Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Friday, December 31, 2010
The final day of the year started with the bond and mortgage markets a little better and stock indexes lower. Trading volume will be very low with most traders and investors out until next year. There are no economic reports today, no Fed actions and nothing markets can look forward to other than squaring positions at year end. Although better this morning it is likely that by 2:00 this afternoon when the bond markets close the bond and mortgage markets won't be much changed from yesterday's closes. We suggest ignoring the trading today regardless of how it ends.
Take a look at the 4.0 FNMA Jan 30 yr coupon chart; the present price is braking above its 20 day moving average for the first time since Nov 8th; as we noted over the past couple of days technicals remain bearish but are improving. The bellwether 10 yr treasury at 9:00 sat at 3.33% (see below for 10:00 level) and is closing in on its 20 day average on the yield chart. While looking a little better the interest rate markets still have a bearish tone, we need the 10 yr to move under 3.25% to change the near term trend.
Although recent improvement in the bond and mortgage markets is very welcome, that volume is very thin keeps me from becoming too friendly to the rate markets now. We need to see improvement on more trading, that should begin on Monday with everyone back to doing real business. The overwhelming consensus now for 2011 is for the economy to continue to expand, we remain skeptical however. There are two key components to consider when adopting the bullish outlook; the housing sector and consumer spending, both raise serious questions. 2011 is not going to be good for housing, likely about the same as this year; consumer spending was better for the holidays but will consumers continue to increase spending in 2011-----a huge question and the defining issue for the economy in 2011. We won't have a good handle on that until we get a look at Jan economic data in Feb.
On Dec 31st 2009 the 10 yr note yield was 3.84%, today 3.35%. Mortgage rates in 2010 also fell 45 basis points. Looking for rate market improvement in Jan and possibly the first quarter, if we see that the mortgage markets will not fall back to the lows seen this fall prior to the beginning of Nov. 4.5% mortgage rates are likely the best we can expect unless the economic outlook changes dramatically. We are not as bullish about 2011 economic growth as most, if we are right the bond and mortgage markets should do better in the first half of the year. Look for continued volatility in the markets early next year.
Friday, December 31, 2010
Thursday, December 30, 2010
Home Buying for the Long Haul Pays Off
Home Buying for the Long Haul Pays Off
Despite the slump, housing remains a good long-term investment—in the right markets
The era of get-rich-quick real estate is dead. The era of increasing long-term wealth in your home is back.
Historical data from the National Association of Realtors (and adjusted for inflation by Businessweek.com) show that in 18 of the 25 largest metro areas in the U.S., the value of homes purchased in 1990 had increased by 2010, often by double digits. And this in a year when real estate prices around the country have softened since their peak in 2006. These houses would have been worth even more a few years ago.
While that's cold comfort for the many Americans whose homes have lost more than $1.7 trillion in value in 2010, according to a new report by Zillow.com, it underscores the fact that homeowners who buy for the long term have historically seen the value of their investment increase over the years. In inflation-adjusted terms, the median U.S. home sale price in the third quarter remains approximately 9.5 percent higher than in 1990, despite falling 26 percent from peak levels, according to calculations based on NAR data.
Says Greg Hebner, chief operating officer at Sorrento Capital, an Irvine (Calif.) asset management firm: "You should at least be looking at housing now," especially as interest rates are low and homeowners can deduct mortgage interest from their income taxes. "It's still a good game" if a buyer understands the risks, has consistent income, and purchases a house he can afford, Hebner says.
When Supply Is Limited
Based on data since 1968, nominal U.S. home prices have risen 5.5 percent annually and outpaced inflation by about 1 percent to 2 percent, says Lawrence Yun, NAR's chief economist. The main reasons housing has grown faster than inflation, he says, are that more people wanted to buy in places with a finite supply of developable land, which drove up prices, and owners increased the value of their properties through home improvements.
Home prices followed this pattern through most the 1990s but started shooting up in the early 2000s. Between 2000 and 2006, nominal prices rose 89 percent, according to data from Moody's Economy.com and Fiserv (NasdaqGS: FISV - News), a financial service company in Brookfield, Wis.
Economists from NAR, Fiserv, and Moody's Analytics interviewed for this story expect home prices to continue to grow slightly more than inflation in the long term. Still, buyers are not likely to see prices skyrocket the way they did in the early 2000s, at least in the near future.
Up by Half, or More
In an analysis of the country's 25 largest metro areas, Businessweek.com found that the Portland, Ore. area had the largest real price gain since 1990, with the median sale price in this year's third quarter ($242,100) up about 85 percent over 1990, in inflation-adjusted terms. Home prices in the Denver, Baltimore, and Seattle areas also made gains of more than 50 percent in that period.
Yet in some other markets where homeownership skyrocketed during the housing boom, inflation-adjusted prices have fallen so dramatically that they are now below 1990 levels. Real prices in the Atlanta metro, for instance, are down about 21 percent compared with 20 years ago, and in Sacramento they are down 19 percent.
After recovery from the housing bust, "we expect house prices to settle into a price-growth trend that's slightly higher than inflation over the long term. So in that sense, housing is still a long-term investment with a positive yield," says Andres Carbacho-Burgos, an economist at Moody's Analytics.
Securities Look Better
After accounting for the time and money put in for property taxes, home insurance, security, and maintenance, "investing in a home doesn't have the rate of return of a diversified, well-managed portfolio in stocks and bonds," adds Carbacho-Burgos. Securities potentially offer greater returns, but buyers are wary.
A national housing survey by Fannie Mae shows that in the third quarter this year, 66 percent of consumers believed buying a home is a safe investment, compared with 16 percent who believe stocks are safe. That does not mean confidence in real estate has not been shaken in recent years: In 2003, 83 percent considered a home a safe investment.
Fannie Mae's survey also showed that 59 percent of respondents still believe owning a home is a good way to build wealth, and 84 percent believe buying makes more sense than renting.
Assuming home prices continue to increase 1 percent to 2 percent better than inflation, a buyer needs to own the property for at least five years to break even and cover selling costs, says Sorrento Capital's Hebner.
How 2011 Shapes Up
According to the latest forecast by Moody's Economy.com and Fiserv, nominal home prices in the U.S. will decline 4.8 percent from the fourth quarter of 2010 to the third quarter of 2011, when they are forecast to reach their trough.
NAR estimates that in 2010, 4.8 million homes will be sold in the U.S.—less than the 5.2 million sold in 2000, which is regarded as a "normal" year, says Yun, as the market had not yet overheated.
As the market normalizes, Yun expects sales volume to rise 6 percent year-on-year in 2011—assuming GDP grows 1.9 percent, 1.5 million jobs are created (bringing the unemployment rate to about 9.5 percent), and mortgage rates stay near 5 percent. Markets with high foreclosure rates, such as Nevada, Arizona, and Florida, will remain volatile.
David Stiff, chief economist at Fiserv, says despite hopes that we can avoid another housing bubble, there likely will be upswings again in the future. "In general, people are optimistic" and get caught up when times are good, he says. "When you see the next cyclical upswing in housing, try not to get carried away."
Despite the slump, housing remains a good long-term investment—in the right markets
The era of get-rich-quick real estate is dead. The era of increasing long-term wealth in your home is back.
Historical data from the National Association of Realtors (and adjusted for inflation by Businessweek.com) show that in 18 of the 25 largest metro areas in the U.S., the value of homes purchased in 1990 had increased by 2010, often by double digits. And this in a year when real estate prices around the country have softened since their peak in 2006. These houses would have been worth even more a few years ago.
While that's cold comfort for the many Americans whose homes have lost more than $1.7 trillion in value in 2010, according to a new report by Zillow.com, it underscores the fact that homeowners who buy for the long term have historically seen the value of their investment increase over the years. In inflation-adjusted terms, the median U.S. home sale price in the third quarter remains approximately 9.5 percent higher than in 1990, despite falling 26 percent from peak levels, according to calculations based on NAR data.
Says Greg Hebner, chief operating officer at Sorrento Capital, an Irvine (Calif.) asset management firm: "You should at least be looking at housing now," especially as interest rates are low and homeowners can deduct mortgage interest from their income taxes. "It's still a good game" if a buyer understands the risks, has consistent income, and purchases a house he can afford, Hebner says.
When Supply Is Limited
Based on data since 1968, nominal U.S. home prices have risen 5.5 percent annually and outpaced inflation by about 1 percent to 2 percent, says Lawrence Yun, NAR's chief economist. The main reasons housing has grown faster than inflation, he says, are that more people wanted to buy in places with a finite supply of developable land, which drove up prices, and owners increased the value of their properties through home improvements.
Home prices followed this pattern through most the 1990s but started shooting up in the early 2000s. Between 2000 and 2006, nominal prices rose 89 percent, according to data from Moody's Economy.com and Fiserv (NasdaqGS: FISV - News), a financial service company in Brookfield, Wis.
Economists from NAR, Fiserv, and Moody's Analytics interviewed for this story expect home prices to continue to grow slightly more than inflation in the long term. Still, buyers are not likely to see prices skyrocket the way they did in the early 2000s, at least in the near future.
Up by Half, or More
In an analysis of the country's 25 largest metro areas, Businessweek.com found that the Portland, Ore. area had the largest real price gain since 1990, with the median sale price in this year's third quarter ($242,100) up about 85 percent over 1990, in inflation-adjusted terms. Home prices in the Denver, Baltimore, and Seattle areas also made gains of more than 50 percent in that period.
Yet in some other markets where homeownership skyrocketed during the housing boom, inflation-adjusted prices have fallen so dramatically that they are now below 1990 levels. Real prices in the Atlanta metro, for instance, are down about 21 percent compared with 20 years ago, and in Sacramento they are down 19 percent.
After recovery from the housing bust, "we expect house prices to settle into a price-growth trend that's slightly higher than inflation over the long term. So in that sense, housing is still a long-term investment with a positive yield," says Andres Carbacho-Burgos, an economist at Moody's Analytics.
Securities Look Better
After accounting for the time and money put in for property taxes, home insurance, security, and maintenance, "investing in a home doesn't have the rate of return of a diversified, well-managed portfolio in stocks and bonds," adds Carbacho-Burgos. Securities potentially offer greater returns, but buyers are wary.
A national housing survey by Fannie Mae shows that in the third quarter this year, 66 percent of consumers believed buying a home is a safe investment, compared with 16 percent who believe stocks are safe. That does not mean confidence in real estate has not been shaken in recent years: In 2003, 83 percent considered a home a safe investment.
Fannie Mae's survey also showed that 59 percent of respondents still believe owning a home is a good way to build wealth, and 84 percent believe buying makes more sense than renting.
Assuming home prices continue to increase 1 percent to 2 percent better than inflation, a buyer needs to own the property for at least five years to break even and cover selling costs, says Sorrento Capital's Hebner.
How 2011 Shapes Up
According to the latest forecast by Moody's Economy.com and Fiserv, nominal home prices in the U.S. will decline 4.8 percent from the fourth quarter of 2010 to the third quarter of 2011, when they are forecast to reach their trough.
NAR estimates that in 2010, 4.8 million homes will be sold in the U.S.—less than the 5.2 million sold in 2000, which is regarded as a "normal" year, says Yun, as the market had not yet overheated.
As the market normalizes, Yun expects sales volume to rise 6 percent year-on-year in 2011—assuming GDP grows 1.9 percent, 1.5 million jobs are created (bringing the unemployment rate to about 9.5 percent), and mortgage rates stay near 5 percent. Markets with high foreclosure rates, such as Nevada, Arizona, and Florida, will remain volatile.
David Stiff, chief economist at Fiserv, says despite hopes that we can avoid another housing bubble, there likely will be upswings again in the future. "In general, people are optimistic" and get caught up when times are good, he says. "When you see the next cyclical upswing in housing, try not to get carried away."
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 30, 2010
Treasuries and mortgage markets started weaker this morning after the strong rally yesterday on the solid 7 yr note auction. Tuesday prices crumbled on the weak 5 yr note auction, yesterday prices rallied; the result was prices ended the two days unchanged from Monday's closes. Huge swings with no direction. At 8:30 this morning weekly jobless claims were expected to be down about 5K, they fell 34K to 388K, the lowest weekly filings since July 2008. It was also the first time claims were below 400,000 since July 2008. Continuing claims however increased to 4.128 mil from 4.071 mil last week; the 4 wk average for claims declined 12.5K to 414K. The Labor Department revised the prior week’s figures to 422,000 from a previously reported 420,000. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 151,500 to 4.53 million in the week ended Dec. 11.
Not much reaction to the claims data; the 10 yr note at 9:00 -5/32, mortgage prices at 9:00 -5/32 (.15 bp). The weekly claims included the Christmas week leaving one less day for unemployed to file. Also it is Dec and employers are less likely to fire workers. Markets are not moving much on the better report but it does add more to the outlook that 2011 will see better job growth and stronger economy.
At 9:30 the DJIA opened -9; like the bond market the equity market isn't biting on the decline in claims, waiting for the Chicago PM index.
At 9:45 the Dec Chicago purchasing mgrs index, expected at 61.0 frm 62.5, jumped to 68.6. All sub components were also strong; new orders index increased to 73.6 frm 67.2, employment component to 60.2 frm 56.3 and the prices pd component to 78.2 frm 70.7. The initial reaction put more selling in the rate markets, but not much, and bounced the DJIA up a little. With consensus building that 2011 will be a stronger year economically, the regional data adds more conviction to that outlook. Any reading over 50 indicates expansion, the higher the index, the stronger improvement.
