The Fannie Mae 30 year 4.5% coupon is trading at the highest level it has been in over 3 months. A market correction is coming. I would lock now.
Wednesday, November 25, 2009
RateWatch 11-25-2009
The Fannie Mae 30 year 4.5% coupon is trading at the highest level it has been in over 3 months. A market correction is coming. I would lock now.
Daily Commentary by Larry Baer 11/25/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: This morning's deluge of macro-economic data initially created a flurry of trading activity in the mortgage market - but the few investors still at their desks quickly lost interest. As I write, trading volume in the mortgage market is exceptionally thin - floating back and forth in a very, very narrow range.
The Labor Department started the parade of economic news this morning - announcing the number of workers filing first-time applications for jobless benefits fell by a very surprising 35,000 during the week ended November 21st. It was the fourth consecutive week of improvement for this measure of the health of the labor sector. The number of unemployed continuing to draw benefits fell by 190,000. Most market participants shrugged off the Labor Department data as largely distorted by outsized seasonal adjustments.
The Commerce Department chimed in with their report on Personal Income and Spending for October. According to the government, spending by consumers rebounded by 0.7% last month - solidly outdistancing the consensus estimate for a gain of 0.5%. Incomes rose by 0.2% slightly ahead of economists' guesstimates for a gain of 0.1%. Most importantly of all, the Personal Consumption Expenditure Index component of the report, the Fed's preferred measure of inflation pressure at the consumer level, posted a very modest gain of 0.2%. After a quick once over - mortgage investors didn't give this data another thought.
The march of macro-economic data continued when the Census Bureau reported October new home sales rose a stronger than expected 6.2% over the prior month level. As of October, new-home sales are running at their best pace since last fall. Once again mortgage investors were quick to discount this report - noting the sales strength is only evident in the South, with sales dropping decisively in the other three regions.
Rounding out this morning's string of economic reports was news from the Mortgage Bankers of America that their seasonally adjusted mortgage application index slipped 4.5% lower last week. The purchase index gained 9.6% while the refinance component of the index declined by 9.5%. The reason for the downward skew in the overall index is that refinance applications accounted for 71.7% of all application last week.
Uncle Sam is wrapping up this three-part borrowing spree this week with today's auction of $32 billion worth of 7-year notes. If the strong bias of the earlier two offerings prevails again today this event will not likely exert any notable influence on the trend trajectory of mortgage interest rates. In the unlikely event this offering is poorly bid - look for government debt yields and mortgage interest rates to edge higher. I'll provide auction results as soon as possible once the final gavel falls 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) Tilted in favor of lower rates and higher investor prices.
Commentary: This morning's deluge of macro-economic data initially created a flurry of trading activity in the mortgage market - but the few investors still at their desks quickly lost interest. As I write, trading volume in the mortgage market is exceptionally thin - floating back and forth in a very, very narrow range.
The Labor Department started the parade of economic news this morning - announcing the number of workers filing first-time applications for jobless benefits fell by a very surprising 35,000 during the week ended November 21st. It was the fourth consecutive week of improvement for this measure of the health of the labor sector. The number of unemployed continuing to draw benefits fell by 190,000. Most market participants shrugged off the Labor Department data as largely distorted by outsized seasonal adjustments.
The Commerce Department chimed in with their report on Personal Income and Spending for October. According to the government, spending by consumers rebounded by 0.7% last month - solidly outdistancing the consensus estimate for a gain of 0.5%. Incomes rose by 0.2% slightly ahead of economists' guesstimates for a gain of 0.1%. Most importantly of all, the Personal Consumption Expenditure Index component of the report, the Fed's preferred measure of inflation pressure at the consumer level, posted a very modest gain of 0.2%. After a quick once over - mortgage investors didn't give this data another thought.
The march of macro-economic data continued when the Census Bureau reported October new home sales rose a stronger than expected 6.2% over the prior month level. As of October, new-home sales are running at their best pace since last fall. Once again mortgage investors were quick to discount this report - noting the sales strength is only evident in the South, with sales dropping decisively in the other three regions.
Rounding out this morning's string of economic reports was news from the Mortgage Bankers of America that their seasonally adjusted mortgage application index slipped 4.5% lower last week. The purchase index gained 9.6% while the refinance component of the index declined by 9.5%. The reason for the downward skew in the overall index is that refinance applications accounted for 71.7% of all application last week.
Uncle Sam is wrapping up this three-part borrowing spree this week with today's auction of $32 billion worth of 7-year notes. If the strong bias of the earlier two offerings prevails again today this event will not likely exert any notable influence on the trend trajectory of mortgage interest rates. In the unlikely event this offering is poorly bid - look for government debt yields and mortgage interest rates to edge higher. I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, November 24, 2009
RateWatch
The price of the Fannie Mae 4.5 coupon continues to rise which means the rate continues to fall. As you can see, it is trading way above the moving averages. There should be a correction some time soon. I would take the money and run!
Daily Commentary by Larry Baer 11/24/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Mortgage investors nudged rates fractionally lower this morning after a revision to the government's data for third-quarter economic growth came in just below expectations and fanned some doubt about the sustainability of the budding economic recovery.
The Commerce Department's second estimate of third-quarter economic output showed growth running at a 2.8% pace rather than the 3.5% annualized clip originally reported. It was the strongest level of economic growth since the third-quarter of 2007 and was driven in large part by government fiscal stimulus programs. If all of Uncle Sam's various "booster" shots designed to support third-quarter growth are removed, our domestic economy would have barely registered a pulse. As long as the economy remains on government sponsored life support -- any upward pressure on mortgage interest rates will likely be muted.
Another day - another government debt auction. Uncle Sam will be in the credit markets today looking to auction off a $42 billion stack of 5-year notes. Yesterday's 2-year note auction results were decent but unremarkable, marking a retreat from the string of spectacular sales results in recent months. Hopes are high that today's offering will be well bid. If so, this auction will likely be a non-event as far as its impact on the trend trajectory of mortgage interest rates is concerned. Keep your fingers crossed that this assessment proves accurate. A poorly bid note auction could very well create a "snowball-effect" that pushes both government debt yields and mortgage interest rates higher. While such an outcome is certainly possible - it is not currently considered probable. I'll provide auction results as soon as possible once the final gavel falls 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) Tilted in favor of lower rates and higher investor prices.
Commentary: Mortgage investors nudged rates fractionally lower this morning after a revision to the government's data for third-quarter economic growth came in just below expectations and fanned some doubt about the sustainability of the budding economic recovery.
The Commerce Department's second estimate of third-quarter economic output showed growth running at a 2.8% pace rather than the 3.5% annualized clip originally reported. It was the strongest level of economic growth since the third-quarter of 2007 and was driven in large part by government fiscal stimulus programs. If all of Uncle Sam's various "booster" shots designed to support third-quarter growth are removed, our domestic economy would have barely registered a pulse. As long as the economy remains on government sponsored life support -- any upward pressure on mortgage interest rates will likely be muted.
