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An unexpected drop in mortgage rates in late 2018 has inspired some homebuyers into action ahead of the busy spring sales season, spurring an early rush of mortgage applications. The average 30-year fixed mortgage rate was expected to hover above 5 percent in 2019, but instead fell to ten-month lows around 4.46 percent for the week of January 31st.
This drop in mortgage rates caused the Mortgage Banker’s Association January mortgage rate forecast to revise the 30-year fixed mortgage rate down from 5.1percent to an average of 4.8 percent in 2019 — the same average for all of last year. The average rate is expected to stay below 5 percent through 2021.
As rates took a dip, house price appreciation is also expected to soften. According to the latest CoreLogic Home Price Insights Report, home prices jumped 5.1 percent between November 2017 and November 2018. By November of this year, that growth rate should slow to 4.8 percent.
Potential homebuyers who are crossing their fingers and waiting for home prices to fall further may miss the affordability boat if mortgage rates creep up again. A severe shortage in both new construction and existing housing stock means homebuyers won’t see much decline, if any, in home prices in the foreseeable future.
I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019.
Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the "canary in the coalmine" and that more companies will report weaker sales and earnings.
Regardless of Apple's current woes, the U.S. economy is still humming along as was evident in Friday's Jobs Report which showed an "eye-popping" 312,000 jobs created in December.
Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year – the highest level in a decade.
Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing.
But while we are on the subject of rates, the "bad Apple" news helped rates improve again this week to the lowest levels in nearly a year.
Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news – Congress can provide plenty of it from time to time.
It will be back-to-business this week for the first full workweek of 2019 after the two-previous holiday shortened weeks.
The closely watched Consumer Price Index for December will be released with the Fed keeping close eyes on the inflation reading ahead of the January 30th Fed Meeting. Speaking of the Fed – as of right now, financial markets are pricing in a 91% probability the Fed Funds Rate will be unchanged in 2019 – meaning no more rate hikes this year.
The U.S. government may be enduring a partial shutdown, but that doesn't stop them from borrowing money to run our country and this coming week the U.S. Treasury will sell $78B worth of Bonds in that effort. With rates and bond yields at the lowest levels in a year, it will be interesting to see the investor appetite at these Treasury auctions. If investors demand more yield at the auctions, expect rates, including home loan rates, to tick higher.
Reports to watch...
The ISM Service Index will be released on Monday.