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Blogs on Mortgages, Markets And Other Items Of Interest. Stay Up To Date!

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Market Commentary

11/22/2016

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Mortgage rates continued to grind higher last week as the post-election sell off in the bond market gained steam. Fed Funds futures are now trading at a 100% chance of an increase at the December meeting, as the current policy proposals of the President-elect are expected to increase inflation, paving the way for multiple rate increases next year.

The Holiday shortened week ahead will have limited economic releases for the market to digest, including Existing/New Home Sales and Durable Goods Orders. Markets will continue to focus on the prospects of the new administration as the President-elect continues to fill out his cabinet, with politics continuing to play an even larger role in market movements than economic data, which has been the case since the election.

Economic Calendar for the week of 11/21/2016 to 11/25/2016:
Monday: Chicago Fed National Activity Index
Tuesday: Richmond Fed Manufacturing Index, Existing Home Sales
Wednesday: Initial Jobless Claims, Durable Goods Orders, New Home Sales
Thursday: U.S. Holiday, Thanksgiving, Markets Closed
Friday: Wholesale Inventories
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November Mortgage Bulletin

11/14/2016

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November News Flyer from Effective Mortgage Company
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Market Report

11/14/2016

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The dollar is continuing to strengthen, supporting the heavy selling in the bond market. Trump’s surprising victory is continuing to roil markets. A week ago markets thought he was a dead man walking, many that now are ringing bells were trying to distance themselves now blowing trumpets. It is a Mad, Mad, Mad World. A week ago Trump was considered by many as unfit to be President; now he is, and those views seem to have moderated somewhat; if you can’t lick ‘um, join ‘um ? Less than a week and markets are going postal. 

 As you know we have been negative in rates well before the election, but prior to last Wednesday not much increase had occurred since mid-October when the 10 yr ran to 1.79% frm 1.55% at the end of September. Three weeks of consolidation then the election and an explosion pushing the 10 to 2.26% today. Mortgage rates up 25 bps in rate since last Tuesday. Technically the bond and mortgage markets are over-sold in the near term but the momentum continues so far. To remind, although we look for some rebound at best and consolidation at least, the trend  for higher rates is on solid footing. 

Here comes increasing Federal Debt with large increases in fiscal spending; not only in the US but in Europe as well as central banks have run out of stimulus that has had much benefits. One reason rates are driving higher, Treasury will have to borrow more to fund infrastructure and other social spending. It was a key in both Trump’s and Clinton’ campaign. Increasing wages, increasing economic growth with the knowledge inflation will likely increases. That said, the financial markets are over-reacting to possibilities that are still uncertain and possibly unlikely. The dollar’s strength also overdoing it . Nonetheless don’t fight it now; we tried to pick a minor turn last Friday and eating crow today. 

Tomorrow Oct retail sales are expected up 0.6%, ex auto sales +0.5%. Oct import and export prices expected +0.1% on exports and +0.4% on imports. Nov Empire State manufacturing index expected at -2.3 frm -6.8. Sept business inventories expected +0.2%. The data in a sense is dated news with the election but retail sales are expected to increase now through the holidays, an increase in Oct will had more to that conviction. Most consumers presently, whether disappointed about the results or pleased, happy to have the national and local elections over. 

 Lenders are likely now to begin pricing to the 3.5 FNMA coupon; the 3 is at par now and mortgage rates edging above 4.0%. Presently the difference between the two 25 bps better for the 3.0 coupon. Wait for it though; both will still move in the same direction, the 3.5 less than the 3. 


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Jumbo Loans 10% Down Payment No MI

11/9/2016

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Jumbo flyer from Effective Mortgage Company
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Mortgage Insurance

11/9/2016

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Cancelling Mortgage Insurance from Effective Mortgage Company
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Financial Market Update

11/7/2016

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The U.S. Presidential election is Tuesday and Americans are really nervous someone will win. All the markets are waiting to see who emerges victorious and what that will mean to the economy. The big news last week was obviously the Fed decision. Ahead of the U.S. Presidential Election, the Fed did not change the Fed Funds Rate. The expectation was that they would wait to raise rates until December. They did point to somewhat higher inflation and said that the case to raise U.S. interest rates “has continued to strengthen.” As with the last meeting, they again stated that they want more evidence to show that the economy is on solid footing; but, not much more.

The Fed may have received the evidence they wanted on Friday. The U.S. added 161,000 Jobs in October, adding to the jobs gained in August and September. Health care companies, white-collar professional outfits, and financial firms were the top industries creating jobs. Unemployment fell to 4.9 percent from 5 percent. Hourly wages rose .4 percent in October to $25.92. The U6 rate, which included part-time employees that can’t find full-time work and discouraged job seekers, fell to 9.5 per cent from 9.7 percent. However, Weekly Jobless Claims rose slightly to 265,000, though, expectations were that it would remain at 258,000.

In addition to the positive news in the U.S., other countries were also reporting encouraging data. China reported strong manufacturing data; which, leads to greater confidence in global growth. Chinese PMI rose to a two-year high of 51.2 up from 50.4 in September. The Bank of England held its interest rates unchanged and signaled there will be no further easing in 2016 as England has been surprised with stronger than expected economic data. They noted that business sentiment and indicators of activity recovered from their lows after the referendum to exit the European Union and estimated GDP growth in the third quarter was better than expected. They even raised the inflation forecast from 2.0 to 2.7 percent. Unemployment in the Eurozone is at its lowest rate since 2011.

The Institute for Supply Management, ISM, reported that its Manufacturing Index rose slightly to 51.9 percent in October, up from 51.5 percent in September. U.S. manufacturers’ employment grew for the first time in 4 months, an index that measures manufacturing employment rose from 49.3 in September to 52.9 percent in October. ISM’s Production Index also increased in October to 54.6 percent, up from 52.8 in September. This is an encouraging sign for the U.S. economy. A similar survey, Markit PMI, also showed an increase. Markit’s index reached a new 52-week high. Despite the encouraging numbers, the index for new orders slipped to 52.1 percent from 55.1 percent in September. This could mean that companies are in a holding pattern until after the Presidential election. Only 10 of the 18 industries tracked by ISM reported growth. If the economy was going well, you would have more industries showing growth.

Meanwhile, Outlays for Construction Spending fell in September by .4 percent, according to the Commerce Department. Economists were expecting a .4 percent increase.

Factory Orders were up by a seasonally adjusted 0.3 percent in September. Durable goods declined 0.3 percent while nondurable goods increased by .9 percent in September. U.S. Productivity increased 3.1 percent from July through September. The improvement stems from more goods and services being produced; however, the amount of time workers work, was only up .3 percent. Productivity has been slow to improve during the economic recovery. Productivity is less than half historical average and there are no signs it is picking-up. Unit-labor costs are only up 2.3 percent this year and have narrowed since early 2015. Hourly compensation (wages and benefits) rose 3.4 percent annually in the third quarter. When accounting for inflation, the increase was just 1.7 percent.

Despite this week’s positives, stocks continued to trade lower. Again, as the election is nearing, people are reluctant to invest. On Friday, the S&P 500 finished lower for the 9th consecutive day. This is the longest losing streak for the S&P since 1980. The S&P closed at 2,085.18. The Dow Jones Industrial Average, lost 42 points, closing at 17,888.28 and the Nasdaq Composite Index closed slightly lower, at 5,046.37.

Up ahead for this week:

Monday - Consumer Credit
Tuesday - NFIB Small-Business Index; Job Openings
Wednesday - Wholesale Inventories
Thursday - Weekly Jobless Claims, Federal Budget
Friday - Consumer Sentiment

Thank you for your business and have a successful week!

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