Another day - another government debt auction. Uncle Sam will be in the credit markets today looking to auction off a $42 billion stack of 5-year notes. Yesterday's 2-year note auction results were decent but unremarkable, marking a retreat from the string of spectacular sales results in recent months. Hopes are high that today's offering will be well bid. If so, this auction will likely be a non-event as far as its impact on the trend trajectory of mortgage interest rates is concerned. Keep your fingers crossed that this assessment proves accurate. A poorly bid note auction could very well create a "snowball-effect" that pushes both government debt yields and mortgage interest rates higher. While such an outcome is certainly possible - it is not currently considered probable. I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Monday, November 23, 2009
Daily Commentary by Larry Baer 11/23/2009
Housekeeping Note: The mortgage market will operate on a normal schedule on Wednesday, November 25th and will be closed all day on Thursday, November 26th for the Thanksgiving Holiday. The mortgage market is scheduled to close early at 2:00 p.m. ET on Friday, November 27th.
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: The credit markets are setting up for another huge dose of supply from Uncle Sam this week. The Treasury Department will be peddling $118 billion worth of 2-, 5- and 7-year notes over the course of the next three business days. The action starts this afternoon with the sale of $44 billion of 2-year notes.
Despite the supply pressure, recent government debt sales have drawn generally solid demand. At a minimum this week's offering will likely be welcomed by those players looking for a safe place to park cash until 2010. This week's auction schedule may create a little temporary choppiness in the mortgage market but the debt sales should pass without dramatically influencing the trend trajectory of mortgage interest rates much one way or the other. I'll provide auction results as soon as possible following the auction conclusion at 1:00 p.m. ET.
The National Association of Realtors announced this morning that the pace of Existing Home Sales posted a surprisingly sharp 10.1% gain in October, following a similarly strong 8.8% gain in September. At 6.1 million annualized units, existing home sales are up nearly 24% compared with year ago levels and are currently running at their strongest pace since early '07. Even though the sales price of existing homes slid 7.1% lower as compared to last year -- it was the second consecutive month that the sales price slumped at a single-digit clip - making the October price dip a victory of sorts. The median price of an existing home in October was $173,100. Sales of previously owned homes, which make up more than 90% of the market, are complied from contract closings and may reflect purchases agreed upon weeks or months earlier.
The current condition of the housing market will be more accurately reflected when the October new home sales data is released on Wednesday (8:30 a.m. ET). The new home sales data is recorded when the contract is signed, not when the transaction closes, and is therefore considered by investors to be a far more timely indication of demand in the housing sector. Mortgage investors have an October New Home Sales gain of 4.5% already priced into their rate sheets. If the actual number closely approximates the forecast -- look for mortgage interest rates to remain little changed. A stronger than expected new home sales number will likely put some upward pressure on mortgage interest rates while a sharply lower than anticipated value will tend to support steady to perhaps fractionally lower rates.
FYI: Saint Louis Fed president James Bullard told reporters this weekend that he believes the central bank should keep alive its mortgage-related assets purchase program beyond its planned expiration at the end of March 2010. Bullard feels the program should be sustained at a "very low level" to give policymakers more flexibility as they work to extract the economy from a very painful recession. Mr. Bullard won't actually have a vote of policy matters until 2010. I suggest you don't make too much out of this event just yet - but I'll keep you posted if Bullard's idea seems to be catching on with other current voting members of the Federal Open Market Committee.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: The credit markets are setting up for another huge dose of supply from Uncle Sam this week. The Treasury Department will be peddling $118 billion worth of 2-, 5- and 7-year notes over the course of the next three business days. The action starts this afternoon with the sale of $44 billion of 2-year notes.
Despite the supply pressure, recent government debt sales have drawn generally solid demand. At a minimum this week's offering will likely be welcomed by those players looking for a safe place to park cash until 2010. This week's auction schedule may create a little temporary choppiness in the mortgage market but the debt sales should pass without dramatically influencing the trend trajectory of mortgage interest rates much one way or the other. I'll provide auction results as soon as possible following the auction conclusion at 1:00 p.m. ET.
The National Association of Realtors announced this morning that the pace of Existing Home Sales posted a surprisingly sharp 10.1% gain in October, following a similarly strong 8.8% gain in September. At 6.1 million annualized units, existing home sales are up nearly 24% compared with year ago levels and are currently running at their strongest pace since early '07. Even though the sales price of existing homes slid 7.1% lower as compared to last year -- it was the second consecutive month that the sales price slumped at a single-digit clip - making the October price dip a victory of sorts. The median price of an existing home in October was $173,100. Sales of previously owned homes, which make up more than 90% of the market, are complied from contract closings and may reflect purchases agreed upon weeks or months earlier.
The current condition of the housing market will be more accurately reflected when the October new home sales data is released on Wednesday (8:30 a.m. ET). The new home sales data is recorded when the contract is signed, not when the transaction closes, and is therefore considered by investors to be a far more timely indication of demand in the housing sector. Mortgage investors have an October New Home Sales gain of 4.5% already priced into their rate sheets. If the actual number closely approximates the forecast -- look for mortgage interest rates to remain little changed. A stronger than expected new home sales number will likely put some upward pressure on mortgage interest rates while a sharply lower than anticipated value will tend to support steady to perhaps fractionally lower rates.
FYI: Saint Louis Fed president James Bullard told reporters this weekend that he believes the central bank should keep alive its mortgage-related assets purchase program beyond its planned expiration at the end of March 2010. Bullard feels the program should be sustained at a "very low level" to give policymakers more flexibility as they work to extract the economy from a very painful recession. Mr. Bullard won't actually have a vote of policy matters until 2010. I suggest you don't make too much out of this event just yet - but I'll keep you posted if Bullard's idea seems to be catching on with other current voting members of the Federal Open Market Committee.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, November 19, 2009
Daily Commentary by Larry Baer 11/18/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: The mortgage market is struggling to maintain its traction favoring fractionally lower mortgage interest rates and higher prices this morning.
Investors have little to chew-on in terms of macro-economic data. The Labor Department reported the number of Americans filing claims for unemployment benefits remained at a 10-month low last week, but the four-week moving average of claims dropped to its lowest level in almost a year. Applications for jobless assistance from the government have dropped significantly from their peak of 674,000 in March to the 505,000 level for the reporting period ended November 14th. Even so, the jobless claims number will need to drop to below 400,000 on a weekly basis to be consistent with labor market stability.
Many analysts remain skeptical of the validity of the weekly jobless claims numbers, arguing correctly that they don't accurately reflect the number of workers forced by necessity to participate in the government's extended benefit programs. For the week ended October 31st (the latest week for which data is available) enrollment in programs designed for those who have exhausted their normal 26 weeks of unemployment benefits grew by a total of 119,000. Boiling all this jobless claims data down to its bare essence it shows that while the pace of layoffs has slowed significantly - employers remain extremely hesitant to hang-out the "Now Hiring" signs.