The final scheduled economic report for 2010 hit at 10:00; Nov pending home sales. Nov sales were expected to decline 3.0% after a +10.4%; as reported sales increased 3.5%, yr/yr sales were down 5.0% frm Nov 2009. Another better report this morning.
Tomorrow the bond and mortgage markets will trade until 2:00 pm; not much expected with most traders out and no scheduled news.
Technically, the bond and mortgage markets remain bearish. To change that the 10 yr note needs a close below 3.25%. The past two weeks haven;t changed much from mid-Dec; techincals still bearish but a little better than two weeks ago. Be sensitive to the technicals, the embodiment of all participants is reflected in the price action. This morning markets looked at three economic reports that were better than estimates yet there has been very little reaction to them. The 10 yr and mortgages are trading lower but holding better than we would have expected given the volatility these days and more evidence that the economy is improving with inflation pressures edging higher with the prices pd report in the Chicago data this morning. Trade is thin again today in all financial markets; nothing now scheduled until next week.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 30, 2010
Treasuries and mortgage markets started weaker this morning after the strong rally yesterday on the solid 7 yr note auction. Tuesday prices crumbled on the weak 5 yr note auction, yesterday prices rallied; the result was prices ended the two days unchanged from Monday's closes. Huge swings with no direction. At 8:30 this morning weekly jobless claims were expected to be down about 5K, they fell 34K to 388K, the lowest weekly filings since July 2008. It was also the first time claims were below 400,000 since July 2008. Continuing claims however increased to 4.128 mil from 4.071 mil last week; the 4 wk average for claims declined 12.5K to 414K. The Labor Department revised the prior week’s figures to 422,000 from a previously reported 420,000. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 151,500 to 4.53 million in the week ended Dec. 11.
Not much reaction to the claims data; the 10 yr note at 9:00 -5/32, mortgage prices at 9:00 -5/32 (.15 bp). The weekly claims included the Christmas week leaving one less day for unemployed to file. Also it is Dec and employers are less likely to fire workers. Markets are not moving much on the better report but it does add more to the outlook that 2011 will see better job growth and stronger economy.
At 9:30 the DJIA opened -9; like the bond market the equity market isn't biting on the decline in claims, waiting for the Chicago PM index.
At 9:45 the Dec Chicago purchasing mgrs index, expected at 61.0 frm 62.5, jumped to 68.6. All sub components were also strong; new orders index increased to 73.6 frm 67.2, employment component to 60.2 frm 56.3 and the prices pd component to 78.2 frm 70.7. The initial reaction put more selling in the rate markets, but not much, and bounced the DJIA up a little. With consensus building that 2011 will be a stronger year economically, the regional data adds more conviction to that outlook. Any reading over 50 indicates expansion, the higher the index, the stronger improvement.
The final scheduled economic report for 2010 hit at 10:00; Nov pending home sales. Nov sales were expected to decline 3.0% after a +10.4%; as reported sales increased 3.5%, yr/yr sales were down 5.0% frm Nov 2009. Another better report this morning.
Tomorrow the bond and mortgage markets will trade until 2:00 pm; not much expected with most traders out and no scheduled news.
Technically, the bond and mortgage markets remain bearish. To change that the 10 yr note needs a close below 3.25%. The past two weeks haven;t changed much from mid-Dec; techincals still bearish but a little better than two weeks ago. Be sensitive to the technicals, the embodiment of all participants is reflected in the price action. This morning markets looked at three economic reports that were better than estimates yet there has been very little reaction to them. The 10 yr and mortgages are trading lower but holding better than we would have expected given the volatility these days and more evidence that the economy is improving with inflation pressures edging higher with the prices pd report in the Chicago data this morning. Trade is thin again today in all financial markets; nothing now scheduled until next week.
Wednesday, December 29, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 29, 2010
There was no driving news overnight and there is no economic data today; the only thing of importance is the last of the three auctions at 1:00, $29B of 7 yr notes. Yesterday rate markets were slammed hard when the results of the 5 yr auction were released at 1:00, the demand was very weak with the rate up more than 4 basis points from where the WI trading was yesterday morning, and the very wide bidding range of 4.6 basis points. Doing auctions the last week of the year is always a problem with most large potential bidders done for the year. Recent Treasury auctions have been more touchy with investors of all types wanting more yield to continue to fund the US increasing budget deficits. The farther out the curve the more yield is required, today's 7 yr may be set up well however, given the spike up n rates yesterday. Although we may see a better auction, in the meantime there won't be any significant buying of treasuries (and mortgages) until the auction results are known at 1:00 pm.
The last two weeks of each year are walks on the wild side; always difficult to properly assess price action with volumes very thin that most times exaggerate movement. The big declines in prices for mortgages and treasuries yesterday were in my opinion reflective of a lack of volume-----or was it? That question won't be satisfactorily resolved until next week when we get back to business. That said, the underlying outlook remains bearish for interest rates with the consensus outlook for 2011 being a stronger economic growth year. Even though our 2011 outlook is not as glowing as most believe, as long as that is the so-called consensus interest rates will continue to find it an uphill climb for lower rates. China raised rates for the second time in three months, GDP growth is expected at 3.5% to 4.0% in 2011, the Fed is desirous of a higher inflation rate, and after strong Christmas spending by consumers many believe the consumer is back. Our take; the consumer isn't back, consumer spending will not meet current expectations, the housing sector will continue to be very soft through 2011 with more foreclosures.
With the strong belief that the US will improve in 2011 inflation fears will continue to push rates up until evidence changes. Inflation in Germany, Europe’s largest economy, unexpectedly accelerated in December as prices surged in the final month of the year. The inflation rate increased to 1.9% from 1.6% in November. That’s the highest since October 2008. Economists expected an unchanged reading. Consumer prices jumped 1.2%, the biggest monthly gain since December 2002.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 29, 2010
There was no driving news overnight and there is no economic data today; the only thing of importance is the last of the three auctions at 1:00, $29B of 7 yr notes. Yesterday rate markets were slammed hard when the results of the 5 yr auction were released at 1:00, the demand was very weak with the rate up more than 4 basis points from where the WI trading was yesterday morning, and the very wide bidding range of 4.6 basis points. Doing auctions the last week of the year is always a problem with most large potential bidders done for the year. Recent Treasury auctions have been more touchy with investors of all types wanting more yield to continue to fund the US increasing budget deficits. The farther out the curve the more yield is required, today's 7 yr may be set up well however, given the spike up n rates yesterday. Although we may see a better auction, in the meantime there won't be any significant buying of treasuries (and mortgages) until the auction results are known at 1:00 pm.
The last two weeks of each year are walks on the wild side; always difficult to properly assess price action with volumes very thin that most times exaggerate movement. The big declines in prices for mortgages and treasuries yesterday were in my opinion reflective of a lack of volume-----or was it? That question won't be satisfactorily resolved until next week when we get back to business. That said, the underlying outlook remains bearish for interest rates with the consensus outlook for 2011 being a stronger economic growth year. Even though our 2011 outlook is not as glowing as most believe, as long as that is the so-called consensus interest rates will continue to find it an uphill climb for lower rates. China raised rates for the second time in three months, GDP growth is expected at 3.5% to 4.0% in 2011, the Fed is desirous of a higher inflation rate, and after strong Christmas spending by consumers many believe the consumer is back. Our take; the consumer isn't back, consumer spending will not meet current expectations, the housing sector will continue to be very soft through 2011 with more foreclosures.
With the strong belief that the US will improve in 2011 inflation fears will continue to push rates up until evidence changes. Inflation in Germany, Europe’s largest economy, unexpectedly accelerated in December as prices surged in the final month of the year. The inflation rate increased to 1.9% from 1.6% in November. That’s the highest since October 2008. Economists expected an unchanged reading. Consumer prices jumped 1.2%, the biggest monthly gain since December 2002.
Tuesday, December 28, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 28, 2010
In very early trading this morning the rate markets were unchanged, but as the morning advanced some minor selling with the stock indexes pointing to a firmer opening. That said, this is holiday activity that has little substance with many traders still out until next Monday. London markets closed today for Boxing Day, Asian markets thin. I cannot wait for this week to end and we get back to real trading, it is difficult this time each year to make any intelligent assessments based on price action; its an annual two weeks of chop on thin trading. It takes a full complement of investors and traders to completely judge the temperament of all markets. While it is more difficult, nevertheless price movement is still movement and has to be considered. Putting some perspective on it, on Friday 12/17 the 10 yr note yield was 3.34%, 30 yr 4.0 FNMA Jan coupon price 98-23/32; at 9:00 am this morning the 10 yr rate was 3.34%, 30 yr 4.0 FNMA Jan coupon price 98-20/32.
The Johnson Redbook retail sales data for the week before Christmas jumped a strong 4.6% following 3.8% increase the week before. For the entire month of Dec the index increased 0.4% from Nov. Much better sales the last two weeks of Dec, consumers spent more than what was expected and adding to the view that the economy will have a strong year next year compared to this year.
At 9:00 the over-rated Case/Shiller Oct home price index; yes I believe it is over-rated by traders but it is what it is as "they" say. The index for the 20 city index was expected to be +0.1% as reported it fell 1.3%, Sept was revised from -0.5% to -0.8%. Yr/yr the 20 city price index was down 0.8% with forecasts of a decline of only 0.1%. As usual the report had no reaction in the financial markets (stock indexes or the rate markets).
At 10:00 the Dec Conference Board's consumer confidence index is a data point that has meat on the bone. The expectations were for the index to increase from 54.1 to 56.4; the index was lower at 52.5 frm revised 54.3 in Nov; the expectations outlook index fell to 71.9 frm 73.6 in Nov. Weaker but no initial reaction to the data.
At 9:55 the Richmond Fed business index, one of the Fed's regional measurements, increased to an all-time high at 25 frm 9 in Nov.
The Fed after two days of not buying treasuries is back today; buying issues dated between 06/30/13 - 11/30/14 totaling about $6 to $8B. Not a big deal and part of QE 2.
This afternoon Treasury will sell $35B of 5 yr notes; yesterday's 2 yr auction was well bid with its rate 2 basis points lower than what was expected on the when-issued trading yesterday morning.
Generally better retail sales and the surprising Richmond Fed index added more selling from the levels where prices were set earlier; the 30 yr mtg price at 9:30 -.16 bp at 10:05 -.34 bp). Lenders may already be thinking of re-pricing lower. Be alert.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 28, 2010
In very early trading this morning the rate markets were unchanged, but as the morning advanced some minor selling with the stock indexes pointing to a firmer opening. That said, this is holiday activity that has little substance with many traders still out until next Monday. London markets closed today for Boxing Day, Asian markets thin. I cannot wait for this week to end and we get back to real trading, it is difficult this time each year to make any intelligent assessments based on price action; its an annual two weeks of chop on thin trading. It takes a full complement of investors and traders to completely judge the temperament of all markets. While it is more difficult, nevertheless price movement is still movement and has to be considered. Putting some perspective on it, on Friday 12/17 the 10 yr note yield was 3.34%, 30 yr 4.0 FNMA Jan coupon price 98-23/32; at 9:00 am this morning the 10 yr rate was 3.34%, 30 yr 4.0 FNMA Jan coupon price 98-20/32.
The Johnson Redbook retail sales data for the week before Christmas jumped a strong 4.6% following 3.8% increase the week before. For the entire month of Dec the index increased 0.4% from Nov. Much better sales the last two weeks of Dec, consumers spent more than what was expected and adding to the view that the economy will have a strong year next year compared to this year.
At 9:00 the over-rated Case/Shiller Oct home price index; yes I believe it is over-rated by traders but it is what it is as "they" say. The index for the 20 city index was expected to be +0.1% as reported it fell 1.3%, Sept was revised from -0.5% to -0.8%. Yr/yr the 20 city price index was down 0.8% with forecasts of a decline of only 0.1%. As usual the report had no reaction in the financial markets (stock indexes or the rate markets).
At 10:00 the Dec Conference Board's consumer confidence index is a data point that has meat on the bone. The expectations were for the index to increase from 54.1 to 56.4; the index was lower at 52.5 frm revised 54.3 in Nov; the expectations outlook index fell to 71.9 frm 73.6 in Nov. Weaker but no initial reaction to the data.
At 9:55 the Richmond Fed business index, one of the Fed's regional measurements, increased to an all-time high at 25 frm 9 in Nov.
The Fed after two days of not buying treasuries is back today; buying issues dated between 06/30/13 - 11/30/14 totaling about $6 to $8B. Not a big deal and part of QE 2.
This afternoon Treasury will sell $35B of 5 yr notes; yesterday's 2 yr auction was well bid with its rate 2 basis points lower than what was expected on the when-issued trading yesterday morning.
Generally better retail sales and the surprising Richmond Fed index added more selling from the levels where prices were set earlier; the 30 yr mtg price at 9:30 -.16 bp at 10:05 -.34 bp). Lenders may already be thinking of re-pricing lower. Be alert.
Monday, December 27, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 27, 2010
The east coast hit by huge snow storms, the markets are thinner than normal for the last week of the year with delayed openings on some markets. Treasuries and mortgages opened weaker again this morning making it the third day with lower prices. There is nothing on the economic calendar today and not much data this week. The Treasury will auction $99B of notes this week beginning today with $35B of 2 yr notes, tomorrow $35B of 5 yr notes and Wednesday $29B of 7 yr notes. How strong the demand will dictate a lot of the trading this week, recent auctions have been slightly soft compared to stronger demand earlier this year. The markets have a four day week with all markets closed on Friday again.
