U.S. Equity Futures and European Stocks Held Steady and the Dollar Rose
Happy Monday! Stocks improved and bond yields climbed higher on Friday after a series of strong economic reports. The 10-year yield closed just under 2.69% versus the previous day close of 2.63%. The Dow rose 64 points and posted its sixth consecutive week of gains, the longest streak since November 2017. MBS 4.0% worsened by around 25 bps from previous close.
The reports on Friday included the strong Labor Department job report that exceeded all expectations, the Institute for Supply Management (ISM) said its index on manufacturing unexpectantly rose in January, the University of Michigans consumer sentiment index dropped to a two-year low but exceeded forecasts, and the Commerce Department released construction spending that also exceeded forecast.
Bond yields continue to worsen this morning with the 10-year yield opening around 2.70% and is currently just under 2.73%. MBS are worse by 15 bps versus Friday close.
This is a quiet week for economic data. One item to watch this week is comments and commentary around the Fed stating they were focused on the economy and how they would intently monitor data before any future changes. The data on Friday suggest a stronger economy. There will be some key auctions, speeches from Fed members, the State of the Union and possibly continued information on the government staying open, Brexit and trade between U.S. and China.
At this time the consolidation may continue. However, this week will determine if the 10-year yield returns to a 2.72% to 2.75% trend experienced during the last two weeks in January.
CONSULTATIVE TOTAL COST ANALYSIS with some background data. (TCAs updated 1/31)
TCA with seller concessions used within discount points to lower the interest rate: click here
-- Various reports and articles have indicated over 1/3 of homes on the market have had a price decrease with average decrease of 5%.
-- Using part of price reduction as concession to lower rate will lower payment and interest expense savings.
-- Typically, 1% discount will lower rate by .375+%.
-- Current conventional stack is tight with 1.4% discount to lower rate .375%; .8% discount to lower rate .25%.
TCA assumes seller concessions where 2% is used by borrower within discount points -- TCA includes ARMs: click here
-- Current market has 30-year FRM relative price versus 10/1, 7/1 and 5/1 ARMs through 1 point in discount stack.
-- Current market has 5/1 and 7/1 ARMs gaining .25% in rate and the 10/1 ARM gaining .125% in rate at 2 points in discount stack.
TCA with 30-year FRM at three, six- and twelve-month future periods: click here
-- Includes 5% increase in home values over 12 months based on variety of reports including NAR, Case Shiller and MBA
-- Assumes flat rate for the first half of the year with a slight worsening of 12.5 bps in six months and additional 12.5 bps by end of 12 months.
TCA with borrower using discount points to reduce the interest rate TCA includes 30-year FRM at PAR, 1% discount and 2% discount; and 10/1 ARM at 2% discount: click here
-- Typically, 1% discount will lower rate by .375+%.
-- Current conventional stack is tight with 1.4% discount to lower rate .375%; .8% discount to lower rate .25%.
-- Current would take approximately 5 years for lower payment to cover cost of discount points
-- Current market has 30-year FRM relative price versus 10/1, 7/1 and 5/1 ARMs through 1 point in discount stack.
-- Current market has 5/1 and 7/1 ARMs gaining .25% in rate and the 10/1 ARM gaining .125% in rate at 2 points in discount stack.
Rent versus own analysis including worsening rates and increasing rent: click here
--- Year over year rent increase is around 1.0% according to various reports.
Have a great day!