Mortgage applications flat and new home sales dip

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Published Date 7/25/2018

Mortgage prices inched up fractionally yesterday. The 10-yr declined to 2.95%, down -1 bp. This morning in early activity there was not much change in the yield curve, mainly unchanged at 9:00 am EST.

Weekly MBA mortgage applications declined last week 0.2%, purchase apps were down 1.0% while refinance apps +1.0%. Unadjusted, purchase applications were 2% higher than in the same week a year ago. The refinance share of mortgage activity rose 0.3 percentage points from the prior week to 36.8%.

On trade, EU President Jean-Claude Juncker is meeting in Washington today to discuss the 20% auto tariffs President Trump is threatening on imported autos along with the steel and aluminum tariffs already imposed. The EU has already imposed tariffs worth $3.3 billion on U.S. goods in response to an earlier decision by the president to impose a 25% and a 10% duty on steel and aluminum, respectively, from Europe. Trump tweeted once again he would like all tariffs lifted between the US and EU. GM is cutting its profit forecast due to tariffs on aluminum and steel; the same thing is being said by Boeing, cutting its outlook. There is nothing new on the trade fight between the US and China; the world’s two largest economies have so far imposed 25% tariffs on $34B worth of each other’s imports, with reciprocal duties on a further US $16B of goods expected to take effect soon. President Trump is also threatening a total of $500B.

At 9:30 am the DJIA opened down 46 points, NASDAQ +2, S&P -1. The 10 yr remained unchanged at 2.95%.

At 10:00 am June new home sales, expected at 669K units, were down 2.9%; as reported sales totaled 631K, down 5.3%; May sales revised lower from 689K to 666K; the median price dropped -4.2% at $302,100.00, the weaker sales are in line with June existing home sales. Higher interest rates are one cause, but one wonders if another cause is too few potential buyers, even with this growing economy and seemingly higher wages. In the hot California housing market, Core/Logic reported sales of existing and new housing sales have declined 11.8% yr/yr as sales prices increased 7.3% from a year ago. History notes that California leads the nation in sales and sales prices. Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years.

At 1:00 pm the Treasury will auction $36B of 5-yr notes; yesterday’s 2-yr auction was in line with averages over the last year.

Who wants a strong currency? One way to combat trade tariffs is to have your currency decline compared to others, somewhat balancing the added tariff costs. No one wins these trade fights. President Trump knows it, and everyone else knows it as well, including investors. We are hearing more analysts and economists now worrying over a potential recession on the way. Jerome Powell is saying having the Fed increase interest rates will extend economic growth. U.S. economic growth will probably slow gradually over the next two years, and the threat of a trade war has made a recession more likely, a recent Reuters poll predicted. The U.S. economy is a year away from surpassing the record 120-month 1991-2001 expansion, according to data from the National Bureau of Economic Research.

Source: TBWS

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