August 9th, 2022 - Market Update
Current position: Carefully floating
There will be a Bond Coupon Rollover after the close of the market today. This occurs each month because Mortgage Bonds are finite. They have an end term, such as 30 years. Therefore, each month a new 30-year period begins. This new 30-day extension is reflected in an adjusted rollover price. This rollover does will not impact your pricing.
Stocks and Mortgage Bonds are both lower to start the day.
The Fannie Mae Home Purchase Sentiment index for July fell 2 points to 62.8 and that is the lowest since 2011. 17% said it's a good time to buy and 67% said it's a good time to sell. While there are challenges in the housing market, including higher home prices and rates, we have seen rates start to come down somewhat significantly of their highs. Additionally, in 2011, it was a great time to buy a home, even though the survey results were even lower than today's reading…meaning it can be a contrarian indicator.
The July NFIB small optimism index was reported at 89.9, up a touch from the 89.5 print seen in June which was the lowest since January 2013. The number one problem businesses are facing is inflation, which reached its highest level since 1979.
And speaking of inflation, the NY Fed did an inflation survey where consumers believe inflation will now be 6.2% in one year, down from 6.8%. The 3-year outlook fell to 3.2% from 3.6%. They said
"Both decreases were broad based across income groups, but largest among respondents with annual household incomes under $50k and respondents with no more than a high school education." This group of course is the most sensitive to gasoline and food prices.
This comes before tomorrow's July CPI where both the headline and core figures are expected to moderate from June. The headline figure we are replacing from last year is 0.45%, which means that if we get a figure below that, the 9.1% year over year inflation reading will moderate. The expectations are for the monthly reading to be 0.2% and the year over year figure to drop from 9.1% to 8.7%. We will see where the figures come out, but if it does moderate, it could be welcome news for the Bond market.
Mortgage Bonds are trading in the middle of a range between a quadruple floor of support and overhead resistance at 101.219. The 10-year is trading right around an important technical level at 2.79%. We believe the Bond market will remain in these ranges ahead of tomorrow's inflation report. Begin the day carefully floating.
Source: MBS Highway
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