The good news is that the slow pace of hiring will definitely continue to muzzle inflation threats and by extension will diffuse a considerable amount of any developing upward pressure on mortgage interest rates. The bad news part of this story is that until the national employment picture brightens considerably - the demand for mortgage financing will likely remain muted.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: The mortgage market is struggling to maintain its traction favoring fractionally lower mortgage interest rates and higher prices this morning.
Investors have little to chew-on in terms of macro-economic data. The Labor Department reported the number of Americans filing claims for unemployment benefits remained at a 10-month low last week, but the four-week moving average of claims dropped to its lowest level in almost a year. Applications for jobless assistance from the government have dropped significantly from their peak of 674,000 in March to the 505,000 level for the reporting period ended November 14th. Even so, the jobless claims number will need to drop to below 400,000 on a weekly basis to be consistent with labor market stability.
Many analysts remain skeptical of the validity of the weekly jobless claims numbers, arguing correctly that they don't accurately reflect the number of workers forced by necessity to participate in the government's extended benefit programs. For the week ended October 31st (the latest week for which data is available) enrollment in programs designed for those who have exhausted their normal 26 weeks of unemployment benefits grew by a total of 119,000. Boiling all this jobless claims data down to its bare essence it shows that while the pace of layoffs has slowed significantly - employers remain extremely hesitant to hang-out the "Now Hiring" signs.
The good news is that the slow pace of hiring will definitely continue to muzzle inflation threats and by extension will diffuse a considerable amount of any developing upward pressure on mortgage interest rates. The bad news part of this story is that until the national employment picture brightens considerably - the demand for mortgage financing will likely remain muted.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, November 17, 2009
Daily Commentary by Larry Baer 11/17/2009
SHORT-TERM TREND (10 days or less). Different day . same story. Favors lower rates and higher investor prices but very vulnerable to a near-term reversal.
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: As I write trading activity in the mortgage market is quiet -- with a slight bias favoring higher prices and lower rates. Earlier in the day selling action in the mortgage-backed security market tried to force interest rates a touch higher -- but that little "dust-up" ended pretty quickly and the balance between buy and sell orders has drifted back in favor of the buyers.
The early morning swoon in the mortgage market was created by a knee-jerk reaction on the part of a relatively few traders to the detail contained the Labor Department's release of the October Producer Price Index. These market participants were evidently hyper-sensitive to the component of the report that indicated core prices for intermediate goods have not deviated from the steady climb to higher levels that began in early spring. That's really working hard to find a reason to sell since all of the other aspects of this report remained well below the consensus expectations.
The headline producer price index rose by a very modest 0.3% in October while the core producer price index (a value that excludes the more volatile food and energy prices) unexpectedly dropped 0.6% - its largest monthly decline since July 2006.
Calmer, cooler heads have now moved in to completely counter the earlier selling pressure in the mortgage market. These more experienced traders clearly know that with output and employment expected to remain modest well into the coming year, producer price inflation will likely be a "no show" for some time to come.
As expected, the separate October Industrial Production and Capacity Utilization report released later in this morning trading session drew little more than a passing glance from mortgage investors.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: As I write trading activity in the mortgage market is quiet -- with a slight bias favoring higher prices and lower rates. Earlier in the day selling action in the mortgage-backed security market tried to force interest rates a touch higher -- but that little "dust-up" ended pretty quickly and the balance between buy and sell orders has drifted back in favor of the buyers.
The early morning swoon in the mortgage market was created by a knee-jerk reaction on the part of a relatively few traders to the detail contained the Labor Department's release of the October Producer Price Index. These market participants were evidently hyper-sensitive to the component of the report that indicated core prices for intermediate goods have not deviated from the steady climb to higher levels that began in early spring. That's really working hard to find a reason to sell since all of the other aspects of this report remained well below the consensus expectations.
The headline producer price index rose by a very modest 0.3% in October while the core producer price index (a value that excludes the more volatile food and energy prices) unexpectedly dropped 0.6% - its largest monthly decline since July 2006.
Calmer, cooler heads have now moved in to completely counter the earlier selling pressure in the mortgage market. These more experienced traders clearly know that with output and employment expected to remain modest well into the coming year, producer price inflation will likely be a "no show" for some time to come.
As expected, the separate October Industrial Production and Capacity Utilization report released later in this morning trading session drew little more than a passing glance from mortgage investors.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Monday, November 16, 2009
Daily Commentary by Larry Baer 11/16/2009
SHORT-TERM TREND (10 days or less). Different day . same story. Favors lower rates and higher investor prices but very vulnerable to a near-term reversal.
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Earlier this morning the government reported the pace of October Retail Sales rose a brisk 1.4% -- but were much less impressive once auto sales were stripped out. The "ex. auto" component of this report posted a lower than expected gain of 0.2%. Even so, given the backdrop of a very anemic labor market, the October retail sales numbers were about as good as could be hoped. Consumers remain financially constrained with wage income running 5.0% below its year-ago mark - a condition strongly suggesting recovery at the retail level will continue to be lethargic for many months to come. In the convoluted world of mortgage interest rates investors see slow retail sales activity as a indication that demand for capital will remain low - a scenario that tends to support steady to perhaps fractionally lower mortgage interest rates.
Definitely worth mentioning again - the Federal Reserve reached a milestone with its direct mortgage-backed purchase program last week, topping the $1 trillion mark. The Fed's purchases of agency mortgage-backed securities totals roughly $1.007 trillion so far in 2009. The central bank has started to slow the pace of its purchases, with buying decreasing from about $25 billion per week in mid-September to only $13.5 billion for the most current week ending Wednesday, November 11th. The Fed is committed to buying the entire $1.25 trillion allotted for its direct mortgage-backed security program by the end of March 2010.
These security purchases by the Fed have been hugely supportive of lower mortgage interest rates. (The following maybe a bit technical for some - but bear with me - and please don't stop reading.) The yield premium on Fannie Mae mortgage-backed securities paying 4.5% compared with the 10-year Treasury note (the assumed "riskless" rate of return) tightened to 0.668 percentage points last Thursday from 0.720 percentage points last Tuesday, according to Reuter's data. When yield premiums tighten - mortgage rates move lower. For comparison, the yield premium was around 1.863 percentage points last year prior to the initiation of the Fed's direct mortgage-backed security purchase program.
