Your Weekly Update for Monday, January 28, 2019
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 us 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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Have a great week!
Mike Elerath, NSSA
Bill Roller, CFA, CFP®
NMLS #107972
Mortgage Rates
Sam Khater, Freddie Mac’s chief economist, says, “Mortgage rates have stabilized during the last month and are essentially at the same level as last spring – yet the most recent home sales are roughly half a million lower over the same period. Given that the economy remains on solid footing and weekly mortgage purchase application activity has been strong so far in 2019, we expect the decline in home sales to moderate or even reverse over the next couple of months.”
The 30-year fixed-rate mortgage (FRM) averaged 4.45% with an average 0.4 point for the week ending January 24, 2019, unchanged from last week. A year ago at this time, the 30-year FRM averaged 4.15%.
The 15-year FRM this week averaged 3.88% with an average 0.4 point, unchanged from last week. A year ago at this time, the 15-year FRM averaged 3.62%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.90% with an average 0.3 point, up from last week when it averaged 3.87%. A year ago at this time, the 5-year ARM averaged 3.52%.
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
Markets were flatly mixed for the week. The Dow Jones Industrial Average ended up 0.1% to 24737.2, the S&P500 off 0.2% to 2664.76, and the Nasdaq Composite up 0.1% to 7164.86. The annual yield on the 30-Year Treasury fell 5 basis points to 3.05%.
Economic data for the week was again limited by the government shutdown, and consisted of stronger house prices but weaker existing home sales, a tick down in the incomplete leading economic indicators, and sharply better and again record-breaking jobless claims.
Global equity markets were mixed with foreign stocks outperforming U.S., with the help of a weaker dollar. Bonds gained slightly, as lower interest rates outweighed other factors, with foreign also outperforming due to currency effects. Commodities were down overall, with natural gas prices dropping sharply.
Economic Notes
The ongoing Federal government shutdown affected the release of several economic data points, including new home sales and durable goods orders. It appears the data flow may begin again soon, but the furloughed news will obviously not be as timely for markets.
(-/0) The FHFA house price index rose 0.4% in December, beating forecasts by a tenth of a percent. Two-thirds of the national regions experienced gains for the month, led by 1% positive moves in the South Atlantic (all states south of MD) and southern plains (OK/AR/TX/LA) segments; the Pacific states lagged by declining just under a percent for the month. This kept the year-over-year increase for 2018 at 5.8%, which is still robust by historical standards, even if at a seemingly decelerating pace.
(-) Existing home sales for December fell by -6.4% to a rate of 4.99 mil. seasonally-adjusted annualized units, which sharply underperformed the -1.5% drop expected by consensus—this represented the weakest month in over three years. While the volatile multi-family category fell by -13%, single-family sales were still down -6%. Every region was in the negative for the month, led by a -11% decline in the Midwest and -7% for the Northeast. Home sales are now down -10% on a year-over-year basis, in a continued showing of challenged data from the housing sector. Some of this has been blamed on rising mortgage rates (which are closely tied to the movement in yields for 10-year treasury notes, with an added spread), but these have fallen since peak levels last quarter to the mid-4’s. Inventories also appear to be running at reasonable and not excessive levels, while new listings have fallen off somewhat. Average time on the market has also ticked up over the past year by about 15%. However, in another report not usually noted, mortgage purchase applications for this past week was up 13% over levels a year ago, which shows signs of life in this sector.
(0) The Conference Board’s index of leading economic indicators for December was released, but watered-down somewhat, as a handful of the 10 components (specifically, manufacturer new orders and building permits) were not available due to the government shutdown. Instead, the Conference Board forecasted these figures in the preliminary release, although it could be subject to change. Following these, the leading index fell by -0.1% for the month, breaking a sting of several straight months of declines. Negativity in the index was led by lower stock prices and ISM new orders, which overwhelmed the positive contributions from jobless claims. For the last six months of 2018, the leading index gained at a rate of 3.1%, which was slower than the 5.5% rate of the first six months of the year. The coincident and lagging indicators, however, were estimated to have risen by 0.2% and 0.5%, respectively. Despite the mixed shorter-term data, the index remains in growth trend mode, although any continued releases of tempered economic numbers will likely result in a weaker chart going forward.
