SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted slight in favors of lower rates and higher investor prices.
Commentary: It appears the mortgage market is poised to drift through the last trading day of October taking directional cues from trading activity in the stock markets. Lower stock prices will tend to support steady to fractionally lower mortgage interest rates. In the off-chance stock prices rally - look for mortgage investors to push rate sheet prices lower.
This morning's report of September Personal Income and Spending fell almost exactly on values most economists had projected - rendering the whole thing essentially toothless with respect to its influence on the trend trajectory of mortgage interest rates.
Looking ahead to next week the release of the Fed's post-meeting statement on Wednesday afternoon and the October nonfarm payroll numbers on Friday morning will dominate the macro-economic calendar. There is a chance the Fed will tweak the language in their statement to open the door for a potential short-term rate hike somewhere down the road. Most believe economic conditions are still too fragile for the Fed to run the risk of upsetting the credit market's apple cart. If the consensus view proves accurate, the Fed meeting will come and go without exerting much, if any direct influence on the direction of mortgage interest rates. On the other hand, if the Fed chooses to do a little wordsmithing - and investors interpret the change to indicate the Fed is considering moving away from their accommodative monetary policy stance -- expect market participants to register their displeasure by pushing interest rates higher and prices lower.
In my judgment the only threat of higher mortgage interest rates in Friday's nonfarm payroll data will be if the numbers prove to be significantly stronger than market participants now anticipate. In my judgment it will take a headline payroll number that shows job losses of 150,000 or less and/or a national jobless rate of 9.7% or lower and/or an average work week of 33.0 hours or more. The likelihood that one or any combination of these values actually appears in the Labor Department report is very small.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Friday, October 30, 2009
Thursday, October 29, 2009
Daily Commentary by Larry Baer 10/29/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices but vulnerable to a near-term pull-back.
LONG-TERM TREND (11 days or more) Titled slight in favors of lower rates and higher investor prices.
Commentary: Mortgage investors suffered a major "Maalox Moment" this morning when the government reported the economy grew at a significantly faster-pace than expected in the July through September period. The Commerce Department said their first estimate of Gross Domestic Product, a statistical measure of the value of all the goods and service produced in the country, showed a gain of 3.5%. The economic growth in the third-quarter of 2009 was the fastest since the third-quarter of 2007. The gain in third-quarter GDP was generally broad-based, with solid gains in consumer spending, exports and investment in home-construction. It seems for the time being mortgage investors are simply glossing over the fact that the big gains in consumer spending and residential investment were largely driven by limited term government stimulus programs like "cash-for-clunkers" and the first-time homebuyer tax credit.
The latest gain in GDP growth stands in stark contrast to the 12 month period that ended in June 2009, a period when the economy turned in its worst performance in 70 years. The four consecutive quarterly GDP declines through the Q2 2009 marks the longest stretch of negative national economic growth since quarterly records began in 1947.
The question that bond traders and stock investors will be attempting to answer now has to do with the sustainability of economic growth. Was the outstanding third-quarter performance a "one-trick-pony," created by large amounts of government support - or was it another piece of evidence suggesting the Great Recession is coming to a close?
Some analysts point to the fact that if we strip out auto sales, production, and inventories, the economy grew at 1.9% last quarter - a very lethargic rate of growth at best. While I agree with the idea that modest growth is better than no growth at all - the likelihood of sustainable and meaningful economic growth is, in my judgment, still very much dependant on job growth. The consumer is the engine that drives more than 70% of our domestic economic activity -- and until the employment picture improves dramatically - the probabilities are high that the national economic growth prospects will remain anemic.
Speaking of employment -- a separate report from the Labor Department this morning showed the number of workers filing new claims for jobless benefits dipped by 1,000 during the week ended October 24th. The still-elevated numbers of continuing claims (a measure of those drawing benefits after the initial week) and those claiming extended benefits and support from the Emergency Unemployment Compensation program paints nothing but a very dismal picture of current conditions in the labor market.
Uncle Sam is conducting the last of this week's scheduled four-part Treasury auctions. On the block today is a $31 billion stack of 7-year notes. Since March of this year the Fed has been a relatively strong buyer of these securities. That is the good news. The bad news is their $300 billion dollar direct purchase program draws to a close today. The Fed as already spent $298.063 billion of their total allocation -- and they will drop the last of it on Treasury securities maturing in the next 4- to 7-years before the end of the day.
Keep your fingers crossed that the bidding at today's auction remains aggressive without the support of the Fed direct purchases. The more aggressive the bidding is for the 7-year notes -- the better the prospects for steady mortgage interest rates. If today's 7-year note sale is a bust - look for mortgage interest rates to edge higher before the end of the day. I'll provide an update with the auction details as soon as possible following the conclusion of bidding at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Titled slight in favors of lower rates and higher investor prices.
Commentary: Mortgage investors suffered a major "Maalox Moment" this morning when the government reported the economy grew at a significantly faster-pace than expected in the July through September period. The Commerce Department said their first estimate of Gross Domestic Product, a statistical measure of the value of all the goods and service produced in the country, showed a gain of 3.5%. The economic growth in the third-quarter of 2009 was the fastest since the third-quarter of 2007. The gain in third-quarter GDP was generally broad-based, with solid gains in consumer spending, exports and investment in home-construction. It seems for the time being mortgage investors are simply glossing over the fact that the big gains in consumer spending and residential investment were largely driven by limited term government stimulus programs like "cash-for-clunkers" and the first-time homebuyer tax credit.
The latest gain in GDP growth stands in stark contrast to the 12 month period that ended in June 2009, a period when the economy turned in its worst performance in 70 years. The four consecutive quarterly GDP declines through the Q2 2009 marks the longest stretch of negative national economic growth since quarterly records began in 1947.
The question that bond traders and stock investors will be attempting to answer now has to do with the sustainability of economic growth. Was the outstanding third-quarter performance a "one-trick-pony," created by large amounts of government support - or was it another piece of evidence suggesting the Great Recession is coming to a close?
Some analysts point to the fact that if we strip out auto sales, production, and inventories, the economy grew at 1.9% last quarter - a very lethargic rate of growth at best. While I agree with the idea that modest growth is better than no growth at all - the likelihood of sustainable and meaningful economic growth is, in my judgment, still very much dependant on job growth. The consumer is the engine that drives more than 70% of our domestic economic activity -- and until the employment picture improves dramatically - the probabilities are high that the national economic growth prospects will remain anemic.
Speaking of employment -- a separate report from the Labor Department this morning showed the number of workers filing new claims for jobless benefits dipped by 1,000 during the week ended October 24th. The still-elevated numbers of continuing claims (a measure of those drawing benefits after the initial week) and those claiming extended benefits and support from the Emergency Unemployment Compensation program paints nothing but a very dismal picture of current conditions in the labor market.
Uncle Sam is conducting the last of this week's scheduled four-part Treasury auctions. On the block today is a $31 billion stack of 7-year notes. Since March of this year the Fed has been a relatively strong buyer of these securities. That is the good news. The bad news is their $300 billion dollar direct purchase program draws to a close today. The Fed as already spent $298.063 billion of their total allocation -- and they will drop the last of it on Treasury securities maturing in the next 4- to 7-years before the end of the day.
