The bond market trended lower from Monday through Wednesday before reversing directionon Thursday and Friday. Bonds moved lower on Monday when the stock market moved sharply higher following an announcement from China’s central bank that cut the Chinese bank reserve requirement ratio to 18.5% from 19.5%, the largest such cut since November 2008. This banking stimulus was aimed at adding liquidity to China’s monetary system and sparked a global stock market rally.
On Tuesday bond markets were stressed over possible global systemic risks stemming from Greece’s debt crisis. Greece will be obligated to pay 1.7 billion euro for public wages and pensions by the end of April, and also has to pay the International Monetary Fund 200 million Euros on May 1 to avoid a default. Wednesday, the bond market took another step lower in concert with a technically-driven German bund selloff and a greater than expected rise in U.S. existing home sales. The selloff in German Bunds prompted institutional investors to reduce their holdings in other low-risk government debt including U.S. 10-year Treasury notes and 30-year Treasury bonds. The stronger than forecast increase in March Existing Home Sales renewed expectations that the Federal Reserve would raise interest rates later this year.
Existing Home Sales for March increased 6.1% to an annualized rate of 5.19 million units from February’s upwardly revised reading of 4.89 million units, surging to their highest level in 18 months as inventories improved. Median home prices increased 7.8% over the past 12 months to $240,500.
On Thursday the bond market received a boost from weaker-than-expected Purchase Managers Index (PMI) readings out of Europe, China, and Japan. April Manufacturing PMI readings failed to live up to expectations as the HSBC PMI for China was reported at 49.2, a one-year low, vs. expectations of 49.6; the Japan PMI was 49.7 vs. a forecast of 50.8; the Germany PMI was 51.9 vs. an estimate of 53.0; the France PMI was at 48.4 vs. expectations of 49.2; and the Euro zone PMI was reported at 51.9 vs. a forecast of 52.6.
Friday the bond market advanced following a less than stellar Durable Goods Orders report. At first glance the March Durable Goods Orders release appeared pretty rosy with its overall headline 4.0% increase that beat the consensus forecast of 0.6%. However, after “peeling the onion” and looking deeper into the report, the data was mixed. Within the transportation component, defense aircraft orders increased 112.8% in March while total aircraft orders increased 43.8% after falling 8.3% in February. Motor vehicle and parts orders increased 5.4%. After excluding the volatile transportation component, Durable Goods Orders unexpectedly fell by 0.2%.
For the week, the FNMA 3.0% coupon bond lost 12.5 basis points to end at $102.41 while the 10-year Treasury yield gained 4.9 basis points to reach 1.91%. Stocks ended the week with the NASDAQ Composite rising 160.27 points to set a new all-time record high, the Dow Jones Industrial Average gaining 253.84 points, and the S&P 500 advancing 36.51 points.
To date for 2015, and exclusive of any dividends, the NASDAQ Composite has gained 6.99%, Dow Jones Industrial Average has risen 1.42%, and the S&P 500 has gained 2.78%. The national average 30-year mortgage rate rose to 3.71% from 3.66% while the 15-year mortgage rate increased to 3.04% from 3.01%. The 5/1 ARM mortgage fell to 3.00% from 3.10%. FHA 30-year rates increased to 3.37% from 3.30% and Jumbo 30-year rates rose to 3.64% from 3.63%.
Mortgage Rate Forecast with Chart
The FNMA 30-year 3.0% coupon bond ($102.41, -12.5 bp) traded within a range between a weekly intraday low of $102.02 and a weekly intraday high of $102.64 before closing at $102.41 on Friday. The bond fell below the 25-day moving average support level on Wednesday but reclaimed this levelon Friday. Wednesday through Friday trading resulted in a three-day reversal pattern indicating the bond should move higher this coming week to challenge persistent resistance at $102.63. The economic calendar heats up this week with several releases and events that could result in substantial movements by the stock and bond markets. If the economic news continues to disappoint as it recently has we could see bond prices continue higher this week with a slight improvement in rates.
Chart: FNMA 30-Year 3.0% Coupon Bond
Economic Calendar – for the Week of April 27
The economic calendar expands this week and features reports on Consumer Confidence, Advance 1st Quarter GDP, Pending Home Sales, the April FOMC Rate Decision, weekly Crude Oil Inventories, weekly Initial Jobless Claims, Personal Income and Spending with Core PCE Prices, the Employment Cost Index and the ISM Index. Economic reports having the greatest potential impact on the financial markets this coming week are highlighted in bold.
