Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to the first data point this morning; at 8:00 am the 10 yr note yield was at 2.02%. At 8:15 ADP reported private jobs increased 192K, 20K more than the consensus estimates; ADP revised its Dec jobs from +215K to 185K. According to the release service sector jobs accounted for 177K of the increase. The better report for Jan is muted with the revision lower for Dec. There wasn’t any noticeable reaction to the data. At 8:30 the first look at Q4 GDP, the advance report, was expected to show the economy grew at 1.0% in the quarter; as reported GDP declined 0.1%. The surprising decline was largely due to reduced defense spending, the largest decline in that sector in 40 years. Another drag is attributed to the declining inventories as buying by consumers increased. Bolstered by a drop in fuel prices and the biggest gain in incomes in four years, consumer spending accelerated, the biggest part of the economy. The headline looks bad but isn’t quite as worrisome as it looks. Consumers spending more is actually a plus for the economy. The report is the first of three, this one, the advance report, doesn’t have all the actual data for the third month in the quarter, next month the data is likely to be revised higher----at least that is how the markets see it this morning. Yr/yr GDP for 2012 was +2.2%, up frm +1.8% in 2011. By 9:00 the 10 yr note already had seen volatility; after the early data the 10 yr dropped from its high at 2.02% to 1.97% after digesting the data traders pushed the yield back to 2.02%. Stock indexes at 9:00 implied a flat opening at 9:30, the indexes fell on the initial reaction to the GDP data but like the rate markets returned to levels prior to the reports. At 9:30 the DJIA opened -15, NASDAQ +2, S&P -2. 10 yr at 2.02% +2 bp; 30 yr MBSs -6 bp At 1:00 Treasury will auction $29B of 7 yr notes; the 5 and 2 yr auctions have been OK but not anything special. The FOMC meeting concludes at 2:15 with the release of the policy statement. We expect the statement will re-affirm the Fed is not about to end its easing, buying $85B of MBSs and treasuries each month. Since last Sept when the Fed announced it would buy $45B a month of MBSs interest rates have increased, maybe that is good news in that it implies the economic outlook is improving regardless of the GDP report this morning. Bernanke wants to increase employment, so far not much progress but as (if) the economy continues to improve, at least in housing, there is potential of lower unemployment. Earlier this morning (7:00 am) the mortgage applications decreased 8.1% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 25, 2013. The results include an adjustment to account for the Martin Luther King holiday. The Refinance Index decreased 10% from the previous week. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The refinance share of mortgage activity decreased to 79% of total applications from 82% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4% of total applications. The HARP share of refinance applications increased to 26% from 25% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.67%, the highest level since September 2012, from 3.62%, with points decreasing to 0.42 from 0.43 (including the origination fee) for 80% loans. The contract interest rate for 30-year fixed mortgages has increased for six of the last seven weeks. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.95% from 3.85%, with points increasing to 0.39 from 0.34 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.48% from 3.40%, with points decreasing to 0.33 from 0.53 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.95% from 2.87%, with points decreasing to 0.38 from 0.39 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.60% from 2.61%, with points increasing to 0.33 from 0.32 (including the origination fee) for 80% LTV loans. Over the last 5 sessions the 10 yr yield has increased 20 bp in yield (MBSs up 10 bp) frm the low on 1/24 to this morning. While the move higher is what we expected a few weeks back, the magnitude and speed of the increases in rates wasn’t what we expected. The bond and mortgage markets are continuing their run higher in rates but are momentarily over-sold as s the stock market momentarily overbought. Both markets should be seeing some retracements but so far it isn’t occurring. A correction in both markets is still likely but when is becoming a difficult call. The bond market is a bear with very long claws, and we don’t fight the tape. That said; there will be retracements soon, however we are now uncertain from what levels we will see it.