Keep your fingers crossed that the bidding at today's auction remains aggressive without the support of the Fed direct purchases. The more aggressive the bidding is for the 7-year notes -- the better the prospects for steady mortgage interest rates. If today's 7-year note sale is a bust - look for mortgage interest rates to edge higher before the end of the day. I'll provide an update with the auction details as soon as possible following the conclusion of bidding at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Wednesday, October 28, 2009
Senators agree to extend homebuyer tax credit
By Stephen Ohlemacher, Associated Press Writer WASHINGTON (AP) - Senators agreed Wednesday to extend a popular tax credit for first-time homebuyers and to offer a reduced credit to some repeat buyers.
The tax credit provides up to $8,000 to first-time homebuyers but is set to expire at the end of November. The Commerce Department said Wednesday that new homes sales fell 3.6 percent in September, and some industry representatives blamed uncertainty about the tax credit.
Senators agreed to extend the existing tax credit for first-time homebuyers while offering a reduced credit of up to $6,500 to "repeat buyers" who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate Majority Leader Harry Reid, D-Nev. (Note that the federal definition for first-time homebuyers are those that have not owned a home for the past three years.)
The tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes, according to a summary of the legislation being circulated among lawmakers.
Senators were still negotiating the expansion of a separate tax credit that lets money-losing businesses get refunds for taxes paid in previous years, providing them with an immediate source of cash.
Senators in both political parties were hoping to add both tax provisions to a bill that would give people running out of unemployment insurance benefits up to 20 more weeks of federal aid. The Senate could vote on the overall bill as early as Thursday, but lawmakers were still haggling over several unrelated amendments Wednesday evening.
Popular bills like the one to extend unemployment benefits often attract amendments that would have a difficult time passing on their own.
Republicans were demanding that they be given a chance to offer amendments to restrict federal aid to the beleaguered community activist group ACORN and on requiring that people receiving unemployment insurance be processed through E-Verify, an Internet-based system that employers use to check on the immigration status of new hires.
Majority Democrats have refused to add the amendments.
If the Senate passes the bill, it would go to the House, which passed a similar bill extending unemployment benefits last month. House leaders have also said they support extending the tax credit for homebuyers.
Sen. Chris Dodd, D-Conn., has been negotiating for several weeks with Sen. Johnny Isakson, R-Ga., to craft an extended tax credit for homebuyers that would pass the Senate.
Lawmakers didn't release a cost estimate for extending the tax credit, though similar proposals were projected to cost about $10 billion.
Industry representatives said uncertainty about the tax credit is hurting new home sales. September's decline was the first since March.
It takes 45 days to 60 days to close on a house, making it unlikely a sale made today would be consummated by the end of November, said Lucien Salvant, spokesman for the National Association of Realtors.
"Buyers right now have an incentive to hold off, not knowing whether the credit will be extended," Salvant said.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
The tax credit for money-losing businesses is a favorite among Republican lawmakers. Businesses could get tax refunds by using losses from 2008 and 2009 to offset taxable profits made in the previous five years. Under current law, they can only offset profits from the previous two years.
The provision would help a variety of industries, including retailers, manufacturers and home builders, though it's expensive.
"It's clearly a way to put cash in the hands of some major economic players," said Clint Stretch, a tax policy expert at Deloitte Tax.
A similar proposal that was ultimately dropped from the economic stimulus package enacted in February would have cost nearly $20 billion over 10 years. Lawmakers are working to reduce the price tag.
"Because everybody is so cash strapped, this is a good way to get refund when businesses need it for operating expenses," said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation.
Copyright 2009 The Associated Press.
The tax credit provides up to $8,000 to first-time homebuyers but is set to expire at the end of November. The Commerce Department said Wednesday that new homes sales fell 3.6 percent in September, and some industry representatives blamed uncertainty about the tax credit.
Senators agreed to extend the existing tax credit for first-time homebuyers while offering a reduced credit of up to $6,500 to "repeat buyers" who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate Majority Leader Harry Reid, D-Nev. (Note that the federal definition for first-time homebuyers are those that have not owned a home for the past three years.)
The tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes, according to a summary of the legislation being circulated among lawmakers.
Senators were still negotiating the expansion of a separate tax credit that lets money-losing businesses get refunds for taxes paid in previous years, providing them with an immediate source of cash.
Senators in both political parties were hoping to add both tax provisions to a bill that would give people running out of unemployment insurance benefits up to 20 more weeks of federal aid. The Senate could vote on the overall bill as early as Thursday, but lawmakers were still haggling over several unrelated amendments Wednesday evening.
Popular bills like the one to extend unemployment benefits often attract amendments that would have a difficult time passing on their own.
Republicans were demanding that they be given a chance to offer amendments to restrict federal aid to the beleaguered community activist group ACORN and on requiring that people receiving unemployment insurance be processed through E-Verify, an Internet-based system that employers use to check on the immigration status of new hires.
Majority Democrats have refused to add the amendments.
If the Senate passes the bill, it would go to the House, which passed a similar bill extending unemployment benefits last month. House leaders have also said they support extending the tax credit for homebuyers.
Sen. Chris Dodd, D-Conn., has been negotiating for several weeks with Sen. Johnny Isakson, R-Ga., to craft an extended tax credit for homebuyers that would pass the Senate.
Lawmakers didn't release a cost estimate for extending the tax credit, though similar proposals were projected to cost about $10 billion.
Industry representatives said uncertainty about the tax credit is hurting new home sales. September's decline was the first since March.
It takes 45 days to 60 days to close on a house, making it unlikely a sale made today would be consummated by the end of November, said Lucien Salvant, spokesman for the National Association of Realtors.
"Buyers right now have an incentive to hold off, not knowing whether the credit will be extended," Salvant said.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
The tax credit for money-losing businesses is a favorite among Republican lawmakers. Businesses could get tax refunds by using losses from 2008 and 2009 to offset taxable profits made in the previous five years. Under current law, they can only offset profits from the previous two years.
The provision would help a variety of industries, including retailers, manufacturers and home builders, though it's expensive.
"It's clearly a way to put cash in the hands of some major economic players," said Clint Stretch, a tax policy expert at Deloitte Tax.
A similar proposal that was ultimately dropped from the economic stimulus package enacted in February would have cost nearly $20 billion over 10 years. Lawmakers are working to reduce the price tag.
"Because everybody is so cash strapped, this is a good way to get refund when businesses need it for operating expenses," said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation.
Copyright 2009 The Associated Press.
Daily Commentary by Larry Baer 10/28/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices but vulnerable to a near-term pull-back.
LONG-TERM TREND (11 days or more) Titled slight in favors of lower rates and higher investor prices.
Commentary: The mortgage market got off to a friendly start this morning as lower-than-expected September new home sales figures offset encouraging data from the manufacturing sector that came in the form of surprisingly solid September Durable Goods numbers.