The mortgage markets so far this morning are lower, weaker than treasury markets in terms of price declines. Still difficult to make much of the action with most large investors out of the markets through the remainder of the year; thin trading can exaggerate moves in either direction.
The People’s Bank of China boosted its key one-year lending and deposit rates by 25 basis points on Dec. 25 in what is likely too be a series of increases in 2011. That they did it on Christmas has some grousing about the timing. The reaction sent Europe's equity markets lower and the US stock market opening lower this morning. China is increasingly concerned about the increase in the inflation rate and over-heated economic growth. Most emerging-market stocks fell on speculation China’s central bank will accelerate increases in interest rates to slow the economy, after boosting borrowing costs for the second time since October. Most emerging-market stocks also fell on speculation China’s central bank will accelerate increases in interest rates to slow the economy, after boosting borrowing costs for the second time since October.
This Week's Economic Calendar:
Monday,
1:00 pm $35B 2 yr note auction
Tuesday;
9:00 am Case/Shiller Oct home price index
10:00 am Dec consumer confidence index (56.1 frm 54.1)
1:00 pm $35B 5 yr note auction
Wednesday;
1:00 pm $29B 7 yr note auction
Thursday;
8:30 am weekly jobless claims (-4K to 416K)
9:45 am Chicago purchasing mgrs index (61.5 frm 62.5)
10:00 am Nov pending home sales (-3.0% frm +10.4% in Oct)
Friday;
Markets closed; Happy New Year!
The auctions this week will likely keep rate markets from rallying; along with China's rate hike and investors mostly with closed books until next week, wide swings on unexpected news can occur. Early this morning the 10 yr note rate increased to 3.44% on the China rate hike but by 9:30 the 10 yr was unchanged from last Thursday at 3.40%. Mortgage markets soft and trading weaker than treasuries. The equity markets are weaker this morning, but so far there is no rotation to the bond market. The weather in NY has kept many from getting in on time, this afternoon activity may increase.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 27, 2010
The east coast hit by huge snow storms, the markets are thinner than normal for the last week of the year with delayed openings on some markets. Treasuries and mortgages opened weaker again this morning making it the third day with lower prices. There is nothing on the economic calendar today and not much data this week. The Treasury will auction $99B of notes this week beginning today with $35B of 2 yr notes, tomorrow $35B of 5 yr notes and Wednesday $29B of 7 yr notes. How strong the demand will dictate a lot of the trading this week, recent auctions have been slightly soft compared to stronger demand earlier this year. The markets have a four day week with all markets closed on Friday again.
The mortgage markets so far this morning are lower, weaker than treasury markets in terms of price declines. Still difficult to make much of the action with most large investors out of the markets through the remainder of the year; thin trading can exaggerate moves in either direction.
The People’s Bank of China boosted its key one-year lending and deposit rates by 25 basis points on Dec. 25 in what is likely too be a series of increases in 2011. That they did it on Christmas has some grousing about the timing. The reaction sent Europe's equity markets lower and the US stock market opening lower this morning. China is increasingly concerned about the increase in the inflation rate and over-heated economic growth. Most emerging-market stocks fell on speculation China’s central bank will accelerate increases in interest rates to slow the economy, after boosting borrowing costs for the second time since October. Most emerging-market stocks also fell on speculation China’s central bank will accelerate increases in interest rates to slow the economy, after boosting borrowing costs for the second time since October.
This Week's Economic Calendar:
Monday,
1:00 pm $35B 2 yr note auction
Tuesday;
9:00 am Case/Shiller Oct home price index
10:00 am Dec consumer confidence index (56.1 frm 54.1)
1:00 pm $35B 5 yr note auction
Wednesday;
1:00 pm $29B 7 yr note auction
Thursday;
8:30 am weekly jobless claims (-4K to 416K)
9:45 am Chicago purchasing mgrs index (61.5 frm 62.5)
10:00 am Nov pending home sales (-3.0% frm +10.4% in Oct)
Friday;
Markets closed; Happy New Year!
The auctions this week will likely keep rate markets from rallying; along with China's rate hike and investors mostly with closed books until next week, wide swings on unexpected news can occur. Early this morning the 10 yr note rate increased to 3.44% on the China rate hike but by 9:30 the 10 yr was unchanged from last Thursday at 3.40%. Mortgage markets soft and trading weaker than treasuries. The equity markets are weaker this morning, but so far there is no rotation to the bond market. The weather in NY has kept many from getting in on time, this afternoon activity may increase.
Sunday, December 26, 2010
Rate Lock Advisory - Sunday Dec. 26th
Rate Lock Advisory - Sunday Dec. 26th
This week brings us the release of only one piece of monthly economic data that is considered important to mortgage rates, in addition to two relatively important Treasury auctions. It is somewhat of another holiday-shortened week with the bond market closing early Friday in recognition of the New Years Day holiday. However, many traders will not be working Friday, so we can expect to see a very light day of trading.
There is no relevant news scheduled for release tomorrow. Look for any significant changes in stocks to drive bond trading and mortgage rates. If the major stock indexes remain fairly calm, it is possible that bond prices and mortgage rates may follow suit. Stock strength may lead to bond weakness and higher mortgage rates while stock selling should boost bonds and improve mortgage pricing.
The week’s only and the year’s final important release comes late Tuesday morning when the Conference Board will post their Consumer Confidence Index (CCI) for December. This is a pretty important release because it measures consumer willingness to spend. If consumers are more confident in their personal financial situations, they are more apt to make large purchases. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely by market participants and can have a significant influence on mortgage rate direction. Current forecasts are calling for an increase in confidence from November’s reading of 54.1. Analysts are expecting Tuesday’s release to show a reading of 56.1. The lower the reading, the better the news for bonds and mortgage pricing.
This week also has Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates.
With little economic data being posted this week, the Labor Department’s weekly unemployment numbers may help influence the markets and mortgage rates more than usual. They are expected to show Thursday that 416,000 new claims for unemployment benefits were filed last week, which would be a small decline from the previous week. We usually don’t worry too much about this data because it tracks only a single week’s worth of new claims, but we should probably pay a little more attention to this particular release as it could impact mortgage rates slightly.
The bond market will close at 2:00 PM ET Friday and will reopen Monday for regular hours. The stock markets will not be recognizing the holiday with regular trading hours both Friday and Monday. Therefore, it is possible to see late afternoon changes to rates Friday if the stock markets make a big move upward or downward. Although I suspect we will see a fairly quiet afternoon as bond market participants and many stock traders head home early for the holiday.
Overall, Tuesday will be the most important day of the week, but we may see some volatility any day. The thin trading that we will probably see the latter part of the week often creates larger than usual fluctuations in the major indexes. Despite last week’s shortened schedule, we saw plenty of movement in mortgage rates. This week likely will be the same as investors look to make year-end adjustments to their portfolios. Accordingly, I recommend keeping in contact with your mortgage professional if still floating an interest rate and closing in the immediate future.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
This week brings us the release of only one piece of monthly economic data that is considered important to mortgage rates, in addition to two relatively important Treasury auctions. It is somewhat of another holiday-shortened week with the bond market closing early Friday in recognition of the New Years Day holiday. However, many traders will not be working Friday, so we can expect to see a very light day of trading.
There is no relevant news scheduled for release tomorrow. Look for any significant changes in stocks to drive bond trading and mortgage rates. If the major stock indexes remain fairly calm, it is possible that bond prices and mortgage rates may follow suit. Stock strength may lead to bond weakness and higher mortgage rates while stock selling should boost bonds and improve mortgage pricing.
The week’s only and the year’s final important release comes late Tuesday morning when the Conference Board will post their Consumer Confidence Index (CCI) for December. This is a pretty important release because it measures consumer willingness to spend. If consumers are more confident in their personal financial situations, they are more apt to make large purchases. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely by market participants and can have a significant influence on mortgage rate direction. Current forecasts are calling for an increase in confidence from November’s reading of 54.1. Analysts are expecting Tuesday’s release to show a reading of 56.1. The lower the reading, the better the news for bonds and mortgage pricing.
This week also has Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates.
With little economic data being posted this week, the Labor Department’s weekly unemployment numbers may help influence the markets and mortgage rates more than usual. They are expected to show Thursday that 416,000 new claims for unemployment benefits were filed last week, which would be a small decline from the previous week. We usually don’t worry too much about this data because it tracks only a single week’s worth of new claims, but we should probably pay a little more attention to this particular release as it could impact mortgage rates slightly.
The bond market will close at 2:00 PM ET Friday and will reopen Monday for regular hours. The stock markets will not be recognizing the holiday with regular trading hours both Friday and Monday. Therefore, it is possible to see late afternoon changes to rates Friday if the stock markets make a big move upward or downward. Although I suspect we will see a fairly quiet afternoon as bond market participants and many stock traders head home early for the holiday.
Overall, Tuesday will be the most important day of the week, but we may see some volatility any day. The thin trading that we will probably see the latter part of the week often creates larger than usual fluctuations in the major indexes. Despite last week’s shortened schedule, we saw plenty of movement in mortgage rates. This week likely will be the same as investors look to make year-end adjustments to their portfolios. Accordingly, I recommend keeping in contact with your mortgage professional if still floating an interest rate and closing in the immediate future.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Thursday, December 23, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 23, 2010
Treasuries and mortgages opened a little weaker this morning. At 8:30 three data points; weekly jobless claims at 420K down 3K, last week's claims were revised up 3K to 423K. Nov durable goods orders expected down 0.6% were down 1.3% overall but taking transportation orders out durables were up 2.4%; Oct orders were revised to -3.1% frm -3.3%. Nov personal income expected up 0.2% increased 0.3%; spending expected up 0.5% was up 0.4%. The rate markets, already lower in price didn't move on the data; the 10 yr at 8:45 -6/32, 30 yr mtgs -7/32 (.22 bp), right where they traded prior to 8:30.
At 9:55 the U. of Michigan consumer sentiment index, expected at 74.5 from 74.2 hit at 74.5. The 12 month outlook index at 79 frm 77. expectations index at 67.5 frm 66.8. Overall another positive report for the economy but the index is volatile.
At 10:00 Nov new home sales expected up 6.5% were lower at +5.5% at 290K units against expectations of 300K. Oct sales revised lower to -10.7% from -8.1%. Based on present sales there is an 8.2 month supply compared to 8.8 months supply in Oct.
The U. of Michigan index put additional pressure on the bond and mortgage markets, prices dipped 5/32 (.15 bp) on 30 yr mtgs from where they traded at 9:30.
Rounding out the day, at 11:00 Treasury will announce the details for next week's auctions; dealers are expecting the total of $99B unchanged from last month, $35B of 2 yr notes on Monday, $35B of 5 yr notes Tuesday, and $29B of 7 yr notes on Wednesday.
Based on prices at 10:05 this morning 30 yr mtgs this week are 3/32 (.09 bp) frm last Friday's close. The 10 yr note yield increased 5 basis points from last Friday's close.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 23, 2010
Treasuries and mortgages opened a little weaker this morning. At 8:30 three data points; weekly jobless claims at 420K down 3K, last week's claims were revised up 3K to 423K. Nov durable goods orders expected down 0.6% were down 1.3% overall but taking transportation orders out durables were up 2.4%; Oct orders were revised to -3.1% frm -3.3%. Nov personal income expected up 0.2% increased 0.3%; spending expected up 0.5% was up 0.4%. The rate markets, already lower in price didn't move on the data; the 10 yr at 8:45 -6/32, 30 yr mtgs -7/32 (.22 bp), right where they traded prior to 8:30.
At 9:55 the U. of Michigan consumer sentiment index, expected at 74.5 from 74.2 hit at 74.5. The 12 month outlook index at 79 frm 77. expectations index at 67.5 frm 66.8. Overall another positive report for the economy but the index is volatile.
At 10:00 Nov new home sales expected up 6.5% were lower at +5.5% at 290K units against expectations of 300K. Oct sales revised lower to -10.7% from -8.1%. Based on present sales there is an 8.2 month supply compared to 8.8 months supply in Oct.
The U. of Michigan index put additional pressure on the bond and mortgage markets, prices dipped 5/32 (.15 bp) on 30 yr mtgs from where they traded at 9:30.
Rounding out the day, at 11:00 Treasury will announce the details for next week's auctions; dealers are expecting the total of $99B unchanged from last month, $35B of 2 yr notes on Monday, $35B of 5 yr notes Tuesday, and $29B of 7 yr notes on Wednesday.
Based on prices at 10:05 this morning 30 yr mtgs this week are 3/32 (.09 bp) frm last Friday's close. The 10 yr note yield increased 5 basis points from last Friday's close.
Wednesday, December 22, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 22, 2010
Prior to 8:30 the interest rate markets were a little weaker; Q3 final GDP was released at 8:30 and wasn't as strong as forecasts. Q3 GDP at +2.6% was revised from +2.5% on the advance report last month, estimates were for the revision to increase to +2.8%. The 10 yr and mortgages still traded a little soft by 9:00 but off the worst levels at 8:25 this morning. Recapping; Q1 GDP +3.7%, Q2 +1.7%. Q3 personal consumption expenditures fell from +2.8% on the advance to +2.4%. At a 2.4% pace last quarter it was the fastest since the first three months of 2007. Spending added 1.67% points to GDP from July through September. Inflation is also lower than the policy makers’ long-term forecast. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.5% annual pace, the slowest since record-keeping began in 1959. We know the Fed wants inflation up to its normal target at +2.0% annually, that isn't happening becomes an increasing concern that the US economy may slip into deflation if economic improvement in 2011 isn't stronger.
