MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates amid continued volatility. Rates were higher throughout most of the week as inflation fears dominated trading. Those fears were realized when the consumer and producer inflation readings came in higher than expected. Producer prices rose 0.4% as expected. However, the core, which excludes volatile food and energy prices, rose 0.4% versus the expected 0.2% increase. Consumer prices rose 0.5% versus the expected 0.4% increase. The core rose 0.3% versus the expected 0.2% increase. Weak retail sales figures tempered some of the losses. Rates recovered some Friday morning but not enough to finish neutral. We ended the week worse by approximately 1/4 to 1/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| 2-year Treasury Note Auction | Tuesday, Feb. 20 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Existing Home Sales | Wednesday, Feb. 21, 10:00 am, et |
5.58M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| 5-year Treasury Note Auction | Wednesday, Feb. 21, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Feb. 22, 8:30 am, et |
230K | Important. An indication of employment. Higher claims may result in lower rates. |
| Leading Economic Indicators | Thursday, Feb. 22, 10:00 am, et |
Up 0.7% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| 5-year Treasury Note Auction | Thursday, Feb. 22, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
HOUSING AFFORDABILITY
Each month the National Association of Realtors (NAR) releases their Housing Affordability Index. The index measures the affordability of a home based on what a typical family earns. It assumes the borrower has a 20% down payment (80% loan to value) and a “front ratio” or housing ratio not to exceed 25% of gross income. It is based on a typical home at the national and regional levels based on the most recent monthly price and income data.
An index of 100 is defined as the point where a median-income household has enough income to qualify for the purchase of a median-priced existing single-family home. Housing prices and mortgage rates influence the index. Generational low mortgage rates coupled with lower home prices following the housing collapse left the index at an all-time high in 2012. That changed over the past few years.
According to NAR, the housing affordability index hit 196.5 in 2012. That means that the typical family earned 196% of the income necessary to purchase the typical house. Put another way, the same family could afford almost twice as much house. Unfortunately rising home prices and higher mortgage interest rates in 2018 caused that number to fall to 160.1.
Rising house prices coupled with rising interest rates could further dent affordability. Now is a great time for buyers to take advantage of still historically favorable mortgage interest rates.
