Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com A little better start this morning for the US stock market after the strong declines on the indexes yesterday. Europe’s key markets traded better, at 8:30 the DJIA up 37 points; not much but at least this morning the bleeding has stopped. The 10 yr note still not moving much over the past six sessions was at 1.78% at 8:30, +2 bp in yield frm yesterday’s close with MBS prices -10 bp in price. The August FHFA house price index was expected to be up 0.4%, as reported the index increased 0.7%. Inventories are low motivating buyers to compete for the dwindling supply. Prices climbed 4.7% from a year earlier, according to the FHFA. The previously reported 0.2% increase in July was revised downward to a 0.1% gain. The data was released yesterday on the FHFA web site, a day early (the report was scheduled for 10:00 this morning). The FHFA’s index has climbed as improving employment, a tight inventory of available homes and record-low borrowing costs help strengthen a real estate recovery. A home value index by Zillow Inc. jumped 1.3% in the third quarter from the previous three months, the biggest gain since 2006, that was released yesterday. On the continuing debt problems in the EU, ECB Pres. Draghi spoke to Germany’s parliament today in a closed door session, defending the plan he has authored to buy sovereign debt from EU countries that are struggling to keep their economies and debt costs in check. German politicians worry that the ECB buying would lead to inflation; Draghi countered, “in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries,”…. “In this sense, OMT Outright Monetary Transactions) s are not in contradiction to our mandate: in fact, they are essential for ensuring we can continue to achieve it.” Germany continues to argue that ECB buying of sovereign debt violates the EU treaty. After three years of unresolved debt crisis markets are becoming more thick-skinned and don’t pay as much attention to the never-ending talks and plans that have not achieved much. At 9:30 the DJIA opened +40, NASDAQ +20, S&P +5. The 10 yr at 9:30 1.79% +3 bp; 30 yr MBS price MBA reported mortgage applications decreased 12.0% from one week earlier. The Refinance Index decreased 13% from the previous week to the lowest level since late August. The seasonally adjusted Purchase Index decreased 8% from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 7 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 81% of total applications from 82% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.63% from 3.57%, with points increasing to 0.45 from 0.44 (including the origination fee) for 80% loans. The 30-year fixed rate increased for three consecutive weeks to the highest level since late September. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.85% from 3.81%, with points remaining unchanged at 0.42 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.41% from 3.34%, with points decreasing to 0.61 from 0.82 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.96% from 2.87% with points decreasing to 0.36 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.72% from 2.59%, with points decreasing to 0.33 from 0.35 (including the origination fee) for 80% loans. At 10:00 Sept new home sales were expected at +385K units, up 2.4% frm August; as reported sales increased 5.7% to 389K. August sales revised lower, from 373K to 368K. According to the data there is a 4.5 month supply of new homes. The better sales did not improve the stock indexes; earnings disappointments still dominant. At 1:00 this afternoon Treasury will sell $35B of 5 yr notes; yesterday’s 2 yr auction was met with strong demand, today should also be a strong auction. The elephant today is the policy statement release from the conclusion of the FOMC meeting. Last meeting the Fed announced it would buy $40B of MBSs each month until the world ends (no limit announced). Since then there has been very little improvement of mortgage interest rates. The general consensus is that there will be no change in the present policies; low shorty term rates until mid-2015 (a fictional tine frame in our opinion) and continued buying through Operation Twist and QE 3, buying MBSs. The Fed continues to push on the string as do most other central banks that are printing money so quickly printing presses are burning up. There will be a heavy price to pay down the line over the Fed’s balance sheet growing faster than a dandelion in May. Federal Reserve Chairman Ben S. Bernanke says he’ll stoke the economy until the job market recovers “substantially.” That promise may force him to keep buying bonds until the final months of his term ending in January 2014. Treasuries and mortgages remain in narrow ranges, no real changes in either; both still slightly negative from the technical perspective. Should be quiet this morning and into the 2:15 Fed policy statement.