How the American House has Changed
The single-family home in America has evolved in one particularly remarkable way: It has gotten bigger and bigger and bigger. New homes built today are about a thousand square feet larger than single-family homes completed just 40 years ago.
All that space is a sign of our times — of the relative wealth to afford it, the government policies that incentivize it, the tastes we now have for third bathrooms and fourth bedrooms (even though the size of the typical American household has actually been shrinking).
In fact, in many ways — most of them more subtle — the American single-family home has changed with time in ways that say much about us and how we live. Vertical town houses built in the 1800s gave way a century later to horizontal homes, 3,000 square feet on a single floor. Compact ways of living that made sense when we got around on foot faded with time in favor of the spacious homes made possible by ubiquitous cars. And the popularity of cars changed the very design of our homes, too, as we created places to park them indoors.
We’ve gone over time from the row house to the ranch home to the McMansion, with myriad variations along the way determined by the climate (a New Orleans shotgun house demands a front porch for cooling off) and the culture (prairie-style homes mimic a favorite Midwestern son, Frank Lloyd Wright). Our homes have been reshaped, reformatted, and re-imagined depending on the availability of land and the materials on offer and the earlier styles that have come back in vogue.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways on a very “choppy week” that saw a spread of -94 BPS from our intra-day highs to our intra-day low.
From a technical perspective, it was a week dominated by our 100 day moving average. You see by the chart above that we simply could not close above it and each time we tested it, it held and forced pricing lower.
We had several very key reports last week and while Friday’s jobs data was the most important data series of the week, it was really just a proxy for long bond traders to gauge when the Fed may begin to tighten their key interest rate. And when the smoke cleared, last week’s data did little to change anyone’s mind about the timing the of the first rate hike. The majority of bond traders currently have that pegged to the September FOMC meeting.
Well…the biggest Jobs Friday of the century came and went and while MBS made some very small gains after the report, the Jobs data simply wasn’t strong enough nor weak enough to really change anyone’s minds on when the first rate hike might occur. As a result, MBS drifted higher but were unable to challenge last Friday’s highs that occurred after the weak Employment Cost Index report and simply could not mount any type of rally to our 100 day moving average.
Jobs, Jobs, Jobs: Lets break-down the big jobs data Friday:
Non-Farm Payrolls: 215K vs est of 220K
Impact on MBS: Neutral, right in the wheel house of expectations
Prior Revisions to Non-Farm Payrolls: +14K
Impact on MBS: Neutral to slightly negative as this was stronger employment data than originally reported.
Unemployment Rate: 5.3% vs est of 5.3%
Impact on MBS: Neutral
Average Hourly Wages: 0.2% vs est of 0.2%
Impact on MBS: Neutral to slightly Negative as the bond market was slightly hedged that this would be much lower than expected.
Other Notes: Manufacturing Payrolls hit their biggest increase since January, so a nice bright spot there. But lumber and energy jobs tanked (thanks to very low oil prices). The 3 month NFP average is now 235K and the average for the year is 211K both are very strong. So, decent numbers and trending there although these are not looking like high paying jobs. Year-over-Year Average Hourly Wages are now up 2.1% which is a nice clip. The Participation Rate was dismal but has not fallen further..still very disappointing though.
Bottom line: The market needed a much weaker report to assume that the Fed will wait longer to start to raise rates. We didn’t get that miss.
The Talking Fed: Atlanta Fed President Dennis Lockhart reaffirmed the Fed’s very transparent stance that a rate hike is coming soon. The markets keep shrugging off the Fed’s guidance due to economic releases and assuming the Fed will have to change course. But comments like these from Lockhart (in the WSJ) put that rate hike back on the table in the minds of many bond traders.
He said that the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|11-Aug||8:30 AM||Unit Labor Costs – Prel||–||-0.10%||6.70%|
|11-Aug||10:00 AM||Wholesale Inventories||–||NA||0.80%|
|12-Aug||7:00 AM||MBA Mortgage Index||–||NA||NA|
|12-Aug||10:00 AM||JOLTS – Job Openings||–||NA||5.363M|
|12-Aug||10:30 AM||Crude Inventories||–||NA||NA|
|12-Aug||2:00 PM||Treasury Budget||–||-$149.0B||-$94.6B|
|13-Aug||8:30 AM||Initial Claims||–||273K||NA|
|13-Aug||8:30 AM||Continuing Claims||–||2247K||NA|
|13-Aug||8:30 AM||Retail Sales||–||0.50%||-0.30%|
|13-Aug||8:30 AM||Retail Sales ex-auto||–||0.50%||-0.10%|
|13-Aug||8:30 AM||Export Prices ex-ag.||–||NA||-0.10%|
|13-Aug||8:30 AM||Import Prices ex-oil||–||NA||-0.20%|
|13-Aug||10:00 AM||Business Inventories||–||0.30%||0.30%|
|13-Aug||10:30 AM||Natural Gas Inventories||–||NA||NA|
|14-Aug||8:30 AM||Core PPI||–||0.10%||0.30%|
|14-Aug||9:15 AM||Industrial Production||–||0.30%||0.20%|
|14-Aug||9:15 AM||Capacity Utilization||–||78||77.80%|
|14-Aug||10:00 AM||Mich Sentiment||–||93.9||93.1|
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.The above 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.