In a separate report the Mortgage Bankers of America reported their index of seasonally adjusted mortgage applications (a value that includes requests for both purchase and refinance loans) slipped 12.3% lower during the week ended October 23rd. Purchase applications were down 5.2% and refinance applications declined 16.2%. During the reporting period the average 30-year fixed-rate mortgage was 5.04%, down three basis-points from the prior week -- and down 122 basis-points from the year ago mark.
The mixed signal from the economy was enough to induce a round of selling in the stock markets. As capital leaves riskier asset classes like stocks - it is typically looking for a safe place in which to hang-out - and that is a condition that tends to make government debt obligations and mortgage-backed securities shine as an attractive sanctuary for these money flows. The more money that flows into the credit markets - and particularly into mortgage-backed securities - the more supportive it becomes of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The timing of ramped-up selling pressure in the equity markets could not have come at a better time from a credit market perspective. Uncle Sam is conducting an auction today looking to borrow $41 billion in the form of 5-year notes. The more aggressive the bidding becomes for these securities -- the better the prospects for steady to perhaps fractionally lower mortgage interest rates. The first two legs of this week's Treasury auctions - Monday's $7 billion of 5-year inflation indexed securities and yesterday's $44 billion of 2-year notes - drew slightly better-than-expected demand. If today's 5-year note sale keeps the string alive this event's impact on the trend trajectory of mortgage interest rates will likely be very limited. In the off-chance today's 5-year note sale is a bust - look for mortgage interest rates to edge higher before the end of the day. I'll provide an update with the auction details as soon as possible following the conclusion of bidding at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Titled slight in favors of lower rates and higher investor prices.
Commentary: The mortgage market got off to a friendly start this morning as lower-than-expected September new home sales figures offset encouraging data from the manufacturing sector that came in the form of surprisingly solid September Durable Goods numbers.
In a separate report the Mortgage Bankers of America reported their index of seasonally adjusted mortgage applications (a value that includes requests for both purchase and refinance loans) slipped 12.3% lower during the week ended October 23rd. Purchase applications were down 5.2% and refinance applications declined 16.2%. During the reporting period the average 30-year fixed-rate mortgage was 5.04%, down three basis-points from the prior week -- and down 122 basis-points from the year ago mark.
The mixed signal from the economy was enough to induce a round of selling in the stock markets. As capital leaves riskier asset classes like stocks - it is typically looking for a safe place in which to hang-out - and that is a condition that tends to make government debt obligations and mortgage-backed securities shine as an attractive sanctuary for these money flows. The more money that flows into the credit markets - and particularly into mortgage-backed securities - the more supportive it becomes of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The timing of ramped-up selling pressure in the equity markets could not have come at a better time from a credit market perspective. Uncle Sam is conducting an auction today looking to borrow $41 billion in the form of 5-year notes. The more aggressive the bidding becomes for these securities -- the better the prospects for steady to perhaps fractionally lower mortgage interest rates. The first two legs of this week's Treasury auctions - Monday's $7 billion of 5-year inflation indexed securities and yesterday's $44 billion of 2-year notes - drew slightly better-than-expected demand. If today's 5-year note sale keeps the string alive this event's impact on the trend trajectory of mortgage interest rates will likely be very limited. In the off-chance today's 5-year note sale is a bust - look for mortgage interest rates to edge higher before the end of the day. I'll provide an update with the auction details as soon as possible following the conclusion of bidding at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, October 27, 2009
Home prices rise in most major cities in August
Home prices rise in most major cities in August
by Associated Press
Originally printed at http://www.katu.com/news/business/66415772.html
NEW YORK (AP) - Home prices rose for the third straight month in August, data Tuesday showed, a key ingredient for a broad and sustained housing recovery.
The Standard & Poor's/Case-Shiller home price index of 20 major cities climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices are down 11.4 percent from August a year ago, the annual declines have slowed since February.
The index showed a widespread turnaround with prices rising month-over-month in 15 metro areas since June. San Francisco, Minneapolis and San Diego led the way.
Prices are at levels not seen since August 2003 and have fallen almost 30 percent from the peak in May 2006.
Low prices and mortgage rates combined with a temporary tax credit for first-time buyers have spurred sales. Home resales climbed more than 9 percent in September, the largest amount in more than 26 years, the National Association of Realtors said last week. Sales figures for newly built homes are due out Wednesday.
"In general we view the latest (price) increase as positive, while also recognizing that there could still be some further price drops still to come," said Abiel Reinhart, an economist at JPMorgan Chase Bank, in a research note.
Zach Pandl, an economist at Nomura Global Economics, expects prices to fall to levels reached earlier this year, possibly reversing all of the gains of the summer.
"We need to see flat to rising prices in the winter months. That would be a very encouraging sign that prices have bottomed out," he said.
Economists are concerned the nascent trend in home prices cannot withstand falling consumer confidence, rising unemployment and foreclosures and the looming deadline for a first-time homebuyer tax credit.
Congress is debating extending a temporary tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000. This week, top Democrats in the Senate pressed a plan that would prolong the credit but gradually phase it out over the next year.
Supporters will likely point to new data Tuesday that showed confidence about the U.S. economy fell unexpectedly in October. With job prospects bleak, the Conference Board's Consumer Confidence Index fell almost 6 points from September to the lowest level since May.
And home prices are not rising everywhere.
Prices in Las Vegas, Seattle and Charlotte, N.C., all fell to their lowest levels in August. Prices in Las Vegas have plunged by 56 percent since peaking in April 2006, the largest peak-to-trough decline of all 20 cities.
by Associated Press
Originally printed at http://www.katu.com/news/business/66415772.html
NEW YORK (AP) - Home prices rose for the third straight month in August, data Tuesday showed, a key ingredient for a broad and sustained housing recovery.
The Standard & Poor's/Case-Shiller home price index of 20 major cities climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices are down 11.4 percent from August a year ago, the annual declines have slowed since February.
The index showed a widespread turnaround with prices rising month-over-month in 15 metro areas since June. San Francisco, Minneapolis and San Diego led the way.
Prices are at levels not seen since August 2003 and have fallen almost 30 percent from the peak in May 2006.
Low prices and mortgage rates combined with a temporary tax credit for first-time buyers have spurred sales. Home resales climbed more than 9 percent in September, the largest amount in more than 26 years, the National Association of Realtors said last week. Sales figures for newly built homes are due out Wednesday.
"In general we view the latest (price) increase as positive, while also recognizing that there could still be some further price drops still to come," said Abiel Reinhart, an economist at JPMorgan Chase Bank, in a research note.
Zach Pandl, an economist at Nomura Global Economics, expects prices to fall to levels reached earlier this year, possibly reversing all of the gains of the summer.
"We need to see flat to rising prices in the winter months. That would be a very encouraging sign that prices have bottomed out," he said.
Economists are concerned the nascent trend in home prices cannot withstand falling consumer confidence, rising unemployment and foreclosures and the looming deadline for a first-time homebuyer tax credit.
Congress is debating extending a temporary tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000. This week, top Democrats in the Senate pressed a plan that would prolong the credit but gradually phase it out over the next year.
