Happy Monday! How are those New Year’s resolutions going? If you’re like me and you haven’t started on yours yet, there’s still time, but it’s time to get a move on. Let’s be the accountability group for each other today. What do you say?
Buoyed by a strong employment report, the stock market had a bit of a bounce back in the first week of the new year. It needed it; 2018 ended on a bit of a sour note. Let’s jump in and see what happened.
MBA Mortgage Applications
This report wasn’t released over the Christmas holidays, so these numbers cover a two-week period as opposed to the usual mortgage application reporting. Apparently, consumers weren’t thinking about their mortgages either. Overall application volume fell 9.8% for the period of the reporting.
The average interest rate on a 30-year fixed conforming mortgage was down 10 basis points to 4.84%. This isn’t the only analysis that showed a drop in rates. We’ll have more on Freddie Mac’s data regarding this in the mortgage rates section below.
Still, the decrease in interest rates wasn’t enough to stop refinance applications from falling 12% and purchase applications from being down 8%. Most of the mortgage market is about purchase right now, with refinances making up just 42.7% of applications.
Initial jobless claims were up 10,000 to 231,000 last week. The good news is that the four-week average was down by 500 to 218,750.
On the continuing claims side, these were up 32,000 to 1.74 million. Meanwhile, the four-week average rose 26,000 to 1.704 million. These are high levels not seen since the beginning of September.
ISM Manufacturing Index
While the manufacturing sector is still in a growth cycle, signs pointed to things getting a bit stagnant in December. Optimism among those who reported was down more than five points to 54.1. Things haven’t been this slow since November 2016.
Growth in new orders was down 10 points to come in at 51.1, indicating minimal growth. This is also the lowest this number has been in nearly two and a half years. There was a 0.6 point rise in new export orders to 52.8 that helped out a little.
The data in the report is generally soft. Production was down six points to 54.3. Employment growth also hit the brakes a bit and was down more than two points at 56.2. Deliveries from suppliers fell and there seemed to be less concern about costs going up. Unfortunately, both are indications of a step back by manufacturers. Finally, the manufacturing backlog was flat at 50, indicating backorders weren’t falling, but they weren’t growing either, which could point to a slowdown in orders.
In terms of what’s driving sentiment right now, comments are on the report seem to point to worries over the drop in oil prices as well as the continued standoff with China.
In the limited data released this week, this report was definitely the standout star. There were 312,000 jobs added to nonfarm payrolls in December, well above estimates for a 180,000-position increase.
The unemployment rate did rise 0.2% to 3.9% on the month, but even here there appears to be good news. The labor force participation rate was also up 0.2% to 63.1%. This means the entire rise in the rate can be accounted for by the fact that some people who had given up on finding work now see that the labor market has come back enough for them to feel confident in searching for work again.
Average hourly earnings also had a good month, up 0.4%, the biggest monthly increase since December 2017. The yearly increase for average hourly earnings was up 0.1% to 3.2%. People got slightly more hours heading into the holidays as the average workweek increased six minutes to 34 hours, 30 minutes.
Turning back to payroll numbers, 301,000 jobs were added to private payrolls, while the government added 11,000 jobs. In the closely watched manufacturing sector, 32,000 jobs were added. There were 38,000 jobs in construction. Retail was up 24,000 as they geared up for peak shopping. Trade and transportation saw a 34,000-job increase. The professional and business services sector rose 34,000, including a gain of 10,000 for temporary help. Finally, mining was up 4,000. This is a sizable increase given that there are fewer people employed in the mining industry compared to other sectors.
Despite fairly strong underlying data like the December employment report, there are fairly real concerns in the stock market about the dispute with China starting to hit the bottom line for companies. More on that in the next section, but when the stock market is spooked, the bond market is the beneficiary. As people buy more mortgage bonds, rates fall.
The following data from Freddie Mac doesn’t show the full effect of the rate drop last week. The stock market issues and government shutdown talk didn’t come to a head until Thursday when data for this report would’ve already been collected.
Here’s the bottom line: If you’re in the market to purchase or refinance, it’s as good a time as any to lock your rate. Rates have been trending lower than they’ve been in some time in the last couple of weeks, but the economy is generally strong, so we don’t know when money might leave the bond market again. Take advantage of these rates while you can.
The average rate on a 30-year conforming fixed mortgage was 4.51% with 0.5 points in fees. This was a drop of four basis points on the week, but up from 3.95% at the same time a year ago.
Looking at shorter terms, the average rate on a 15-year fixed mortgage fell two basis points to 3.99% with 0.4 points in fees. Last year at this time, the rate was 3.38%.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.2 points in fees was down a couple of basis points to 3.98%. This is up from 3.45% last year.
The stock market was up on Friday. Two things propelled optimism that hadn’t been in the market for a while. In addition to a much better than expected jobs report, there were also comments from Federal Reserve Chairman Jerome Powell that the board would be patient when it came to raising benchmark interest rates in light of lower inflation.
The move higher was much needed as the market had been spooked by Apple saying it would miss its quarterly projections because the effect of trade and tariffs had apparently led to significantly lower sales for the iPhone in China than expected. Apple was among a group of tech companies that saw a 4% rise in their stocks Friday after China announced that trade talks were scheduled in Beijing for today and tomorrow.
The Dow Jones Industrial Average rose 746.94 points Friday to close at 23,433.16, up 1.61% on the week. The S&P 500 closed at 2,531.94 points, up 1.86% for the week and 84.05 points on the day. Finally, the Nasdaq finished the week up 2.34% at 6,738.86, rising 275.35 points on the day.
The Week Ahead
As a result of the ongoing government shutdown, any reports that come out of the U.S. government may or may not actually come. That said, here’s what’s scheduled for this week.
Tuesday, January 8
International Trade (8:30 a.m. ET) – International trade is composed of merchandise (tangible goods) and services. It’s available by export, import and trade balance for six principal end-use commodity categories and for more than 100 principal Standard International Trade Classification system commodity groupings.
Quicken Loans Home Price Perception Index (HPPI) (10:00 a.m. ET) – Quicken Loans releases data every month comparing what people think their homes are worth to appraisals. Similar opinions of value often make for smoother purchase and refinance transactions.
Quicken Loans Home Value Index (HVI) (10:00 a.m. ET) – Quicken Loans also releases data on home values at both the national and regional levels. Homeowners can gain a perception of whether values are increasing or decreasing and get a better idea of where they stand in terms of equity.
Wednesday, January 9
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Thursday, January 10
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to report the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.
Friday, January 11
Consumer Price Index (CPI) (8:30 a.m. ET) – The consumer price index measures changes based on the price of a fixed basket of goods and services purchased by consumers.
We’ll be keeping an eye on these reports as well as the stock market and all things government shutdown. It’ll be covered in next Monday’s Market Update!
If you find that economic data and mortgage rates aren’t really your speed at the moment, we’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. If you’re having trouble deciding where to get started with your resolution for the new year, maybe start small. Our Molly Grace has some tips on setting micro goals. Have a great week!
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