Stocks and Mortgage Bonds are both lower to start the week. 10-year yields are testing the important 4% level and mortgage rates have jumped roughly 0.5% over the last few weeks, not helped by Friday’s BLS Jobs Report.
While the BLS report on Friday was strong on almost all fronts, there have been several articles and reports that there were significant seasonal adjustment factors that were the most generous in 20-years.This report will get revised over the next two months and may end up being weaker, but for now, the Bond market reaction has been swift and ugly.
Black Knight Home Price Index
Black Knight reported their Home Price Index this morning, showing home values rose 0.12% in August and are now up 3% year over year, down from 3.6% in the previous report. Home prices continue to appreciate, although they are slowing, which is normal during this time of the year.
They also reported that there are 4.3M in-the-money mortgage holders, who have 720+ credit scores and would have at least 20% equity after refinancing. This number has likely fallen due to the recent rise in rates, but we do anticipate rates to come back down in the coming months.
The volatility in rates is a great example of why you need to establish a strike rate with your customers and move quickly once rates fall, as the opportunity can be short lived and fleeting. We have created a new Strike Rate tool that will likely be released next week and will be included in the Loan Advisor add-on at no additional cost. We will have all your transaction data and will alert you, based on thresholds you set, when your customers are ripe for a refinance.
When talking with customers, make sure to use FOMO to get them to commit now so that once rates drop again, they do not miss the opportunity. We also have been hearing such good feedback on our new Refinance Risk of Waiting Tool, that shows clients why they should not get greedy and wait for rates to fall further if they can benefit now – It has helped save many transactions ahead of the rise in rates over the last week.
Week Ahead
Tuesday: NFIB Small Business Optimism Index
Wednesday: Mortgage Apps, 10-year Auction, Fed Minutes from 9/18 Fed Meeting
Thursday: Consumer Price Index, Initial Jobless Claims, 30-year Auction
Friday: Producer Price Index
August CPI Preview
The most important data point this week will be the September Consumer Price Index, which will be released on Thursday.
Market estimates are as follows:
CPI Headline: 0.1% monthly reading, year over year to fall from 2.5% to 2.3%
CPI Core: 0.2% to 0.27% monthly reading, year over year to fall to 3.1%
Continued progress on inflation could help the Bond market begin to recover. We will be watching the Shelter reading, which is the single largest component and where most of the inflation is still coming from.
Technical Analysis
Mortgage Bonds have fallen convincingly beneath their 50-day Moving Average and have some more room to decline until reaching 100.18. The Stochastic momentum indicator illustrates how sharp of a decline we have seen, with Bonds now in oversold territory.
The 10-year is testing important resistance at the psychological 4% level – If this level does not hold, the next stop is the 100-day Moving Average at 4.08%.
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