A word on inflation, we agree with Rick Santelli on CNBC; that the government excludes food and energy from its inflation gauge may have been working in the past but now with commodity prices and energy prices increasing as demand outpaces supply globally, excluding those components may be mis-leading. If included in inflation the level would be slightly above 2.0%. What's more, with the costs of food and energy increasing ($3.00+ for gas and food prices increasing) consumer discretionary spending may be negatively impacted. Regardless, economists and analysts insist that those components be removed to get a truer measure of inflation, based mostly on the volatility in the two components.
Early this morning the weekly MBA mortgage applications for last week took a big tumble; the overall index at -18.6%, the purchase index -2.5% but the re-finance index fell 24.6%. In a way not surprising with the recent spike in rates and this time of the year when home sales and re-financings normally tapper off. It isn't news that re financing has accounted for about 80% of all mortgages in 2010, unless interest rates fall back that percentage is certainly going to decline.
At 9:30 mortgage prices -2/32 (.06 bp), the 10 yr note -2/32 at 3.31% unch. The DJIA opened +3. Financial markets working on thin volume through the remainder of the year.
At 10:00 Nov existing home sales, expected up 6.6% to 6.8%, increased 5.6% to 4.68 mil unit annualized; sales down 27.9 yr/yr, median sales price $170,600.00. Single family sales up 6.7% while condo sales -2.0%. Inventory levels surprisingly down 4.0% with a 9.5 month supply based on Nov sales pace. Overall a weaker report but there was no initial reaction to the data in the bond market. At 10:05 mortgage prices -6/32 (.18 bp) and -4/32 (.12 bp) frm 9:30.
Volatility marks the trading over the past few days; today no different with big swings in prices on any buying or selling. It doesn't take much to move mortgage prices as we saw yesterday in the afternoon when prices increased on some MBS buying in markets razor thin. Expect the same today. Still a bearish outlook as long as the outlook for economic improvement in 2011 dominates as it is now with investors and traders. We believe investors are going to be disappointed with 2011 growth, but right now we will not fight the tape, have to respect what the consensus is until it changes.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 22, 2010
Prior to 8:30 the interest rate markets were a little weaker; Q3 final GDP was released at 8:30 and wasn't as strong as forecasts. Q3 GDP at +2.6% was revised from +2.5% on the advance report last month, estimates were for the revision to increase to +2.8%. The 10 yr and mortgages still traded a little soft by 9:00 but off the worst levels at 8:25 this morning. Recapping; Q1 GDP +3.7%, Q2 +1.7%. Q3 personal consumption expenditures fell from +2.8% on the advance to +2.4%. At a 2.4% pace last quarter it was the fastest since the first three months of 2007. Spending added 1.67% points to GDP from July through September. Inflation is also lower than the policy makers’ long-term forecast. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.5% annual pace, the slowest since record-keeping began in 1959. We know the Fed wants inflation up to its normal target at +2.0% annually, that isn't happening becomes an increasing concern that the US economy may slip into deflation if economic improvement in 2011 isn't stronger.
A word on inflation, we agree with Rick Santelli on CNBC; that the government excludes food and energy from its inflation gauge may have been working in the past but now with commodity prices and energy prices increasing as demand outpaces supply globally, excluding those components may be mis-leading. If included in inflation the level would be slightly above 2.0%. What's more, with the costs of food and energy increasing ($3.00+ for gas and food prices increasing) consumer discretionary spending may be negatively impacted. Regardless, economists and analysts insist that those components be removed to get a truer measure of inflation, based mostly on the volatility in the two components.
Early this morning the weekly MBA mortgage applications for last week took a big tumble; the overall index at -18.6%, the purchase index -2.5% but the re-finance index fell 24.6%. In a way not surprising with the recent spike in rates and this time of the year when home sales and re-financings normally tapper off. It isn't news that re financing has accounted for about 80% of all mortgages in 2010, unless interest rates fall back that percentage is certainly going to decline.
At 9:30 mortgage prices -2/32 (.06 bp), the 10 yr note -2/32 at 3.31% unch. The DJIA opened +3. Financial markets working on thin volume through the remainder of the year.
At 10:00 Nov existing home sales, expected up 6.6% to 6.8%, increased 5.6% to 4.68 mil unit annualized; sales down 27.9 yr/yr, median sales price $170,600.00. Single family sales up 6.7% while condo sales -2.0%. Inventory levels surprisingly down 4.0% with a 9.5 month supply based on Nov sales pace. Overall a weaker report but there was no initial reaction to the data in the bond market. At 10:05 mortgage prices -6/32 (.18 bp) and -4/32 (.12 bp) frm 9:30.
Volatility marks the trading over the past few days; today no different with big swings in prices on any buying or selling. It doesn't take much to move mortgage prices as we saw yesterday in the afternoon when prices increased on some MBS buying in markets razor thin. Expect the same today. Still a bearish outlook as long as the outlook for economic improvement in 2011 dominates as it is now with investors and traders. We believe investors are going to be disappointed with 2011 growth, but right now we will not fight the tape, have to respect what the consensus is until it changes.
Tuesday, December 21, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 21, 2010
Starting today as it did yesterday, the 10 yr note at 9:00 up 8/32, mortgages +2/32 (.06 bp) frm yesterday's closes. Yesterday morning the mortgage markets showed nice price gains until about 2:00 when prices backed off and lenders re-priced lower; by the end of the day mortgage prices and all treasury prices across the curve were unchanged from last Friday. Year end market noise, as we noted trading from now until the end of the year will be on very thin volume contributing to wide swings at times.
At 9:30 the DJIA opened +30; the 10 yr note +5/32 3.32% -2 bp and mortgage prices +3/32 (.09 bp) frm yesterday's close.
Today like yesterday, no economic data and no speeches from Fed officials. Markets will likely not change much by the time the day ends. The stock market opened better but like the rate markets equities will likely end relatively close to yesterday's close. In order to see any significant moves the markets will need fresh news, so far there really isn't anything new to chew on.
Tomorrow the final read on Q3 GDP is expected to increase to +2.8% growth from 2.5% reported in the advance data last month. Also tomorrow Nov existing home sales are expected to have increased 6.8% to 4.75 mil units annualized frm Oct's decline of 2.2%, a solid increase if it actually occurs and another evidential data point suggesting a better economic outlook. It matters little that housing is in recession and there isn't much help coming next year, what matters to markets is that it is better. The outlook for 2011 hasn't changed, the year is widely expected to show more growth. The outlook for interest rates is for somewhat higher rates as long as the optimism continues.
]
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 21, 2010
Starting today as it did yesterday, the 10 yr note at 9:00 up 8/32, mortgages +2/32 (.06 bp) frm yesterday's closes. Yesterday morning the mortgage markets showed nice price gains until about 2:00 when prices backed off and lenders re-priced lower; by the end of the day mortgage prices and all treasury prices across the curve were unchanged from last Friday. Year end market noise, as we noted trading from now until the end of the year will be on very thin volume contributing to wide swings at times.
At 9:30 the DJIA opened +30; the 10 yr note +5/32 3.32% -2 bp and mortgage prices +3/32 (.09 bp) frm yesterday's close.
Today like yesterday, no economic data and no speeches from Fed officials. Markets will likely not change much by the time the day ends. The stock market opened better but like the rate markets equities will likely end relatively close to yesterday's close. In order to see any significant moves the markets will need fresh news, so far there really isn't anything new to chew on.
Tomorrow the final read on Q3 GDP is expected to increase to +2.8% growth from 2.5% reported in the advance data last month. Also tomorrow Nov existing home sales are expected to have increased 6.8% to 4.75 mil units annualized frm Oct's decline of 2.2%, a solid increase if it actually occurs and another evidential data point suggesting a better economic outlook. It matters little that housing is in recession and there isn't much help coming next year, what matters to markets is that it is better. The outlook for 2011 hasn't changed, the year is widely expected to show more growth. The outlook for interest rates is for somewhat higher rates as long as the optimism continues.
]
Monday, December 20, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 20, 2010
Starting better again today as short-covering drives rates back down. The 10 yr note hit a high at 3.60%, at 9:00 this morning it was at 3.28%. It took a lot longer than we expected but finally the oversold market is doing what it should given the technical factors. No data today or tomorrow; Wednesday and Thursday do have key reports. Trading this week should be light with not much change, the large institutional investors and mutual funds have closed books for the end of the year and normally don't like to do much until the new year.
This week's economic calendar:
Wednesday;
8:30 am Q3 final GDP (+2.7% frm +2.5%)
10:00 am Nov existing home sales (+4.8% to 4.65 mil units annualized)
FHFA Oct home price index (N/A)
Thursday;
8:30 am weekly jobless claims (+4K to 424K; continuing claims 4.075 mil frm 4.135 mil)
Nov personal income and spending (income +0.2%, spending +0.5%: personal consumption index +0.1%)
Nov durable goods orders (-1.0%; ex transportation orders +1.0%)
9:55 am U. of Michigan consumer sentiment index (75.0 frm 74.2)
10:00 am Nov new home sales (+6.6% to 303K units)
The current bounce in prices (lower rates) should not be taken lightly; suggest taking advantage of it and get deals nailed down that were caught in the spike up in rates. The outlook continues to be negative for interest rates; as long as markets are expecting a strong economic improvement in 2011 as they do now, lower rates are not likely. As we see it now, the 10 yr note may decline to 3.17% where it will likely meet resistance; presently the 10 yr is trading at 3.28%. If the 10 does make it to 3.17% mortgage rates will also decline by 10 more basis points. Thin markets over the next two weeks have the potential of becoming choppy and volatile, doesn't take a big trade to move the markets.
Looking to next week, Treasury will be back borrowing; Monday 2 yr note, Tuesday 5 yr note and Wednesday 7 yr note.
The stock market opened better this morning, the dollar a little better but relatively unchanged.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 20, 2010
Starting better again today as short-covering drives rates back down. The 10 yr note hit a high at 3.60%, at 9:00 this morning it was at 3.28%. It took a lot longer than we expected but finally the oversold market is doing what it should given the technical factors. No data today or tomorrow; Wednesday and Thursday do have key reports. Trading this week should be light with not much change, the large institutional investors and mutual funds have closed books for the end of the year and normally don't like to do much until the new year.
This week's economic calendar:
Wednesday;
8:30 am Q3 final GDP (+2.7% frm +2.5%)
10:00 am Nov existing home sales (+4.8% to 4.65 mil units annualized)
FHFA Oct home price index (N/A)
Thursday;
8:30 am weekly jobless claims (+4K to 424K; continuing claims 4.075 mil frm 4.135 mil)
Nov personal income and spending (income +0.2%, spending +0.5%: personal consumption index +0.1%)
Nov durable goods orders (-1.0%; ex transportation orders +1.0%)
9:55 am U. of Michigan consumer sentiment index (75.0 frm 74.2)
10:00 am Nov new home sales (+6.6% to 303K units)
The current bounce in prices (lower rates) should not be taken lightly; suggest taking advantage of it and get deals nailed down that were caught in the spike up in rates. The outlook continues to be negative for interest rates; as long as markets are expecting a strong economic improvement in 2011 as they do now, lower rates are not likely. As we see it now, the 10 yr note may decline to 3.17% where it will likely meet resistance; presently the 10 yr is trading at 3.28%. If the 10 does make it to 3.17% mortgage rates will also decline by 10 more basis points. Thin markets over the next two weeks have the potential of becoming choppy and volatile, doesn't take a big trade to move the markets.
Looking to next week, Treasury will be back borrowing; Monday 2 yr note, Tuesday 5 yr note and Wednesday 7 yr note.
The stock market opened better this morning, the dollar a little better but relatively unchanged.
Saturday, December 18, 2010
Mortgage Rates
Mortgage Rates: Volatility Finally Swings In Our Favor
--------------------------------------------------------------------------------
Volatility has not been a friend to mortgage rates over the last 30 days, but in the last 36 hours, we've been good buddies!
Today put a nice bookend on a bond market correction that began yesterday around noon. This follows a painstaking selloff that played out relentlessly through the end of November all the way into Wednesday morning. Phew. It's about time! The mortgage-backed securities (MBS) that dictate your loan pricing gained much ground today. This allowed lenders to reprice for the better which helped mortgage rates move lower into the weekend.
To illustrate the volatility we have created a mortgage rate chart using our loan pricing model. On this graph you will see five different colored lines. Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis represent origination closing costs as a percentage of your loan amount. Also notice the dark black horizontal line at 0.00%. If the note rate graph is below the 0.00% marker, then the consumer should be expecting closing cost help from their lender in the form of a lender credit toward third party fees. If the note rate line is above the 0.00% marker, the consumer shouldn't be surprised if they are asked to pay additional points at the closing table to cover permanent buydown fees. These cost estimates were generated using average loan pricing quotes from the five major mortgage lenders.
As an example, 4.00% note rates would cost a borrower about 6 discount/origination points at the closing table, as a percentage of their loan amount. This is clearly not advisable nor is it attainable. A more relevant example is the 5.00% note rate. A very well-qualified consumer should be able to close on a 30 year fixed mortgage at 5.00% with no additional originator compensation related closing costs. They might even get some lender credits too! 4.75% is priced at 0.500% points paid by the borrower. This means, on average most consumers should not be expecting closing cost assistance from their lender (third party fees) at 4.75%. Instead they should be expecting to pay around 0.500% additional points at the closing table.