Supporters will likely point to new data Tuesday that showed confidence about the U.S. economy fell unexpectedly in October. With job prospects bleak, the Conference Board's Consumer Confidence Index fell almost 6 points from September to the lowest level since May.
And home prices are not rising everywhere.
Prices in Las Vegas, Seattle and Charlotte, N.C., all fell to their lowest levels in August. Prices in Las Vegas have plunged by 56 percent since peaking in April 2006, the largest peak-to-trough decline of all 20 cities.
Daily Commentary by Larry Baer 10/27/2009
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market is off to a friendly start today after the Conference Board, a private research group, said its barometer on consumer confidence slipped to 47.7 in October from a revised 53.4 in September.
Detail in this morning's report showed consumers' assessment of present conditions dropped to its lowest level since February 1985 while the number of people who said jobs are hard to get increased to a reading of 49.6 -- its highest level since 1983. Consumers are obviously "bummed" in a big way - reviving worries among market participants about the sustainability of the economic recovery. The folks on Main Street are obviously still very fearful about their ability to get and hold a job, which is a clear threat to spending - and by extension - to the nation's prospects for recovery from the Great Recession.
In the convoluted world of the mortgage market -- slumping economic activity tends to reduce the demand for capital - which in-turn tends to be supportive of steady to perhaps fractionally lower rates. The growing likelihood of "Grinch-like" holiday sales may soon begin to take an increasingly large toll on stock valuations. If so, a significant amount of the capital fleeing these riskier asset classes will likely find its way into the "safe-harbor" of government debt obligations and mortgage-backed securities - and that's never a bad thing from a rate sheet perspective.
Uncle Sam will be in the credit market looking to borrow $44 billion in the form of 2-year notes today. The short-duration of these debt obligations -- together with the fact their yield is near its highest level in more than a month -- will likely combine to draw solid demand from global and domestic investors alike. Look for this event to have little, if any noticeable impact on the trend trajectory of mortgage interest rates today. I'll provide an update on the auction results as soon as possible after the final gavel falls at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market is off to a friendly start today after the Conference Board, a private research group, said its barometer on consumer confidence slipped to 47.7 in October from a revised 53.4 in September.
Detail in this morning's report showed consumers' assessment of present conditions dropped to its lowest level since February 1985 while the number of people who said jobs are hard to get increased to a reading of 49.6 -- its highest level since 1983. Consumers are obviously "bummed" in a big way - reviving worries among market participants about the sustainability of the economic recovery. The folks on Main Street are obviously still very fearful about their ability to get and hold a job, which is a clear threat to spending - and by extension - to the nation's prospects for recovery from the Great Recession.
In the convoluted world of the mortgage market -- slumping economic activity tends to reduce the demand for capital - which in-turn tends to be supportive of steady to perhaps fractionally lower rates. The growing likelihood of "Grinch-like" holiday sales may soon begin to take an increasingly large toll on stock valuations. If so, a significant amount of the capital fleeing these riskier asset classes will likely find its way into the "safe-harbor" of government debt obligations and mortgage-backed securities - and that's never a bad thing from a rate sheet perspective.
Uncle Sam will be in the credit market looking to borrow $44 billion in the form of 2-year notes today. The short-duration of these debt obligations -- together with the fact their yield is near its highest level in more than a month -- will likely combine to draw solid demand from global and domestic investors alike. Look for this event to have little, if any noticeable impact on the trend trajectory of mortgage interest rates today. I'll provide an update on the auction results as soon as possible after the final gavel falls at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Monday, October 26, 2009
Daily Commentary by Larry Baer 10/26/2009
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market was under siege earlier this morning as stock market gains curbed the safe-haven appeal of government debt obligations and mortgage-backed securities. The last thing the credit markets need is a distracting influence as Uncle Sam prepares to borrow a record volume of $123 billion in a four-part auction this week.
The government's borrowing binge will kick-off today with $7 billion of 5-year inflation-indexed securities followed by tomorrow's $44 billion in the form of 2-year notes, Wednesday's $41 billion of 5-year note sale and concluding on Thursday with a $31 billion 7-year notes offering.
So far this year, domestic and foreign investor demand for these debt obligations has been high - despite lingering anxiety over a ballooning U.S. government budget deficit and its potential impact on the long-term credit-worthiness of the United States. As we come into this week's record setting debt offering the credit markets have a couple of things going for it that I consider supportive of the prospects for solid auction demand - a condition which also tends to be supportive of a least steady mortgage interest rates.
(1) The stock markets appear to be in the early phase of a mild downward correction. If my assessment proves correct this relatively shallow correction that will likely continue through the Thanksgiving break. Falling stock prices tend to spawn "flight-to-quality" buying sprees favoring safe haven assets like government debt obligations and mortgage-backed securities. There is absolutely no reason to believe a swoon in the stock markets would not create the same result this time around.
(2) The value of the dollar has taken a beating on foreign currency exchanges -- and believe it or not - that is a situation that may actually serve to ramp-up demand for U.S. government debt obligations - especially by overseas investors. Those investors choosing to buy dollar-denominated assets with other more strongly valued currencies will be acquiring Uncle Sam's highest-quality debt instruments at "blue-light-special" prices -- on a currency adjusted basis. A soft dollar stands a very good change of greasing-the-skids for this week's barrage of Treasury auctions - a scenario that will likely prove to be at worst -- mortgage market neutral.
There is, of course, a second side to this coin. If domestic and foreign investors choose to stay on the sidelines this week for whatever reason - look for mortgage interest rates to move higher. While such an outcome is certainly possible - at this juncture it does not appear to be highly probable.
I'll provide auction results as soon as possible following the conclusion of bidding on today's 5-year inflation indexed note offering at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market was under siege earlier this morning as stock market gains curbed the safe-haven appeal of government debt obligations and mortgage-backed securities. The last thing the credit markets need is a distracting influence as Uncle Sam prepares to borrow a record volume of $123 billion in a four-part auction this week.
The government's borrowing binge will kick-off today with $7 billion of 5-year inflation-indexed securities followed by tomorrow's $44 billion in the form of 2-year notes, Wednesday's $41 billion of 5-year note sale and concluding on Thursday with a $31 billion 7-year notes offering.
So far this year, domestic and foreign investor demand for these debt obligations has been high - despite lingering anxiety over a ballooning U.S. government budget deficit and its potential impact on the long-term credit-worthiness of the United States. As we come into this week's record setting debt offering the credit markets have a couple of things going for it that I consider supportive of the prospects for solid auction demand - a condition which also tends to be supportive of a least steady mortgage interest rates.
(1) The stock markets appear to be in the early phase of a mild downward correction. If my assessment proves correct this relatively shallow correction that will likely continue through the Thanksgiving break. Falling stock prices tend to spawn "flight-to-quality" buying sprees favoring safe haven assets like government debt obligations and mortgage-backed securities. There is absolutely no reason to believe a swoon in the stock markets would not create the same result this time around.
