Weekly Mortgage Interest Rate Review for 2/23/2018
The major stock market indexes showed a modest move higher this past week due to a late rally on Friday that erased losses posted on Tuesday and Wednesday when the indexes displayed increased intra-day volatility. In the middle of the week, investors were worried over recent market volatility, rising interest rates, and the S&P 500 Index closing below its 50-day moving average of 2,726.
There were not a lot of economic reports last week except for Wednesday’s release of the minutes from the Federal Reserve’s January FOMC meeting. The minutes showed a majority of FOMC members expect inflation to increase in 2018 with most members believing in stronger economic growth that will raise the “likelihood that further gradual policy firming would be appropriate.” The stock and bond markets reacted negatively to the release with the yield on the benchmark 10-year Treasury note moving up to a four-year high on Wednesday to 2.94% before pulling back to 2.866% by Friday’s close to finish flat for the week.
However, stocks seemed to get a boost late Friday after the Fed released its semiannual Monetary Policy Report to Congress, indicating the Fed expects inflation to remain below their 2% target in 2018. New Fed Chair Jerome Powell will be testifying about monetary policy before Congress next week.
The National Association of Realtors reported Existing Home Sales fell 3.2% month-over-month during January to a seasonally adjusted annual rate of 5.38 million compared to December’s rate. On a year-over-year basis, the decline in sales was an even worse 4.8%, the largest annual decline since August of 2014. Although the inventory of homes for sale at the end of January increased 4.1% to 1.52 million units, it is 9.5% lower than the same period a year ago and remains a headwind for future Existing Home Sales. Unsold inventory is at a 3.4-month supply at the current sales rate compared to 3.6 months a year ago.
Low housing inventory is also leading to higher home prices. The median price for all categories of homes in January was $240,500, 5.8% higher than the same time a year ago and the 71st straight month of year-over-year gains in home prices. The median price for existing single-family homes increased 5.7% from a year ago to $241,700.
According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.64% from 4.57% to its highest level since January 2014, with points increasing to 0.61 from 0.59.
For the week, the FNMA 4.0% coupon bond was unchanged to close at $102.469 while the 10-year Treasury yield decreased 0.71 basis points to end at 2.866%. The major stock indexes moved modestly higher on the week.
Economic Calendar – for the Week of February 26, 2018
Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
|Event /Report /Statistic||For||Market Expects||Prior|
|Feb 26||08:30||New Home Sales||Jan||645,000||625,000|
|Feb 27||08:30||Durable Goods Orders||Jan||-2.0%||2.9%|
|Feb 27||08:30||Durable Goods Orders excluding transportation||Jan||0.5%||0.6%|
|Feb 27||08:30||International Trade in Goods||Jan||-$72.2B||-$71.6B|
|Feb 27||09:00||S&P Case-Shiller Home Price Index||Dec||6.4%||6.4%|
|Feb 27||09:00||FHFA Housing Price Index||Dec||0.4%||0.4%|
|Feb 27||10:00||Consumer Confidence Index||Feb||126.5||125.4|
|Feb 28||07:00||MBA Mortgage Applications Index||02/24||NA||-6.6%|
|Feb 28||08:30||Second Estimate of 4th Qtr. GDP||Qtr. 4||2.5%||2.6%|
|Feb 28||08:30||Second Estimate of 4th Qtr. GDP Deflator||Qtr. 4||2.4%||2.4%|
|Feb 28||09:45||Chicago Purchasing Managers Index (PMI)||Feb||64.5||65.7|
|Feb 28||10:00||Pending Home Sales||Jan||0.4%||0.5%|
|Feb 28||10:30||Crude Oil Inventories||02/24||NA||-1.6M|
|Mar 01||08:30||Personal Income||Jan||0.3%||0.4%|
|Mar 01||08:30||Personal Spending||Jan||0.2%||0.4%|
|Mar 01||08:30||PCE Prices||Jan||0.4%||0.1%|
|Mar 01||08:30||Core PCE Prices||Jan||0.3%||0.2%|
|Mar 01||08:30||Initial Jobless Claims||02/24||227,000||222,000|
|Mar 01||08:30||Continuing Jobless Claims||02/17||NA||1,875K|
|Mar 01||10:00||ISM Index||Feb||58.4||59.1|
|Mar 01||10:00||Construction Spending||Jan||0.3%||0.7%|
|Mar 02||10:00||Final Univ. of Michigan Consumer Sentiment Index||Feb||99.5||99.9|
Mortgage Rate Forecast
The FNMA 30-year 4.0% coupon bond ($102.469, unchanged) traded within a 65.6 basis point range between a weekly intraday high of $102.547 on Friday and a weekly intraday low of $101.891 on Wednesday before closing the week at $102.469 on Friday.
The bond traded in a “V” pattern during the holiday-shortened (Presidents’ Day) week. After selling off hard on Wednesday following the release of the January FOMC meeting minutes, the bond rebounded off of support at the $102 level to erase Wednesday’s loss. The bond ended the week unchanged and just below overhead resistance found at $102.49.
The economic calendar heats up this week with Wednesday, March 1 being a significant news day. Personal Income, Personal Spending, and key inflation data from PCE and Core PCE Prices will be reported and could trigger a sizeable market reaction. In all likelihood, bond prices will be driven more by economic news this week than by technical factors. There was a weak buy signal on Friday and even though bonds are “oversold” they are bumping up against resistance, so it will take tame inflation numbers on Wednesday for bonds to have a chance to move higher. If PCE and Core PCE Prices jump higher, bonds will sell off and move back toward support resulting in slightly higher mortgage rates.