Wednesday, September 7, 2022

Markets edge higher in an oversold market

Dow climbed 163, advancers over decliners 2-1 & NAZ went up 60.  The MLP index was even in the 215s & the REIT index added 3 to the 415s.  Junk bond funds hardly budged & Treasuries were purchased after yesterday's surge in yields, reducing yields today (more below).  Oil was off 3+ to the 83s (a low since late Jan) & gold gained 9 to 1722.

AMJ (Alerian MLP index tracking fund)

 

 

 




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Rising interest rates continue to impact areas of the housing industry.  In the past week, mortgage rates increased to 5.66% from 5.55%.  Overall demand for mortgage applications fell by 0.8%, according to the weekly survey from the Mortgage Banker's Association (MBA).  One area in particular that is seeing the impact of higher rates is refinancing.  The refinancing index declined 1% from the previous week.  "Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer," said Mike Fratantoni, MBA senior VP & chief economist.  "With the 30-year fixed rate rising to the highest level since mid-June, application volumes for both purchase and refinance loans dropped."  The purchase index took a hit as mortgage rates rise, also falling 1% from the prior week.  "Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand," added Fratantoni.  "There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity."

Mortgage rates climb as loan demand, refinancing drops

Treasury yields ticked lower following the previous day’s surge, as investors looked ahead to new economic analysis from the Federal Reserve.  The yield on the benchmark 10-year Treasury note traded 4 basis points lower at 3.294%, after hitting its highest level since mid-Jun during yesterday's session at 3.353%.  The yield on the 30-year Treasury bond was down by 3 basis points at 3.448%.  The yield on the 2-year Treasury traded nearly 3 basis points lower at 3.474%.  The short-term note rose to 3.55% last week, reaching its highest level since 2007.  Yields move inversely to prices & a basis point is equal to 0.01%.  Yesterday's climb in yields followed upbeat data releases.  The Aug non-manufacturing PMI from the Institute for Supply Management was registered at 56.9, an increase on the previous month & better than many expectations of 55.5.  Investors are looking out for the release of the Fed's Beige Book later today, a qualitative survey of economic conditions based on data from 12 district banks.  Its results are used by the FOMC as part of its policy decision making.   Yesterday's positive figures may suggest that the Fed could have room to further raise rates without doing subsequent damage to the US economy.

U.S. yields dip following previous session's surge; investors await Beige Book

Some homeowners are losing wealth as high mortgage rates weigh on home values, at least on paper, as the once red-hot housing market cools quickly.  Sales have been slowing down for several months, with mortgage rates now double what they were at the start of this year.  Home prices, likewise, dropped 0.77% from Jun to Jul, according to a recent report from Black Knight, a software, data & analytics company.  While that may not sound like a lot, it was the largest monthly drop since 2011 & the first monthly drop of any size in 32 months.  “Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today’s, such backward-looking metrics can be misleading as they can mask more current, pressing realities,” wrote Ben Graboske, pres of Black Knight Data & Analytics.  Roughly 85% of major markets have seen prices come off peaks thru Jul, with 1/3 coming down more than 1% & about one in 10 falling by 4% or more.  As a result, after gaining Ts of $s in home equity collectively during the first 2 years of the pandemic, some homeowners are now losing equity.  Tappable equity, which Black Knight defines as the amount a homeowner can borrow against while keeping a 20% equity stake in the property, hit its 10th consecutive quarterly record high in Q2 of this year at $11.5T.  But data suggests it may have peaked in May.  Declining home values in Jun & Jul brought the total amount of tappable equity down 5% & given the weakening in the housing market since then, the 3rd qtr of this year will show a more sizeable decline.  “Some of the nation’s most equity-rich markets have seen significant pullbacks, most notably among key West Coast metros,” noted Graboske.

Homeowners lose wealth as rising interest rates weigh on home values

Bargain hunters are looking for buying opportunities after the recent selloff.  The Fed minutes later today will be a driver for stocks.

Dow Jones Industrials

 







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