(2) The value of the dollar has taken a beating on foreign currency exchanges -- and believe it or not - that is a situation that may actually serve to ramp-up demand for U.S. government debt obligations - especially by overseas investors. Those investors choosing to buy dollar-denominated assets with other more strongly valued currencies will be acquiring Uncle Sam's highest-quality debt instruments at "blue-light-special" prices -- on a currency adjusted basis. A soft dollar stands a very good change of greasing-the-skids for this week's barrage of Treasury auctions - a scenario that will likely prove to be at worst -- mortgage market neutral.
There is, of course, a second side to this coin. If domestic and foreign investors choose to stay on the sidelines this week for whatever reason - look for mortgage interest rates to move higher. While such an outcome is certainly possible - at this juncture it does not appear to be highly probable.
I'll provide auction results as soon as possible following the conclusion of bidding on today's 5-year inflation indexed note offering at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Friday, October 16, 2009
Daily Commentary by Larry Baer 10/16/2009
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: Fortunately for the prospects of steady to perhaps fractionally lower mortgage interest rates -- the selling pressure in the stock markets is providing a strong counter-balance to this morning's mortgage market unfriendly surge in the September Industrial Production and Capacity Utilization figures.
Industrial production rose last month more than three times as much as even the most optimistic analyst had anticipated. Most observers were expecting a modest 0.2% gain in this measure of manufacturing activity and were stunned to find that the September gain was actually 0.7%. It was the third consecutive gain for this index and marks the first period of sustained increase since 2007. While auto production accounted for about half the increase - solid gains were also registered by most other industries. Excluding autos, manufacturing output rose 3.8% in the third quarter, the biggest increase since the first quarter of 2006. The fly-in-the-ointment with respect to the latest upbeat news from the manufacturing sector is that the surge in activity on the factory floor has yet to translate to a notable increase in hiring. Experienced investors are also taking the September capacity utilization figure, a measure of slack in the economy, with a grain-of-salt. Capacity utilization rose to 70.5% in September from the prior month level of 69.9%. The improvement is welcomed - but it really doesn't mean much -- since the index is slightly more than 10 percentage points below its 1972-2008 average.
The coming week doesn't offer much in the way of potentially mortgage market moving economic data. Tuesday's September Housing Starts and Building Permits numbers together with the September Producer Price Index figures will likely draw little more than a passing glance from mortgage investors. Friday's September Existing Home Sales numbers might generate some upward pressure on mortgage interest rates if it shows a gain of more than 5.0% -- while certainly possible -- such an outcome is not currently considered very probable.
It is highly likely that trading action in the stock markets will exert the strongest influence on the trend trajectory of mortgage interest rates next week. For what is worth, from a technical perspective I think there is a strong chance that the DOW put in a multi-day high yesterday. Should the stock markets indeed succumb to additional selling pressure -- such an event will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: Fortunately for the prospects of steady to perhaps fractionally lower mortgage interest rates -- the selling pressure in the stock markets is providing a strong counter-balance to this morning's mortgage market unfriendly surge in the September Industrial Production and Capacity Utilization figures.
Industrial production rose last month more than three times as much as even the most optimistic analyst had anticipated. Most observers were expecting a modest 0.2% gain in this measure of manufacturing activity and were stunned to find that the September gain was actually 0.7%. It was the third consecutive gain for this index and marks the first period of sustained increase since 2007. While auto production accounted for about half the increase - solid gains were also registered by most other industries. Excluding autos, manufacturing output rose 3.8% in the third quarter, the biggest increase since the first quarter of 2006. The fly-in-the-ointment with respect to the latest upbeat news from the manufacturing sector is that the surge in activity on the factory floor has yet to translate to a notable increase in hiring. Experienced investors are also taking the September capacity utilization figure, a measure of slack in the economy, with a grain-of-salt. Capacity utilization rose to 70.5% in September from the prior month level of 69.9%. The improvement is welcomed - but it really doesn't mean much -- since the index is slightly more than 10 percentage points below its 1972-2008 average.
The coming week doesn't offer much in the way of potentially mortgage market moving economic data. Tuesday's September Housing Starts and Building Permits numbers together with the September Producer Price Index figures will likely draw little more than a passing glance from mortgage investors. Friday's September Existing Home Sales numbers might generate some upward pressure on mortgage interest rates if it shows a gain of more than 5.0% -- while certainly possible -- such an outcome is not currently considered very probable.
It is highly likely that trading action in the stock markets will exert the strongest influence on the trend trajectory of mortgage interest rates next week. For what is worth, from a technical perspective I think there is a strong chance that the DOW put in a multi-day high yesterday. Should the stock markets indeed succumb to additional selling pressure -- such an event will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, October 15, 2009
Daily Commentary by Larry Baer 10/15/2009
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The trend trajectory of stocks and stronger-than-expected news from the labor sector and a slight uptick in the core consumer price index have combined to put additional upward pressure on mortgage interest rates during the early part of the trading day.
The uncertain start to the day for the stock markets has buffeted the mortgage market. The DOW has been whipsawing back and forth in a 50 point range during the first-half of the day - as the psychologically important 10,000 level is subjected to its first half-hearted sustainability test. Falling stock prices tend to be supportive of steady to fractionally lower mortgage interest rates while rising stock prices generally drag mortgage interest rates fractionally higher.
In a report confirming inflation pressures remain benign the Labor Department said its aggregate Consumer Price Index rose by 0.2% in September after posting a gain of 0.4% a month earlier. Stripping out volatile food and energy prices, the closely watched core measure of consumer inflation inched up to a reading of 0.2% -- a touch higher than most mortgage investors had been expecting. As zealously as these investors are protecting profits -- the ever so slight gain in the core rate of consumer inflation has evidently been deemed sufficient justification to push mortgage interest rates fractionally higher. That seems a bit of an extreme reaction to such a mild number - but then again we are dealing with the "Golden Rule" here - you know the one - "he/she who has the gold makes the rules".
In a separate report the Labor Department announced first-time claims for jobless benefits fell by 10,000 during the week ended October 10th. The decline was generally in range of investor expectations. Today's report marks the fifth consecutive decline for this economic metric in the past six weeks. This data tells a story of dwindling layoffs -- but detail in the report also shows the pace of hiring is nothing more than a trickle. The number of those claiming extended benefits or enrolling in the Emergency Unemployment Compensation programs continues to grow - and that's a situation that is not expected to start flashing signs of meaningful improvement until mid-2010.
All-in-all today's round of macro-economic data was pretty tame - so selling pressure is likely coming from some other area of concern - such as the inevitability of the Fed's withdrawal from the marketplace as the most aggressive buyer of mortgage-backed securities. From the first of the year the Fed has purchased roughly 80% of all the agency eligible mortgage-backed securities available - elbowing out a lot of private sector investors in the process. Now that the price of these securities are within shouting distance of their all-time high the Fed is asking the private sector to dive back into the marketplace. There is little doubt the private sector still maintains a healthy appetite for agency eligible mortgage-backed securities - but probably not at current price levels. If that assessment proves accurate, look for mortgage interest rates to begin a slow but progressive move to levels 50 basis point to 100 basis points higher than current levels within the next 12 months - no matter what the rest of the macro-economic picture might, or might not look like.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The trend trajectory of stocks and stronger-than-expected news from the labor sector and a slight uptick in the core consumer price index have combined to put additional upward pressure on mortgage interest rates during the early part of the trading day.
