Mortgage rates continued to move higher yesterday following a warmer than expected read on inflation at the producer level and a better than anticipated industrial production report. After the data was released, benchmark Treasury yields moved higher and prices of mortgage backed securities fell, forcing lenders to reduce rate sheet rebate which pushed consumer borrowing costs up. For the most part, the majority of the market was in a holding pattern ahead of today's FOMC statement release. Trading volumes were reported to be low and conditions "illiquid", making price action more erratic than usual.
We do have economic data to discuss today.
First out was the Mortgage Bankers Associations Weekly Application Index. This survey tracks the weekly change in the amount of mortgage applications submitted at major lenders. An increasing trend of purchase apps suggests more home purchases which would lead to other buys such as furniture, appliances, etc.. which is positive for our overall economic activity. An increasing trend in refinance activity is also positive for the economy since consumers would be refinancing to lower rates and lower payments giving them additional cash to spend. The report indicated that purchase activity declined last week by 0.1% while the refinance activity posted a 0.9% increase thanks to near record low mortgage rates.
Next was another reading on the housing sector, the New Construction Report which covers Housing Starts and Building Permits. New home construction rose slightly less than expected by 8.9% to an annualized pace of 574,000. Offsetting the slightly worse housing starts numbers was the more important, forward looking read on Building Permits, which recorded its highest level of activity since November 2008. Building Permits are running at an annualized pace of 584,000, which beat expectations of for 570,000. To show you how far housing has fallen, during the height of the housing boom, new home construction in January 2006 was on an annualized pace of over 2.2million starts.
Lastly, we recieved the second report of the week on inflation, this time at the Consumer level. The Consumer Price Index measures the average monthly price change of a fixed basket of goods and services purchased by consumers. Yesterday’s PPI(measures inflation on the producer level) indicated producer prices increased much more than expected, thanks to rising energy costs. This is one cost that is usually passed down to consumers, so many were expecting today’s CPI report to show an uptick in consumer prices.
The overall CPI number, which includes food and energy prices, came in right on expectations with a monthly increase of 0.4. The core rate, which strips out food and energy, came in lower than expected at 0.0%. The flat reading on the core rate was the first month without an increase since December 2008. On a year over year basis, the overall CPI is up 1.9% while the core rate is up 1.7%, matching last month’s number.
While it is widely accepted that the Fed will keep the current Fed Funds rate at 0 to .25%, many market participants are hoping for minor changes to the text, specifically the rhetoric which gives a timeline on current Fed Funds rate strategy: rates will be low for an “extended period”. Most want to see the Fed provide a clearer outlook on when to expect an interest rate hike.
Others expect the Fed to be slightly more upbeat about the economy and more defensive of inflationary pressures. We are looking for limited changes as Bernanke is not likely to spook the markets in an illiquid environment. In the short run, the recent trend of rising rates may be due a short term correction if the Fed sends a more downbeat economic message and re-iterates that inflation remains subdued due to considerable "resource slack" in the economy. More than anything, we do not want to hear that inflation concerns are growing at the Federal Reserve, this would be the worst case scenario for mortgage rates.
An example of resource slack is high levels of unemployment. The resource being human labor. The slack being a large percentage of human labor not being put to work. Beyond that, we still feel rates will rise in Q1 2010.
The statement will be released at 2:15pm,
If you are a risk taker, floating could pay off. My opinion is the Fed statement will, at worst, hold rates steady later today. With double digit unemployment, I cannot see how the Fed will paint a rosy picture for future economic growth. I also believe that they will say that inflation remains in check and the wording of the low fed fund rate will not change. If you cannot afford to be wrong meaning accept a higher rate if wrong, lock before the statement.
PS. I would like to congratulate Ben Bernanke on winning Time Magazine’s Person of the Year Award.
Wednesday, December 16, 2009
Tuesday, December 15, 2009
Inflation Data and FMOC Make Market Nervous
Mortgage rates held stable for most of the day yesterday as an empty economic calendar left market participants to quietly ponder the Fed's upcoming monetary policy communication with the marketplace. In a VERY slow trading environment, both benchmark Treasury yields and prices of mortgage-backed securities held to a tight range, allowing lenders to keep mortgage rates unchanged FOR MOST OF THE DAY. I emphasize this because rates did begin to rise late in the afternoon which pushed MBS prices lower. Although the losses were not substantial, there were scattered reports of lenders "repricing for the worse", nothing widespread though.
Today begins day one of the two day Federal Open Market Committee meeting. The FOMC determines our nation’s monetary policy. Nothing happens on day one, the FOMC statment is released on day two at 2:15pm.
The econ calendar picked up today.
First out this morning was the producer price index.This report measures prices paid by businesses. It is a read on INFLATION at the producer level.
PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production. If businesses have to pay more for the materials they use to produce their widgets …they are mostly likely going to pass along those additional costs to you…the consumer. The Producer Price Index is broken down into three progressive stages of production. Crude Goods, Intermediate Goods, and Finished Goods. Finished goods is considered Headline Producer Inflation. The cost to produce a finished goods is affected by the cost of the entire production cycle so one should note which stage of production is adding the most cost to the final product.
The release indicated that wholesale prices rose more than expected last month, led higher by increasing energy costs. The overall reading indicated producer prices up 1.8% when only a 0.8% increase was expected. The core reading, which strips out food and energy, posted an increase of 0.5% vs 0.2% expected. Year over year we did get the first positive reading with the overall PPI up 2.7% while the core rate is up 1.2%. Despite the inflation unfriendly data, today’s report does not signal that inflation is here but does raise at least some concern. Oil prices have come down from last month which should be reflected in next month’s PPI data.
Tomorrow we get a read on inflation at the consumer level. This is more important to market watchers that producer level inflation.
