This Week’s Ups & Downs
We’re finally seeing bonds & interest rates get involved in the panic trade. The DOW has been down over 500 points as investors brace for budget tensions between Italy and Brussels. To shed some light on Italy’s current government ‘sich’, just picture Bernie Sanders and Donald Trump as co-Presidents…that’s Italy. Of course there isn’t just one source of this flight-to-quality; we’re also keeping an eye on US/Saudi relations, Chinese trade negotiations, the caravan of immigrants on their way to Texas way from Guatemala, and the increasing dissonance over the Fed’s rate hiking activity. Speaking of which, the market is actually fading the Fed with Fed Futures nodding to just two more rate hikes between now and the end of 2020. The Fed’s estimates show four more rate hikes in the same time frame. The bond markets are facing huge headwinds as investors try to figure out how to negotiate the end of post-crisis QE.
New Home Sales Down
New home sales plunged in September, falling 5.5 percent to an almost two year low amid pressures from rising interest rates that have hammered the real estate market. The Commerce Department reported that sales for the month came in at 553,000 on seasonally adjusted basis. That’s 5.5 percent below the downward revised August rate of 585,000 and a 13.2 percent tumble from the 637,000 reported for the same period a year ago. September represented the worst month since December 2016. The number also was well below the estimate from economists polled by Reuters who were looking for a 1.4 percent drop to 625,000.
Mortgage Apps 19 Year Low, 7% Drop
Rising interest rates are more likely the culprit for weakness in the mortgage market. Total mortgage application volume fell 7.1 percent for the week, according to the Mortgage Bankers Association’s seasonally adjusted report. There was no adjustment made for the holiday. Volume was 15 percent lower compared with the same week one year ago. Applications to refinance a home loan, which are highly sensitive to even the smallest rate moves, fell 9 percent for the week and were 33.5 percent lower than a year ago. Rates have moved 22 basis points higher in the past four weeks and have jumped 96 points in the past year. With fewer borrowers now able to benefit, refinance volume, which had been the majority of mortgage business following the recession, fell to 38.1 percent of total applications from 39 percent the previous week.
Chinese Equities Collapsing
Chinese stocks fell sharply on Thursday as heavy selling in the energy sector and worries about the levels of borrowing in the stock market added to broader concerns over growth and the global sell-off in equities. The Shanghai Composite index closed down 2.9 percent at 2,486.42, after hitting its lowest point since November 2014 on Thursday morning. The blue-chip CSI300 index was down 2.4 percent. Li Zheming, an analyst at Datong Securities in Xi’an, said the market was dragged down by a confluence of factors, and that overall market sentiment was weak on Thursday. “Investors have been concerned about risks posed by shares pledged for loans,” said Li Zheming, referring to the jump in margin lending where major investors in companies borrow by pledging their shares.
Courtesy of Sotheby's International Realty's in-house Lender Simon Atik, 310.880.8414, Simon.Atik@grarate.com, Vice President of Mortgage Lending, Guaranteed Rate Affinity.
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