Daily Rate Summary
Wednesday, February 21st, 2018

Mortgage Rates and Treasury Yields Rise.
On Tuesday, Treasury bond yields and Mortgage interest rates rose slightly as the bond selling resumes as intense supply comes to market from U.S. Treasury borrowing requirements to fund government.  Bonds lose value as interest rates rise with inflation expectations.  Though Stocks have fallen some, prices are still lofty!  Nervous investors mull economic signals and the impact of the Tax cut on economic growth potential. The 10 Yr. Treasury Note stood at a yield of 2.8896% and the 30 Yr. U.S. Treasury Bond yielding 3.1530%.  30 Year Mortgages according to Freddie Mac were around 4.38% for conforming and 4.88% for Jumbo products.

 

Existing Home Sales extend plunge, falling -4.8% (YoY) in January with biggest annualized fall since August 2014.  According to Zerohedge.com, “After new and existing home sales tumbled in December, expectations were for a modest 0.5% rebound in January (despite plunging mortgage applications and soaring rates).  But that did not happen as existing home sales tumbled -3.2% (MoM) to its lowest level since Aug 2016.  Existing Home Sales are [now] unchanged since June 2015.”  

Existing Home Sales Tumble in January, New & Pending Sales Slow.
(Chart courtesy of Zerohedge.com).




Meanwhile, according to Zerohedge.com, “The West (-5.0%) and Midwest (-6.0%) saw the biggest drop in sales and while the blame (see below) was put on inventories, data shows a 4.1% increase in ‘available for sale’ homes?

Of course, NAR is careful to blame inventories - and not soaring rates affecting affordability: Lawrence Yun, NAR chief economist, says January’s retreat in closings highlights the housing market’s glaring inventory shortage to start 2018.

 “The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” he said.

 “While the good news is that Realtors® in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace.

 "It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

The median existing-home price in January was $240,500, up 5.8% from January 2017.  First-time buyers were 29 percent of sales in January, which is down from 32 percent in December 2017 and 33 percent a year ago. 

NAR Chief Economist, Lawrence Yun continuing, “The gradual uptick in wages over the last few months is a promising development for the housing market, but there’s risk these income gains could be offset by the recent jump in mortgage rates.  That is why the pace of added new and existing supply in the months ahead is worth monitoring.   If inventory conditions can improve enough to cool the swift price growth in several markets, most prospective buyers should be able to absorb the higher borrowing costs," said Yun.

30 Yr. U.S. Treasury Bond back around 3.11% again.
(Chart courtesy of Zerohedge.com).






U. S. 10 Year Note Yield above 2.8500%.
(Chart courtesy of Zerohedge.com).

The 10 Year U.S. Treasury Note has tested the lows and is moving back to the upper trading range in bond yields.  We await whether that gap at 2.05% will get filled in coming months.  If so, we will get another run at historically low rates before the final blow-off in Credit Markets sends Mortgage Interest rates up for good.

The above Chart does suggest that a constructive set-up is forming in the 10 Year Treasury Note with the potential to push the yield to around 2.00% over the next year.  It is crucial that Mortgage Rates stay at or below 4.00% or demand for mortgage loans will dry up.  The window of opportunity for borrowers seeking mortgage refinancing & home purchases is still open for now.

Market-Implied # of Rate-Hikes In 2018 above 2.82 rate moves.
(Chart courtesy of Zerohedge.com).







As can be seen from Freddie Mac’s Mortgage Market Survey, last week, 30 Yr. Fixed Mortgage rates for conforming loans hit 4.38% higher by 6 basis points (bps) from the previous week.

 

Treasury Prices Fall and Yields Rise for U.S. 10 Yr. and 30 Yr. Treasuries.
At the Chicago Board of Trade (CBOT): the US 10 Year Treasury Note futures Contract for March settlement closed at a price of 120’15.5 / 32nds; the 10 Year Note was down 3 basis points (bps) on the day, yielding 2.8896%.  The US 30 Year Treasury Bond futures Contract for March settlement closed at a price of 143’28 / 32nds; the 30 Year Bond was down 11 basis points (bps) on the day, yielding 3.1530%.  Mortgage Rates are near their 2018 highs and are higher by 6 basis points (bps) from the previous Freddie Mac Survey last week.

 

Thanks to ZeroHedge.com, National Association of Realtors (NAR), B of A Merrill Lynch Global Research, Goldman Sachs, Bloomberg, and FreddieMac.com for Charts and Graphics.

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Disclaimer: The Information & content in this message is solely the opinion of the author and believed to be from reliable sources. Charts and tables contained herein were taken from other sources and a best effort was attempted by the author to give attribution where possible. None of this material should be construed as fact, and is not intended for use by reader as investment advice or relied upon for making financial decisions.