Home Builders Remain Very Positive


Builder confidence in the market for newly-built single-family homes remained unchanged in April at a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

A level of 50 is the median level, so any reading above 50 is positive and expansionary.

“Builder confidence has held firm at 58 for three consecutive months, showing that the single-family housing sector continues to recover at a slow but consistent pace,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill.  “As we enter the spring home buying season, we should see the market move forward.”

“Builders remain cautiously optimistic about construction growth in 2016,” said NAHB Chief Economist Robert Dietz. “Solid job creation and low mortgage interest rates will sustain continued gains in the single-family housing market in the months ahead.”

The HMI components measuring sales expectations in the next six months rose one point to 62, and the index gauging buyer traffic also increased a single point to 44. Meanwhile, the component charting current sales conditions fell two points to 63.

Looking at the three-month moving averages for regional HMI scores, all four regions registered slight declines. The Northeast and West each fell two points to 44 and 67, respectively. Meanwhile, the Midwest and South each posted respective one-point losses to 57 and 58.

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 3.00 MBS) lost -37 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher from the prior week.

It was a week that had huge potential for volatility, but in the end MBS (and rates) moved sideways for the majority of the week.

Domestic Flavor:

Retail Sales: Potentially the most significant data point of the week, disappointed.  The headline reading for March was -0.3% vs est of +0.1%.  When you strip out Autos, the reading also fell short (0.2% vs est of 0.4%).  The only bright spot was that Feb was revised upward for both readings.  Gasoline sales did have a rare increase, boosted by higher prices at the pump but really this overall a very weak report.

Inflation?:  We got a mixed bag as the Producer Price Index (PPI) showed zero threat of inflation on the front-end of the equation, but Consumer Prices (CPI) did show some increases on the back-end of the equation.  The YOY Core PPI data came in at 1.0% which fell back from Feb’s 1.2% reading.  The MOM readings also showed weakness with Headline PPI (-0.2% vs est of +0.1%) and Core PPI (-0.1% vs est of +0.1%).
For CPI, both the Headline and Core MOM readings showed inflationary increases of +0.1% over the prior month.  The more closely watched CORE YOY dipped from 2.3% down to 2.2% but still above the important 2.0% level watched by the Fed.

The Talking Fed:
The Fed’s Beige Book hit at 2:00EST.  You can read the official release from the Fed here:https://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201604.htm
Overall, the tone of this report that is prepared specifically for the April FOMC meeting was of a growing economy seemingly supportive of rate tightening.
Since this isn’t a data point, traders like to focus on word searches.  Here are a few key ones:
“Weather” was used 28 times in January, 17 in March and 18 in April
“Stock Market” was used 3 times in March but only 1 time in April
“Global” was used 11 times in March but only 2 times in April
Wages saw good growth in every region except one (Atlanta).
Just about all of the districts reported improving credit conditions and Stable to Moderate Growth.

Across the Pond:
China: Their GDP data was right in the wheel-house of market expectations hitting 6.7% on a YOY basis.  The market expectations were in the 6.5% to 6.8% range.  This is a slightly sower pace than the 6.8% reading last quarter but again it was basically what the market expected.  Long bond traders are still in a “wait and see” mode with this data.  This growth rate is basically double that of the U.S. and many of the huge levels of stimulus that China has enacted are just only starting to move their economy.

What to Watch Out For This Week:


The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

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Taff Weinstein

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Cell: 832-794-2136

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