economic reports, which are reported close to expectations, are not influencing the market. The more closely watched Consumer Price Index will be released tomorrow but again, in absence of a wild surprise, there should not expect much of a market reaction.

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Monday – June 10, 2019

Due to the recent decline in the 30-year mortgage, refinancing your current mortgage could be beneficial to a large portion of mortgage holders. Black Knight reports that there are nearly seven million Americans that hold a mortgage that can now refinance at a lower rate of at least a 0.75% difference between their current mortgages and today’s rates. The average savings could equate to $268 a month. Black Knight says that if each eligible mortgage holder refinanced, it would be an aggregate savings of of $1.8 trillion a month, which would surely boost consumer spending.

US stocks are higher to begin the new week and is adding to last week’s gains. Stocks got a boost last week when the Federal Reserve signaled that the central bank may cut rates in 2019 in order to keep the economic expansion on track. Adding to the positive vibes in the equity markets this Monday morning is word the White House canceled tariffs on Mexico, citing progress on border security. The closely watched S&P 500 Stock Index is up 6.2% from June 3.

Fannie Mae reports that Americans’ confidence in housing was near its survey in May fueled by a big jump in the “good time to buy” component. Fannie Mae released its Home Purchase Sentiment Index for May showing an increase of 3.7 points to 92, just below the 92.3 set in may 2018. A 13-percentage point increase if the “good time to buy” component drove the index higher. “Consumers’ sense of income growth and job security have moved lower from the highs established earlier in the year, which, if sustained, could weigh on the housing market in the second half of the year,” said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae.

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