March 5, 2018
The mortgage market experienced minimal change in yield spreads versus Treasuries, as mortgage rates and curve slope were unchanged last week. Mortgage applications rose for the first time in three weeks, while refinance activity fell for the third consecutive week and continues to be historically low and range-bound. New and pending home sales dropped in January, rounding out an extremely weak month for the housing sector.
- Mortgage yield spreads were unchanged to slightly wider last week.
- 15-year and 30-year MBS yield spreads ended the week unchanged to 2bps wider to Treasuries and swaps.
- Curve slope measured by 2- and 10-year Treasuries was unchanged at 62bps.
- Investors were active in 15yr MBS in 2.5% and 3.0% coupons offered at below par prices in conventional and relo collateral.
- Investors were also active in moderately seasoned and seasoned 20yr MBS, primarily in coupons ranging from 3% to 4%, which offer attractive yields and spreads in the sector.
- A combination of higher yield versus agency bullets and deference to convexity inspired activity in new and seasoned multi-family FNMA DUS.
CMO yield spreads were unchanged last week, widening slightly over the last month. CMO yields of 3% or higher are attainable for typical bank-type structures. Investor activity is focused on those structures that offer 3% yields or higher base case and up 300bp weighted average lives of four to six years in front sequential and VADM structures with coupons typically ranging from 2.5% to 4.5%.
- Mortgage rates were generally unchanged last week.
- 15-year mortgage rates rose 1bp to 3.75%, 59bps above the 12-month average of 3.16%.
- 30-year mortgage rates fell 1bp to 4.30%, 39bp above the 12-month average of 3.91%.
- 15-year mortgage rates have risen 55bps in 2018, while 30-year mortgage rates are up 45bps YTD, but have been stable over the last month.
- According to Fannie Mae, the national average of the 30-year homeowner commitment rate averaged 3.95% in December 2017, 4.03% in January and 4.33% in February.
- Mortgage applications for the week ending February 23rd were up for the first time in three weeks, rising 2.7% after falling 6.6% the prior week. Purchase apps rose 6.2% after falling 6.2% the prior week. Refi apps fell for the third consecutive week, declining 1.2% after falling 7.1% the prior week.
- The MBA Refi Index fell 1.2% to 1169, below its 12-month average of 1343. Refinance activity continues to be historically low and range-bound averaging a low index level of 1249 since the beginning of the year.
New home sales fell 7.8% MoM in January (expected +3.5%) on slower activity in the Northeast and South. A silver lining of sorts was a lower median sales price and the most homes on the market since 2009. As a result, months’ supply rose to 6.1, the highest since 2011. Pending home sales dropped 4.7% MoM in January, rounding out an extremely weak month for the housing sector. The 4.7% drop in pending sales to start 2018 was the largest monthly decline since May 2010 and points to more potential pain for existing sales in the coming months due to low supply levels and the increase in mortgage rates.
Dan Stimpson, CPA
Senior Vice President