Archive → October, 2010
Monday Minutia
Mortgage markets worsened last week in back-and-forth trading, pushing conforming mortgage rates higher on the week.
Despite the uptick, however, Freddie Mac reports that rates in still managed to make new, all-time lows for the third week in a row. The benchmark 30-year fixed rate mortgage is now down 1.02% since April 2010.
The United States is experiencing a Refi Boom.
As compared to 6 months ago, a new, $200,000 home loan costs $124 less per month in principal + interest.
This week, monthly payments may fall some more. It all depends on data.
Early in the week, housing data takes center stage. The National Association of Home Builders releases its Housing Market Index this morning, and, Tuesday, the government prints September’s Housing Starts figures. Both reports figure to influence the bond market.
Strong readings should lead mortgage rates higher; weak ones should lead them lower. Economists expect weakness.
That said, the biggest story of the week — and the one with the best chance of changing rates — could stem from the Federal Reserve.
Federal Reserve officials, including Chairman Ben Bernanke, have observed the recent U.S. economy and have openly discussed the use of “non-conventional means” to spur it forward. As the rhetoric increases, it’s widely believed that the Fed will act soon, and that the central bank’s plan will include new commitments to U.S. Treasury debt, and, possibly, to mortgage-backed bonds. For more information on Ben’s stance you can follow this link for a detailed article.
Speculation of the Fed’s next move has sparked mortgage bond demand which, in turn, has helped drive down mortgage rates. An official Fed announcement could push rates lower still.
For now, though, mortgage rates are as low as they’ve been in history. Rate shoppers have two choices. (1) Lock in a today’s low rates, or (2) Wait and hope that rates fall further. Ultimately, rates may fall, but once they start rising, they’ll likely rise quickly.
It’s a gamble you may not wish to take.
The Week That Was and What is to Come …….
Weak Employment data and increased expectations for Fed monetary easing were favorable for mortgage rates this week. Investors have priced in a high likelihood of additional Treasury security purchases by the Fed, which would increase demand for mortgage-backed securities (MBS). As a result, mortgage rates declined to a new record low..
While the private sector performed relatively well, Friday’s Employment data revealed net job losses and stagnant wage growth in September. Against a consensus forecast for a loss of 5K jobs, the economy lost 95K jobs. The weakness was seen mostly in the government sector, as state and local governments continued to shed jobs. The private sector actually added 64K, which was close to expectations. The Unemployment Rate remained at 9.6%. A broader measure, which also includes the underemployed, rose from 16.7% in August to 17.1%, matching the high reached in April. Average Hourly Earnings, a proxy for wage growth, was unchanged from August.
The Fed’s recent announcement that it may purchase additional Treasury securities (quantitative easing) to stimulate the economy has magnified the importance of economic news and increased daily volatility. Investors now evaluate each fresh piece of data in terms of its expected impact on Fed policy, and mortgage rates receive an extra benefit from weaker than expected data. In general, weaker economic growth leads to lower future inflation, which is favorable for mortgage rates. In addition, investors now expect higher levels of bond purchases by the Fed after weak data, and the increased demand also would be positive for mortgage rates. Of course, stronger than expected economic news will have the opposite effect and will push rates higher more quickly than usual.
The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, the detailed FOMC Minutes from the September 21 Fed meeting will be released on Tuesday. Retail Sales, an important indicator of economic growth, will be released on Friday. Retail Sales account for about 70% of economic activity. Empire State, the Trade Balance, Import Prices, and Consumer Sentiment will round out the week. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Mortgage markets will be closed today, Monday for Columbus Day
Thinking of Applying for a Home Loan
Watch this short movie for a primer on what to expect with today’s credit ctieria and tighter guidelines!!
What is RoboSigning and What Does a RoboSigner Look Like?
The RoboSigning scandal goes mainstream and makes national news. The question is, will this latest “crisis” cause the housing market to collapse or pull the economy into a double dip recession? The prospect of title insurers pulling out of the market and refusing to issue title insurance on REO property sales could have a devastating effect on the fragile recovery. In question are REO sales that are owned by GMAC, JP Morgan Chase, and B of A. With REO sales currently accounting for 25% of the market and the lenders on this list representing 75% of the big 4, this could have a potentially huge negative impact on home sales. For more information and an informative report, follow this LINK to get more details.
The Week Ahead
For the third straight week, mortgage markets showed little conviction in the face of contrasting data. Mortgage bonds ended the week slightly better, but mortgage rates did not.
Conforming mortgage rates were up-and-down all week before ending the week with a slight worsening. The inter-day volatility has come to characterize the current mortgage market.
In part, rates are jumpy because of data; it’s unclear when the economy is expanding or contraction — despite the “official call” of the recession’s end in June 2009.
Consider the conflicting reports from last week. Separate Consumer Confidence reports showed sentiment falling in September, but on the other hand:
- Initial jobless claims dropped 3%
- Household income is shown to be rising
- GDP is improving year-over-year
In other words, the economy is in recovery, but the average citizen isn’t believing it. That causes purse-strings to stay tight, thereby retarding economic growth.
Wall Street is struggling with the contrast, and constantly changing its outlook. It’s making mortgage rates tough to pin down and this week should reflect that. In addition to a home sales report and new consumer confidence data, the government prints its market-moving Non-Farm Payrolls report.
More commonly called “the jobs report”, Non-Farm Payrolls details the workforce, its size, and its Unemployment Rate. There’s expected to be little change from August, a month considered “fair” by recent employment standards. If the jobs report shows improvement and/or strength, look for mortgage rates to rise. If the report does deterioration and/or weakness, look for mortgage rates to fall.
The Non-Farm Payrolls will be released Friday at 8:30 AM ET.