Plain and Simple: if the note rate line is moving up, the closing costs associated with that quote are rising. Thus, it should be obvious how mortgage rates have behaved over the past month. They've moved significantly higher. And fast. But you should notice a sharp decline over the last 24 hours.
Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest)
For folks who need to lock in their rate before the end of December, the default recommendation has been to take advantage of any upward swings in loan pricing, whenever possible. We got one of those upswings yesterday and another one today. This positive movement helped lead the best execution par 30 year fixed mortgage rate back down below 5.00% to 4.875%. Best execution on an FHA 30 year fixed loan is 4.75%.
It may not sound like much, but to go from 5.25% yesterday to 4.875% today is a big jump. From that point of view, if you were happy with 5.00% yesterday but couldn't attain that quote, it's back today. If you are looking for 4.75%, we do feel momentum is shifting in our favor. But again...make sure this is undertstood....the improvements we've enjoyed over the last 36 hours change NOTHING about our cautionary suggestions regarding volatility. This market is very fickle. Volatility can lead to large shifts in your monthly payment. Remember! Volatility goes both ways.
For anyone who is thinking of waiting this market out a bit more...
Yes we feel this sell off has been overdone and rates will likely decline in the future, but it will probably play out in a "fits and starts" manner. This means, if rates do rally, that consumers will face a series of tough decisions in the process. Take the improvements and move on or wait it out for lower rates? From that point of view....
--------------------------------------------------------------------------------
Volatility has not been a friend to mortgage rates over the last 30 days, but in the last 36 hours, we've been good buddies!
Today put a nice bookend on a bond market correction that began yesterday around noon. This follows a painstaking selloff that played out relentlessly through the end of November all the way into Wednesday morning. Phew. It's about time! The mortgage-backed securities (MBS) that dictate your loan pricing gained much ground today. This allowed lenders to reprice for the better which helped mortgage rates move lower into the weekend.
To illustrate the volatility we have created a mortgage rate chart using our loan pricing model. On this graph you will see five different colored lines. Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis represent origination closing costs as a percentage of your loan amount. Also notice the dark black horizontal line at 0.00%. If the note rate graph is below the 0.00% marker, then the consumer should be expecting closing cost help from their lender in the form of a lender credit toward third party fees. If the note rate line is above the 0.00% marker, the consumer shouldn't be surprised if they are asked to pay additional points at the closing table to cover permanent buydown fees. These cost estimates were generated using average loan pricing quotes from the five major mortgage lenders.
As an example, 4.00% note rates would cost a borrower about 6 discount/origination points at the closing table, as a percentage of their loan amount. This is clearly not advisable nor is it attainable. A more relevant example is the 5.00% note rate. A very well-qualified consumer should be able to close on a 30 year fixed mortgage at 5.00% with no additional originator compensation related closing costs. They might even get some lender credits too! 4.75% is priced at 0.500% points paid by the borrower. This means, on average most consumers should not be expecting closing cost assistance from their lender (third party fees) at 4.75%. Instead they should be expecting to pay around 0.500% additional points at the closing table.
Plain and Simple: if the note rate line is moving up, the closing costs associated with that quote are rising. Thus, it should be obvious how mortgage rates have behaved over the past month. They've moved significantly higher. And fast. But you should notice a sharp decline over the last 24 hours.
Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest)
For folks who need to lock in their rate before the end of December, the default recommendation has been to take advantage of any upward swings in loan pricing, whenever possible. We got one of those upswings yesterday and another one today. This positive movement helped lead the best execution par 30 year fixed mortgage rate back down below 5.00% to 4.875%. Best execution on an FHA 30 year fixed loan is 4.75%.
It may not sound like much, but to go from 5.25% yesterday to 4.875% today is a big jump. From that point of view, if you were happy with 5.00% yesterday but couldn't attain that quote, it's back today. If you are looking for 4.75%, we do feel momentum is shifting in our favor. But again...make sure this is undertstood....the improvements we've enjoyed over the last 36 hours change NOTHING about our cautionary suggestions regarding volatility. This market is very fickle. Volatility can lead to large shifts in your monthly payment. Remember! Volatility goes both ways.
For anyone who is thinking of waiting this market out a bit more...
Yes we feel this sell off has been overdone and rates will likely decline in the future, but it will probably play out in a "fits and starts" manner. This means, if rates do rally, that consumers will face a series of tough decisions in the process. Take the improvements and move on or wait it out for lower rates? From that point of view....
Friday, December 17, 2010
Mortgage Tates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Friday, December 17, 2010
Treasuries and mortgages opened stronger today after the nice rebound yesterday afternoon; short-covering long overdue but no real new investor buying. The bearish trend won't be easily reversed however, markets are totally convinced at the moment that 2011 economic growth will be much better than expected just two months ago. The tax cut extensions and cut in social security contribution along with other benefits that are expected to increase consumer spending have gripped markets that next year will see GDP growth of 4.0% and unemployment dropping 1.0% by the end of the year. Meantime don't overlook the Fed's desire to increase the level of inflation; the combo of the two elements along with less worries over Europe's debt problems have merged to push interest rates higher.
The 10 yr note at 8:30 +12/32 at 3.40%, mortgage prices +12/32 (.37 bp) frm yesterday's closes. By 9:30 both markets were holding; still can't completely accept a rebound even with the markets extremely oversold in the neat term. That said, always a good thing when prices are improving.
The only scheduled data today; Nov leading economic indicators, expected to have increased 1.2%, right on +1.1%. Oct revised from +0.5% to +0.4%; no market reaction to the report.
The Obama/Republican tax cut package is headed for Obama's desk for signing. Dems in the House reluctantly when along with the bill, Dems don't want tax cuts for the wealthy and and increase in estate taxes but no longer have the power to get their way. Obama will sign the measure into law later today. Enough Democrats voted with House Republicans to accept the deal that Obama negotiated with congressional Republicans who gained scores of seats in last month’s election. Republicans said the bill would provide certainty about tax rates and would create jobs. Majorities of both parties supported the bill. Voting in favor were 139 Democrats and 138 Republicans, while 112 Democrats and 36 Republicans voted against it. Eight lawmakers didn’t vote.
Large investors, those that can and do move markets are closing out their books now for this year. The rest of the year will be on lighter and lighter volume; at times low volume will distort markets. The interest rate markets will likely be choppy with slightly better pricing but any improvements will not change the bearish outlook for interest rates. As long as markets lock into the view that the economy will grow in 2011 and there is no need for safety buying the bond and mortgage markets will not decline in rates very much. We hold our longer outlook that the markets are over-estimating the economic bounce in 2011, we do not believe 2011 GDP will be 4.0% as markets currently believe; that said, our opinion is the minority, we have to respect the market as it is and all signs now point to increasing economic activity and an increase in the levels of inflation. not the makings for any strong rally in the bond and mortgage markets.
Today trading will be on thin volume again; next week it will really thin out. The rest of the year should be quiet as it normally is the last two weeks of the year. Looking for more improvement in mortgage prices but not a lot; take advantage of the improvements; interest rates will not decline much. Any improvement is technical rather than fundamental.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Friday, December 17, 2010
Treasuries and mortgages opened stronger today after the nice rebound yesterday afternoon; short-covering long overdue but no real new investor buying. The bearish trend won't be easily reversed however, markets are totally convinced at the moment that 2011 economic growth will be much better than expected just two months ago. The tax cut extensions and cut in social security contribution along with other benefits that are expected to increase consumer spending have gripped markets that next year will see GDP growth of 4.0% and unemployment dropping 1.0% by the end of the year. Meantime don't overlook the Fed's desire to increase the level of inflation; the combo of the two elements along with less worries over Europe's debt problems have merged to push interest rates higher.
The 10 yr note at 8:30 +12/32 at 3.40%, mortgage prices +12/32 (.37 bp) frm yesterday's closes. By 9:30 both markets were holding; still can't completely accept a rebound even with the markets extremely oversold in the neat term. That said, always a good thing when prices are improving.
The only scheduled data today; Nov leading economic indicators, expected to have increased 1.2%, right on +1.1%. Oct revised from +0.5% to +0.4%; no market reaction to the report.
The Obama/Republican tax cut package is headed for Obama's desk for signing. Dems in the House reluctantly when along with the bill, Dems don't want tax cuts for the wealthy and and increase in estate taxes but no longer have the power to get their way. Obama will sign the measure into law later today. Enough Democrats voted with House Republicans to accept the deal that Obama negotiated with congressional Republicans who gained scores of seats in last month’s election. Republicans said the bill would provide certainty about tax rates and would create jobs. Majorities of both parties supported the bill. Voting in favor were 139 Democrats and 138 Republicans, while 112 Democrats and 36 Republicans voted against it. Eight lawmakers didn’t vote.
Large investors, those that can and do move markets are closing out their books now for this year. The rest of the year will be on lighter and lighter volume; at times low volume will distort markets. The interest rate markets will likely be choppy with slightly better pricing but any improvements will not change the bearish outlook for interest rates. As long as markets lock into the view that the economy will grow in 2011 and there is no need for safety buying the bond and mortgage markets will not decline in rates very much. We hold our longer outlook that the markets are over-estimating the economic bounce in 2011, we do not believe 2011 GDP will be 4.0% as markets currently believe; that said, our opinion is the minority, we have to respect the market as it is and all signs now point to increasing economic activity and an increase in the levels of inflation. not the makings for any strong rally in the bond and mortgage markets.
Today trading will be on thin volume again; next week it will really thin out. The rest of the year should be quiet as it normally is the last two weeks of the year. Looking for more improvement in mortgage prices but not a lot; take advantage of the improvements; interest rates will not decline much. Any improvement is technical rather than fundamental.
Thursday, December 16, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 16, 2010
Once again this morning the bond and mortgage markets tried to improve but by 9:00 all the early gains were gone. Yesterday after the 4:30 report was sent out mortgage prices took additional hits, falling 100 basis points on the day. At 9:30 mortgages were unchanged and the 10 yr note held a 7/32 price gain at 3.51% -2 bp.
At 8:30 this morning weekly jobless claims were reported down 3K to 420K, claims were expected to have increased about 4K. Continuing claims increased to 4.135 mil frm 4.113 mil the previous week. Although better than expected the changes from the previous week were nominal. Nov housing starts were expected up 4.8%, as reported starts increased 3.9% to 555K units. Nov building permits were expected up 2.5%, they fell 4.0% to 530K units. Although less than forecasts the increase in starts is the first since August. Probably not necessary to reprise it but the housing markets remain in depression and will not rebound much in 2011.
At 10:00 the Dec Philadelphia Fed business index, expected at 16.0 frm 22.5 in Nov, jumped to 24.3; the new orders sub component at 14.6 frm 10.4, prices pd index at 51.2 frm 34.0 and the employment component at 5.1 frm 13.3. The initial reaction to the release sent the 10 yr note back to unchanged but mortgage prices were not much changed from the pre-release. Any index reading over zero is considered expansion, under zero contraction. At 10:05 mortgage prices were 6/32 (.18 bp) better than we marked at 9:30.
Markets remain completely confused by the Fed; Bernanke has said more than a few times the Fed's $600B QE 2 was necessary to keep interest rates from increasing. It isn't news that the opposite has occurred, rates have increased over 100 basis points in rates since the Fed announced the treasury buying. The Fed is wasting money buying treasuries as rates increase; its Treasury portfolio is losing money with everyday that passes. On the economy the Fed and markets appear to be on very different paths; the Fed's FOMC statement Tuesday called the economic outlook questionable, growing but maybe unsustainable, growing too slowly. On the other side the equity markets and the bond market are waging heavily that 2011 will see strong economic growth; many economists are now forecasting 4.0% GDP growth. Meanwhile the Fed has gone silent, Bernanke and other Fed officials refrain from outwardly explaining why the difference in views; likely the Fed is confused. The Fed is out of step with the private sector outlook, that doesn't happen very often as markets mostly buy in to what the Fed is saying.
Who is right about the outlook? The equity markets or the bond market pushing interest rates higher daily? The private consensus among most analysts and economists that 2011 will see lower unemployment and stronger growth is based solely on the legislation currently moving through Congress; tax rates unchanged, a cut in payroll taxes of 2.0% that will put more cash in the pockets of consumers and other incentives. The bet now is that consumers will increase spending based on the legislation. Consumer spending remains luke warm at best, consumer credit is declining as many believe that saving is now the prudent course. The main wealth for most people is their home, that wealth has almost vanished; the outlook for housing in 2011 is not good. Why then is the outlook for next year so strong? Wishful thinking in our view.
I know it is redundant but it is the case; the bond and mortgage markets are very oversold based on traditional momentum oscillators. It is unusual that we are not getting a rebound by now, but no one should fight the trend no matter how overdone the move has been.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 16, 2010
Once again this morning the bond and mortgage markets tried to improve but by 9:00 all the early gains were gone. Yesterday after the 4:30 report was sent out mortgage prices took additional hits, falling 100 basis points on the day. At 9:30 mortgages were unchanged and the 10 yr note held a 7/32 price gain at 3.51% -2 bp.