|Event /Report /Statistic||For||Market Expects||Prior|
|Apr 28||09:00||Case-Shiller 20-city Index||Feb||4.7%||4.6%|
|Apr 28||10:00||Consumer Confidence||Apr||102.2||101.3|
|Apr 29||07:00||MBA Mortgage Index||04/25||NA||NA|
|Apr 29||08:30||Chain Deflator-Adv.||Q1||0.5%||0.1%|
|Apr 29||10:00||Pending Home Sales||Mar||1.6%||3.1%|
|Apr 29||10:30||Crude Oil Inventories||04/25||NA||NA|
|Apr 29||14:00||FOMC Rate Decision||Apr||0.25%||0.25%|
|Apr 30||08:30||Initial Jobless Claims||04/25||290K||NA|
|Event /Report /Statistic||For||Market Expects||Prior|
|Apr 30||08:30||Continuing Jobless Claims||04/18||2318K||NA|
|Apr 30||08:30||Personal Income||Mar||0.2%||0.4%|
|Apr 30||08:30||Personal Spending||Mar||0.5%||0.1%|
|Apr 30||08:30||PCE Prices – Core||Mar||0.2%||0.1%|
|Apr 30||08:30||Employment Cost Index||Q1||0.6%||0.6%|
|Apr 30||09:45||Chicago PMI||Apr||50.0||46.3|
|Apr 30||10:30||Natural Gas Inventories||04/25||NA||NA|
|May 01||10:00||ISM Index||Apr||52.0||51.5|
|May 01||10:00||Construction Spending||Mar||0.4%||-0.1%|
|May 01||10:00||Michigan Sentiment – Final||Apr||96.0||95.9|
|Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **|
|June||16-17 (Tuesday–Wednesday)*||2% Chance|
|July||28-29 (Tuesday–Wednesday)||9% Chance|
|September||16-17 (Wednesday–Thursday)*||26% Chance|
|October||27-28 (Tuesday–Wednesday)||42% Chance|
|December||15-16 (Tuesday–Wednesday)*||56% Chance|
|January 2016||26-27, (Tuesday–Wednesday)||71% Chance|
|March 2016||15-16, (Tuesday–Wednesday)||79% Chance|
* Meeting associated with a Summary of Economic Projections and a press conference by the Chairman.
** Probability generated from the CME Group Fed Watch tool based on the 30-day Fed Funds futures prices.
Road Signs – Common Mortgage Closing Delays
By Michael Zuren, PhD.
When purchasing a home, it is crucial to provide thorough information and documentation to your mortgage lender in order to receive a timely and final approval. There are many reasons that may lead to delays after applying for mortgage. Just consider, the number of different parties involved in the mortgage approval process, if any of these parties are delayed, they could slow down the whole process. After a loan application has been taken, the lender could ask for additional information from any of the parties involved; for instance: the real estate agents may not have completed all the necessary forms, the title or escrow company may fail to complete the title exam or title work on time, the seller may have title issues or other delays, the property may encounter acts of God, the private inspection may find repairs that need to be negotiated, the appraisal may call for required repairs, as well as many other possible delays.
It is vital to provide your lender with all the necessary information to complete your loan application; the basic information needed includes: your pay stubs, tax returns, and asset statements. Although your lender may need additional information, which may include any or all of the following: an explanation for any bankruptcy(s), separation and/or divorce decrees, credit issues, gaps in employment, or anything you may deem vital in your employment or credit history. Incomplete applications may also delay the appraisal from being ordered. Although there is an unlimited list of reasons why your mortgage could be delayed; the following are the most common areas where delays occur:
- Changing Jobs During the Loan Process – It is imperative that you keep your loan officer informed of any changes to your income during the loan process. If it is necessary to change jobs during the loan process, inform your loan officer immediately. If any of the new income is commission, bonus, tip, or 1099-based; the income may not be able to be used unless you have a two year history of receiving this type of income. Also, if the new job has a probationary period, most lenders will not use the income until the probationary period has expired.
- Cash Deposits – Lenders will require a minimum of the last 60 days banking activity to approve a mortgage loan. If there are any unexplained cash deposits, these will have to be explained and thoroughly documented. If they cannot be documented, they will most likely not be used as verifiable or usable income for loan purposes. Also, completing gift documentation up-front will allow time for the lender to review the gift documentation and inform the borrower if anything is incomplete.
- New Debts- Lenders will most likely require a soft-pull credit report be reviewed within a few days of closing your new mortgage. If there are any inquiries for new credit since the application or any new accounts have been opened, these will have to be explained and documented prior to closing your mortgage. If there are new debts with monthly payments, these will change your debt to income ratio and may result in the denial of the mortgage.
- Missing Documentation- When you provide information to your lender, make sure that you provide all pages of your bank statements, all pages and schedules of your last two years tax returns, and all W2s and 1099s for the past two years. If you are using gift funds for the purchase of your new house, you must thoroughly document the gift. You should provide a fully signed gift letter, copy of the gift check, proof that it has cleared the giftor’s account, and a bank printout showing the activity from the last bank statement to the date of the deposit of the gift check.
There are many reasons that may cause your mortgage closing to be delayed. It is essential that you inform your lender of any change in your income, debts, or employment. Any changes in these areas may result in a potential loan denial. Informing your loan officer of these changes may allow them to either advise you prior to making these changes, or allow them to make the appropriate changes to your loan or loan type so you still receive an approval.
Jim Belote NMLS # 254207 MLO #: 22270VA
Branch Manager/Senior Loan Officer
Old Point Mortgage, LLC
Branch Manager/Senior Loan Officer
1613 Laskin Road, Suite 300
Virginia Beach, VA 23451
Office: 757-690-8047 or 757-395-LOAN(5626)
Chesapeake Real Estate: Update on Mortgage Market