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Mortgage Market in Review – May 21, 2018

   

Market Comment

Mortgage bond prices finished the week sharply lower which put upward pressure on rates.  We started the week on a negative note and the selling pressure continued.  Retail sales rose 0.3% as expected.  Housing starts were weaker than expected.  The Philadelphia Fed survey, an indication of manufacturing activity in the all-important Mid-Atlantic region, printed at 34.4. That data was much better than expectations for a read of 20. A reading above zero indicates economic expansion and the index printed above that level for 2+ years.  Leading economic indicators rose 0.4% as expected.  Overall the data showed solid economic conditions.  We ended the week worse by 1/2 to 5/8 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
New Home Sales Wednesday, May 23,
10:00 am, et
699K Important.  An indication of economic strength and credit demand.  Weakness may lead to lower rates.
Fed Minutes Wednesday, May 23,
2:00 pm, et
None Important.  Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, May 24,
8:30 am, et
225K Important.  An indication of employment.   Higher claims may result in lower rates.
FHFA House Price Index Thursday, May 24,
10:00 am, et
Up 1.4% Moderately Important.  A measure of single family house prices.  Weakness may lead to lower rates.
Existing Home Sales Thursday, May 24,
10:00 am, et
5.65M Low importance.  An indication of mortgage credit demand.  Significant weakness may lead to lower rates.
Durable Goods Orders Friday, May 25,
8:30 am, et
Up 2.8% Important.  An indication of the demand for “big ticket” items.  Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, May 25,
10:00 am, et
99 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

Oil and Gas Prices

U.S. consumers benefited from relatively tame oil and gas prices for some time.  In the early 2000s consumers enjoyed low gas prices with a barrel of oil around $20.  By the summer of 2008 oil prices hit all-time highs with prices over $140 a barrel and gas prices rose accordingly.  Only a few years ago we were told that $100 a barrel was the new ‘normal.’  That all reversed and consumers once again benefited from low prices.  Some attributed the past highs to “peak oil” levels while others argued they were due to supply and demand.  Others called it a “bubble” led by speculation and momentum trading.  Whatever the cause, inflation fears tied to rising energy prices reignited recently as we saw oil prices hit $80 a barrel.  This was the highest level since 2014.

 

Today analysts attribute current oil price levels to a tightening market coupled with new Iran sanctions and geopolitical concerns across the globe.

 

The U.S. Energy Information Administration’s (EIA) recent short-term outlook noted for the 2018 April–September summer driving season, EIA forecasts U.S. regular gasoline retail prices to average $2.90/gallon (gal), 17 cents/gal higher than in last month’s STEO and up from an average of $2.41/gal last summer. The higher forecast gasoline prices are primarily the result of higher forecast crude oil prices.  That is bad news for consumers in the short term.

 

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