At 8:30 this morning weekly jobless claims were reported down 3K to 420K, claims were expected to have increased about 4K. Continuing claims increased to 4.135 mil frm 4.113 mil the previous week. Although better than expected the changes from the previous week were nominal. Nov housing starts were expected up 4.8%, as reported starts increased 3.9% to 555K units. Nov building permits were expected up 2.5%, they fell 4.0% to 530K units. Although less than forecasts the increase in starts is the first since August. Probably not necessary to reprise it but the housing markets remain in depression and will not rebound much in 2011.
At 10:00 the Dec Philadelphia Fed business index, expected at 16.0 frm 22.5 in Nov, jumped to 24.3; the new orders sub component at 14.6 frm 10.4, prices pd index at 51.2 frm 34.0 and the employment component at 5.1 frm 13.3. The initial reaction to the release sent the 10 yr note back to unchanged but mortgage prices were not much changed from the pre-release. Any index reading over zero is considered expansion, under zero contraction. At 10:05 mortgage prices were 6/32 (.18 bp) better than we marked at 9:30.
Markets remain completely confused by the Fed; Bernanke has said more than a few times the Fed's $600B QE 2 was necessary to keep interest rates from increasing. It isn't news that the opposite has occurred, rates have increased over 100 basis points in rates since the Fed announced the treasury buying. The Fed is wasting money buying treasuries as rates increase; its Treasury portfolio is losing money with everyday that passes. On the economy the Fed and markets appear to be on very different paths; the Fed's FOMC statement Tuesday called the economic outlook questionable, growing but maybe unsustainable, growing too slowly. On the other side the equity markets and the bond market are waging heavily that 2011 will see strong economic growth; many economists are now forecasting 4.0% GDP growth. Meanwhile the Fed has gone silent, Bernanke and other Fed officials refrain from outwardly explaining why the difference in views; likely the Fed is confused. The Fed is out of step with the private sector outlook, that doesn't happen very often as markets mostly buy in to what the Fed is saying.
Who is right about the outlook? The equity markets or the bond market pushing interest rates higher daily? The private consensus among most analysts and economists that 2011 will see lower unemployment and stronger growth is based solely on the legislation currently moving through Congress; tax rates unchanged, a cut in payroll taxes of 2.0% that will put more cash in the pockets of consumers and other incentives. The bet now is that consumers will increase spending based on the legislation. Consumer spending remains luke warm at best, consumer credit is declining as many believe that saving is now the prudent course. The main wealth for most people is their home, that wealth has almost vanished; the outlook for housing in 2011 is not good. Why then is the outlook for next year so strong? Wishful thinking in our view.
I know it is redundant but it is the case; the bond and mortgage markets are very oversold based on traditional momentum oscillators. It is unusual that we are not getting a rebound by now, but no one should fight the trend no matter how overdone the move has been.
Wednesday, December 15, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 15, 2010
In Asia last night more US treasury selling, by the time Europe opened a little buying. By 8:00 this morning the 10 yr note was better by 12/32 and mortgage prices were up 12/32 (.37 bp). At 8:30 two data points; Nov consumer price index was right on, up 0.1% overall and +0.1% with food and energy removed, yr/yr overall +1.1%, yr/yr core +0.8%. The NY Fed Empire State manufacturing index jumped from -11.14 in Nov to +10.57 with estimates of an increase of 3.0; new orders jumped to 2.60 frm -24.38, employment component at -3.41 frm +9.09. The past two two months the NY manufacturing reports have been so volatile we don't give it much attention; any index over zero is considered growth, under zero contraction. Some immediate selling on the data but by 9:00 treasuries and mortgages were holding better.
At 9:15 Nov industrial production expected up 0.3%, increased 0.4%. Nov factory usage increased to 75.2% the highest utilization in almost two years. Economic data continues to exceed forecasts.
At 10:00 the Dec NAHB housing market index was expected at 17 frm 16 in Nov; was unchanged at 16. That it wasn't better has added a little increase in prices of treasuries and mortgages.
Yesterday the 10 yr note hit 3.50% briefly before backing down to close at 3.46%, mortgage prices were slammed again yesterday, down 39/32 (-128 bp). Mortgage rates have increased 100 basis points over the past four weeks. Interest rates climbing as rapidly as they have is confirmation that the end of inordinate low rates is over. Markets are increasingly more optimistic that 2011 economic growth will be stronger than what had been expected. Expectations until a couple of weeks ago were for GDP growth in 2011 to be 3.0%, now the consensus is for growth to be at 4.0% and a decline in the unemployment rate from the present 9.8% to 8.7% by the end of 2011. The extension of the Bush tax cuts, the 2.0% cut in workers contribution to social security will put more cash in consumers' pockets. Also driving rates higher, the end of safety moves generated by issues in Europe and in the US and Congress's unwillingness to cut federal spending. The $858B tax cut bill now moving through Congress is yet one more Christmas tree filled with earmarks (pork), politicians can't do anything that doesn't end up in more unnecessary spending. The fiscal budget bill also moving through Congress is hung with earmarks driven by Democrats and with not a lot of strong resistance from Republicans. Investors in fixed income are not willing to hold low rate treasuries with the deficit increasing, inflation concerns, and a better economic outlook.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 10, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.7% compared with the previous week. The Refinance Index decreased 0.7% from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0% from one week earlier. The unadjusted Purchase Index decreased 8.6% compared with the previous week and was 16.6% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 4.7%. The four week moving average is up 2.6% for the seasonally adjusted Purchase Index, while this average is down 6.8% for the Refinance Index. The refinance share of mortgage activity increased to 76.7% of total applications from 75.2% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84% from 4.66%, with points increasing to 1.34 from 0.94 (including the origination fee) for 80% loans. This is the highest 30-year fixed-rate observed in the survey since the beginning of May 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.21% from 3.98%, with points increasing to 1.28 from 0.97 (including the origination fee) for 80% loans. This is the highest 15-year fixed-rate observed in the survey since the beginning of June 2010.
So far so good today; the bond and mortgage markets are holding slight gains after the 10 yr note touched 3.50% yesterday. Will it hold for now? Hard to say, the market has resisted any attempt to rally on short-covering even though it remains extremely oversold technically. Any improvement in rate however will not be much given the underlying fundamentals of the increasing economic outlook for 2011. End of yr selling that usually occurs in Dec may not be over. It is highly unlikely that any rebound will be sufficient enough to change the bearish trend.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 15, 2010
In Asia last night more US treasury selling, by the time Europe opened a little buying. By 8:00 this morning the 10 yr note was better by 12/32 and mortgage prices were up 12/32 (.37 bp). At 8:30 two data points; Nov consumer price index was right on, up 0.1% overall and +0.1% with food and energy removed, yr/yr overall +1.1%, yr/yr core +0.8%. The NY Fed Empire State manufacturing index jumped from -11.14 in Nov to +10.57 with estimates of an increase of 3.0; new orders jumped to 2.60 frm -24.38, employment component at -3.41 frm +9.09. The past two two months the NY manufacturing reports have been so volatile we don't give it much attention; any index over zero is considered growth, under zero contraction. Some immediate selling on the data but by 9:00 treasuries and mortgages were holding better.
At 9:15 Nov industrial production expected up 0.3%, increased 0.4%. Nov factory usage increased to 75.2% the highest utilization in almost two years. Economic data continues to exceed forecasts.
At 10:00 the Dec NAHB housing market index was expected at 17 frm 16 in Nov; was unchanged at 16. That it wasn't better has added a little increase in prices of treasuries and mortgages.
Yesterday the 10 yr note hit 3.50% briefly before backing down to close at 3.46%, mortgage prices were slammed again yesterday, down 39/32 (-128 bp). Mortgage rates have increased 100 basis points over the past four weeks. Interest rates climbing as rapidly as they have is confirmation that the end of inordinate low rates is over. Markets are increasingly more optimistic that 2011 economic growth will be stronger than what had been expected. Expectations until a couple of weeks ago were for GDP growth in 2011 to be 3.0%, now the consensus is for growth to be at 4.0% and a decline in the unemployment rate from the present 9.8% to 8.7% by the end of 2011. The extension of the Bush tax cuts, the 2.0% cut in workers contribution to social security will put more cash in consumers' pockets. Also driving rates higher, the end of safety moves generated by issues in Europe and in the US and Congress's unwillingness to cut federal spending. The $858B tax cut bill now moving through Congress is yet one more Christmas tree filled with earmarks (pork), politicians can't do anything that doesn't end up in more unnecessary spending. The fiscal budget bill also moving through Congress is hung with earmarks driven by Democrats and with not a lot of strong resistance from Republicans. Investors in fixed income are not willing to hold low rate treasuries with the deficit increasing, inflation concerns, and a better economic outlook.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 10, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.7% compared with the previous week. The Refinance Index decreased 0.7% from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0% from one week earlier. The unadjusted Purchase Index decreased 8.6% compared with the previous week and was 16.6% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 4.7%. The four week moving average is up 2.6% for the seasonally adjusted Purchase Index, while this average is down 6.8% for the Refinance Index. The refinance share of mortgage activity increased to 76.7% of total applications from 75.2% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84% from 4.66%, with points increasing to 1.34 from 0.94 (including the origination fee) for 80% loans. This is the highest 30-year fixed-rate observed in the survey since the beginning of May 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.21% from 3.98%, with points increasing to 1.28 from 0.97 (including the origination fee) for 80% loans. This is the highest 15-year fixed-rate observed in the survey since the beginning of June 2010.
So far so good today; the bond and mortgage markets are holding slight gains after the 10 yr note touched 3.50% yesterday. Will it hold for now? Hard to say, the market has resisted any attempt to rally on short-covering even though it remains extremely oversold technically. Any improvement in rate however will not be much given the underlying fundamentals of the increasing economic outlook for 2011. End of yr selling that usually occurs in Dec may not be over. It is highly unlikely that any rebound will be sufficient enough to change the bearish trend.
Tuesday, December 14, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 14, 2010
A little choppy very early this morning; the bond and mortgage markets started a little lower in price, took a quick hit on 8:30 data then just as quickly rebounded to sit lose to unchanged by 9:00 am. The bellwether 10 yr note at 9:00 traded weaker, -11/32 at 3.32% +4 bp (see below for 10:00 prices).
Two key data releases at 8:30; Nov retail sales were stronger than expected, up 0.8% overall and up 1.2% when auto sales are removed. Oct retail sales were revised from +1.2% to +1.7%. Retail sales strong adds to the view that the consumer is beginning to spend more. Pulling against that; early this morning Best Buy came with its earnings that were substantially lower than expected sending its stock price reeling. Also at 8:30 Nov producer price index; it was stronger than expected and added more concern that inflation levels may be increasing. Overall PPI +0.8% and without food and energy +0.3%; yr/yr overall PPI +3.5% less than in Oct, ex food and energy +1.2% yr/yr.
Treasuries remain soft this morning but mortgage prices have managed to trade better. Both markets very oversold as we have been saying for days. Likely the markets will be relatively quiet this morning and into early afternoon prior to the FOMC policy statement at 2:15. Treasuries being pressured a little on the higher PPI, continuing to worry that inflation may be increasing. The more fundamental inflation gauge is due out tomorrow when Nov consumer price index is released. Nov retail sales were also better than expected adding to pressure in the rate markets.
At 10:00 Oct business inventories increased 0.7%, less than the 1.1% expected; sales were up 1.4% with an inventory to sales ration at 1.27 months from 1.28 months in Sept. The initial reaction added more pressure on the 10 yr note and mortgage prices slipped a little.
Confidence among U.S. small businesses rose in November to the highest level since the recession began three years ago as more companies projected the economy and sales will improve, a private survey found. The National Federation of Independent Business’s optimism index increased to 93.2, the highest since December 2007, from an October reading of 91.7. “It was encouraging to see substantial improvement in expectations for economic performance, critical if spending and hiring are to elevate beyond survival and replacement levels,” William Dunkelberg, the group’s chief economist, said in a statement. “Plans to hire, make capital outlays and invest in inventories all rose, albeit from historically low levels.”
Not much is expected from the FOMC meeting today; the Fed isn't about to add to the $600B stimulus at this time, and very likely will face serious resistance next year from the Republican controlled Congress. There are a few key members that want to change the Fed's role and remove its mandate for full employment leaving the Fed's only mandate to control inflation. The present $600B QE 2 has not measured up to what Bernanke wanted, lower interest rates, increasing criticism from Congress and within the Fed itself will likely handcuff Bernanke unless the economy rolls over. Bernanke has said he is concerned that the present recovery may not be "self-sustaining". The point of QE 2 was to reduce interest rates; so far it has failed, the 10 yr note and mortgages since the Nov 3rd announcement of QE 2 have increased 80 basis points. Instead of lowering rates the move increased the view the economy would recover more rapidly and inflation concerns have increased sending rates higher.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 14, 2010
A little choppy very early this morning; the bond and mortgage markets started a little lower in price, took a quick hit on 8:30 data then just as quickly rebounded to sit lose to unchanged by 9:00 am. The bellwether 10 yr note at 9:00 traded weaker, -11/32 at 3.32% +4 bp (see below for 10:00 prices).
Two key data releases at 8:30; Nov retail sales were stronger than expected, up 0.8% overall and up 1.2% when auto sales are removed. Oct retail sales were revised from +1.2% to +1.7%. Retail sales strong adds to the view that the consumer is beginning to spend more. Pulling against that; early this morning Best Buy came with its earnings that were substantially lower than expected sending its stock price reeling. Also at 8:30 Nov producer price index; it was stronger than expected and added more concern that inflation levels may be increasing. Overall PPI +0.8% and without food and energy +0.3%; yr/yr overall PPI +3.5% less than in Oct, ex food and energy +1.2% yr/yr.