The uncertain start to the day for the stock markets has buffeted the mortgage market. The DOW has been whipsawing back and forth in a 50 point range during the first-half of the day - as the psychologically important 10,000 level is subjected to its first half-hearted sustainability test. Falling stock prices tend to be supportive of steady to fractionally lower mortgage interest rates while rising stock prices generally drag mortgage interest rates fractionally higher.
In a report confirming inflation pressures remain benign the Labor Department said its aggregate Consumer Price Index rose by 0.2% in September after posting a gain of 0.4% a month earlier. Stripping out volatile food and energy prices, the closely watched core measure of consumer inflation inched up to a reading of 0.2% -- a touch higher than most mortgage investors had been expecting. As zealously as these investors are protecting profits -- the ever so slight gain in the core rate of consumer inflation has evidently been deemed sufficient justification to push mortgage interest rates fractionally higher. That seems a bit of an extreme reaction to such a mild number - but then again we are dealing with the "Golden Rule" here - you know the one - "he/she who has the gold makes the rules".
In a separate report the Labor Department announced first-time claims for jobless benefits fell by 10,000 during the week ended October 10th. The decline was generally in range of investor expectations. Today's report marks the fifth consecutive decline for this economic metric in the past six weeks. This data tells a story of dwindling layoffs -- but detail in the report also shows the pace of hiring is nothing more than a trickle. The number of those claiming extended benefits or enrolling in the Emergency Unemployment Compensation programs continues to grow - and that's a situation that is not expected to start flashing signs of meaningful improvement until mid-2010.
All-in-all today's round of macro-economic data was pretty tame - so selling pressure is likely coming from some other area of concern - such as the inevitability of the Fed's withdrawal from the marketplace as the most aggressive buyer of mortgage-backed securities. From the first of the year the Fed has purchased roughly 80% of all the agency eligible mortgage-backed securities available - elbowing out a lot of private sector investors in the process. Now that the price of these securities are within shouting distance of their all-time high the Fed is asking the private sector to dive back into the marketplace. There is little doubt the private sector still maintains a healthy appetite for agency eligible mortgage-backed securities - but probably not at current price levels. If that assessment proves accurate, look for mortgage interest rates to begin a slow but progressive move to levels 50 basis point to 100 basis points higher than current levels within the next 12 months - no matter what the rest of the macro-economic picture might, or might not look like.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Wednesday, October 14, 2009
Daily Commentary by Larry Baer 10/14/2009
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market is getting slapped around this morning by the combination of strong stock market performance and data showing the pace of September retail sales was healthier than expected. These two developments combined to reduce the appeal of safe-haven investments like government debt obligations and agency eligible mortgage-backed securities.
Retail sales actually increased for a second straight month in September once the volatile auto component is stripped put. This was a strong retail sales report with few segments showing sales declines. It appears many mortgage investors are viewing the broad-based improvements as an indication Americans are becoming more confident the economy is recovering -- even as job losses persist. It is worth noting that most of the gain in retail sales (excluding autos) was lead by warehouse clubs and supercenters -- which is evidence that consumers are trading down in their purchases. Rather than shopping at department stores consumers are shopping at warehouse clubs and rather than going out to eat at restaurants -- sales at grocery stores are increasing. The "so what" factor here is the data clearly shows consumers remain financially constrained. Consumers simply lack the cash to spend aggressively -- which by extension is an indication that overall economic growth will almost surely remain limited until job creation and the attendant wage and salary growth improves significantly.
In a separate report the Mortgage Bankers of America said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 1.8% during the week of October 9th. Applications to buy a home, seen as a tentative indicator of sales, dropped 5.0% while refinance applications slipped 0.1% lower. Borrowing costs on 30-year fixed-rate agency eligible mortgages, excluding fees, averaged 5.02 percent, up 0.13 percentage points from the pervious week. The 30-year rate remained above the all-time low of 4.61 percent set during the week ended March 27th but well below the year-ago level of 6.47%.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market is getting slapped around this morning by the combination of strong stock market performance and data showing the pace of September retail sales was healthier than expected. These two developments combined to reduce the appeal of safe-haven investments like government debt obligations and agency eligible mortgage-backed securities.
Retail sales actually increased for a second straight month in September once the volatile auto component is stripped put. This was a strong retail sales report with few segments showing sales declines. It appears many mortgage investors are viewing the broad-based improvements as an indication Americans are becoming more confident the economy is recovering -- even as job losses persist. It is worth noting that most of the gain in retail sales (excluding autos) was lead by warehouse clubs and supercenters -- which is evidence that consumers are trading down in their purchases. Rather than shopping at department stores consumers are shopping at warehouse clubs and rather than going out to eat at restaurants -- sales at grocery stores are increasing. The "so what" factor here is the data clearly shows consumers remain financially constrained. Consumers simply lack the cash to spend aggressively -- which by extension is an indication that overall economic growth will almost surely remain limited until job creation and the attendant wage and salary growth improves significantly.
In a separate report the Mortgage Bankers of America said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 1.8% during the week of October 9th. Applications to buy a home, seen as a tentative indicator of sales, dropped 5.0% while refinance applications slipped 0.1% lower. Borrowing costs on 30-year fixed-rate agency eligible mortgages, excluding fees, averaged 5.02 percent, up 0.13 percentage points from the pervious week. The 30-year rate remained above the all-time low of 4.61 percent set during the week ended March 27th but well below the year-ago level of 6.47%.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, October 13, 2009
Daily Commentary by Larry Baer
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The Fed's zero-percent short-term interest rate policy has been a primary force behind the steady downward progression of mortgage interest rates since mid-year 2008.
Last week Thursday, during a dinner speech, Fed Chairman Bernanke said the central bank must continue to prop up the economy for an extended period -- but cannot do so indefinitely for fear of triggering a scary surge in inflation pressures. Bernanke is still talking about an extended period of low short-term interest rates but at the same time he is reminding market participants that the Fed is moving ever closer to the start of the tightening cycle. This is not a new wrinkle in his monetary policy thinking -- the Fed Chairman has fostered these ideas publically many times before.
Suddenly the big question mortgage investors are trying to frame an answer to is "how does the Fed define the word "closer"?
There are those who argue the Fed will begin pushing short-term interest rates higher as soon as the unemployment rate peaks at the end of this year or in the early part of 2010. A second group of analysts and market participants think a series of interest rate hikes from the Fed is a lot further off. They argue Fed Chairman Bernanke is an expert on the Great Depression - which means he clearly knows the economy slipped back into a disastrous recession in 1937-1938 primarily because the government started cutting back on emergency stimulus programs prematurely -- driven by the mistaken belief the worst of the economic catastrophe was over.
