Mortgage Mike’s Daily Rate Commentary

Home appreciation numbers are in this morning showing a 1% increase in value from last month and 6.5% from last year! This is amazing news for current owners who experienced that large equity jump. But will the trend continue? A lot of people in the media have had to continue to revises their stance on the housing market as it blows past expectations. Many are now saying that we will see a slow down later this Fall. Well, as the market continues to open and many signs pointing toward a large housing shortage, you can defiantly argue that it will last longer.

 

We also received numbers for purchases and refinances this month. Refinance are up 86% from last year while purchases are up 26%. There are a lot of things driving this but this is largely driven by interest rates being down about 1% from last year.

 

Mortgage backed securities are slightly down this morning as their trading channel continues to shrink. As this channel gets smaller, they will be forced to break out one way or another. It is more likely that they will breakout to the upside and we see pricing improve; however, this is not guaranteed. You may be able to catch these gains by floating and watching the market closely but the safe play is to lock as rates still hover near all time lows.

Many heard the news from the Fed that rates will continue to be low into 2023. However, the Fed Funds Rate is not the same as mortgage rates. Like we have said, there are many inflationary forces in the market right now and we expect to see mortgage rates rise alongside inflation.

 

We had a disappointing jobless claims report. Over 860k people filed for unemployment last week. This number seemed to go against the news that everyone has been hearing about the rate at which the economy is opening back up. But we still have about 29 million people receiving some sort of unemployment stimulus.

 

Mortgage bonds are at the bottom of a trading channel this morning – below both their 25 and 50 day moving averages. This means that you can make up some ground by floating as bonds will likely make their way upward. However, the move higher may be restricted due to the double ceiling.

Good morning everybody! You may have noticed that our post above changed from our Purchase Special to a Cash Out Special. We still are able to get an awesome rate for buyers, but we recently saw a huge price drop in our cash out products. So if you have considered taking out some equity in the future, now is the time to act as the .5% refinance tax will being going into place very soon.

 

Mortgage backed securities are down this morning after falling below their 50 day moving average. This is largely in anticipation of how high the Fed will allow to rise – many economists believe above the 2% target. As we went over late last week, this will push mortgage rates higher. With so much room to fall now, we hold a locking bias.

Good afternoon everyone and happy Friday. We got some awesome news earlier this week that our cash out products pricing has dropped as has the time it takes to close on one. This is an awesome opportunity for people to take some equity out of their homes before the refinance tax goes into place towards the end of the year. So if you have been on the fence about doing a cash out, now is the time!

 

The CPI report came in today showing that inflation continues to rise. The core rate showed a .4% increase from last month and a 1.7% increase from last August. As we have said, we think inflation will continue to rise as the market continues to open up (remember the lumber market situation from a couple weeks ago?). If this inflation trend continues, mortgage rates will follow. This is because as the dollar loses value, investors require a higher return.

 

The stock market is ticking up this morning. Mortgage backed securities are squeezed between the 25 and 50 day moving averages. They are going to break out one way or the other soon. As we know, we are more mad about rates going up than we are happy about them going down, we hold a locking bias.

I hope everyone had a great Labor Day weekend and that everyone is safe this morning as thousands of people are without power due to crazy winds in the valley.

 

Core Logic’s delinquencies report came in. The number of 30 day late as well as 60-90 day late mortgages were slightly down from last month. However, the number of loans that are more than 90 days late increased 1.5% showing increasing foreclosure risk in the future once government programs pull back.

 

Mortgage bonds are up 16 bps this morning following the tumbling stock market starting on Thursday. We are now sitting on the 25 day moving average. If losses in the stock market continue, it is likely that we will rise above and potentially have a run at the highs we saw in mid-August. It is safest to lock; however, if you are able to closely watch the market, there’s potential upside to floating.

Stocks responded positively to a promising jobs report this morning before ticking back down. The BLS reported a near 1.4M job jump as well as a decline in unemployment to about 8%.

 

Next week we will be getting number on inflation which could have big ripples throughout the market. Similar to when the Fed announced they were going to allow inflation to increase, we could see an increase in mortgage rates if the report reflects inflation growth. Like we went over on Wednesday, a likely driver of this inflation will be the pandemic induced bottlenecked supply chains.