The "so what" factor here is probably obvious to most - mortgage interest rates are almost certain to begin a move to higher levels as the Fed's direct purchase program draws to close. Look for the pace of the upward move to be in direct, but opposite correlation to the number of dollars remaining in the central banks checkbook. The fewer dollars rolling around in the bottom of the Fed's bucket - the more intense the upward pressure on mortgage interest rates will become. Ultimately mortgage interest rates will once again reach their natural equilibrium point -- but until then -- the process of transition may be uncomfortable for those insistent upon trying to hope and wish rates to dramatically lower levels. I'll keep you posted on the Fed's "burn rate" as this mortgage market friendly program fades into history.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Earlier this morning the government reported the pace of October Retail Sales rose a brisk 1.4% -- but were much less impressive once auto sales were stripped out. The "ex. auto" component of this report posted a lower than expected gain of 0.2%. Even so, given the backdrop of a very anemic labor market, the October retail sales numbers were about as good as could be hoped. Consumers remain financially constrained with wage income running 5.0% below its year-ago mark - a condition strongly suggesting recovery at the retail level will continue to be lethargic for many months to come. In the convoluted world of mortgage interest rates investors see slow retail sales activity as a indication that demand for capital will remain low - a scenario that tends to support steady to perhaps fractionally lower mortgage interest rates.
Definitely worth mentioning again - the Federal Reserve reached a milestone with its direct mortgage-backed purchase program last week, topping the $1 trillion mark. The Fed's purchases of agency mortgage-backed securities totals roughly $1.007 trillion so far in 2009. The central bank has started to slow the pace of its purchases, with buying decreasing from about $25 billion per week in mid-September to only $13.5 billion for the most current week ending Wednesday, November 11th. The Fed is committed to buying the entire $1.25 trillion allotted for its direct mortgage-backed security program by the end of March 2010.
These security purchases by the Fed have been hugely supportive of lower mortgage interest rates. (The following maybe a bit technical for some - but bear with me - and please don't stop reading.) The yield premium on Fannie Mae mortgage-backed securities paying 4.5% compared with the 10-year Treasury note (the assumed "riskless" rate of return) tightened to 0.668 percentage points last Thursday from 0.720 percentage points last Tuesday, according to Reuter's data. When yield premiums tighten - mortgage rates move lower. For comparison, the yield premium was around 1.863 percentage points last year prior to the initiation of the Fed's direct mortgage-backed security purchase program.
The "so what" factor here is probably obvious to most - mortgage interest rates are almost certain to begin a move to higher levels as the Fed's direct purchase program draws to close. Look for the pace of the upward move to be in direct, but opposite correlation to the number of dollars remaining in the central banks checkbook. The fewer dollars rolling around in the bottom of the Fed's bucket - the more intense the upward pressure on mortgage interest rates will become. Ultimately mortgage interest rates will once again reach their natural equilibrium point -- but until then -- the process of transition may be uncomfortable for those insistent upon trying to hope and wish rates to dramatically lower levels. I'll keep you posted on the Fed's "burn rate" as this mortgage market friendly program fades into history.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Friday, November 13, 2009
Daily Commentary by Larry Baer 11/13/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices but very vulnerable to a near-term reversal.
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Trading volume in the mortgage market so far today has been light and sporadic - with the few transactions that are being completed drawing higher prices for the underlying security.
There is really not much to talk about in terms of economic news - even though some media sources are trying to make a mountain out of a mole hill with their breathless announcement that the University of Michigan's consumer sentiment index fell four (4) percentage points in October. Hmmm - let's see - I wonder if the fact the national jobless rate jumped to a 26-year high during the month might have bummed consumers out just a bit. I have yet to see one mainstream media report that drills down into the data deep enough to discover that while the index fell back to about the level seen in July and August -- it remains comfortably above its cyclical lows.
Take today's consumer sentiment report with a grain-of-salt. Mortgage investors are generally far more interested in what the consumer is actually doing - as opposed to how they say they are feeling during a telephone interview. Consumers' true underlying sentiment will be abundantly clear when the Commerce Department releases the October Retail Sales figures Monday at 8:30 a.m. ET. Interestingly enough, the headline number is expected to have posted a 0.9% gain - a handsome recovery from September's 1.5% slump. The ex. auto component of the report is expected to have matched September's 0.5% improvement. Not bad for the supposedly crestfallen consumer most media sources would have you believe currently dominates the retail marketplace.
Definitely worth a mention - the Federal Reserve reached a milestone with its direct mortgage-backed purchase program this week, topping the $1 trillion mark. The Fed's purchases of agency mortgage-backed securities totals roughly $1.007 trillion so far in 2009. The central bank has started to slow the pace of its purchases, with buying decreasing from about $25 billion per week in mid-September to only $13.5 billion for the most current week ending Wednesday, November 11th. The Fed is committed to buying the entire $1.25 trillion allotted for its direct mortgage-backed security program by the end of March 2010.
These security purchases by the Fed have been hugely supportive of lower mortgage interest rates. (The following maybe a bit technical for some - but bear with me - and please don't stop reading.) The yield premium on Fannie Mae mortgage-backed securities paying 4.5% compared with the 10-year Treasury note (the assumed "riskless" rate of return) tightened to 0.668 percentage points on Thursday from 0.720 percentage points on Tuesday, according to Reuter's data. When yield premiums tighten - mortgage rates move lower. For comparison, the yield premium was around 1.863 percentage points last year prior to the initiation of the Fed's direct mortgage-backed security purchase program. The "so what" factor here is probably obvious to most - mortgage interest rates are almost certain to begin a move to higher levels as the Fed's direct purchase program draws to close. Look for the pace of the upward move to be in direct, but opposite correlation to the number of dollars remaining in the central banks checkbook. The fewer dollars rolling around in the bottom of the Fed's bucket - the more intense the upward pressure on mortgage interest rates will become. Ultimately mortgage interest rates will once again reach their natural equilibrium point -- but until then -- the process of transition may be uncomfortable for those insistent upon trying to hope and wish rates to dramatically lower levels. I'll keep you posted on the Fed's "burn rate" as this mortgage market friendly program fades into history.
Looking ahead to next week -- Monday's October Retail Sales figures and Wednesday's inflation data contained in the October Consumer Price Index will draw considerable investor attention. As I mentioned earlier in this commentary, the retail sales report has the potential to be a bit stronger than many market participants are anticipating. If such an event were to occur -- it will likely put some slight upward pressure on mortgage interest rates. The Consumer Price Index is expected to show the prices consumers are paying for goods and services remain devoid of meaningful inflation adjustments.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Trading volume in the mortgage market so far today has been light and sporadic - with the few transactions that are being completed drawing higher prices for the underlying security.
There is really not much to talk about in terms of economic news - even though some media sources are trying to make a mountain out of a mole hill with their breathless announcement that the University of Michigan's consumer sentiment index fell four (4) percentage points in October. Hmmm - let's see - I wonder if the fact the national jobless rate jumped to a 26-year high during the month might have bummed consumers out just a bit. I have yet to see one mainstream media report that drills down into the data deep enough to discover that while the index fell back to about the level seen in July and August -- it remains comfortably above its cyclical lows.