I believe both camps are probably right. A short-term interest rate tightening cycle from the Fed will not likely begin until the nation's employment picture brightens noticeably - and even then Bernanke and his fellow central bankers will probably choose to give the economy a "running start" before committing to an extended round of rate hikes intended to head-off the prospect of runaway inflation.
If my assessment proves accurate, it is highly likely Friday's big sell-off in the mortgage market will prove to be largely driven by market participants' overreaction to Bernanke's Thursday night comments. While it is almost certainly true mortgage interest rates will not move dramatically lower from current levels - it is equally true that mortgage interest rates are not likely poised to rocket dramatically higher - but will stagger higher over the balance of the year in modest incremental moves.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The Fed's zero-percent short-term interest rate policy has been a primary force behind the steady downward progression of mortgage interest rates since mid-year 2008.
Last week Thursday, during a dinner speech, Fed Chairman Bernanke said the central bank must continue to prop up the economy for an extended period -- but cannot do so indefinitely for fear of triggering a scary surge in inflation pressures. Bernanke is still talking about an extended period of low short-term interest rates but at the same time he is reminding market participants that the Fed is moving ever closer to the start of the tightening cycle. This is not a new wrinkle in his monetary policy thinking -- the Fed Chairman has fostered these ideas publically many times before.
Suddenly the big question mortgage investors are trying to frame an answer to is "how does the Fed define the word "closer"?
There are those who argue the Fed will begin pushing short-term interest rates higher as soon as the unemployment rate peaks at the end of this year or in the early part of 2010. A second group of analysts and market participants think a series of interest rate hikes from the Fed is a lot further off. They argue Fed Chairman Bernanke is an expert on the Great Depression - which means he clearly knows the economy slipped back into a disastrous recession in 1937-1938 primarily because the government started cutting back on emergency stimulus programs prematurely -- driven by the mistaken belief the worst of the economic catastrophe was over.
I believe both camps are probably right. A short-term interest rate tightening cycle from the Fed will not likely begin until the nation's employment picture brightens noticeably - and even then Bernanke and his fellow central bankers will probably choose to give the economy a "running start" before committing to an extended round of rate hikes intended to head-off the prospect of runaway inflation.
If my assessment proves accurate, it is highly likely Friday's big sell-off in the mortgage market will prove to be largely driven by market participants' overreaction to Bernanke's Thursday night comments. While it is almost certainly true mortgage interest rates will not move dramatically lower from current levels - it is equally true that mortgage interest rates are not likely poised to rocket dramatically higher - but will stagger higher over the balance of the year in modest incremental moves.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Friday, October 9, 2009
Daily Commentary
By Larry Baer, Market Alert
Housekeeping Notes:
The mortgage market will be closed on Monday, October 12th in observance of the Columbus Day Holiday. Stock markets will be open on Monday and will operate on a normal schedule.
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market woke up to a "Maalox moment" this morning - created in equal parts by comments Fed Chairman Bernanke made last night at a Fed conference in Washington and the "hangover effect" of yesterday's lackluster 30-year bond auction.
In his comments Bernanke clearly sent a signal that the Fed is gradually but steadily moving toward an exit from its supportive policies, even while evidence of the economic recovery remains mixed. Mortgage investors hate to see the Fed's support for progressively lower interest rates come to an end - but the house lights are coming up - its "last call" - and no one wants to miss this opportunity to cash in some outstanding marketing gains.
Looking ahead to the upcoming holiday shortened week -- mortgage investors will be intently interested in Wednesday's September Retail Sales figures and Thursday's September Consumer Price index. Most analysts expect the September retail sales data to show consumers have retreated en masse from the market place - choosing to spend only on necessities - and then only buying at discounted prices. The inflation threat as defined by the core consumer price index is expected to remain benign. If the actual data confirms assumptions (a high probability outcome) -- these two reports will likely exert little, if any upward pressure on mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
Housekeeping Notes:
The mortgage market will be closed on Monday, October 12th in observance of the Columbus Day Holiday. Stock markets will be open on Monday and will operate on a normal schedule.
SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.
LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.
Commentary: The mortgage market woke up to a "Maalox moment" this morning - created in equal parts by comments Fed Chairman Bernanke made last night at a Fed conference in Washington and the "hangover effect" of yesterday's lackluster 30-year bond auction.
In his comments Bernanke clearly sent a signal that the Fed is gradually but steadily moving toward an exit from its supportive policies, even while evidence of the economic recovery remains mixed. Mortgage investors hate to see the Fed's support for progressively lower interest rates come to an end - but the house lights are coming up - its "last call" - and no one wants to miss this opportunity to cash in some outstanding marketing gains.
Looking ahead to the upcoming holiday shortened week -- mortgage investors will be intently interested in Wednesday's September Retail Sales figures and Thursday's September Consumer Price index. Most analysts expect the September retail sales data to show consumers have retreated en masse from the market place - choosing to spend only on necessities - and then only buying at discounted prices. The inflation threat as defined by the core consumer price index is expected to remain benign. If the actual data confirms assumptions (a high probability outcome) -- these two reports will likely exert little, if any upward pressure on mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, October 8, 2009
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices.
LONG-TERM TREND (11 days or more) Favors lower rates and higher investor prices.
Commentary: Today's sale of $12 billion of 30-year bonds will conclude this week's $78 billion, four-part borrowing spree by Uncle Sam. Dealers will likely approach today's auction a little more cautiously than they originally intended prior to the release of this morning's surprisingly strong initial jobless claims report from the Labor Department.
The government said their data shows the number of American workers filing first-time jobless claims dropped 33,000 during the week ended October 3rd - completely offsetting the prior week's increase and reaching a nine-month low for this measure of labor sector health. The four-week moving average for new claims, considered a better gauge of underlying trends since it irons out week-to-week volatility, declined for the fifth straight week. According to analysis provided by the "Dismal Scientist", initial claims appear to be falling as quickly in this cycle as they had following the major recession of the mid-1970's and early 1980's - a hopeful indication of better days to come for the unemployed. It is still far too early to declare the crisis in the labor sector is over - but there is an increasing number of signs hinting the worst of the disaster may have passed. Companies are now in a position where further job cuts will be limited - but it will probably be a number of months yet before the "now hiring" signs go up in significant numbers. Until then -- the story from the labor sector will tend to support steady to perhaps fractionally lower mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices.
LONG-TERM TREND (11 days or more) Favors lower rates and higher investor prices.
Commentary: Today's sale of $12 billion of 30-year bonds will conclude this week's $78 billion, four-part borrowing spree by Uncle Sam. Dealers will likely approach today's auction a little more cautiously than they originally intended prior to the release of this morning's surprisingly strong initial jobless claims report from the Labor Department.