Treasuries remain soft this morning but mortgage prices have managed to trade better. Both markets very oversold as we have been saying for days. Likely the markets will be relatively quiet this morning and into early afternoon prior to the FOMC policy statement at 2:15. Treasuries being pressured a little on the higher PPI, continuing to worry that inflation may be increasing. The more fundamental inflation gauge is due out tomorrow when Nov consumer price index is released. Nov retail sales were also better than expected adding to pressure in the rate markets.
At 10:00 Oct business inventories increased 0.7%, less than the 1.1% expected; sales were up 1.4% with an inventory to sales ration at 1.27 months from 1.28 months in Sept. The initial reaction added more pressure on the 10 yr note and mortgage prices slipped a little.
Confidence among U.S. small businesses rose in November to the highest level since the recession began three years ago as more companies projected the economy and sales will improve, a private survey found. The National Federation of Independent Business’s optimism index increased to 93.2, the highest since December 2007, from an October reading of 91.7. “It was encouraging to see substantial improvement in expectations for economic performance, critical if spending and hiring are to elevate beyond survival and replacement levels,” William Dunkelberg, the group’s chief economist, said in a statement. “Plans to hire, make capital outlays and invest in inventories all rose, albeit from historically low levels.”
Not much is expected from the FOMC meeting today; the Fed isn't about to add to the $600B stimulus at this time, and very likely will face serious resistance next year from the Republican controlled Congress. There are a few key members that want to change the Fed's role and remove its mandate for full employment leaving the Fed's only mandate to control inflation. The present $600B QE 2 has not measured up to what Bernanke wanted, lower interest rates, increasing criticism from Congress and within the Fed itself will likely handcuff Bernanke unless the economy rolls over. Bernanke has said he is concerned that the present recovery may not be "self-sustaining". The point of QE 2 was to reduce interest rates; so far it has failed, the 10 yr note and mortgages since the Nov 3rd announcement of QE 2 have increased 80 basis points. Instead of lowering rates the move increased the view the economy would recover more rapidly and inflation concerns have increased sending rates higher.
Monday, December 13, 2010
Mortgage Rates
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 13, 2010
Started lower again today; the 10 yr note overnight it 3.39% +7 bp from Friday's close, a little improvement by 9:00, at 3.36%. Mortgage prices at 9:00 down 6/32 (.18 bp) frm Friday's close. Looks more and more likely that the 10 yr may eventually drive to 3.50%. The exit from fixed income investments at those low yields is not over although we believe the near term remains excessively overdone. Still looking for a bounce but it is clear now that to see that it is going to take some kind of disappointment in the economic data being reported this week, meanwhile the trend is firmly higher for rates and it is not appropriate to bet on when a bounce will occur.
No economic releases today but the rest of the week has a lot to consider. Today the FOMC meeting begins with the statement coming tomorrow afternoon at 2:15. No supply this week from Treasury; today the Fed is scheduled to buy Treasuries dated 06/30/16 - 11/30/17. China did not increase interest rates as many were fearful they would. Inflation fears are one of the reasons we are seeing rates increase, China is making efforts to slow their inflation rate which is now at 6.0%, that and the Fed's desire to get the US inflation higher is dealing a blow to US rates. Inflation fears and the increasingly better economic outlook with tax cuts, payroll tax cuts, tuition credits and the extension of emergency unemployment benefits are combining to paint a smiley face on the economic future. A huge leap of faith, nevertheless it is what investors are increasingly expecting. The Senate is sure to pass the bill put together by Obama and Republicans, the House however is fighting it with many Democrats resisting the plan because it keeps the tax cuts for "the wealthy". Over the weekend the House was decorating the Tree, and not the National Christmas Tree, adding pork to the bill to bribe some of the dissenters. Subsidies for ethanol, wind farms and a few other ornaments; it isn't possible for Congress to pass a bill on its merits without hanging pork on it.
This Week's Economic Calendar:
Tuesday;
8:30 am Nov PPI (+0.5%, ex food and energy +0.2%)
Nov retail sales (+0.5%, ex auto sales +0.6%)
10:00 am Oct business inventories (+1.1%)
2:15 pm FOMC policy statement
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Nov CPI (+0.2%, ex food and energy +0.1%)
Dec NY Empire State manufacturing index (+3.0 frm -11.14 in Nov)
9:15 am Nov industrial production (+0.3%)
Nov capacity utilization (75.0% frm 74.8%)
10:00 am Dec NAHB housing market index (17 frm 16 in Nov)
Thursday;
8:30 am weekly jobless claims (+4K to 425K; continuing claims 4.078 mil frm 4.086 mil)
Nov housing starts (+4.8% to 545K annualized)
Nov building permits (+2.5% to 558K annualized)
Q3 current account (-$125.3B)
10:00 am Dec Philadelphia Fed business index (12.5 frm 22.5)
Friday;
10:00 am Nov leading economic indicators (+1.2% frm +0.5% in Oct)
Core Logic out this morning saying the number of U.S. homes worth less than the debt owed on them dropped in the third quarter, largely because of mounting foreclosures rather than a rise in property values. 10.8 million homes, or 22.5% of those with mortgages, were “underwater” as of Sept. 30, the Santa Ana, California-based real estate information company said in a report today. That was down from 11 million, or 23%, at the end of June, the third straight quarterly decline. Falling property values and unemployment near 10% have spurred a surge in foreclosures. The number of homes offered in foreclosure auctions averaged 110,000 a month in the third quarter compared with about 98,000 in the same period a year earlier, said Mark Fleming, CoreLogic’s chief economist. “There are two ways to reduce negative equity,” Fleming said in a telephone interview today. “Price appreciation or disposition, which means people getting taken out of their homes. At the moment, there’s more disposition.” A further decline in prices threatens to increase the number of homeowners with negative equity, Fleming said. U.S. home values will probably drop $1.7 trillion this year after rising foreclosures and the expiration of buyer tax credits that boosted demand early in the year, Zillow Inc. said Dec. 9. More than $1 trillion of the drop came in the second half, according to Zillow, a Seattle-based real estate data company. (Bloomberg)
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 13, 2010
Started lower again today; the 10 yr note overnight it 3.39% +7 bp from Friday's close, a little improvement by 9:00, at 3.36%. Mortgage prices at 9:00 down 6/32 (.18 bp) frm Friday's close. Looks more and more likely that the 10 yr may eventually drive to 3.50%. The exit from fixed income investments at those low yields is not over although we believe the near term remains excessively overdone. Still looking for a bounce but it is clear now that to see that it is going to take some kind of disappointment in the economic data being reported this week, meanwhile the trend is firmly higher for rates and it is not appropriate to bet on when a bounce will occur.
No economic releases today but the rest of the week has a lot to consider. Today the FOMC meeting begins with the statement coming tomorrow afternoon at 2:15. No supply this week from Treasury; today the Fed is scheduled to buy Treasuries dated 06/30/16 - 11/30/17. China did not increase interest rates as many were fearful they would. Inflation fears are one of the reasons we are seeing rates increase, China is making efforts to slow their inflation rate which is now at 6.0%, that and the Fed's desire to get the US inflation higher is dealing a blow to US rates. Inflation fears and the increasingly better economic outlook with tax cuts, payroll tax cuts, tuition credits and the extension of emergency unemployment benefits are combining to paint a smiley face on the economic future. A huge leap of faith, nevertheless it is what investors are increasingly expecting. The Senate is sure to pass the bill put together by Obama and Republicans, the House however is fighting it with many Democrats resisting the plan because it keeps the tax cuts for "the wealthy". Over the weekend the House was decorating the Tree, and not the National Christmas Tree, adding pork to the bill to bribe some of the dissenters. Subsidies for ethanol, wind farms and a few other ornaments; it isn't possible for Congress to pass a bill on its merits without hanging pork on it.
This Week's Economic Calendar:
Tuesday;
8:30 am Nov PPI (+0.5%, ex food and energy +0.2%)
Nov retail sales (+0.5%, ex auto sales +0.6%)
10:00 am Oct business inventories (+1.1%)
2:15 pm FOMC policy statement
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Nov CPI (+0.2%, ex food and energy +0.1%)
Dec NY Empire State manufacturing index (+3.0 frm -11.14 in Nov)
9:15 am Nov industrial production (+0.3%)
Nov capacity utilization (75.0% frm 74.8%)
10:00 am Dec NAHB housing market index (17 frm 16 in Nov)
Thursday;
8:30 am weekly jobless claims (+4K to 425K; continuing claims 4.078 mil frm 4.086 mil)
Nov housing starts (+4.8% to 545K annualized)
Nov building permits (+2.5% to 558K annualized)
Q3 current account (-$125.3B)
10:00 am Dec Philadelphia Fed business index (12.5 frm 22.5)
Friday;
10:00 am Nov leading economic indicators (+1.2% frm +0.5% in Oct)
Core Logic out this morning saying the number of U.S. homes worth less than the debt owed on them dropped in the third quarter, largely because of mounting foreclosures rather than a rise in property values. 10.8 million homes, or 22.5% of those with mortgages, were “underwater” as of Sept. 30, the Santa Ana, California-based real estate information company said in a report today. That was down from 11 million, or 23%, at the end of June, the third straight quarterly decline. Falling property values and unemployment near 10% have spurred a surge in foreclosures. The number of homes offered in foreclosure auctions averaged 110,000 a month in the third quarter compared with about 98,000 in the same period a year earlier, said Mark Fleming, CoreLogic’s chief economist. “There are two ways to reduce negative equity,” Fleming said in a telephone interview today. “Price appreciation or disposition, which means people getting taken out of their homes. At the moment, there’s more disposition.” A further decline in prices threatens to increase the number of homeowners with negative equity, Fleming said. U.S. home values will probably drop $1.7 trillion this year after rising foreclosures and the expiration of buyer tax credits that boosted demand early in the year, Zillow Inc. said Dec. 9. More than $1 trillion of the drop came in the second half, according to Zillow, a Seattle-based real estate data company. (Bloomberg)
Wednesday, December 8, 2010
Mortgage Update
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 08, 2010
More heavy selling this morning after rates continued to increase yesterday. Yesterday the 10 yr and mortgage rates jumped 20 basis points and mortgages up 15 basis points. Nothing directly new overnight; interest rates are increasing ion Europe, in Japan and China with the US leading the way higher. Some of the recent increases in rates is likely tied to year end adjustments by investors but the majority of it seems to have eluded analysts and economists. Very unusual that there seems to be no one stepping up to try and put some reasoning behind the spike in rates. It is as if it is happening with shock and awe, no consensus or any particular explanation.
The increase in rates recently, in our opinion, is a final capitulation that interest rates had declined to unsustainable levels. Driven now by attention turning to central banks and countries in Europe that are teetering on defaults. In the US markets see the Fed's $600B QE 2 as a waste of money; the Fed's rationale is and was totally wrong. The Fed's balance sheet has ballooned to over $2T and approaching $3T as Bernanke tries to help the economy grow; it hasn't worked and won't work. Bernanke appears to have made a huge mis-calculation that buying $600B of treasuries would lower interest rates, since Nov 4th when the QE was put in place the 10 yr note has increased 72 basis points and mortgage rates up about the same. Last week alone 30 yr mtg rates increased 10 basis points and are 100 basis points higher than the lows six weeks ago. The markets are saying enough.
The most recent blow to the bond markets; Obama and Republicans adding another $700B to the US budget deficit by planning to cut payroll taxes by 2.0% next year. On the surface it sounds good, more money in the pockets of consumers to spend and lift the economy out of its very anemic growth. No one wants the economy to stall but adding more to the deficit is telling the world the US is still not close to being serious in dealing with US budget deficits. The end of the line of giving the US a pass on exploding deficit spending appears to have arrived.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 3, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.9% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 1.4% from the previous week. This is the fourth weekly decrease for the Refinance Index which reached its lowest level since June 2010. The seasonally adjusted Purchase Index increased 1.8% from one week earlier. This is the third weekly increase for the Purchase Index which reached its highest level since early May 2010. The four week moving average for the seasonally adjusted Market Index is down 8.0%. The four week moving average is up 2.8% for the seasonally adjusted Purchase Index, while this average is down 10.9% for the Refinance Index. The refinance share of mortgage activity increased to 75.2% of total applications from 74.9% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.66% from 4.56%, with points decreasing to 0.95 from 0.96 (including the origination fee) for 80% loans. The average contract interest rate increased for the fourth consecutive week and is at the highest level since July 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.98% from 3.91%, with points increasing to 0.97 from 0.88 (including the origination fee) for 80% loans. The average contract interest rate increased for the second week in a row and is at the highest level since early September 2010.
At 1:00 this afternoon Treasury will auction $21B of 10 yr notes; yesterday the 3 yr was considered OK overall but it didn't meet the demand that many were expecting, adding a little to the strong sell off yesterday on the 10 yr.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 08, 2010
More heavy selling this morning after rates continued to increase yesterday. Yesterday the 10 yr and mortgage rates jumped 20 basis points and mortgages up 15 basis points. Nothing directly new overnight; interest rates are increasing ion Europe, in Japan and China with the US leading the way higher. Some of the recent increases in rates is likely tied to year end adjustments by investors but the majority of it seems to have eluded analysts and economists. Very unusual that there seems to be no one stepping up to try and put some reasoning behind the spike in rates. It is as if it is happening with shock and awe, no consensus or any particular explanation.
