Mortgage rates held on to their recent improvements today after the important Employment Situation (the big "jobs report") showed November job creation was lower than expected. In general, weaker job creation is good for interest rates because it speaks to slower economic growth and inflation (both of which are enemies of rates). This report was particularly important because a strong result would have cast doubt on several speeches from members of the Federal Reserve. Those speeches have warned about slower economic growth in 2019 and the potential for fewer rate hikes than previously anticipated.
There were no clear winners or losers at first--probably because job creation is still historically solid. Additionally, the unemployment rate remained ultra low, and wage growth remained above 3.0% on an annual basis. Markets were indecisive at first, but stocks and bond yields eventually began to move lower. Multiple mortgage lenders offered small improvements on rate sheets in the afternoon, after the bond market gained enough ground. Today's mortgage rates are the lowest in months and current trends are about as strong as they've been in more than a year.
Mortgage bond prices finished the week lower which put upward pressure on rates. Existing home sales printed at 5.38M units. This was lower than the expected 5.45M. Housing prices continued to climb, according to the FHFA Housing Price Index prices rose 0.2% in May and were up 6.4% over the last 12 months. New home sales printed at 631K vs. the expected 670K. Weekly jobless claims printed at 217K and continuing claims, a summation of all receiving benefits, at 1,745K. Claims were expected at 215K and continuing claims at 1,751K. Durable goods orders rose 1%, much weaker than the expected 3% increase. We ended the week worse by 1/8 to 1/4 of a discount point.
ReleaseDate & Time
Tuesday, July 31, 8:30 am, et
Up 0.3%, Up 0.2%
Tuesday, July 31, 10:00 am, et
Wednesday, Aug. 1, 8:30 am, et
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Wednesday, Aug. 1, 2:15 pm, et
No rate changes
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4%, Payrolls +215K
The US Department of Commerce’s Bureau of Economic Analysis releases the core PCE price index. The report provides the average increase in costs for personal consumption expenditures. PCE is significant in that the Fed uses it in determining inflation as opposed to the prior use of the consumer price index. The PCE includes the price of spending for and on behalf of households. This includes health care spending paid for a household by a business. The CPI only reflects out of pocket expenses paid directly by consumers.
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Justin Buck and Paige Nigh were on their third offer. They had put in two others for South Boston condos they liked, but no luck.
“[We] were outbid on both,’’ Buck said, so when it came time to make their third offer, their realtor suggested they include a personal letter.
“She just knew that we were in love with it. She was like ‘OK, you love this place, so this is what you need to do,’ ’’ Nye said.
She also had them include a photo of themselves (they chose a nice one of them dressed up at a wedding), and they kept their note short and sweet, talking a little bit about how they met, explaining that they had recently moved in together, and emphasizing that the place “would be ideal for the next chapter in our relationship.’’
It seemed to work.
“There were four final offers all above asking price but around the same price,’’ Buck said, “but we were the only ones to include this biography, and from what [our realtor] gathered, it was a deciding factor.’’
While the strategy seems enticing, the result does not appear to be typical.
There’s not much hard data about the effects of a personal letter, though in 2013, when the housing market was making its way back to prerecession levels, the home-buying website Redfin said the personal letter improved an offer’s success by 9 percent. (An all-cash offer, by comparison, increased the likelihood of acceptance to 28 percent.) So perhaps a letter could be one of the tools buyers use in seller’s markets as a way to make themselves stand out.
“I think it’s definitely helpful, depending on the seller,’’ said Buck and Nye’s realtor, Susan Doig.
“A lot of agents think it’s a waste of time, think it doesn’t work. I think that’s bad,’’ said Brendon DeSimone, brokerage manager for Houlihan Lawrence in Bedford, N.Y., and author of “Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling.’’ “It’s a competitive market; if it gives you an edge, do it,’’ DeSimone said.
But not everyone feels that way.
