Mortgage rates had a slight improvement last week and we saw them fall overall by around .125%. No earth shattering but heading in a better direction. With core inflation over the Fed’s 2% target, we are reading more Fed members call for additional rate hikes this year, for anywhere from 1 additional rate hike to 4 additional rate hikes. I think they will likely settle on 2 more rate hikes this year. It is still taking time for potential home buyers to get into contract as more buyers try to capture the current low rate environment before rate rise further. One tool I am using to help home buyers is to let them write 15 day contracts because I have lenders with whom I am closing loans in 15 days like clockwork. This one simple advantage has been separating buyers I am working with form the rest of the offers that require mortgages. There may be a $100 – $200 extra cost in fees to rush the process but it is well worth it if a short closing is the difference between getting into contract and not getting into contract. Feel free to contact me for a free consultation any time.
The stock market had a pretty strong week, with the Dow closing almost 1% higher at 20,663 and the S&P 500 Index closing almost 1.5% higher at 2329. There were several Fed speakers during the week and one of the things that they talked about was their balance sheet – They have $4 Trillion they are holding, $1.7 Trillion of which is Mortgage Backed Securities. They want to eventually let this run off. They would like to get the Mortgage portion off their balance sheet first and hold predominantly government securities. And if they allow them to run off or sell them, it could be very disruptive because the Fed is still buying $4-7B per week on average from reinvestments. This has been supporting Mortgage Bonds and if they decide to stop doing this, it takes a big buyer out of the market.
The week’s economic data were mixed. In housing news, the Case-Shiller Home Price Index, which tracks the changes in the value of residential Real Estate across the US, showed that home prices in February continued to accelerate. The report tracks the changes of Real Estate values in 10 cities, 20 cities, and nationally. The national reading showed that home prices rose from 5.8% to 5.9% on a year over year basis…which is the best reading in over 2.5 years. The 20-city index, which is also widely viewed, improved from 5.6% to 5.7%. Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities.
Pending Home Sales, which measures signed contracts on existing homes, rose by 5.5% to 112.3 in February. This was much stronger than estimates of a 2.4% gain and a nice rebound from last month. Sales are up 2.6% year over year and are at their highest level in nearly a year and second-highest level in over a decade. This read is even more impressive when you consider it’s in the face of such low inventory levels.
The Mortgage Bankers Association released their Mortgage Application Data for the week ending 3/24, showing that overall application volume decreased by 0.8%. Applications to Purchase a home increased by 1.0% and are up 4.3% year over year. Refinances decreased by 3.0% and are down 26% from this time last year. Interest rates are about 40bp higher than they were last year. The Refinance share of Mortgage Applications decreased to 44.0% from 45.1% of total applications, the lowest it has been in over 8 years. The ARM share of applications dropped slightly to 8.5% from 9.0% the previous week.
The Final look at the 4th quarter Gross Domestic Product (GDP) showed that GDP was revised up by 0.2% to 2.1%, which was better than estimates of 2.0%. The economy expanded at 1.6% for all of 2016, which is its worst performance since 2011. This is old news as we just finished the 1st quarter of 2017. And there is quite a bit more optimism for future GDP reads with Trump’s plans for lower regulations, tax reform, and infrastructure spending.
Lastly, the Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), was released. The headline figure increased from 1.9% to 2.1%. This is the first time in almost 5 years that headline PCE inflation was over 2%. The Core rate, which strips out food and energy prices and is the main focus of the Fed, remained unchanged at 1.8%…but last month’s figure of 1.7% was revised higher to 1.8%. The Core PCE is also the highest it has been in almost 5 years, which shows that inflation has been accelerating. The headline figure is now above the Fed’s 2% target, while the Core rate is very close. Both the Headline and Core CPI readings are above 2%.
Economic Calendar – for the Week of April 3, 2017
The most important repots of the week will be the ADP Employment Report on Wednesday and the BLS Jobs Report on Friday. The Market is anticipating between 170-180k job creations in each report. Additionally, we will get the Minutes from the 3/15 Fed Meeting on Wednesday, which will give us a closer look into the mindset of the Fed and their decision to hike.
As always, your loan guy,
Viral (Vic) Joshi
P.S. If you want to get more timely market updates, I have a weekly newsletter that goes out via e-mail. E-mail me, viral@vicjoshi. com, so that I can put you on the mailing list.
Loan Consultant/Branch Manager
C2 Financial Corporation