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.
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Tuesday, December 21, 2010
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
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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.
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