FRM Update

March 4, 2019

Yield spreads on current coupon MBS to Treasuries were mixed last week with 15-year ending the week unchanged at 48 bps, while 30-year widened 2 bps to 75 bps. Higher coupons tightened by 3 to 5 bps, likely a reaction to the curve steepening.

Depositories continue to be active in the MBS space, with an emphasis on the 20- and 30-year sectors.  The following represents a summary of the activity we’ve seen in recent weeks:


10-Year MBS


15-Year MBS


20-Year MBS


30-Year MBS



Mortgage Rates and Refinance Activity

Benchmark mortgage rates increased slightly last week but remain relatively low.  15-year mortgage rates increased 3 bps to 3.70%, while 30-year mortgage rates increased 9 bps to 4.43%, remaining near the lowest level in a year.

Mortgage applications increased for a second week in a row.  The recent downturn in mortgage rates seems to have provided some support for mortgage activity, a positive sign of potential stability for the reeling housing sector.  Total purchase applications responded with a 5.3% weekly increase that was the result of stronger interest in new purchases and the refinancing of old loans. Purchase applications were up 6.1% while refinancing activity rose 4.6%.


Housing News:

Volatile Housing Starts Report Yet Another Disappointing Read on Housing Activity: Housing starts disastrously disappointed expectations in December, falling 11.2% MoM along with a 2.8%-lower adjustment to the November data.  All told, new housing starts were almost 14% lower by the end of December than expected.  This data series is prone to large revisions and can be volatile on a month-over-month basis, particularly multi-family activity.  December’s weakness was in both single family (-6.7% MoM, -11.1% YoY) and multi-family (-20.4% MoM, -14.0% YoY) starts.  At a regional level, the only bright spots were a 30% increase in multi-family in the Northeast and a 2% increase in single family in the South.  Apart from those, every metric showed double digit declines.  One silver lining to the data, new building permits did rise 0.3% MoM, primarily driven by a 45.5% MoM increase in multi-family permits in the West.


Pending Home Sales Ended Their Slide: Pending home sales finally found their footing in January after sliding in nine of the last 10 months. Total pending sales rose 4.6% to start 2019, the biggest monthly gain since October 2010 to their best pace in four months. Encouragingly, activity picked up across all four geographic regions with the two areas accounting for the largest share of existing sales leading the way. Pending sales in the South jumped 8.9%, the most since early 2010, to break a six-month downturn. Contract signings in the Midwest improved 2.8%, the best month since February 2017. The previous decline in mortgage rates was expected to eventually help stabilize activity in the housing sector. Although pending sales remained at their fourth weakest level since 2014 and down 3.2% from a year ago, the January rebound may reflect the beginning of the positive effects of lower rates.


Michael S. Erhardt, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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