“It could work against them,’’ said Christine Smith, a realtor with Haverhill-based Buyers Brokers Only and a lawyer. “Say they got their offer accepted and they wrote this lovely letter, and then they do a home inspection and find a couple things they want the seller to address. Not little things. The seller knows how much they want the house, and it kind of weakens [the buyers’] position.’’
Smith also posits that the exchange of personal information in the letter could be a violation of fair housing laws. Those laws prohibit discrimination against protected classes of people, discrimination based on race, color, religion, national origin, sex, disability, and familial status.
What if a couple without kids and a couple with them have similar offers and both write letters, she asked. If the sellers pick the buyers with children, are they discriminating against the couple without them?
This is a matter of debate among real estate agents, but Michael McDonagh, general counsel for the Massachusetts Association of Realtors, said he understands a buyer’s need to tell his or her story. “But I think there should be some caution there,’’ he said. “It’s not a good position to be in if you’re a seller. You don’t want anyone to accuse you of making your decision to sell to somebody based on their status in a protected class.’’
Matt Ramey, associate broker with Jacob Realty in Back Bay, doesn’t necessarily see anything wrong with writing a letter, but he isn’t wild about them. “I tell my buyers that the letter is a component, but it’s not a strategy. It certainly doesn’t hurt, but at the end of the day the dollars speak the most,’’ he said.
David Hollady, a former client of Ramey’s, agrees, but he also had a letter work out very much in his favor.
David and his wife, Nikki, bought homes in Boston and in Chicago a year and a half apart. (Nikki works in Chicago and David in Boston, so they split time between the cities.) They wrote letters for both. They had the highest offer on their Boston home and could close quickly, so the letter didn’t really seem like a factor. But when they were trying to acquire the Chicago property, Nikki wrote a letter to the elderly man who had raised his family in the home, telling him that she had grown up in that city and that they planned to raise a family there.
They beat out a cash offer. “There is no reason why we should have gotten that house, but it was because my wife wrote that letter,’’ David said.
Ramey said that’s the only time he’s heard of that happening.
Both Ramey and Doig said people with an emotional connection to their home, like an older seller who raised a family in a house, would be the rare kind of seller who would put sentiment ahead of cash.
Getting personal could also work against you.
If the seller is in the middle of a divorce or dealing with the recent death of a relative, he or she might not want to hear about your happy family. “It can backfire if the seller feels the buyer is trying to manipulate them,’’ said Lisa Steele, a realtor with Steele Associates Real Estate in East Dennis. Recently, a buyer submitted one with an offer, and although it was a lovely letter, Steele said, “the seller knew the offer was the only thing that mattered and brushed off the note completely.’’
And if it’s a bank-owned property, DeSimone said, don’t even bother writing a letter: “The bank isn’t a person. They don’t care.’’
And Ramey said: “There are more important things than a sentimental letter. Show your financial qualifications, show that you are serious about the house, then try and sprinkle a little emotion onto it with a letter if you want.’’
“You just really never know what [sellers] think of your life or what they think of their life that they’re moving on from.’’
If a buyer wants to write a letter, she encourages them to talk only about the house and the neighborhood, adding in a compliment or two. She will also pass on information about the buyers she represents at their request, but she said she tries not to let too much personal information get in the way of what is a business transaction. When she is representing the sellers, she paraphrases the buyers’ information so that she isn’t revealing anything about race or marital status.
But for someone for whom a letter worked, revealing personal details seems like a risk worth taking.
“I told [my wife] it was a crazy idea,’’ David Hollady said. “I told her that we shouldn’t even bother. We had an FHA loan, and who would even consider that?
“Not for the last time, I was wrong.’’
