Weekly Review – 02/16/18
San Diego Mortgage Rates have been trending up over the last few months. In fact, I was contacted by Bloomberg this week to contribute to an article about the increase in mortgage interest rates and their impact on the housing market. You can find that article at https://www.bloomberg.com/amp/news/articles/2018-02-15/bad-news-for-buyers-u-s-mortgage-rates-hit-highest-since-2014?.
The major stock market indexes bounced back this week to recoup almost half of the losses incurred over the previous two weeks. The NASDAQ Composite Index reclaimed 5.3% of the recent losses while the Dow Jones Industrial Average and S&P 500 Index each gained 4.3%. This week’s trading pushed the major stock indexes back above their 50-day moving averages. They still remain about 5% below the all-time record highs reached on January 26.
There was a lot of economic data this week, underscored by a higher than expected inflation reading as measured by the Consumer Price Index (CPI). The January CPI disclosed an increase of 0.5% month-over-month and the core CPI, which excludes food and energy, rose by 0.3%. Both inflation readings exceeded expectations of 0.4% in the CPI and 0.2% in the Core CPI.
The headline month-over-month numbers triggered a knee-jerk reaction in the stock and bond markets, but the year-over-year data muted market reactions to help in the stock market’s recovery. Year-over-year, both the CPI and the Core CPI remain within a range they have had for some time. The CPI is up 2.1% year-over-year and has been between 2.0% and 2.2% for five months and the Core CPI is up 1.8% year-over-year and has been between 1.7% and 1.9% for ten months straight.
Following the release of the CPI report on Wednesday, the yield on the benchmark 10-year Treasury note moved to a four-year high, closing at 2.91%, but then backed off and moved lower on Thursday and Friday to finish the week little changed at 2.87%.
In housing news, the Census Bureau and Department of Housing and Urban Development reported construction of new homes as measured by Housing Starts, increased 9.7% month-over-month in January to an annual rate of 1.326 million. Building Permits also reached a 10 ½ year high, soaring 7.4% to a seasonally adjusted annual rate of 1.396 million. Both Starts and Permits easily exceeded their consensus forecasts. Housing Starts were aided by a 3.7% increase in single-family units totaling 877,000 while the increase in Permits was entirely attributed to permits for multi-unit dwellings.
For the week, the FNMA 4.0% coupon bond lost 7.8 basis points to close at 102.469 while the 10-year Treasury yield increased 1.65 basis points to end at 2.8731%.
This past week, the national average 30-year mortgage rate rose to 4.53% from 4.50%; the 15-year mortgage rate increased to 3.89% from 3.86%; the 5/1 ARM mortgage rate increased to 3.49% from 3.45% and the FHA 30-year rate climbed to 4.33% from 4.30%. Jumbo 30-year rates decreased to 4.53% from 4.55%.
Economic Calendar – for the Week of February 19, 2018
Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
| Date | Time | Event /Report /Statistic | For | Market Expects | Prior |
| Feb 21 | 07:00 | MBA Mortgage Applications Index | 02/17 | NA | -4.1% |
| Feb 21 | 10:00 | Existing Home Sales | Jan | 5.62M | 5.57M |
| Feb 22 | 08:30 | Initial Jobless Claims | 02/17 | 233,000 | 230,000 |
| Feb 22 | 08:30 | Continuing Jobless Claims | 02/10 | NA | 1,942K |
| Feb 22 | 10:00 | Index of Leading Economic Indicators | Jan | 0.8% | 0.6% |
| Feb 22 | 11:00 | Crude Oil Inventories | 2/17 | NA | 1.8M |
Mortgage Interest Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond
The FNMA 30-year 4.0% coupon bond ($102.469, -7.8 bp) traded within a 62.5 basis point range between a weekly intraday high of $102.656 on Wednesday and a weekly intraday low of $102.031 on Thursday before closing the week at $102.469 on Friday.
The bond opened higher on Wednesday near overhead resistance at $102.68 before the release of the CPI data then sold off quickly following the release. The bond then bounced off of support on Thursday and continued higher on Friday. This action generated a new buy signal on Thursday. Despite the rebound on Thursday and Friday, the bond remains deeply “oversold” suggesting further upside potential in the coming week. Therefore, we could see the bond continue to move toward resistance located at $102.68 resulting in stable mortgage rates this week.
Conforming 30 Yr Fixed – 4.375%
Conforming 15 Yr Fixed – 3.875%
Conforming HB 30 Yr Fixed – 4.500%
FHA 30 Yr Fixed – 4.125%
VA 30 Yr Fixed – 4.125%
Non-Conforming 30 Yr Fixed – 4.375%
Non-Conforming 7/1 ARM – 4.000%
Non-Conforming 5/1 ARM – 3.875%