 

There’s good news in the mortgage world today. Mortgages in bailout are down 147k or 4% since last week according to Black Knight. However, 3.8 million loans are still in forbearance – down 1 million from its peak.

 

Mortgage backed securities are down about 9 bps this morning; likely due to the promising jobs report. They dropped toward their 25 day moving average this morning but have moved a bit higher since their low point. We are holding a locking bias because of the room they have to fall if they continue to test their 25 day moving average.

Happy hump day everyone! A little bit of disappointing news in the job market today. The ADP jobs report came in at 428k. This is only 36% of the original 1.2M estimate. The number of people coming back to work is great for the economy but does raise the concern of inflation. The big question is if supply chains will be able to handle increased demand once people feel comfortable going out and have more disposable income. Maybe supply chains will scale up quickly, or we could see the same thing that is happening in the lumber market.

 

Mortgage backed securities are slightly down today. However, it looks like they may be making a run at their 25 day moving average. We suggest to carefully float hoping they will break above. However, be in a position to lock quickly in case they continue to fall.

Stocks are flat this morning as the S&P is set to close out its best month since April. The 7% gain in August has left many investors wondering how much more the market can rise with so many skeletons in its closet. In an interview with CNBC, billionaire investor Leon Cooperman, talked about how much pent up demand the market in “pulling forward” from the shutdown that is inflating the market. This demand will not last; especially with the number of people and industries still on stimulus. Cooperman expects market returns to be “unimpressive for a long time”.

 

As building continues to boom, so does the price of lumber. Lumber prices are up 8% since last week and up 111% from last year! Like we addressed a couple weeks ago, lumber companies drastically reduces their capacity going into COVID because they expected a slowdown. However, new builds are the highest they have ever been and these constricted lumber companies cannot keep up. This is inflating the price of lumber and newly built homes.

 

Mortgage rates are flat this morning. They still have the threat of falling closer to their 50 day moving average so we will hold a locking bias.

The US stock market continues to defy logic and is currently setting new all-time high levels.  The stock market’ growth has largely been fueled by the Federal Reserve’s bond buying program, which has pushed many investors out of fixed return investments for the hope of larger gains within the stock market.  This points out one major risk to the low interest rate environment that impacts our older population who is forced to take on risk just to obtain a livable return on their investment accounts.  As the Fed drives rates lower, there are few opportunities to receive a decent return without taking on risk.  Given the age of many retirees, stock market risk is not something that has been considered as reasonable for this population segment.  Let’s just hope that we don’t see a significant drop in stock prices.

 

This morning we received an update on the Fed’s favorite measure of inflation, the Personal Consumptions Expenditures (PCE) rate.  Headline inflation numbers increased by .3% last month, driving the annualized rate from 0.9% up to 1%.  When stripping out food and energy prices, the Core rate increased by 0.3% last month, with an annualized increase moving from 1.1% up to 1.3%.  Given that we are still well below the Fed’s target rate of 2%, there is a long way for inflation to rise before having much concern.  However, given the current growth rate, and the amount of government stimulus, we could see a 2% rate happen within the next year.

 

Mortgage interest rate pricing has been moving higher the past week.  However, today we are seeing bond prices stabilize.  As long as prices can hold above their 25 day moving average, there is no need to rush to lock.  However, if prices break beneath this critical level, lock.

Big news in the refinance market this morning. The additional .5% fee that was going to be added to all conventional refinances has been delayed from September to December. This is good for those who are looking to refinance in the near future. However, to the rest of the mortgage industry, this is still a large fee that will have an adverse effect to many consumers and the industry as a whole.

 

Jerome Powell will be speaking tomorrow regarding the execution of the Feds goals of raising employment and price stability. The big concern that the mortgage industry has is any news coming out regarding inflation. For a while now, the Fed has targeted 2% annual inflation. With the massive stimulus of the past 2 quarters, there are talks of the target being raised. This will negatively effect rates because lowering the value of the dollar means any asset with a fixed return is now worth less.

 

Mortgage bonds continue to fight their 50 day moving average. With the risk of an inflation announcement pushing rates higher, we hold a locking bias.