Consumer Sentiment 82.5 vs. the estimate of 80.2, which is once again a better than expected economic report that is going to be overshadowed by international events and unlikely to cause a MBS sell off. This means that although rates should deteriorate by going up, the fears of the global economy (including the present day wars and rumors of wars) are keeping this from happening.
We have just experienced GREAT NEWS for the economy including better housing starts. This typically relates to a major worsening in mortgage interest rates. HOWEVER, the conflicts overseas weigh heavily against any deterioration as the global concerns trumped the direction that rates may be taking today.
Last week we enjoyed a hat trick of good news; with existing home sales enjoying particularly good performance, new home construction following with solid gains, and initial jobless claims falling more than expected.
Sales of existing single-family homes, townhomes, condominiums and co-ops during July hit their highest point in the year, and distressed property sales dropped to an important low. July’s existing home sales grew 2.4 percent to hit an annual rate of 5.15 million, marking the fourth consecutive month of growth and the highest pace of 2014, the National Association of Realtors reported last week. That said, July’s sales were still 4.3 percent down from July 2013’s 5.38 million-home rate.
New home construction also saw good news. Starts on construction of new homes in July jumped a whopping 15.7 percent to hit an annual rate of 1,093,000, according to last week’s report from the Census Bureau and the Department of Housing and Urban Development. July’s housing starts were also 7.7 percent over July 2013’s estimate of 977,000. Starts on single-family homes grew by 8.3 percent to a rate of 656,000.
Initial Jobless Claims
First-time claims for unemployment insurance filed by the newly unemployed during the week Aug. 16 dove to 298,000, a drop of 14,000 claims from the prior week’s revised level of 312,000, the Employment and Training Administration reported last week. This soundly beat market expectations of 308,000 claims.
That said, the four-week moving average, which is considered a more reliable measure of near-term employment activity notched up to 300,750 claims, a gain of 4,750 from the preceding week’s revised average of 296,000 claims.
All of the above positive growth is a good sign that out economy is improving. However, good news for the economy is not necessarily positive news for long term interest rates. Consider your options and look to lock in your rate at a moment’s notice.
FOMC Minutes: Labor market is improving, may need to adjust their definition of “slack”
A few thought that tightening should start soon, a few thought it should be way down the line but the majority felt that more data was needed. Slightly negative pricing for the MBS which may cause rates to be a little bit more costly.
There are no major economic releases today until the 2:00EST Fed minutes are released. But our benchmark FNMA MBS (the purchasing of Fannie Mae Mortgage Backed Securities) just broke below our 25 day moving average which is a very negative technical sign and you should be watching this very carefully. This could cause rates to go up….quickly!
Live Charts and Lock Commentary
Fixed rates fell slightly in the past week with rates staying within the same range they have been for almost the past three months. Freddie Mac announced that for the week ending August 14, 30-year fixed rates fell slightly to 4.12% from 4.14% the week before while ABBA First is offering a 4.0% rate today!). The average for 15-year loans ticked down to 3.24% while ABBA First is offering 3.125% rate for 15 years today! Adjustables were also stable in the past week, with the average for one-year adjustables up slightly to 2.36% and five-year adjustables decreasing marginally to 2.97%. A year ago 30-year fixed rates were at 4.40%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans were down slightly amid a week of light economic reports. Of the few releases, retail sales were virtually unchanged in July after a 0.2% increase in June, ending five months of increases. Excluding motor vehicles and parts, retail sales were up 0.1% last month.” (Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes. ABBA First quotes with 0 points and should you decide to pay points, they are used to lower your rate further. See updated rate schedule for easy reference: http://abbafirst.com/north-carolina-mortgage-rates-08.php
This week, we can expect:
• Tuesday — The July budget from the Treasury Department.
• Wednesday — July retail sales and June business inventories from the Census Bureau.
• Thursday — Initial jobless claims for last week from the Employment and Training Administration; July export and import prices from the Census Bureau and the Bureau of Economic Analysis.
• Friday — July producer price index from the Bureau of Labor Statistics; July industrial production and capacity utilization from the Federal Reserve.
If there is good news for the economy (from these reports above, especially if there are lower first time jobless claims), AND if there is less tension in the Middle East and along the Russia/Ukraine border, long term interest rates are bound to move up. Keep your eyes and ears open!
• Fixed rates rose very slightly in the past week, but stayed in the same range they have been for almost two months now.
• Freddie Mac announced that for the week ending August 7, 30-year fixed rates rose slightly to 4.14% from 4.12% the week before.
• The average for 15-year loans ticked up to 3.27%.
• Adjustables were also stable in the past week, but fell slightly with the average for one-year adjustables easing to 2.35% and five-year adjustables decreasing marginally to 2.98%.
• A year ago 30-year fixed rates were at 4.40%.
• Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac –”Rates on home loans were little changed amid a week of light economic reports. Of the few releases, the ISM non-manufacturing index rose to 58.7 in July from 56.0 a month earlier. Also, factory orders were up 1.1% in June. The two reports signal steady economic growth in the third quarter of the year.”
Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
The 10 year note rate unchanged from Friday at 2.42%; 30 year MBS prices +6 bps from Friday’s close. There are no economic reports out today. Last Friday the strong rally in the stock markets was on optimism the tensions in Ukraine and Iraq are likely to ease. That view is following through this morning but those positive views are built on soft foundations and can, (will) change on a dime. All the technical reports remain bullish for the bond and mortgage markets, the stock market rallied Friday and so far this morning; good news for 401Ks but the volume on Friday and likely today was very thin, low volume does take a little away from the improvements; the last two weeks of August usually are slow in financial markets so movements can be exaggerated somewhat. This week is Treasury re-funding, it occurs every quarter with issuance of a new 10 year note and 30 year bond, other than that there is little significant difference between the monthly 10s and 30s other than re-opening the current on the run note and bond. Demand will drive attention in this present geo-political bouncing ball. Market volatility is possible this week on developing news out of the mid-east and Ukraine.
Why a deterioration after an improving market this morning? MBS are pulling back from their intra-day highs (+15BPS) down to -8BPS (an intra-day swing of -23BPS) as the market reacts to Russian troops ending their military drills along the Urkrainian border and returning to their permenant basis.
This was actually announced by Russia four days ago but the bond market is reacting now that it is actually happening.