(+) Initial jobless claims for the Jan. 19 ending week declined to 199k, below the 218k reading expected, and again reaching the lowest levels in several decades—the lowest, in fact, since 1969. Continuing claims for the Jan. 12 week came in at 1.713 mil., a fair degree below the 1.730 mil. expected by consensus. No anomalies were reported by the DOL, with little change coming as a result of the government shutdown (as workers are still technically employed, any jobless benefits received after a waiting period have to be returned if back pay is instituted). This data remains strong, and appears to be moving against the trend of some increases seen late last year.
Market Notes
| Period ending 1/25/2019 | 1 Week (%) | YTD (%) |
| DJIA | 0.12 | 6.16 |
| S&P 500 | -0.21 | 6.41 |
| Russell 2000 | 0.03 | 10.01 |
| MSCI-EAFE | 0.48 | 5.52 |
| MSCI-EM | 1.41 | 6.89 |
| BBgBarc U.S. Aggregate | 0.30 | 0.28 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2018 | 2.45 | 2.48 | 2.51 | 2.69 | 3.02 |
| 1/18/2019 | 2.41 | 2.62 | 2.62 | 2.79 | 3.09 |
| 1/25/2019 | 2.39 | 2.60 | 2.59 | 2.76 | 3.06 |
In a shortened trading week, U.S. stocks were slightly weaker as the apparent end to the government shutdown on Friday, at least for the next three weeks, seemed to boost spirits a bit. This was in absence of any substantial news about U.S.-China trade talks or progress. From a sector standpoint, real estate and technology led, with gains of over a percent upon strong earnings, while energy, staples and health care each lost over a percent on the mixed week. Earnings results have continued to come in decently, as expected, but year-over-year Q4 growth gains declining to the 11% range.
Foreign stocks outperformed domestic, with developed markets eking out small positive gains, but were outpaced by a solid week in emerging markets. Worries over trade have been balanced with continued concerns over weaker economic conditions in the core of Europe, notably contraction in German manufacturing. In fact, this was mentioned by ECB president Draghi, who alluded to the possibility for continued loose monetary conditions (which markets tend to like). In EM, optimism over solving U.S. trade issues boosted Chinese stocks, while a slight improvement in economic conditions kept the recent rally intact for Brazil, Turkey and Russia.
U.S. bonds gained a small amount of ground, as rates across the yield curve were slightly lower. Investment-grade corporates and long-term government bonds fared best, outpacing high yield. Foreign bonds fared better, earning an extra half-percent due to a weaker dollar. Emerging market bonds, both dollar-denominated and local currency, outperformed, sustaining a bounceback this year from wider spreads and terrible sentiment in late 2018.
Real estate ended the week as one of the better performers, helped by more defensive sectors such as health care in the U.S., and stronger sentiment that often accompanies a tick downward in interest rates. REITs in Europe and the U.K. gained several percent on the heels of hinted continued easy monetary policy, which would keep interest rates low and eased financing conditions, and perhaps a coming end to Brexit uncertainty, which has weighed heavily on the London office sector over the past year.
Commodities declined slightly for the week, as gains in industrial and precious metals were outweighed by weakness in energy—natural gas contracts declined by over -5% by the end of the week. After bouncing around a bit during the week, crude oil ended just slightly below where it started, at just under $54/barrel—more reports of higher supplies outweighed another bout of tensions in Venezuela as efforts to unseat current president Maduro reached a head with the leader of the legislature declaring himself as acting president amidst ongoing claims of election improprieties. The replacement interim president has been recognized by a variety of nations, including the U.S. and South American neighbors. This is one of the more extreme and volatile situations in the emerging world currently, especially meaningful in commodity markets as Venezuela possesses among the largest estimated oil reserves in the world. Intensifications of trouble here could naturally result in future crude price volatility.
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.