Mortgage Rates this Week.

Encouraging economic news during the week resulted in rising bond yields and lower bond prices while stock prices put in an uneven performance on mixed third quarter corporate earnings reports. Disappointing third quarter earnings reports from Apple, 3M, Caterpillar, and Sherwin-Williams in addition to poor fourth quarter earnings guidance from retailers Under Armour, Kohl's, and Macy's helped to weigh on the stock market.   In economic news, the economy unexpectedly showed signs of improvement in the 3rd Quarter by growing at the fastest pace in two years.  According to the Commerce Department’s Bureau of Economic Analysis, 3rd Quarter GDP bounced back at a 2.9% annual rate after growing by only a 1.4% annual rate in the 2nd Quarter.   On the inflation front, the Advance 3rd Quarter Chain Deflator was reported at 1.5%, a little higher than the consensus forecast of 1.4%, but well below the 2nd Quarter’s level of 2.3%.  The 3rd Quarter Employment Cost Index matched both the consensus forecast and the 2nd Quarter result at 0.6%.  Wages and salaries increased 0.5% while benefits increased 0.7%.  For the 12-month period ending in September, compensation costs for civilian and private industry workers both increased 2.3% while those for state and local government workers increased 2.6%.  Apparently, it pays a little better to work for the government.   The week’s housing news was favorable with the Case-Shiller 20-City Home Price Index, which measures price changes in residential housing in 20 major cities across the U.S., moving 0.4% higher for the month August and 5.1% higher year-over-year.  The overall Case-Shiller Index measuring price changes in all nine U.S. census divisions across the U.S. was 5.3% higher on an annual basis in August from 5.0% in July.  Also, the FHFA Home Price Index for August increased 0.7% and this exceeded the consensus forecast of 0.5%.  On an annual basis, the FHFA Home Price Index was 6.4% higher.   New Home Sales were mostly upbeat.  The Census Bureau reported New Home Sales increased 3.1% to a seasonally adjusted annual rate of 593,000 in September.  This was below the consensus forecast of 610,000 but higher than a downwardly revised level of 575,000 in August.  Additionally, the September 2016 rate is 29.8% higher than the September 2015 rate of 457,000.  Furthermore, the median sales price for new homes sold in September jumped by $29,500 to $313,500 from $284,000 in August while the average sales price increased by $24,100 to $377,700.  At the current sales rate, there is currently a 4.8 month supply of 235,000 new homes available for purchase.

  The National Association of Realtors reported its Pending Home Sales Index jumped 1.5% to 110.0 in September after falling 2.5% during August.  The increase was more than the consensus forecast calling for a 0.6% gain and is a sign of the underlying strength the housing market.  Year-over-year, the Index is 2.4% higher than September 2015.

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 21 showing the overall seasonally adjusted Market Composite Index fell 4.1%.  The seasonally adjusted Purchase Index dropped 7.0% from the prior week, while the Refinance Index decreased 2.0%.  Overall, the refinance portion of mortgage activity increased to 62.7% of total applications from 61.5% in the prior week.  The adjustable-rate mortgage share of activity accounted for 4.2% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.73% to 3.71% with points increasing to 0.37 from 0.36.   For the week, the FNMA 3.0% coupon bond lost 45.3 basis points to end at $102.92 while the 10-year Treasury yield increased 11.2 basis points to end at 1.8486%.  Stocks ended the week mixed with the Dow Jones Industrial Average gaining 15.48 points to end at 18,161.19.  The NASDAQ Composite Index dropped 67.30 points to close at 5,190.10, and the S&P 500 Index lost 14.75 points to close at 2,126.41.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 4.05%, the NASDAQ Composite Index has added 3.52%, and the S&P 500 Index has advanced 3.88%.   This past week, the national average 30-year mortgage rate increased to 3.60% from 3.54% while the 15-year mortgage rate increased to 2.90% from 2.85%.  The 5/1 ARM mortgage rate rose to 2.92% from 2.86%.  FHA 30-year rates increased to 3.40% from 3.35% and Jumbo 30-year rates increased to 3.76% from 3.70%.   Economic Calendar - for the Week of October 31, 2016   Economic reports having the greatest potential impact on the financial markets are highlighted in bold.  

Date	TimeET	Event /Report /Statistic	For	Market Expects	Prior
Oct 31	08:30	Personal Income	Sept	0.4%	0.2%
Oct 31	08:30	Personal Spending	Sept	0.5%	0.0%
Oct 31	08:30	Core PCE Price Index	Sept	0.1%	0.2%
Oct 31	09:45	Chicago Purchasing Managers Index (PMI)	Oct	54.0	54.2
Nov 01	10:00	ISM Index	Oct	51.7	51.5
Nov 01	10:00	Construction Spending	Sept	0.5%	-0.7%
Nov 02	07:00	MBA Mortgage Index	10/29	NA	-4.1%
Nov 02	08:15	ADP Employment Change	Oct	165,000	154,000
Nov 02	10:30	Crude Oil Inventories	10/29	NA	-0.553M
Nov 02	14:00	FOMC Rate Decision	Nov	0.375%	0.375%
Nov 03	07:30	Challenger Job Cuts	Oct	NA	-24.7%
Nov 03	08:30	Initial Jobless Claims	10/29	256,000	258,000
Nov 03	08:30	Continuing Jobless Claims	10/22	NA	2,039K
Nov 03	08:30	Preliminary Productivity	Qtr. 3	1.8%	-0.6%
Nov 03	08:30	Unit Labor Costs	Qtr. 3	1.2%	4.3%
Nov 03	10:00	Factory Orders	Sept	0.2%	0.2%
Nov 03	10:00	ISM Services Index	Oct	55.8	57.1
Nov 04	08:30	Nonfarm Payrolls	Oct	175,000	156,000
Nov 04	08:30	Nonfarm Private Payrolls	Oct	170,000	167,000
Nov 04	08:30	Hourly Earnings	Oct	0.3%	0.2%
Nov 04	08:30	Unemployment Rate	Oct	4.9%	5.0%
Nov 04	08:30	Average Workweek	Oct	34.4	34.4
Nov 04	08:30	Trade Balance	Sept	-$38.5B	-$40.7B

  Mortgage Rate Forecast with Chart   For the week, the FNMA 30-year 3.0% coupon bond ($102.92, -45.3 basis points) traded within a  wider 72 basis point range between a weekly intraday high of $103.45 on Monday and a weekly intraday low of $102.73 on Thursday before closing the week at $102.92.   More favorable than anticipated economic data drove bond prices lower through technical support at the 23.6% Fibonacci retracement level at $103.19, and this level now reverts to nearest overhead resistance with technical support found at the key 200-day moving average at $102.87.  The bond is “oversold” at this point and could make a turn higher this week to stabilize mortgage rates.  However, an abundance of major economic news is scheduled for release this week, and if the data proves to be favorable for the economy, we could see bond prices pushed below the 200-day moving average toward the next level of support at the 38.2% Fibonacci retracement level at $102.46.  Should this occur mortgage rates would move slightly higher.   Chart:  FNMA 30-Year 3.0% Coupon Bond