The increase in rates recently, in our opinion, is a final capitulation that interest rates had declined to unsustainable levels. Driven now by attention turning to central banks and countries in Europe that are teetering on defaults. In the US markets see the Fed's $600B QE 2 as a waste of money; the Fed's rationale is and was totally wrong. The Fed's balance sheet has ballooned to over $2T and approaching $3T as Bernanke tries to help the economy grow; it hasn't worked and won't work. Bernanke appears to have made a huge mis-calculation that buying $600B of treasuries would lower interest rates, since Nov 4th when the QE was put in place the 10 yr note has increased 72 basis points and mortgage rates up about the same. Last week alone 30 yr mtg rates increased 10 basis points and are 100 basis points higher than the lows six weeks ago. The markets are saying enough.
The most recent blow to the bond markets; Obama and Republicans adding another $700B to the US budget deficit by planning to cut payroll taxes by 2.0% next year. On the surface it sounds good, more money in the pockets of consumers to spend and lift the economy out of its very anemic growth. No one wants the economy to stall but adding more to the deficit is telling the world the US is still not close to being serious in dealing with US budget deficits. The end of the line of giving the US a pass on exploding deficit spending appears to have arrived.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 3, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.9% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 1.4% from the previous week. This is the fourth weekly decrease for the Refinance Index which reached its lowest level since June 2010. The seasonally adjusted Purchase Index increased 1.8% from one week earlier. This is the third weekly increase for the Purchase Index which reached its highest level since early May 2010. The four week moving average for the seasonally adjusted Market Index is down 8.0%. The four week moving average is up 2.8% for the seasonally adjusted Purchase Index, while this average is down 10.9% for the Refinance Index. The refinance share of mortgage activity increased to 75.2% of total applications from 74.9% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.66% from 4.56%, with points decreasing to 0.95 from 0.96 (including the origination fee) for 80% loans. The average contract interest rate increased for the fourth consecutive week and is at the highest level since July 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.98% from 3.91%, with points increasing to 0.97 from 0.88 (including the origination fee) for 80% loans. The average contract interest rate increased for the second week in a row and is at the highest level since early September 2010.
At 1:00 this afternoon Treasury will auction $21B of 10 yr notes; yesterday the 3 yr was considered OK overall but it didn't meet the demand that many were expecting, adding a little to the strong sell off yesterday on the 10 yr.
Thursday, December 2, 2010
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 02, 2010
Treasuries and mortgages opened weaker again today following the huge selling yesterday on belief the ECB would continue to support those economies facing possible debt defaults. After Ireland required a bailout Spain and Portugal moved into the queue for their turn. Yesterday the ECB head Jean Claude Trichet was quoted that he would do what is necessary to keep sovereign debt defaults from occurring. Overnight the ECB meeting didn't come out with a US style QE but the bank said will delay its withdrawal of stimulus measures. Spanish bonds and U.K. gas gained, while U.S. Treasuries fell. Trichet said the ECB will keep offering banks unlimited loans through the first quarter. Seven-day, one-month and three- month operations will be tied to the ECB’s benchmark rate, which it left unchanged at 1.0% today. While a step in the correct direction, the bank fell short of what markets thought yesterday when the US stock market rallied and US interest rates increased the most in one day this year.
At 8:15 this morning the 10 yr note rate traded at 3.01% and mortgage prices were down 15/32 (.47 bp). By 9:00 however some improvement; the 10 yr yield fell back to 2.98%, unchanged from yesterday's close and mortgage prices at 9:00 still lower, down 6/32 (.18 bp). Technically the bond, stock and mortgage markets may have over-reacted and prices are approaching near term oversold momentum on most of the oscillators we track. After a move like we had yesterday we should expect increased volatility; early today the stock index futures were looking better but by 9:00 the DJIA futures were hugging unchanged levels.
At 8:30 weekly jobless claims were reported up 26K to 436K, continuing claims at 4.27 mil frm 4.217 mil last week. Claims data slightly worse than expected (forecasts were for an increase of 16K) but still the total weekly filings remain under 450K that many had seen as a plus in the employment sector. We don't find any particular substance to the 450K level, traders seem to like it though. Employment in the US is still hardly able to meet the increase in the number of new entrants to the job sector.
That the ECB and EU appear ready to deal with debt problems in Europe took the safety trades into US bond markets away yesterday that had provided support the previous three days is one element sending the US rates higher, however we don't hold that it was the center piece for increased rates. Economic data recently has been beating forecasts implying the economy is in fact slowly recovering, yesterday the ADP people said non-farm private jobs increased by 93K, almost double what was thought. The litany of slightly better data points in the US and China recently has put the nail in the coffin for continued low rates at the moment. Also recall that the Fed has made it clear it wants US inflation higher; the combo of better economic outlook and increased inflation levels increased rates; the likelihood that interest rates will decline now is wishful thinking, rates have seen their best levels. We hear a lot of consternation over the jump in mortgage rates, what we should focus on is that mortgage rates are still at historic low levels. Expecting mortgage rates to fall to 4.00% or lower was never in our thinking, now it is not in anyone's' thoughts.
Oct pending home sales out at 10:00, expected down 0.5%, were up a solid 10.5%; pending sales are contracts signed but not yet closed. Yr/yr however pending sales are down 20.5% compared to Oct 2009. The initial reaction added a little gain in stock indexes but no changes in the bond and mortgage markets already weaker.
Tomorrow is employment day; estimates of 145K non-farm private jobs and the unemployment rate unchanged at 9.6%. Trade today should be a lot less hectic than yesterday's strong moves. We are not expecting much change in the rate markets or in the equity markets today ahead of employment tomorrow.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, December 02, 2010
Treasuries and mortgages opened weaker again today following the huge selling yesterday on belief the ECB would continue to support those economies facing possible debt defaults. After Ireland required a bailout Spain and Portugal moved into the queue for their turn. Yesterday the ECB head Jean Claude Trichet was quoted that he would do what is necessary to keep sovereign debt defaults from occurring. Overnight the ECB meeting didn't come out with a US style QE but the bank said will delay its withdrawal of stimulus measures. Spanish bonds and U.K. gas gained, while U.S. Treasuries fell. Trichet said the ECB will keep offering banks unlimited loans through the first quarter. Seven-day, one-month and three- month operations will be tied to the ECB’s benchmark rate, which it left unchanged at 1.0% today. While a step in the correct direction, the bank fell short of what markets thought yesterday when the US stock market rallied and US interest rates increased the most in one day this year.
At 8:15 this morning the 10 yr note rate traded at 3.01% and mortgage prices were down 15/32 (.47 bp). By 9:00 however some improvement; the 10 yr yield fell back to 2.98%, unchanged from yesterday's close and mortgage prices at 9:00 still lower, down 6/32 (.18 bp). Technically the bond, stock and mortgage markets may have over-reacted and prices are approaching near term oversold momentum on most of the oscillators we track. After a move like we had yesterday we should expect increased volatility; early today the stock index futures were looking better but by 9:00 the DJIA futures were hugging unchanged levels.
At 8:30 weekly jobless claims were reported up 26K to 436K, continuing claims at 4.27 mil frm 4.217 mil last week. Claims data slightly worse than expected (forecasts were for an increase of 16K) but still the total weekly filings remain under 450K that many had seen as a plus in the employment sector. We don't find any particular substance to the 450K level, traders seem to like it though. Employment in the US is still hardly able to meet the increase in the number of new entrants to the job sector.
That the ECB and EU appear ready to deal with debt problems in Europe took the safety trades into US bond markets away yesterday that had provided support the previous three days is one element sending the US rates higher, however we don't hold that it was the center piece for increased rates. Economic data recently has been beating forecasts implying the economy is in fact slowly recovering, yesterday the ADP people said non-farm private jobs increased by 93K, almost double what was thought. The litany of slightly better data points in the US and China recently has put the nail in the coffin for continued low rates at the moment. Also recall that the Fed has made it clear it wants US inflation higher; the combo of better economic outlook and increased inflation levels increased rates; the likelihood that interest rates will decline now is wishful thinking, rates have seen their best levels. We hear a lot of consternation over the jump in mortgage rates, what we should focus on is that mortgage rates are still at historic low levels. Expecting mortgage rates to fall to 4.00% or lower was never in our thinking, now it is not in anyone's' thoughts.
Oct pending home sales out at 10:00, expected down 0.5%, were up a solid 10.5%; pending sales are contracts signed but not yet closed. Yr/yr however pending sales are down 20.5% compared to Oct 2009. The initial reaction added a little gain in stock indexes but no changes in the bond and mortgage markets already weaker.
Tomorrow is employment day; estimates of 145K non-farm private jobs and the unemployment rate unchanged at 9.6%. Trade today should be a lot less hectic than yesterday's strong moves. We are not expecting much change in the rate markets or in the equity markets today ahead of employment tomorrow.
Wednesday, December 1, 2010
Rate Lock Advisory - Wednesday Dec. 1st
Wednesday’s bond market has opened down sharply following an early surge in stock prices. Stocks are reacting well to a couple of factors including good news about China’s economy and favorable data here. The Dow is currently up 189 points while the Nasdaq has gained 50 points. The bond market is currently down 31/32, which will likely push this morning’s mortgage rates higher by approximately .375 - .500 of a discount point.
The Labor Department reported early this morning that 3rd quarter worker productivity rose at an annual rate of 2.3%, up from the preliminary estimate of 1.9%. This was slightly lower than forecasts of 2.4% and has not had much of an impact on today’s trading or mortgage pricing.
November’s manufacturing index from the Institute for Supply Management (ISM) was the important data of the morning. It showed a reading of 56.6 that was a little higher than forecasts. This was a decline from October’s reading, but was the 16th consecutive month above 50.0 that indicates manufacturing sector growth. The difference between forecasts and the actual reading is not enough to cause stocks and bonds to move this much. I believe that the stock rally has pulled funds away from bonds more than today’s data has caused concerns about economic growth. The good news is that if this is the case, today’s sell-off on bonds could be an overreaction and only temporary.
The Federal Reserve will release their Beige Book at 2:00 PM ET today. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not though, this report does not cause afternoon revisions to mortgage rates. There is no particular reason to believe this release will be any different, however, there is the possibility of it doing so.
Tomorrow’s only semi-relevant data is the weekly unemployment numbers from the Labor Department. They are expected to announce that new claims for unemployment benefits rose to 422,000 last week. This data usually does not have a much of an impact on the markets or mortgage rates unless it shows a significant variance from forecasts. Last week’s release of the previous week’s numbers did just that. The unexpected drop of 34,000 new claims pointed towards employment sector strength and helped bond prices to drop sharply ahead of the Thanksgiving holiday. If we see another surprise decline or a large increase in new claims, this data may influence mortgage rates tomorrow, especially since it is the day’s only data. The higher the number of new claims, the better the news for bonds and mortgage pricing.
Friday brings us the almighty monthly Employment report. It is arguably the single most important report we see each month, to it has the potential to cause plenty of volatility in the markets. With no monthly or quarterly data scheduled for release tomorrow, we may see bond traders take a defensive approach during trading tomorrow. This could lead to a little pressure in bonds, probably during afternoon hours. However, if Friday’s report gives is much weaker than expected results, we should see the bond market rebound after it is released. That could easily erase this morning’s increase to mortgage rates.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
The Labor Department reported early this morning that 3rd quarter worker productivity rose at an annual rate of 2.3%, up from the preliminary estimate of 1.9%. This was slightly lower than forecasts of 2.4% and has not had much of an impact on today’s trading or mortgage pricing.
November’s manufacturing index from the Institute for Supply Management (ISM) was the important data of the morning. It showed a reading of 56.6 that was a little higher than forecasts. This was a decline from October’s reading, but was the 16th consecutive month above 50.0 that indicates manufacturing sector growth. The difference between forecasts and the actual reading is not enough to cause stocks and bonds to move this much. I believe that the stock rally has pulled funds away from bonds more than today’s data has caused concerns about economic growth. The good news is that if this is the case, today’s sell-off on bonds could be an overreaction and only temporary.
The Federal Reserve will release their Beige Book at 2:00 PM ET today. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not though, this report does not cause afternoon revisions to mortgage rates. There is no particular reason to believe this release will be any different, however, there is the possibility of it doing so.
Tomorrow’s only semi-relevant data is the weekly unemployment numbers from the Labor Department. They are expected to announce that new claims for unemployment benefits rose to 422,000 last week. This data usually does not have a much of an impact on the markets or mortgage rates unless it shows a significant variance from forecasts. Last week’s release of the previous week’s numbers did just that. The unexpected drop of 34,000 new claims pointed towards employment sector strength and helped bond prices to drop sharply ahead of the Thanksgiving holiday. If we see another surprise decline or a large increase in new claims, this data may influence mortgage rates tomorrow, especially since it is the day’s only data. The higher the number of new claims, the better the news for bonds and mortgage pricing.
Friday brings us the almighty monthly Employment report. It is arguably the single most important report we see each month, to it has the potential to cause plenty of volatility in the markets. With no monthly or quarterly data scheduled for release tomorrow, we may see bond traders take a defensive approach during trading tomorrow. This could lead to a little pressure in bonds, probably during afternoon hours. However, if Friday’s report gives is much weaker than expected results, we should see the bond market rebound after it is released. That could easily erase this morning’s increase to mortgage rates.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Subscribe to:
Posts (Atom)