Take today's consumer sentiment report with a grain-of-salt. Mortgage investors are generally far more interested in what the consumer is actually doing - as opposed to how they say they are feeling during a telephone interview. Consumers' true underlying sentiment will be abundantly clear when the Commerce Department releases the October Retail Sales figures Monday at 8:30 a.m. ET. Interestingly enough, the headline number is expected to have posted a 0.9% gain - a handsome recovery from September's 1.5% slump. The ex. auto component of the report is expected to have matched September's 0.5% improvement. Not bad for the supposedly crestfallen consumer most media sources would have you believe currently dominates the retail marketplace.
Definitely worth a mention - the Federal Reserve reached a milestone with its direct mortgage-backed purchase program this week, topping the $1 trillion mark. The Fed's purchases of agency mortgage-backed securities totals roughly $1.007 trillion so far in 2009. The central bank has started to slow the pace of its purchases, with buying decreasing from about $25 billion per week in mid-September to only $13.5 billion for the most current week ending Wednesday, November 11th. The Fed is committed to buying the entire $1.25 trillion allotted for its direct mortgage-backed security program by the end of March 2010.
These security purchases by the Fed have been hugely supportive of lower mortgage interest rates. (The following maybe a bit technical for some - but bear with me - and please don't stop reading.) The yield premium on Fannie Mae mortgage-backed securities paying 4.5% compared with the 10-year Treasury note (the assumed "riskless" rate of return) tightened to 0.668 percentage points on Thursday from 0.720 percentage points on Tuesday, according to Reuter's data. When yield premiums tighten - mortgage rates move lower. For comparison, the yield premium was around 1.863 percentage points last year prior to the initiation of the Fed's direct mortgage-backed security purchase program. The "so what" factor here is probably obvious to most - mortgage interest rates are almost certain to begin a move to higher levels as the Fed's direct purchase program draws to close. Look for the pace of the upward move to be in direct, but opposite correlation to the number of dollars remaining in the central banks checkbook. The fewer dollars rolling around in the bottom of the Fed's bucket - the more intense the upward pressure on mortgage interest rates will become. Ultimately mortgage interest rates will once again reach their natural equilibrium point -- but until then -- the process of transition may be uncomfortable for those insistent upon trying to hope and wish rates to dramatically lower levels. I'll keep you posted on the Fed's "burn rate" as this mortgage market friendly program fades into history.
Looking ahead to next week -- Monday's October Retail Sales figures and Wednesday's inflation data contained in the October Consumer Price Index will draw considerable investor attention. As I mentioned earlier in this commentary, the retail sales report has the potential to be a bit stronger than many market participants are anticipating. If such an event were to occur -- it will likely put some slight upward pressure on mortgage interest rates. The Consumer Price Index is expected to show the prices consumers are paying for goods and services remain devoid of meaningful inflation adjustments.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, November 12, 2009
Daily Commentary by Larry Baer 11/12/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Trading activity is thin this morning as investors await the results of this afternoon's $16 billion sale of 30-year bonds by the Treasury Department. This auction represents the last leg of a record-sized $81 billion three-part borrowing spree by Uncle Sam. The Treasury sold $40 billion of 3-year notes on Monday and $25 billion of 10-year notes on Tuesday. The 10-year sale drew decent demand while the 3-year note auction generated the strongest buyer appetite in more than 20 years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 30-year bond sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
In other news of the day - the government reported the number of workers filing new claims for jobless benefits dropped by 12,000 last week. The four-week moving average of new claims, considered a better gauge of underlying trends, fell by 4,500 for the period. During the latest week for which data is available (week ended October 24th) enrollment in extended benefits programs decreased by 28,240 while the Emergency Unemployment Compensation program enrollment rose by 22,400.
Behind all this statistical mumbo-jumbo a story of very gradual improvement in the labor sector is beginning to emerge. Even so, it will likely be an extended period of time before the worst collapse in the labor sector since the Great Depression is declared officially over. Recent economic improvement has to be sustained for many months for hiring to resume, as businesses first increase existing worker hours and bring on temporary workers before increasing payroll head count. The majority of analysts firmly believe it will be well into the second-half of 2010 before the Labor Department's headline nonfarm payroll report shows any meaningful gains. Over the same time frame labor market data will tend to mute the development of upward pressure on mortgage interest rates emanating from other influences.
FYI: Earlier today the Mortgage Bankers of America said their seasonally adjusted index of total mortgage applications rose 3.2% during the week ended November 6th. Requests for refinance loans were up 11.3% while purchase applications slid 11.7% lower.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted in favor of lower rates and higher investor prices.
Commentary: Trading activity is thin this morning as investors await the results of this afternoon's $16 billion sale of 30-year bonds by the Treasury Department. This auction represents the last leg of a record-sized $81 billion three-part borrowing spree by Uncle Sam. The Treasury sold $40 billion of 3-year notes on Monday and $25 billion of 10-year notes on Tuesday. The 10-year sale drew decent demand while the 3-year note auction generated the strongest buyer appetite in more than 20 years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 30-year bond sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
In other news of the day - the government reported the number of workers filing new claims for jobless benefits dropped by 12,000 last week. The four-week moving average of new claims, considered a better gauge of underlying trends, fell by 4,500 for the period. During the latest week for which data is available (week ended October 24th) enrollment in extended benefits programs decreased by 28,240 while the Emergency Unemployment Compensation program enrollment rose by 22,400.
Behind all this statistical mumbo-jumbo a story of very gradual improvement in the labor sector is beginning to emerge. Even so, it will likely be an extended period of time before the worst collapse in the labor sector since the Great Depression is declared officially over. Recent economic improvement has to be sustained for many months for hiring to resume, as businesses first increase existing worker hours and bring on temporary workers before increasing payroll head count. The majority of analysts firmly believe it will be well into the second-half of 2010 before the Labor Department's headline nonfarm payroll report shows any meaningful gains. Over the same time frame labor market data will tend to mute the development of upward pressure on mortgage interest rates emanating from other influences.
FYI: Earlier today the Mortgage Bankers of America said their seasonally adjusted index of total mortgage applications rose 3.2% during the week ended November 6th. Requests for refinance loans were up 11.3% while purchase applications slid 11.7% lower.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, November 10, 2009
Home Buyer Tax Credits
I just discovered a great website that gives you all of the information you need to know about the extended first time home buyer tax credit as well as the repeat home buyers tax credit. The site is http://www.federalhousingtaxcredit.com
Daily Commentary by Larry Baer 11/10/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices but very likely to be short-lived
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Trading activity is thin this morning as investors await the results of this afternoon's $25 billion sale of 10-year notes by the Treasury Department.