Mortgage bond prices finished the week higher which put downward pressure on rates. Trading was positive the first portion of the week with no data. Federal Reserve Chair Janet Yellen’s testimony to Congress held no surprises. She continued to state that inflation remains softer than the Fed would like, that the slack in the labor market continues to diminish and that future policy decisions (read rate hikes) are data dependent. The 247K weekly jobless claims were approximately as expected. Producer prices rose 0.1% versus the expected 0.1% decline. The core, which excludes volatile food and energy, rose 0.1% versus the expected 0.2% increase. Consumer prices were unchanged and the core rose 0.1%, which was near expectations. We ended the week better by approximately 1/4 of a discount point. LOOKING AHEAD
ReleaseDate & Time
Tuesday, July 18, 10:00 am, et
Wednesday, July 19, 8:30 am, et
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Thursday, July 20, 1:15 pm, et
Federal Reserve Banks were created to control the central banking system of the United States. The banks are divided into 12 districts and facilitate the monetary system by moving currency in and out of circulation in accordance with the policies set by the Federal Open Market Committee. The Reserve Banks handle check processing, hold cash reserves and make loans to depository institutions. Each Reserve Bank regulates commercial banks in their district. The twelve districts include Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
The Philadelphia Fed report is a survey of manufacturing businesses in the Northeast region. The report is valuable due to the timing. It is released before the month is over and is the second regional report released. While there are many other regional reports throughout the month the Philadelphia Fed report is considered to be one of the most valuable. It has historically shown strong correlation with purchasing managers index data and therefore analysts give it considerable attention.
Be cautious heading into the economic data this week. Thin summer trading conditions often lead to lackluster days of trading with minimal rate movements. However, thin conditions also can result in some wild swings from time to time. Understand the event risk before making overnight float/lock decisions.
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Mortgage bond prices finished the week lower which put upward pressure on rates. Orders for durable goods, items lasting more than three years, fell 1.1%. That data was weaker than the 0.6% decline traders expected. Consumer confidence printed at 118.9, which was better than expected. Consumers may be feeling good because the value of their homes continues to rise. According to the S&P Case-Shiller report home prices rose 5.7% on an annualized basis. Rates were pressured all week as the heads of central banks in Europe, England and Canada all indicated that it may be time to begin reducing accommodations (read hike rates). The announcements from the ECB, BOE and BOC seemed coordinated. We ended the week worse by approximately 1/4 of a discount point. LOOKING AHEAD
Monday, July 3, 10:00 am, et
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4.3%, Payrolls +138K
Factory orders data is a monthly report released by the US Census Bureau. The release is officially referred to as The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories, and Orders.
The manufacturing sector is a major component of the economy. Investors use the factory orders report to attempt to determine the direction of the economy in the future. Orders are generally believed to be a precursor to activity in the manufacturing sector because manufacturing typically has an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to scale back; otherwise, the manufacturer accumulates inventories, which must be financed.
Total factory orders break down to approximately 55% durable and 45% non-durable. Durable goods are items such as refrigerators, cars, and aircraft. Non-durables are items such as cigarettes, candy, and soap. The report is often dismissed due to the timing of the release. Durable goods orders are typically reported a week earlier making a portion of the factory orders data “old news.” While some analysts dismiss the value of the factory orders data others point out the fact that the report provides a more complete picture than the initial durable goods release. Revisions to initial data along with non-durable figures are factored in providing a more accurate look at the condition of the manufacturing sector.
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Mortgage bond prices finished the week slightly lower which put a little upward pressure on rates. Rates were higher Monday as a Fed official primed the markets for future rate hikes. Philadelphia Fed President Harker stated that he is confident inflation will hit 2% by the end of the year. Rates were slightly better Tuesday as stocks struggled and China reported increasing their U.S. debt holdings. This reversed a little mid-week as stocks rebounded and growth estimates from the Eurozone where revised higher. There were few data releases. Factory orders fell 0.2% as expected. Weekly jobless claims were 245K versus the expected 240K. Most of the movement this week took place in the mornings with very quiet afternoon sessions. There were some seesaw discount point changes but we ended the week near neutral to worse by approximately 1/8 of a discount point.LOOKING AHEAD
Tuesday, June 13,8:30 am, et
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Up 0.2%,Core up 0.1%
Wednesday, June 14,2:15 pm, et
Rate Hike Expected
Thursday, June 15,9:15 am, et
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Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise. There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will curtail consumer spending.
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