The government said their data shows the number of American workers filing first-time jobless claims dropped 33,000 during the week ended October 3rd - completely offsetting the prior week's increase and reaching a nine-month low for this measure of labor sector health. The four-week moving average for new claims, considered a better gauge of underlying trends since it irons out week-to-week volatility, declined for the fifth straight week. According to analysis provided by the "Dismal Scientist", initial claims appear to be falling as quickly in this cycle as they had following the major recession of the mid-1970's and early 1980's - a hopeful indication of better days to come for the unemployed. It is still far too early to declare the crisis in the labor sector is over - but there is an increasing number of signs hinting the worst of the disaster may have passed. Companies are now in a position where further job cuts will be limited - but it will probably be a number of months yet before the "now hiring" signs go up in significant numbers. Until then -- the story from the labor sector will tend to support steady to perhaps fractionally lower mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Wednesday, October 7, 2009
10/6/2009 Market Commentary by Larry Baer
Daily Commentary
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices.
SUGGESTED PIPELINE STRATEGY: Be prepared to immediately convert any "floating" loan in this category to "locked" should the price of the Fannie Mae 4.5% mortgage-backed security fall and close below 101.593.
A number of short and intermediate term cycles will be merging on or about Thursday, October 8th. The potential for an acceleration of trading activity and/or a trend change lasting several days or more will be highest during this period of time.
LONG-TERM TREND (11 days or more) Favors lower rates and higher investor prices.
SUGGESTED PIPELINE STRATEGY: Be prepared to convert any "floating" loan in this category to "locked" should the price of the Fannie Mae 4.5% 30-year mortgage-backed security close below 101.500.
My cyclical analysis suggests the probabilities are high that a multi-week trend change will in place by the end of the five-day trading period concluding on October 16th.
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Commentary: The Treasury Department is gearing up this morning to conduct its third auction of the week. The government will be taking bids on $20 billion of 10-year notes. The final gavel is slated to fall at 1:00 p.m. ET - and I'll provide you with auction results as quickly as possible thereafter.
A well bid 10-year note auction followed by solid demand for tomorrow's 30-year bond offering will be viewed by many as a solid indication that fixed-income investors see no looming threat of inflation anywhere on the horizon - which by extension - suggests these investors believe economic growth will once again begin to wane in 2010. The good news here is that mortgage interest rates will almost certainly continue to hover within a whisper of historic lows while the bad news is that the demand for mortgage financing will likely continue to contract as joblessness rises and the consumer develops a "bunker mentality" with respect to spending of any sort.
On the other hand, if the Treasury's 10-year note and 30-year bond offering result in higher yields for both of these instruments, fixed-income investors will be putting their-money-where-their-mouth-is with respect to their belief the sustained economic growth will prevail -- which will in-turn lead to an increase in employment opportunities followed by a notable increase in mortgage demand. Granted, if this scenario develops it will set the stage for a slow but progressive move to higher mortgage interest rates. If such an event were to occur - it may actually prove to be a "good thing" in terms of origination volumes.
As I have mentioned in this space before, I see an increasing number of reasons to think we've reached a point in the economic cycle where a modest uptick in mortgage interest rates created by accelerating economic growth will actually lead to the development of a far better market place for mortgage originators than a economic backdrop that supports yet lower mortgage interest rates could ever come close to generating.
It is Wednesday - which means the Mortgage Bankers of America have released their index of mortgage applications for the most recent week -- ended October 2nd. The aggregate index, which includes both purchase and refinance loans, rose 16.4% to its highest level since the week ended May 22nd. Requests for purchase money mortgages were up 13.2% while requests for refinance funding were up 18.2%. The refinance share of applications on a national basis rose to 66.3% from 65.3% the previous week, but remained well below the peak of 85.3% during the week ended January 9th. The MBA went on to report 30-year fixed-rate mortgages, excluding fees, averaged 4.89%, down 0.05 percentage points from the previous week and the lowest since the week ended May 22nd. Last week's 30-year conforming fixed-rate was above the all-time low of 4.61% set back during the week of March 27th - but well below the year-ago mark of 5.99%.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
By Larry Baer, Market Alert
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices.
SUGGESTED PIPELINE STRATEGY: Be prepared to immediately convert any "floating" loan in this category to "locked" should the price of the Fannie Mae 4.5% mortgage-backed security fall and close below 101.593.
A number of short and intermediate term cycles will be merging on or about Thursday, October 8th. The potential for an acceleration of trading activity and/or a trend change lasting several days or more will be highest during this period of time.
LONG-TERM TREND (11 days or more) Favors lower rates and higher investor prices.
SUGGESTED PIPELINE STRATEGY: Be prepared to convert any "floating" loan in this category to "locked" should the price of the Fannie Mae 4.5% 30-year mortgage-backed security close below 101.500.
My cyclical analysis suggests the probabilities are high that a multi-week trend change will in place by the end of the five-day trading period concluding on October 16th.
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Commentary: The Treasury Department is gearing up this morning to conduct its third auction of the week. The government will be taking bids on $20 billion of 10-year notes. The final gavel is slated to fall at 1:00 p.m. ET - and I'll provide you with auction results as quickly as possible thereafter.
A well bid 10-year note auction followed by solid demand for tomorrow's 30-year bond offering will be viewed by many as a solid indication that fixed-income investors see no looming threat of inflation anywhere on the horizon - which by extension - suggests these investors believe economic growth will once again begin to wane in 2010. The good news here is that mortgage interest rates will almost certainly continue to hover within a whisper of historic lows while the bad news is that the demand for mortgage financing will likely continue to contract as joblessness rises and the consumer develops a "bunker mentality" with respect to spending of any sort.
On the other hand, if the Treasury's 10-year note and 30-year bond offering result in higher yields for both of these instruments, fixed-income investors will be putting their-money-where-their-mouth-is with respect to their belief the sustained economic growth will prevail -- which will in-turn lead to an increase in employment opportunities followed by a notable increase in mortgage demand. Granted, if this scenario develops it will set the stage for a slow but progressive move to higher mortgage interest rates. If such an event were to occur - it may actually prove to be a "good thing" in terms of origination volumes.
As I have mentioned in this space before, I see an increasing number of reasons to think we've reached a point in the economic cycle where a modest uptick in mortgage interest rates created by accelerating economic growth will actually lead to the development of a far better market place for mortgage originators than a economic backdrop that supports yet lower mortgage interest rates could ever come close to generating.
It is Wednesday - which means the Mortgage Bankers of America have released their index of mortgage applications for the most recent week -- ended October 2nd. The aggregate index, which includes both purchase and refinance loans, rose 16.4% to its highest level since the week ended May 22nd. Requests for purchase money mortgages were up 13.2% while requests for refinance funding were up 18.2%. The refinance share of applications on a national basis rose to 66.3% from 65.3% the previous week, but remained well below the peak of 85.3% during the week ended January 9th. The MBA went on to report 30-year fixed-rate mortgages, excluding fees, averaged 4.89%, down 0.05 percentage points from the previous week and the lowest since the week ended May 22nd. Last week's 30-year conforming fixed-rate was above the all-time low of 4.61% set back during the week of March 27th - but well below the year-ago mark of 5.99%.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
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About Me
- David Kimmer
- Beaverton, OR, United States
- David is a loan officer for American Pacific Mortgage. He has worked in the lending industry since 2000. Prior to that he invested 19 years in the insurance industry. He enjoys helping people finance the purchase of their dream home.