Market participants are divided in their opinion on whether today's record setting 10-year note auction will "coattail" off of yesterday's stellar 3-year note auction and go off without a hitch. Bids for Monday's 3-year note offering from Uncle Sam were the strongest in more than twenty-years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 10-year note sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Trading activity is thin this morning as investors await the results of this afternoon's $25 billion sale of 10-year notes by the Treasury Department.
Market participants are divided in their opinion on whether today's record setting 10-year note auction will "coattail" off of yesterday's stellar 3-year note auction and go off without a hitch. Bids for Monday's 3-year note offering from Uncle Sam were the strongest in more than twenty-years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 10-year note sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Monday, November 9, 2009
Daily Commentary by Larry Baer 11/09/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices but very likely to be short-lived
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Trading activity in the mortgage market is extremely subdued this morning as investors await the results of Uncle Sam's record setting $40 billion auction of 3-year notes. The auction will conclude at 1:00 p.m. ET.
Demand will likely be solid for this offering as investors can earn an extra 0.50 percent point in yield as compared to the 2-year notes -- in exchange for taking only slightly more interest rate risk. The Fed's continuing pledge to keep their benchmark short-term rates near zero and a very weak October payroll report will probably make this offer hard to resist for domestic and foreign investors alike.
Uncle Sam will return to the credit markets tomorrow afternoon looking to borrow $25 billion in 10-year notes and he'll auction off a $16 billion stack of 30-year bonds on Thursday afternoon. Even though demand for government debt has remained strong this year it is unclear whether strong results from today's 3-year note auction will carry over to the two other auctions scheduled for this week. The Federal Reserve's $300 billion Treasury purchase program ended last month, removing one element of demand from the bidding process. This week's longer-dated auctions will be the first without direct participation from the Fed. Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Trading activity in the mortgage market is extremely subdued this morning as investors await the results of Uncle Sam's record setting $40 billion auction of 3-year notes. The auction will conclude at 1:00 p.m. ET.
Demand will likely be solid for this offering as investors can earn an extra 0.50 percent point in yield as compared to the 2-year notes -- in exchange for taking only slightly more interest rate risk. The Fed's continuing pledge to keep their benchmark short-term rates near zero and a very weak October payroll report will probably make this offer hard to resist for domestic and foreign investors alike.
Uncle Sam will return to the credit markets tomorrow afternoon looking to borrow $25 billion in 10-year notes and he'll auction off a $16 billion stack of 30-year bonds on Thursday afternoon. Even though demand for government debt has remained strong this year it is unclear whether strong results from today's 3-year note auction will carry over to the two other auctions scheduled for this week. The Federal Reserve's $300 billion Treasury purchase program ended last month, removing one element of demand from the bidding process. This week's longer-dated auctions will be the first without direct participation from the Fed. Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
I'll provide auction results as soon as possible once the final gavel falls at 1:00 p.m. ET.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Friday, November 6, 2009
Daily Commentary by Larry Baer 11/06/2009
SHORT-TERM TREND (10 days or less). Favors lower rates and higher investor prices but very likely to be short-lived
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: The mortgage market was buoyed in this morning's early going by a surprisingly weak labor sector snapshot.
The nation's jobless rate jumped to a reading of 10.2% in October -- matching its highest level since April 1983, while employers axed a steeper-than-expected 190,000 jobs last month. The average workweek length of just 33 hours did not move from the historic low set in September. The bright spots in this morning's report were few - the government data wonks revised job losses for August and September to show 91,000 fewer jobs lost than first reported. Also worth noting was the fact that temporary employment has now risen for three consecutive months. Temporary employment always tends to accelerate in the early stages of a recovery in the labor sector as employers do everything possible to avoid adding permanent head-count until they are confident a sustained acceleration in economic activity is at hand. This reticence to add permanent jobs will not only forestall meaningful job growth, it will pose a drag on consumer spending - the engine that drives more than 70% of domestic economic activity.
Fixed income investors (those that buy and hold government debt obligations and mortgage-backed securities) are concerned that the government may feel compelled to develop another round of economic stimulus to replace the lack of spending at the consumer level. On its face it sounds like a very worth while and noble idea - but in practice it would lead to a massive expansion of government debt - a condition that would almost certainly put notable upward pressure on private borrowing costs of all sorts. No one knows for sure how the current economic quagmire will be resolved - but if it involves issuing more government debt you can take-it-to-the-bank the prospects for lower mortgage interest rates will come out on the proverbial "short-end-of-the-stick."
Speaking of government debt, Uncle Sam will be in the credit markets next week looking to borrow a record setting $81 billion in the form of three- and 10-year notes together with a smattering of 30-year bonds on Monday, Tuesday, and Thursday respectively. The three-year notes will likely draw strong demand but the other two offerings may prove to be a problem. If so, it will probably be difficult, if not impossible for mortgage interest rates to move conspicuously lower over the coming five business days.
Next week's economic calendar offers nothing of consequence but does include a mortgage market holiday on Wednesday for the Veteran's Day Holiday.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: The mortgage market was buoyed in this morning's early going by a surprisingly weak labor sector snapshot.
The nation's jobless rate jumped to a reading of 10.2% in October -- matching its highest level since April 1983, while employers axed a steeper-than-expected 190,000 jobs last month. The average workweek length of just 33 hours did not move from the historic low set in September. The bright spots in this morning's report were few - the government data wonks revised job losses for August and September to show 91,000 fewer jobs lost than first reported. Also worth noting was the fact that temporary employment has now risen for three consecutive months. Temporary employment always tends to accelerate in the early stages of a recovery in the labor sector as employers do everything possible to avoid adding permanent head-count until they are confident a sustained acceleration in economic activity is at hand. This reticence to add permanent jobs will not only forestall meaningful job growth, it will pose a drag on consumer spending - the engine that drives more than 70% of domestic economic activity.
Fixed income investors (those that buy and hold government debt obligations and mortgage-backed securities) are concerned that the government may feel compelled to develop another round of economic stimulus to replace the lack of spending at the consumer level. On its face it sounds like a very worth while and noble idea - but in practice it would lead to a massive expansion of government debt - a condition that would almost certainly put notable upward pressure on private borrowing costs of all sorts. No one knows for sure how the current economic quagmire will be resolved - but if it involves issuing more government debt you can take-it-to-the-bank the prospects for lower mortgage interest rates will come out on the proverbial "short-end-of-the-stick."
Speaking of government debt, Uncle Sam will be in the credit markets next week looking to borrow a record setting $81 billion in the form of three- and 10-year notes together with a smattering of 30-year bonds on Monday, Tuesday, and Thursday respectively. The three-year notes will likely draw strong demand but the other two offerings may prove to be a problem. If so, it will probably be difficult, if not impossible for mortgage interest rates to move conspicuously lower over the coming five business days.
