FRM Update

October 1, 2018

Yield spreads for current production coupons to Treasuries were mostly unchanged for 15-year MBS and 1bp tighter on 30-year MBS.  Benchmark yields were largely stable, after marching higher for most of the month.  Implied volatility declined to levels not seen since 2007, which was supportive of the MBS performance over the past week.

Trading activity slowed last week, with investors seemingly trying to digest a fair amount of economic data while waiting on a Fed decision and updated guidance.  Most of the activity centered on both seasoned and new production 15-year paper, as well as newer production 20-year 3.0s and 3.5s. The following represents a summary of the activity last week and themes in the overall sector:

Mortgage Rates and Refinance Activity

Mortgage applications for the week ending September 21 rose 2.9% on a 2.6% increase in purchase applications and a rare 3.2% increase in refi apps, despite mortgage rates ticking up approximately 20 bps from the end of August through the end of September.  Backing away from the week-over-week data, refi apps remain very low and purchase apps are struggling to regain their pace from early-2018.


New Home Sales Beat Expectations for a Change, But Previous Data Revised Lower:   August’s New Home Sales report showed sales up a better-than-expected 3.5% MoM.  However, the annualized pace of sales rose to just 629k which was 1k worse than expectations.  May, June, and July’s sales figures were revised lower than previously reported causing the weaker result.  The new home sales data show an even weaker summer for new home sales, adding to the recent run of disappointing housing data.  Nonetheless, the uptick in August’s sales at least offers some solace.

Yet Another Disappointing Home Sales Report: The August Pending Home Sales report, released Thursday morning, was yet another disappointment.  Sales fell 1.8% MoM versus expectations of a 0.5% decline.  On a year-over-year basis, pending sales are now down 2.3%. Pending home sales are collected through a survey of realtors and real estate professionals, tabulating the number of existing homes which have gone under contract for sale but not yet closed.  According to the National Association of Realtors, 80% of pending home sales go to closure within two months of contract signing.  Pending sales currently point to existing home sales dropping another 2% in coming months.


Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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