The stock market ended the week modestly higher while most bond prices slid lower (yields higher) for seven out of the last eight trading days.  Treasury bond yields rose after Wednesday's release of the minutes from the Federal Reserve's June meeting failed to diminish investor expectations that the Fed will announce a third rate hike later this year.  Also weighing on bond prices were the minutes from the recent European Central Bank (ECB) policy meeting showing ECB officials discussing removal of their monetary easing preferences.  Furthermore, the financial markets acted negatively in response to North Korea's successful intercontinental ballistic missile test and President Trump's warning that "pretty severe things" could happen as a result of the test.

In economic news, Friday's release showing the economy added more new jobs than anticipated helped the stock market to rebound at the expense of Treasury prices.  The Labor Department's June Employment Situation Report revealed nonfarm payrolls increased by 222,000 versus a consensus forecast of 173,000.  Additionally, the previous two months' readings were upwardly revised up by a net 47,000 jobs.  However, Average Hourly Earnings moved just 0.2% higher when economists were expecting a 0.3% increase suggesting wage inflation is not accelerating.

In housing, financial services company CoreLogic reported home prices increased 1.2% in May

from April and 6.6% on a year-over-year basis.  Furthermore, CoreLogic is forecasting home prices will increase by 5.3% on a year-over-year basis from May 2017 to May 2018 while increasing a projected 0.9% from May 2017 to June 2017 on a month-over-month basis.  Dr. Frank Nothaft, chief economist for CoreLogic, remarked "The market remained robust with home sales and prices continuing to increase steadily in May.  While the market is consistently generating home price growth, sales activity is being hindered by a lack of inventory across many markets. This tight inventory is also impacting the rental market where overall single-family rent inflation was 3.1% on a year-over-year basis in May of this year compared with May of last year. Rents in the affordable single-family rental segment increased 4.7% over the same time, well above the pace of overall inflation."

CoreLogic President and CEO Frank Martell commented "For current homeowners, the strong run-up in prices has boosted home equity and, in some cases, spending.  For renters and potential first-time homebuyers, it is not such a pretty picture.  With price appreciation and rental inflation outstripping income growth, affordability is destined to become a bigger issue in most markets."

As for mortgage activity, application volume increased during the week ending June 30.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 1.4%.  The seasonally adjusted Purchase Index increased 3.0% from the prior week while the Refinance Index decreased 0.4%.

Overall, the refinance portion of mortgage activity decreased to 44.9% total applications from 45.6% in the prior week.  The adjustable-rate mortgage share of activity increased to 7.2% of total applications from 7.0%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to its highest level since May of this year at 4.20% from 4.13% with points decreasing to 0.31 from 0.32.

For the week, the FNMA 3.5% coupon bond lost 26.6 basis points to close at $102.406.  The 10-year Treasury yield increased 8.19 basis points to end at 2.3856%.  Stocks ended the week marginally higher.

The Dow Jones Industrial Average rose 64.71 points to close at 21,414.34.  The NASDAQ Composite Index advanced 12.66 points to close at 6,153.08 and the S&P 500 Index gained 1.77 points to close at 2,425.18.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 8.36%, the NASDAQ Composite Index has advanced 14.30%, and the S&P 500 Index has risen 8.32%.

This past week, the national average 30-year mortgage rate rose to 4.13% from 4.07%; the 15-year mortgage rate increased to 3.38% from 3.32%; the 5/1 ARM mortgage rate increased to 3.20% from 3.16%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates increased to 4.40% from 4.33%.

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

The FNMA 30-year 3.5% coupon bond ($102.41, -26.6 bp) traded within a narrower 44 basis point range between a weekly intraday high of $102.73 on Monday and a weekly intraday low of $102.29 on Friday before closing the week lower at $102.41.

Bond prices have fallen over the past two weeks as a result of mixed economic data, the negative influence from comments made by central bank officials both here and abroad, and volatility in oil prices that impact the holders of energy-related debt.  As a result, mortgage bond prices breached technical support at the 100-day moving average and this level now reverts to resistance.  The next level of support is found at $102.22.  The bond continues to be extremely "oversold" and susceptible to a rebound higher from support levels last seen during May 9-11.  The bond may continue a little lower to bounce off of support levels before turning higher and may become range-bound between the nearest support and resistance levels.  As a result, mortgage rates should remain fairly stable and there shouldn't be more than a five or six basis point swing in either direction in the coming week based upon what the chart is currently showing.