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Beacon Rock Wealth Advisors is a financial planning and registered investment advisory firm in Camas, Washington. Through our relationship with Prestige Home Mortgage in Vancouver, Washington we originate residential and reverse mortgages. Check out at https://beaconrrwa.com and our affiliated websites at https://reverse-mortgages.us and https://socialsecurityquestionsanswered4u.com. We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to [email protected].
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Mike Elerath, NSSA
Bill Roller, CFA, CFP®
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Mortgage Rates
Sam Khater, Freddie Mac’s chief economist, says, “Rates continued their two-month slide and are currently hovering around the same level as the early summer, which was before the deterioration in home sales. The negative headlines around the financial markets are concerning but the economy remains healthy, so the drop in mortgage rates should stem or even reverse the slide in home sales that occurred during the second half of 2018.”
The 30-year fixed-rate mortgage (FRM) averaged 4.55% with an average 0.5 point for the week ending December 27, 2018, down from last week when it averaged 4.62%. A year ago at this time, the 30-year FRM averaged 3.99%.
The 15-year FRM this week averaged 4.01% with an average 0.4 point, down from last week when it averaged 4.07%. A year ago at this time, the 15-year FRM averaged 3.44%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.00% with an average 0.3 point, up from last week when it averaged 3.98%. A year ago at this time, the 5-year ARM averaged 3.47%.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.
Summary
In a week shortened by the Holidays and a government shutdown, affecting the release of certain economic data, consumer confidence declined sharply, housing data was mixed, while jobless claims remained strong.
Global equity markets ended the week with gains, despite continued mixed sentiment and unseasonal volatility. Bonds fared decently with lower rates in the U.S., and foreign debt being helped by a weaker dollar. Commodities lost a bit of ground, with continued decreasing prices for crude oil.
Economic Notes
(0) New home sales results for November were delayed due to the government shutdown. These will continue to likely be closely watched due to a continued lackluster environment in the housing sector.
(+) The S&P/Case-Shiller home price index for October rose 0.4%, beating the median forecast estimate of 0.2%. Year-over-year, the rate of change has tempered by over a half-percent to just over 5.0%. By city, one-year results were strongest in Las Vegas, San Francisco and Phoenix, which gained in the high single to low-double digits, while Washington, D.C., New York and Chicago brought up the rear with gains of around 3%. Anecdotal comments from the index committee noted the difficulty in affordability due to home prices rising faster than incomes, in addition to mortgage rates being up nearly a percent over the past year.
(0) The FHFA house price index rose 0.3% in October, which right in line with expectations. Prices rose in all but two of the nine national regions, with the Pacific and West North Central areas gaining over a percent, while the South Atlantic and Mid Atlantic segments declined slightly. On a year-over-year basis, the overall rate of change decelerated by almost a half-percent to 5.7%.
(-) Pending home sales in November fell -0.7%, which disappointed relative to an expected gain of 1.0% for the month. The South and Midwest experienced the sharpest declines of over -2%, while the West and Northeast gained close to 3%. Year-over-year, the pending sales number fell to nearly -8%, which is the slowest pace in over four years. Without current new home sales data to compare, the pending number tends to translate to ‘new’ home sales in the coming months, and looks to continue the recent weakening trend for housing markets.
(-) The December Univ. of Michigan consumer confidence survey declined by -8.3 points to 128.1, below the 133.5 level estimated by consensus forecast. Assessments of present economic conditions fell by just over a point, but the survey was bogged down by a sharp double-digit point decline in expectations for the future. On the positive side, the labor differential—measuring the ease in finding employment—ticked up to another new high for the current cycle.
(0) Initial jobless claims for the Dec. 22 ending week ticked down by a thousand to 216k, which was spot-on with expectations. Continuing claims for the Dec. 15 week came in -4k lower than the prior week, after revisions, to 1.701 mil., which surpassed the 1.675 mil. level expected. Most of the claims activity occurred in the largest states, per usual, with no anomalies and no change in the insured unemployment rate. Levels remain very low, relative to history.
Market Notes
| Period ending 12/28/2018 | 1 Week (%) | YTD (%) |
| DJIA | 2.75 | -4.58 |
| S&P 500 | 2.90 | -5.20 |
| Russell 2000 | 3.62 | -11.72 |
| MSCI-EAFE | 0.44 | -14.17 |
| MSCI-EM | 0.55 | -16.90 |
| BBgBarc U.S. Aggregate | 0.21 | -0.23 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2017 | 1.39 | 1.89 | 2.20 | 2.40 | 2.74 |
| 12/21/2018 | 2.39 | 2.63 | 2.64 | 2.79 | 3.03 |
| 12/28/2018 | 2.40 | 2.52 | 2.56 | 2.72 | 3.04 |
In a shortened and usually quiet holiday week, U.S. stocks experienced their worst Christmas Eve in modern memory, followed by a Boxing Day (Dec. 26 for those not celebrating) recovery featuring one of the strongest one-day percentage gains (at 5%). The turn in sentiment seemed to be due to rumors (again) of U.S.-China trade progress, strong holiday sales from credit card company data, and high levels of annual corporate stock buybacks. This is obviously very atypical for a holiday week, when flattish net results and extremely low volume due to vacations and little interest in consumer trading activity, is the norm. This was all following the worst week in equities since the financial crisis over a decade ago.
The chances of the government shutdown stretching into January have risen, with little progress toward resolution by the President or Congress. However, it’s not apparent this issue has had a major impact on markets—nor the economy, unless it drags on for several weeks, at which time it could begin to pare back a few tenths of a percent from GDP. And, in addition, which is unclear whether it made matters better or worse, was the press release from Treasury Secretary Mnuchin describing a meeting with the largest U.S. banks to confirm a lack of liquidity issues during recent market volatility. In hindsight, investors seemed more alarmed (a la shades of 2008) than reassured.
Both large and small cap stocks gained several percent on the week, with every sector except utilities ending on a positive note. Consumer discretionary, communication services and technology all gained over 3% on the week to lead the way, with financials just behind.
Foreign stocks also experienced a positive week, although returns in all regions lagged those of the U.S., despite the tailwind of a weaker dollar. In USD terms, Japan outperformed Europe and the U.K., while emerging markets fared right behind Japan. A recovery in Brazil and peripheral Asia were the primary catalysts. Perhaps to no surprise considering the trade uncertainty, China nearly has experienced among the worst returns of any major nation in 2018—down nearly -30%. Of course, the narrative continues to vacillate between trade spats as a temporary phenomenon, easily fairly easily outweighed by additional government stimulus, and a broader slowing indicative of the early stage growth story coming to a conclusion, and moving on to harder-to-achieve secondary tier growth, such as in services.
U.S. bonds earned minor positive returns, with rates falling across the middle of the treasury yield curve, bringing the 10-year treasury yield down to its lowest level in several quarters. Government bonds outperformed investment-grade corporates, while high yield fell roughly in the middle, despite the recovery in equities. A weaker dollar helped foreign bonds in both developed and emerging markets, which returned between a half-percent and full percent.
Commodities fell slightly for the week, with volatility tempered compared to recent weeks, aside from sharp double-digit declines in natural gas, which are naturally weather-related this time of year prior to winter’s most severe few months. Oil continued to struggle with supply running higher than expected, coupled with the same fears of demand falling below expectations, ending the week at just over $45/barrel.
Sources: Ryan M. Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, FRED Economic Research, Freddie Mac, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poor’s, StockCharts.com, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. Residential and reverse mortgages are offered through Prestige Home Mortgage in Vancouver, WA.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.