Daily Rate Update: October 21st-25th

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Friday – October 25, 2019

There will be several hurdles for the US financial markets to jump and for investors to digest next week. The ADP Private Payrolls Report and the government’s Jobs Report, both for October will be delivered. In addition, quarterly earnings reports will continue, ongoing Brexit talks, the inflation reading Core PCE, and the high jump of the Fed’s monetary policy statement will be released on Wednesday afternoon at 2:00 p.m. ET. The Federal Reserve is expected to cut the fed funds rate by 0.25%.

Many in the media report that when the Federal Reserve lowers the short-term fed funds rate, mortgage rates move lower. That is not the case. So, if a Fed rate cut doesn’t lower mortgage rates, what drives mortgage rates? Mainly inflation expectations and economic growth, but geopolitical issues like U.S./China and Brexit may also impact mortgage rates. A lower fed funds rate affects short-term loans such as auto loans, home equity lines of credit, credit cards and oh yes, your savings deposit rate goes down too.

With the holiday shopping season just around the corner retailers are scrambling to find workers to handle the hopefully big uptick in customer demand. Some of the big-name retailers such as Target are looking to hire 130,000 seasonal workers, Kohl’s 90,000, UPS 100,000, and Amazon tens of thousands, to name a few. From the consumer end, Americans are expected to spend an average of $1,047.83 this holiday season, up 4% from the $1,007.24 they said they would spend in 2018. The forecast estimated that holiday retail sales in November and December will be up between 3.8% and 4.2% over 2018 for a total of between $727.9 billion and $730.7 billion. That’s a lot of gifts!

Courtesy of Mortgage Market Guide

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Thursday – October 24, 2019

Sales of new single-family homes fell by 0.7% in September from August to an annual rate of 701,000 units, which was just below the 703,000 expected. Compared to September 2018, new home sales surged 15.5% from 607,000 units. The median sales price of new houses sold in September 2019 was $299,400. The average sales price was $362,700. Monthly supply was at 5.5 months, just below six months which is seen as normal. Sales declined in the Northeast, South and West with a gain seen in the Midwest.

From global central bank news, the European Central Bank left its benchmark interest rate unchanged and will begin quantitative easing on November 1. The US Federal Reserve will be cutting the benchmark Fed Funds Rate at next week’s Federal Open Market Committee meeting that kicks off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement. Fed Chair Powell has stated that the central bank will “act as appropriate to support continued (economic) growth and a strong job market and that there’s no reason why the expansion can’t continue.” The global punch bowl is back.

Quantitative easing or QE from Investopedia: Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment. Quantitative easing increases the money supply by purchasing assets with newly created bank reserves in order to provide banks with more liquidity.

Courtesy of Mortgage Market Guide

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Wednesday – October 23, 2019

Positive news in the past few weeks pushed bond prices lower and in turn, home loan rates increased in the latest survey from the Mortgage bankers Association (MBA). The MBA reports that the 30-year fixed-rate mortgage rose ten basis points to 4.02% with 0.38 in points for the week ending October 18, 2019. Despite the increase, home loan rates remain just above three-year lows.

The MBA report went on to reveal that the Market Composite Index, a measure of total loan application volume, fell 11.9%, the Refinance Index decreased 17%, and the Purchase Index declined 3.6%. Mike Fratantoni, MBA’s senior vice president and chief economist said, “Although purchase applications declined, application volume is still running about 6% ahead of this time last year. Low mortgage rates continue to fuel buyer interest, but supply and affordability challenges persist.”

Home prices edged higher in August up 0.2% from July and increased 4.6% from a year ago, according to the Federal Housing Finance Agency (FHFA) in its House Price Index. The FHFA regulates Fannie Mae, Freddie Mac and the 11 Federal Home Loan Banks. The FHFA produces the nation’s only public, freely available house price indexes (HPIs) that measure changes in single-family house prices based on data that cover all 50 states and over 400 American cities and extend back to the mid-1970s. These government-sponsored enterprises provide more than $6.3 trillion in funding for the U.S. mortgage markets and financial institutions.

Courtesy of Mortgage Market Guide

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Tuesday – October 22, 2019

Sales of previously owned homes unexpectedly fell in September from August, due in part to low inventories of homes for sale on the market. The National Association of REALTORS® reports that existing home sales fell by 2.2% in September to an annual rate of 5.38 million units versus the 5.52 million expected. The decline comes after two consecutive months of gains. Despite the monthly decline, sales rose nearly 4% year-over-year. Declines were seen in all four regions of the country.

The median existing-home price rose nearly 6% from a year ago to $272,100. Total inventories fell 2.7% from a year ago and are now at a 4.1 month where six months is seen as healthy. “We must continue to beat the drum for more inventory,” said Lawrence Yun, NAR’s chief economist, who has called for additional home construction for over a year. “Home prices are rising too rapidly because of the housing shortage, and this lack of inventory is preventing home sales growth potential.”

US financial markets are quiet this morning as traders gear up for next week’s highly anticipated Federal Open Market Committee meeting. The two-day meeting kicks off on Tuesday the 29th and ends on Wednesday afternoon the 30th when the monetary policy statement is released at 2:00 p.m. ET. The central bank is expected to cut the short-term fed funds rate by 0.25% to bring it to 1.75%. The fed funds rate is the rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis. The fed funds rate impacts auto and student loans, helots, and the prime rate.

Courtesy of Mortgage Market Guide

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Monday – October 21, 2019

Fannie Mae released its October 2019 Economic and Housing outlook recently showing that residential fixed investment and continued strong consumer spending are expected to help counteract weakness in business fixed investment. Fannie Mae sees full-year Gross Domestic Product at a solid rate of 2.2% for 2019. The housing market is expected to be a source of strength in the foreseeable future. In addition, Fannie Mae went on to say that home prices appear likely to maintain a positive growth trajectory due in part to persistently low mortgage rates and evidence of declining inventory.

Over the weekend, there were positive trade headlines out of China along with President Trump’s comments on Friday that he feels a deal can be signed in Chile next month. Additionally, earnings season has been a positive surprise for US stocks. The S&P 500 company earnings were expected to decline by 3.1% compared to last year but of the 73 companies that have reported so far this season, 84% have beaten estimates, reports Reuters. This week, some big-name companies will be reporting and the numbers could impact the markets.

There were no economic reports due for release today and the rest of the week’s calendar is on the light side. New and existing home sales will be released as the markets look for continued strength in the sector. The US financial markets will continue to be gripped in the US-China trade headlines, corporate earnings and the Brexit talks from the UK – all of which have been positive. The closely watched S&P 500 (3,002) is now just below its all-time closing high (3,025) hit back in late July.

Courtesy of Mortgage Market Guide

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