And just like that, January comes to a close.  The DOW 20,000 didn’t have quite the momentum that pundits presumed it would, and the index has lost 150 points today so far, settling in at 19,819.  This selloff in the stock market is boosting bonds, and MBS are up 22 on the day.

The Home Price Index shows a 0.9% increase last month, with a 5.3% year over year advance. Home Prices are still significantly outpacing other measures of inflation; the Employment Cost Index, for example, only rose 0.5% last month and 2.2% for the year. It does cause one to wonder how long this can continue, but the gap has widened over the last 34 years.

Pending Home Sales rose 1.6% last month, beating the 0.6% expected rise by 1.0%–if I did my math right.  November’s number showed a -2.5% decline, so we’ll gladly take a positive number to start out the new year.

Personal Income rose 0.3% last month, a little off the 0.4% increase expected, but better than the goose egg 0.0% from November. Consumer Spending rose 0.5%, which was right in line with expectations.  Mr. T pities the fool who spends more than they earn, be it a family or a country.

The Fed hasn’t been throwing any new money into the mortgage market, but is still buying $8-9 Billion in mortgage backed securities each and every week as their current investments mature.  This has done more to keep mortgage rates low than the Fed Funds Rate manipulation, but we haven’t even talked about TARP in any way for a few years.  Maybe Janet Yellen will mention the program at the conclusion of the FOMC meeting on Wednesday.  Their goal had been to eventually get out of the the purchasing game and let rates stabilize on their own.  The MBS purchasing program has been going on now form almost nine years and has kept rates at record lows during the entire time.

This week brings a Fed Meeting (and the slim possibility of a rate hike), housing data, and a jobs report.

Freddie Mac and Fannie Mae both report that mortgage interest rates edged a little higher this last week.  Also edging higher is Consumer Sentiment, rising by 0.4%.  Since the presidential election, the cost to borrow money and the mood of the shopper have both gone up. It seems to me that that relationship ought to move in inversely proportionate directions, but I am neither a mathematician nor a psychotherapist.  The folks at the University of Michigan who do conduct the studies show that consumers haven’t felt this giddy in over 13 years.  Investors haven’t been this excited in a long time either, which is what pushed the DOW to new record highs up above 20,000 this week.  If rates continue to increase as predicted, we’ll have on happy population before you know it.  Making footprints in the sand certainly wouldn’t hurt either!


This has nothing to do with mortgages or homes directly, but it’s a matter that’s near and dear to my heart, and extrapolations could be made to home buyer tendencies. The National Automobile Dealers Association today published that due to the increase in consumer appetite for new cars, the depreciation rate for the average used car dropped 23% last year–that’s an increase from the previous year’s 18%.

Running of the Bulls?

I am home with my wife, who is recovering from surgery this week, and it’s tough to want to write about the financial markets.  But when the DOW trades above 20,000 for the first time ever, it’s worth a word or two.  Typically after the DOW has hit *000 levels over the last 40 years, the index has risen higher, more quickly, than just before the thousand-level was broken.  This will pull money out of other assets, like bonds, as traders seek to join the throngs cashing in on the bullish move.  That rush to ride the bull wave will take its toll on rates.  Watch for in increase over the next week. That’s my prediction.  


Yesterday, Janet Yellen said that employment is full and inflation in general is closing in on the Fed’s goal of 2.0% growth.  Consequently, she and her colleagues (ie: other Fed members) expect to raise rates “a few” times in 2017.  Additionally, they anticipate to have the ability to guide the Fed Funds rate up to 3.0% by the end of 2019; right now it sits at an average of .625%.  “Rates are going to raise”, she said, “though not dramatically”. But not to be beaten to the punch, and always possessing a flair for drama, the Bond Market immediately sold off 62 bps (.625%) yesterday afternoon, and is starting the day off by dumping another 20 bps.  Drama, it would appear, is in the eye of the beholder.

