Yields Rose Slightly Overnight Reaching Just Under 2.66%


Video recording of commentary is available: http://www.ratewatch.com/ratewatchnow.html

Happy Monday! The 10-year yield closed Friday at 2.63% near the Thursday close around 2.64%. The Dow lost 23 points and MBS improved 6 bps.

Yields rose slightly overnight reaching just under 2.66% supported by a televised interview with Fed Chair Powell where he reinforced patience from the Fed regarding immediate rate increases and with future decisions based on data. He stated he believes the U.S. economy is strong and will continue to expand while recognizing that global economics may impact the U.S. economy.

This morning the yield is around 2.64% after the Commerce Department report on retail sales was released showing a 0.2% increase in January exceeding forecast for unchanged and increased 2.3% from a year ago. The increase did not offset weak December data revised to 1.6% decrease, the worst month since September 2009. Core sales (excluding autos, gas, building materials and food) rose 1.1% in January versus a revised 2.3% decrease in December.

Positives in the report were online and mail-order retails sales had largest gain since December 2017, building material stores had highest gain since September 2017, discretionary spending was highest since January 2013 and food and beverage stores gained most since April 2016.

The January report was delayed due to the government shutdown. The February report was scheduled for Thursday but has been delayed until April 1.

The 10-year yield is trending in a lower tranche of a general consolidation since mid-December. During that time the yield has maintained a 2.62% to 2.80% range with 2.70% being a pivot point.

The yield curve is basically flat out to 5-year Treasuries and then with modest increase in yields out to 30-year. The Fed patience will anchor the low end of the curve with movement to the long end influenced by economic data over the next few months.

The Modern Mortgage Loan Originator uses Mortgage Coach. Additional information and TCAs available within Mortgage Coach and RateWatch. (TCAs will be updated 3/11)

Cost of Waiting Analysis

-- Home Value annual increase 4% based on variety of reports including NAR, Case Shiller and MBA.

-- Mortgage rate environment flat for the next 1-2 months; .125 bps worse rate within 3-5 months based on economic data; .25 bps worse in rate within 5-6 months based on potential Fed increase; additional .25 bps worse in rate by end of 12 months.

Borrower discount points and Seller Concession in lieu of Price Reduction

-- Average sales price reduction is 3% - 5% versus asking price.

-- Recent National Association of Realtors report showed homes on the market longer and sellers are cutting prices more frequently.

-- 30-year FRM relative price versus 10/1, 7/1 and 5/1 ARMs through 1 point in discount stack.

-- ARMs currently escalate more deeply at 2% discount by .125% to .25% in rate versus 30-year FRM

Seller Concession TCA with concession used within discount points to lower the interest rate: (https://mcedge.tv/1ceut3)

Seller Concession TCA including ARMs with concession utilized by borrower at 2% discount: (https://mcedge.tv/1ceu87)

Cost of Waiting TCA with 30-year FRM at three, six- and twelve-month future periods: (https://mcedge.tv/1ceubg)

Borrower paid discount TCA 30-year FRM at PAR, 1% and 2% discount; and 10/1 ARM at 2% discount: (https://mcedge.tv/1ceu98)

Rent versus own TCA including worsening rates and increasing rent: (https://mcedge.tv/1celkq)

Have a great day!