Next week's economic calendar offers nothing of consequence but does include a mortgage market holiday on Wednesday for the Veteran's Day Holiday.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, November 5, 2009
A big new tax break coming for homebuyers
A big new tax break coming for homebuyers
by STEPHEN OHLEMACHER, Associated Press Writer
Originally printed at http://www.katu.com/news/business/69320077.html
WASHINGTON (AP) - Missed out on Cash for Clunkers? Congress has another deal for you: Buy a home before May 1 and collect up to $6,500 from the government. If you're a first-time homebuyer, get up to $8,000.
As part of the government's efforts to encourage people to spend money to help revive the economy, the House voted 403-12 Thursday to expand a popular tax credit for homebuyers. The bill, which also extends unemployment benefits and expands a tax break for money-losing businesses, now goes to President Barack Obama, who plans to sign it Friday.
First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package. But with that housing program scheduled to expire at the end of November, the House voted to extend it into the spring - and to expand it to many people who already own homes.
Buyers who have owned their current homes at least five years would be eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers - or people who haven't owned homes in the previous three years - could get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.
"It's huge. I think it's going to have a big impact," said Patti Ketcham, who owns a real estate firm in Tallahassee, Fla. "I hope I'm right. Golly, I hope I'm right."
Like housing markets across the country, Tallahassee's has been depressed since even before the nation's economy plunged into recession. There was no huge boom and bust like there was in many coastal areas, Ketcham said, "but ask anybody trying to sell a house and they'll tell you it's been no fun."
The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
Real estate agents say the first-time homebuyers' tax credit that's already in effect has boosted sales, much in the same way the Cash for Clunkers program increased auto sales last summer by paying car buyers as much as $4,500 for exchanging their old gas guzzlers for new, more fuel efficient models.
The agents hope the expanded housing credit will help stabilize housing markets during typically slow sales months in the winter. Today, many would-be buyers are still worried that home values could drop further, said Lawrence Yun, chief economist at the National Association of Realtors.
"Once the consumer fear factor disappears, then housing can move into a sustainable recovery," Yun said. "I think we will be there by the middle of next year."
Yun said the tax credit has helped to increase demand and reduce inventory, enabling sellers to get higher prices than they would have otherwise.
About 1.4 million first-time homebuyers had qualified for the credit through August. The Realtors estimate that 350,000 of those buyers would not have purchased their homes without the credit.
The real estate industry, including Realtors, home builders and mortgage bankers, have lobbied hard for the expanded tax credit. Lawmakers said the program will not be extended again.
Critics say the tax credit is poorly targeted because the vast majority of people receiving it would have bought homes anyway.
"Essentially we're giving money to people for doing nothing different," said Ted Gayer, co-director of economic studies at the Brookings Institution, a Washington think tank.
But Susan Marvin, president of Marvin Windows and Doors in Warroad, Minn., near the Canadian border, said the economic benefits can be broad. She said, "If people are buying a home, they are far more likely to replace products or upgrade products."
Rep. John Lewis, D-Ga., said, "This tax credit has created jobs in the housing industry and real estate, and it will continue to create more jobs throughout our country."
Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes.
The credit is equal to 10 percent of the purchase price of a primary residence, up to a maximum of $8,000 for first-time homebuyers and $6,500 for others.
Taxpayers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a payment. Taxpayers who want immediate refunds can amend their tax returns for 2008 to claim the credit.
Also on Thursday, the government-controlled mortgage company Fannie Mae announced a new program that could allow thousands of borrowers on the verge of foreclosure to have the option of renting their homes for a time from the company.
But the effort is likely to affect a relatively small number of people in comparison to the number of homes being repossessed.
The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that were included in a bill extending unemployment benefits for those without jobs for more than a year. The other tax break would allow money-losing companies to use current losses to offset taxable profits earned in the previous five years.
That break would help industries that have suffered big losses in the recession, including retailers, homebuilders and newspapers.
Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.
The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.
The bill is H.R. 3548.
by STEPHEN OHLEMACHER, Associated Press Writer
Originally printed at http://www.katu.com/news/business/69320077.html
WASHINGTON (AP) - Missed out on Cash for Clunkers? Congress has another deal for you: Buy a home before May 1 and collect up to $6,500 from the government. If you're a first-time homebuyer, get up to $8,000.
As part of the government's efforts to encourage people to spend money to help revive the economy, the House voted 403-12 Thursday to expand a popular tax credit for homebuyers. The bill, which also extends unemployment benefits and expands a tax break for money-losing businesses, now goes to President Barack Obama, who plans to sign it Friday.
First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package. But with that housing program scheduled to expire at the end of November, the House voted to extend it into the spring - and to expand it to many people who already own homes.
Buyers who have owned their current homes at least five years would be eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers - or people who haven't owned homes in the previous three years - could get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.
"It's huge. I think it's going to have a big impact," said Patti Ketcham, who owns a real estate firm in Tallahassee, Fla. "I hope I'm right. Golly, I hope I'm right."
Like housing markets across the country, Tallahassee's has been depressed since even before the nation's economy plunged into recession. There was no huge boom and bust like there was in many coastal areas, Ketcham said, "but ask anybody trying to sell a house and they'll tell you it's been no fun."
The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
Real estate agents say the first-time homebuyers' tax credit that's already in effect has boosted sales, much in the same way the Cash for Clunkers program increased auto sales last summer by paying car buyers as much as $4,500 for exchanging their old gas guzzlers for new, more fuel efficient models.
The agents hope the expanded housing credit will help stabilize housing markets during typically slow sales months in the winter. Today, many would-be buyers are still worried that home values could drop further, said Lawrence Yun, chief economist at the National Association of Realtors.
"Once the consumer fear factor disappears, then housing can move into a sustainable recovery," Yun said. "I think we will be there by the middle of next year."
Yun said the tax credit has helped to increase demand and reduce inventory, enabling sellers to get higher prices than they would have otherwise.
About 1.4 million first-time homebuyers had qualified for the credit through August. The Realtors estimate that 350,000 of those buyers would not have purchased their homes without the credit.
The real estate industry, including Realtors, home builders and mortgage bankers, have lobbied hard for the expanded tax credit. Lawmakers said the program will not be extended again.
Critics say the tax credit is poorly targeted because the vast majority of people receiving it would have bought homes anyway.
"Essentially we're giving money to people for doing nothing different," said Ted Gayer, co-director of economic studies at the Brookings Institution, a Washington think tank.
But Susan Marvin, president of Marvin Windows and Doors in Warroad, Minn., near the Canadian border, said the economic benefits can be broad. She said, "If people are buying a home, they are far more likely to replace products or upgrade products."
Rep. John Lewis, D-Ga., said, "This tax credit has created jobs in the housing industry and real estate, and it will continue to create more jobs throughout our country."
Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes.
The credit is equal to 10 percent of the purchase price of a primary residence, up to a maximum of $8,000 for first-time homebuyers and $6,500 for others.
Taxpayers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a payment. Taxpayers who want immediate refunds can amend their tax returns for 2008 to claim the credit.
