Consumers Point the Way
Believe it or not, some of our hottest housing markets on record were when interest rates were much higher than the current market environment. Historically, we have seen very strong housing demand when 30 year fixed interest rates were above 6%, 8% and dare we remind you of the hot housing markets when rates were in double digits? While low interest rates certainly don’t hurt the housing market, they are not the driving factor. What is the driving factor? Consumers.
Quite simply, if consumers feel better about their job stability and their own economic outlook, they are more willing to purchase their first home or to take the next step and upgrade to a larger one.
So, it is great news for the housing market that Consumer Sentiment reached a five year high. The Thomson Reuters/University of Michigan’s preliminary October reading on the overall index on consumer sentiment came in at 83.1, up from 78.3 the month before, and the highest since September 2007, the survey showed on Friday.
Consumers are stating that they are more positive about the economy but are they actually voting with their dollars and spending money? The answer is Yes!
Retail sales increased 1.1 percent, the Commerce Department said on Monday, beating expectations of 0.8 percent after an upwardly revised 1.2 percent rise in August. Consumer spending drives about two-thirds of our economy. Consumers are pointing the way to a stronger housing market.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +8 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to sideways. We had our highest mortgage rates on Wednesday and our lowest rates on Friday.
We had a holiday-shortened week and a very light calendar for economic data. Initial Jobless Claims were much better than expected, but it was discovered that it was only lower because one state didn’t turn in their claims data on time. The Producer Price Index was fairly tame which means that inflation is not really pressuring pricing. But the biggest news story of the week was the much better than expected Consumer Sentiment Index. (83.1 actual vs 78.0 estimate).
Mortgage backed securities were trapped in a very narrow trading range which was capped by our 10 day moving average and supported by our 25 day moving average. Fixed mortgage rates stayed near their all-time lowest levels due to some very strong demand for our 10 and 30 year Treasury auctions which provided a lift for all U.S. based bonds.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|15-Oct||8:30 AM||Retail Sales||–||0.70%||0.90%|
|15-Oct||8:30 AM||Retail Sales ex-auto||–||0.60%||0.80%|
|15-Oct||8:30 AM||Empire Manufacturing||–||-2.8||-10.4|
|15-Oct||10:00 AM||Business Inventories||–||0.50%||0.80%|
|16-Oct||8:30 AM||Core CPI||–||0.20%||0.10%|
|16-Oct||9:00 AM||Net Long-Term TIC Flows||–||NA||$67.0B|
|16-Oct||9:15 AM||Industrial Production||–||0.20%||-1.20%|
|16-Oct||9:15 AM||Capacity Utilization||–||78.30%||78.20%|
|16-Oct||10:00 AM||NAHB Housing Market Index||–||42||40|
|17-Oct||7:00 AM||MBA Mortgage Index||–||NA||-1.20%|
|17-Oct||8:30 AM||Housing Starts||–||768K||750K|
|17-Oct||8:30 AM||Building Permits||–||815K||803K|
|17-Oct||10:30 AM||Crude Inventories||–||NA||1.672M|
|18-Oct||8:30 AM||Initial Claims||–||360K||339K|
|18-Oct||8:30 AM||Continuing Claims||–||3275K||3273K|
|18-Oct||10:00 AM||Philadelphia Fed||–||-0.1||-1.9|
|18-Oct||10:00 AM||Leading Indicators||–||0.20%||-0.10%|
|19-Oct||10:00 AM||Existing Home Sales||–||4.70M||4.82M|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.