Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Rate markets opened weaker this morning with the 10 yr note at 2.05% at 9:00; 30 yr MBSs down 6 bp, not much. At 8:30 Jan housing starts were down 8.5% against estimates of -4.2%, more than thought but most of the excess decline from estimates was due to a decline in multi-family starts. Single family starts were up 0.8% to 613K units; overall starts including multi-family units were 890K against 914K consensus prior to the release. Yr/yr starts were up 23.6% frm Jan 2012. Jan building permits were better than expected, +2.7% against +1.8% forecasts. Also at 8:30; Jan PPI was reported up 0.2%, markets were looking for +0.3%. The core (ex food and energy) up 0.2% as expected. Yr/yr the core index increased 1.8%, well below the Fed’s 2.0%-2.5% concern. Wholesale prices in the U.S. rose in January for the first time in four months, reflecting higher costs for food and pharmaceuticals; more than 75% of the increase in the gain in the PPI in January was attributable to food. We expect food prices will increase much more through the year as last year’s drought hits prices. Although the index is up for the first time in a number of months, there is little reason to be concerned about inflation increasing. The economy is too weak with growth just muddling along, while inflation fears are still there it is all about the longer term timeframe and based primarily on the continued Fed increases in its balance sheet and keeping overnight interest rates at close to zero. There shouldn’t be any direct reaction to the inflation data in markets. Tomorrow the CPI for Jan. will be released with consensus forecasts at +0.1% overall and +0.2% for the core rate. Earlier this morning (7:00 am) the weekly MBA mortgage applications report continued to show a slowing in applications. The overall composite index fell 1.7% after declining 6.4% the previous week. The purchase index was -2.0% after falling 10.0% the previous week; the refinance index -2.0% after falling 6.0% last week. Higher mortgage rates dragging on re-financing, the 30 yr interest rate for 80% loans, including points was 3.78%, the highest since August according to MBA. We also allow that January isn’t the best month in the year for home buying. At 9:30 the DJIA opened flat at -2, NASDAQ -2, S&P -1. The 10 yr note at 9:30 at 2.04% after trading at 2.05% earlier; 2.05% is the highest yield on the 10 yr note since last April. 30 yr MBS price at 9:30 -12 bp. Prices jumped at 10:00, the 30 yr MBSs +12 bp frm 9:30 as the stock market slipped. Later this afternoon at 2:00 the FOMC minutes frm the Jan 31st meeting will be released. After the Dec minutes caused a lot of volatility the minutes will get a lot of attention from traders. In the meantime the stock and bond markets will likely sit quietly. Keep alert to how markets trade after 2:00 this afternoon. It is very unlikely the Fed is anywhere close to exiting its QEs, in the Dec meeting there were discussions about an exit plan when the time comes. No matter who is forecasting interest rates in the near term, or whether estimates are bullish or bearish, interest rates continue to increase albeit slowly. Floating in this market has been somewhat costly. We continue to remind that it isn’t a good idea to fight the tape and technicals that are all bearish. Overall there is a slight consensus that interest rates won’t increase much more, we subscribe to that in general, however as long as rates continue to creep higher any expected correction isn’t likely to be much when compared to where rates were trading a month ago when the 1`0 yr was trading at 1.83% and MBS prices were 156 bp higher frm where they are this morning.