November 20, 2017
Mortgage rates were generally unchanged last week and mortgage yield spreads were unchanged to slightly tighter versus Treasuries. Mortgage rates have traded in a tight range over the last month and for much of this year, while mortgage yield spreads remain historically tight. 10-year Treasury yields fell last week, while two-year yields increased, resulting in the flattest curve since 2007. The MBA Refi Index rose 6.3% to 1372 and mortgage applications rose for the first time since October 10th. The NAHB Housing Market Index improved to the second strongest level since 2005, an indicator that homebuilders remain confident. Building permits and housing starts were much stronger than expected in October. Housing starts were the second strongest of the cycle with geographically‐widespread gains.
- Mortgage yield spreads were unchanged to slightly tighter last week:
- 15-year MBS yield spreads ended the week 2bp tighter to Treasuries and swaps.
- 30-year MBS yield spreads ended the week unchanged to Treasuries and swaps.
- Curve slope measured by 2- and 10-year Treasuries flattened 12bps last week from 74bps to 62bps; the flattest curve since November 2007.
- Investors were active last week in seasoned 15yr MBS, primarily in 3.0% and 3.5% coupons, which offer attractive yields and spreads in the sector.
- Investors were also active in new and seasoned 2.0% and 2.5% 15yr MBS, which offer limited extension risk and discount to par pricing, and in newer 20yr and seasoned 30yr MBS with 3% to 4% coupons.
- A combination of higher yield versus agency bullets and deference to convexity inspired activity in new multi-family FNMA DUS with 7yr maturities yielding approximately 2.5%.
CMO spreads were generally unchanged last week except for 5-year PAC structures, which widened 4bps. Activity in CMOs was strong last week compared to recent levels with investors active in swaps focused on odd lot cleanup trades and in PAC structures offering extension protection in various collateral types. Depositories continue to focus on stable structures with 4- to 6-year average lives.
Mortgage Rates and Refinance Activity
- Mortgage rates were mixed last week and remain in a tight range.
- 15-year mortgage rates rose 1bp to 3.15%
- 30-year mortgage rates fell 1bp to 3.79%
- 15- and 30-year fixed mortgage rates have fallen 9 and 27bps year-to-date.
- Mortgage applications rose for the first time since October 13. Applications for the week ended November 10 rose 3.1%, driven higher by a 6.3% increase in refinancing activity and an increase of 0.4% in purchase activity.
- The MBA Refi Index rose 6.3% to 1372, but continues to be historically low and range-bound, holding far below levels of 2016. The Index reached a year-to-date high the week ending September 8th at 1637; however, prior to the most recent increase, the Refi Index had fallen eight of the last nine weeks.
NAHB Housing Market Index improved to the second strongest level since 2005 as homebuilder confidence rose from 68 to 70.
Housing starts rose 13.7% in October, a sizeable surprise to the upside, to 1.29 million units. This marks the second highest level of this housing cycle, only surpassed by October 2016. The increase was driven by a solid month for single family starts, up 5.3%, but an even more impressive 36.8% increase for multi-family starts. Overall starts rose 155k: Northeast +43k, Midwest +33k, South +91k, and West -12k. Building permits also rose a solid 5.9%, boosted by a 1.9% increase in single family permits and an even more impressive 13.9% increase in multi-family.
Dan Stimpson, CPA
Senior Vice President