Industrial Production rose 0.8% last month, even before President Elect Trump demanded that domestic factories bring their labor needs back to our soils.  Those goods are getting more expensive.  The Consumer Price Index rose 0.3% for the month and 2.1% for the year; Core CPI (sans food and those freshly-minted vehicles) rose about the same.

The Housing Market Index falls from 70 to 67, though the majority of indicators still show continued strength in the housing market.  And so do I.

Mortgage Bonds seem to have topped out and prices are fading.  Speaking of fading: the DOW is down 23 points right now, falling further from reaching that elusive 20,000 mark. 

The number of homes across the country that are in foreclosure has gone down by 30% since this time last year.  That is one reason why there aren’t more homes on the market right now.  There are currently only 0.5% of homes in the foreclosure process, though 2.5% of all homes are delinquent on their mortgages.  That’s the most fiscally responsible that we have collectively been in the last nine years.

Speaking of doing well, the NFIB Small Business Optimism Report (yes, someone has actually made it a career to measure how optimistic certain sectors are, and has for at least the last 40 years) rose to the highest level since 2004 this month.  In fact, after the election, the euphoric jump hasn’t been more swift since Reagan was elected president.  It appears the small businesses love their non-career-politician Republicans.
Mortgage pricing has clawed its way back to the top of the red ceiling and stalled there.

Go Fed!

Some people collect baseball cards, others prefer football cards or basketball cards.  In any sport, the better the player does, the more valuable the card becomes.  Kids dream of growing up and becoming just like the guy on the card.  They study the stats, comparing the performance of the different seasons, and comparing the athlete’s achievements to other players in the league.  And in the off season, they watch the draft and the look at trade agreements.

That’s sports, this is finance, and its infinitely more boring than baseball on TV for most people.  This image right here is as close as you’ll ever get to a set of Fed trading cards.  It shows the Chair, Vice Chair, Fed Governors, and the five various Bank Presidents who rotated into voting positions this year.  If you are on the edge of your seat, keep reading, it gets even better.  Last year the voters in the Federal Open Market Committee comprised of five doves, two centrists and three hawks.  Doves are more likely to lower rates and Hawks are more likely to raise rates; Centrists of course, are in the middle.  This year, two of the hawks are being swapped out for two centrists.  Can you believe what you are seeing?  This is incredible news!  The only hawk on the FOMC is Patrick Harker, and he’s from Philly–the city that on renown for their crappy sports teams.  The likelihood of interest rates going up just wend down!

So where last month the Fed committed to three rate hikes this year, and some analysts are predicting as many as four (meaning that they would raise the interest rate at half of their meetings this year),  I don’t see any more that two happening in 2017.  I’ve got my jersey freshly laundered and my face paint at the ready.  Go Fed!   Let’s see nothing happen!

Sorry folks, this one is kind of boring.  But it’s pretty good information if you are looking for mortgage now, or just want to sound a tiny bit smarter as you stand around the water cooler this morning.

The first Jobs Report of the new year comes in showing that only 156,000 new jobs were created last month, down the 204,000 the month before.  Ordinarily, stifled job growth would be seen as a negative economic indicator and would interest rates to drop.  However, today’s publication from the Bureau of Labor Statistics shows that Average Hourly Earnings rose 0.4% last month to cap off 2016 with a 2.9% increase in hourly pay; this is being seen as a sign of future inflation.  And I am sure that you will remember from your Econ 101 class (which I never took because at that point in my life I was an “artist”) that inflationary fears cause interest rates to rise.  And that’s what the markets are latching onto this morning, not the uptick in the Unemployment Rate from 4.6% to 4.7%.

All told, wholesale mortgage bond prices have given back about a third of the losses sustained after the election, but this has yet to be relayed on to consumers–probably because the price decay was so swift that secondary market hedgers lost their shorts on November ninth and need every cent of profit they can scrape together just to keep their jobs.  If we can sustain the current pricing for a few more weeks, we may see rates come back down a touch–but I wouldn’t hold my breath.