Also on Thursday, the government-controlled mortgage company Fannie Mae announced a new program that could allow thousands of borrowers on the verge of foreclosure to have the option of renting their homes for a time from the company.
But the effort is likely to affect a relatively small number of people in comparison to the number of homes being repossessed.
The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that were included in a bill extending unemployment benefits for those without jobs for more than a year. The other tax break would allow money-losing companies to use current losses to offset taxable profits earned in the previous five years.
That break would help industries that have suffered big losses in the recession, including retailers, homebuilders and newspapers.
Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.
The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.
The bill is H.R. 3548.
Daily Commentary by Larry Baer 11/05/2009
SHORT-TERM TREND (10 days or less). Tilted ever so slightly in favor of higher rates and lower investor prices
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Mortgage investors will likely spend the balance of the day putting the finishing touches on their risk management strategies before moving to the safety of the sidelines in front of tomorrow morning's October nonfarm payroll report.
News from the Labor Department earlier today indicating third-quarter productivity surged 9.5% on an annualized basis spawned a rally in the stock market while data contained in the same report showing unit labor costs plunged 5.2% ignited some buying interest in the mortgage market. Mortgage investors view the very powerful productivity gain and super-low labor costs as conditions reinforcing the Fed's ability to forgo any increase in their benchmark short-term interest rates for an "extended period of time" - and that is a condition that tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.
In a separate report the Labor Department said the number of people receiving first-time jobless benefits fell by 20,000 last week to the lowest level since March. That is the good news portion of the current story from the labor market. The bad news is that during the week of October 17th enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by 90,000+. In recovery, businesses generally first expand existing worker hours and hire temporary workers before more permanently expanding payroll size. Neither of these trends has shown signs of picking up yet, implying the near-term prospects for the job market remain fairly bleak. The "so what" factor here is that against such a backdrop -- the power of a "surprise" improvement in the headline October nonfarm payroll figure to create a "Maalox Moment" in the mortgage market featuring rising rates and falling investor prices -- looses much of its potency.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Mortgage investors will likely spend the balance of the day putting the finishing touches on their risk management strategies before moving to the safety of the sidelines in front of tomorrow morning's October nonfarm payroll report.
News from the Labor Department earlier today indicating third-quarter productivity surged 9.5% on an annualized basis spawned a rally in the stock market while data contained in the same report showing unit labor costs plunged 5.2% ignited some buying interest in the mortgage market. Mortgage investors view the very powerful productivity gain and super-low labor costs as conditions reinforcing the Fed's ability to forgo any increase in their benchmark short-term interest rates for an "extended period of time" - and that is a condition that tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.
In a separate report the Labor Department said the number of people receiving first-time jobless benefits fell by 20,000 last week to the lowest level since March. That is the good news portion of the current story from the labor market. The bad news is that during the week of October 17th enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by 90,000+. In recovery, businesses generally first expand existing worker hours and hire temporary workers before more permanently expanding payroll size. Neither of these trends has shown signs of picking up yet, implying the near-term prospects for the job market remain fairly bleak. The "so what" factor here is that against such a backdrop -- the power of a "surprise" improvement in the headline October nonfarm payroll figure to create a "Maalox Moment" in the mortgage market featuring rising rates and falling investor prices -- looses much of its potency.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, November 3, 2009
Daily Commentary by Larry Baer 11/03/2009
SHORT-TERM TREND (10 days or less). Tilted slightly in favor of higher rates and lower investor prices
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Market participants will likely spend the next day holding their collective breath as they await the release of the Federal Open Market Committee's post-meeting statement scheduled for 2:15 p.m. ET tomorrow.
The members of the Federal Open Market Committee convened the first of a two-day monetary policy strategy session earlier this morning. Mortgage investors will be keenly interested to see what, if anything has changed in the Fed's thinking about the economy, government economic stimulus tactics and the appropriate level of short-term interest rates. In each of their post-meeting statements since March, the Fed has said it plans to keep interest rates "exceptionally low" for an "extended period."
There is a small chance the Fed may choose to do a little wordsmithing to the verbiage of their post-meeting statement this time around -- by dropping the phrase "exceptionally low" and/or "extended period" -- to clearly set the stage for a change in monetary policy in coming months. If this event were to occur -- holding out hope for notably lower mortgage interest rates would almost certainly be akin to betting on the worm to beat the feathers off of the robin.
Sooner or later the Fed is going to have to remove enough monetary policy support from the economy to see if it can stand on its own. In my opinion, as well as that of the vast majority of other analysts, the Fed will avoid any substantive change to their current strategies until the trend trajectory of employment turns higher for a least three consecutive months.
The likelihood that Friday's October nonfarm payroll report proves to be stronger than expected ramped up a couple of notches yesterday when detail in the October Institute of Supply Management report showed the manufacturing sector employment indexed jumped a sharp 6.9 points higher to 53.1. The "so what" factor here is significant. It was the first time this economic metric has been above the expansionary threshold since July 2008, and it was the highest reading since 2006 -- and all of that sharply increases the risk of a "knee-jerk" reaction to the employment data that sends mortgage interest rates higher. Heads up.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.
Commentary: Market participants will likely spend the next day holding their collective breath as they await the release of the Federal Open Market Committee's post-meeting statement scheduled for 2:15 p.m. ET tomorrow.
The members of the Federal Open Market Committee convened the first of a two-day monetary policy strategy session earlier this morning. Mortgage investors will be keenly interested to see what, if anything has changed in the Fed's thinking about the economy, government economic stimulus tactics and the appropriate level of short-term interest rates. In each of their post-meeting statements since March, the Fed has said it plans to keep interest rates "exceptionally low" for an "extended period."
There is a small chance the Fed may choose to do a little wordsmithing to the verbiage of their post-meeting statement this time around -- by dropping the phrase "exceptionally low" and/or "extended period" -- to clearly set the stage for a change in monetary policy in coming months. If this event were to occur -- holding out hope for notably lower mortgage interest rates would almost certainly be akin to betting on the worm to beat the feathers off of the robin.
Sooner or later the Fed is going to have to remove enough monetary policy support from the economy to see if it can stand on its own. In my opinion, as well as that of the vast majority of other analysts, the Fed will avoid any substantive change to their current strategies until the trend trajectory of employment turns higher for a least three consecutive months.
The likelihood that Friday's October nonfarm payroll report proves to be stronger than expected ramped up a couple of notches yesterday when detail in the October Institute of Supply Management report showed the manufacturing sector employment indexed jumped a sharp 6.9 points higher to 53.1. The "so what" factor here is significant. It was the first time this economic metric has been above the expansionary threshold since July 2008, and it was the highest reading since 2006 -- and all of that sharply increases the risk of a "knee-jerk" reaction to the employment data that sends mortgage interest rates higher. Heads up.
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.