The Federal Reserve released Industrial Production data this morning. This report shows how much factories, mines and utilities are producing. Economists had expected Industrial production to post a monthly increase of 0.6% following last month’s 0.1% increase. The report indicated that Industrial Production increased more than expected, coming in at 0.8%. Not much reaction following the release of this data.
Two better than expected economic headlines did not have a positive influence over the bond market. Following the release of PPI data, Treasury yields shot higher and MBS prices fell. Consequently, mortgage rates have risen today.
Today begins day one of the two day Federal Open Market Committee meeting. The FOMC determines our nation’s monetary policy. Nothing happens on day one, the FOMC statment is released on day two at 2:15pm.
The econ calendar picked up today.
First out this morning was the producer price index.This report measures prices paid by businesses. It is a read on INFLATION at the producer level.
PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production. If businesses have to pay more for the materials they use to produce their widgets …they are mostly likely going to pass along those additional costs to you…the consumer. The Producer Price Index is broken down into three progressive stages of production. Crude Goods, Intermediate Goods, and Finished Goods. Finished goods is considered Headline Producer Inflation. The cost to produce a finished goods is affected by the cost of the entire production cycle so one should note which stage of production is adding the most cost to the final product.
The release indicated that wholesale prices rose more than expected last month, led higher by increasing energy costs. The overall reading indicated producer prices up 1.8% when only a 0.8% increase was expected. The core reading, which strips out food and energy, posted an increase of 0.5% vs 0.2% expected. Year over year we did get the first positive reading with the overall PPI up 2.7% while the core rate is up 1.2%. Despite the inflation unfriendly data, today’s report does not signal that inflation is here but does raise at least some concern. Oil prices have come down from last month which should be reflected in next month’s PPI data.
Tomorrow we get a read on inflation at the consumer level. This is more important to market watchers that producer level inflation.
The Federal Reserve released Industrial Production data this morning. This report shows how much factories, mines and utilities are producing. Economists had expected Industrial production to post a monthly increase of 0.6% following last month’s 0.1% increase. The report indicated that Industrial Production increased more than expected, coming in at 0.8%. Not much reaction following the release of this data.
Two better than expected economic headlines did not have a positive influence over the bond market. Following the release of PPI data, Treasury yields shot higher and MBS prices fell. Consequently, mortgage rates have risen today.
Monday, December 14, 2009
Rates Stabilize After Three Day Losing Streak
While mortgage rates ended the week on a three day losing strak, we did find solace in the fact that prices of mortgage-backed securities (MBS) were able to stabilized by the end of the trading session on Friday. After two better than expected economic reports, retail sales and consumer sentiment, MBS prices were pushed lower as benchmark Treasury yields rose, forcing lenders to increase mortgage rates for the third straight day. While not widespread, several "reprices for the better" were noted by day's end as an afternoon recovery led MBS prices off the lows of the day. After hitting an all time price high for MBS on November 30th, the first two weeks of December erased all the price gains taking us back to the same levels from the beginning of November. To remind readers, as the price of MBS move higher, investors can offer lower mortgage rates.
This week begins with an empty economic calendar, but the rest of the week is busy!
Tomorrow we get a few economic reports. The first of which is expected to be a market mover in the months ahead: INFLATION DATA...the Producer Price Index. Higher inflation implies to value of fixed income investment will lose value over time, this forces market participants to demand higher returns to compensate for lost value. Unfortunately this leads to higher mortgage rates...let’s hope this month's report does not provide reason to believe that inflation will become a problem in the near term.
We also get a couple readings on the strength of manufacturing on Tueday. The Empire State Manufacturing Survey and Industrial Production. While these two reports are indeed important, there is an event that will likely overshadow data: day 1 of the Federal Open Market Committee’s two day meeting. The FOMC is the Fed committee which determines monetary policy for the United States. The FOMC meets eight times a year to set our nation’s monetary policy and give an outlook on future economic growth. The Fed's main job is to set monetary policy in a manner that supports long term ecomic growth and stable employment all while while keeping inflation in check.
Wednesday brings us a much more important reading on inflation, the Consumer Price Index. Tuesday’s PPI measures inflation on the producer level while Wednesday’s CPI read provides a look into inflation on the consumer level. Often times, when consumer demand is low and spending is weak, producer's will attempt to cut costs in specific areas, like labor, in an effort to offset the rising cost of the inputs that are used to build their "widgets".
Besides the CPI release, the market will another opportunity to judge the health of the housing market on Wednesday. First out is the release of the weekly Mortgage Bankers’ Associations Application Index which is followed by Housing Starts and Building Permits data. Building permits data is of the utmost importance as it is a forward looking indicator in the housing market. Building Permits data provides an estimate on the number of homes planning on being built. It tracks how much future construction activity we can expect to take place. This data is a part of Conference Board's Index of Leading Economic Indicators.
Lastly, the MOST IMPORTANT EVENT OF THE DAY on Wednesday will be the conclusion of the FOMC meeting, which is marked by the release of the FOMC Statement. It is widely accepted that the Fed will maintain the current Fed Fund rate, however market participants remain skeptical of shifts in the sentiment of their statement, from a more guarded tone to a less defensive outlook with embedded caveats. Call then "if then's" and "but's". If the Fed sees a much improved economy, then it could lead to monetary policy tightening sooner rather than later which means mortgage rates move higher. But the outlook remains clouded by several uncertainties, two of which are the labor market and housing. See what I mean by "if, then" and "but" now?
Thursday brings us the usual Weekly Jobless Claims which is expected to show a decline in the number of Americans filing for first time unemployment benefits from the prior week. In addition, we get the Philly Fed Survey which gives us a measure on the strength of business conditions in the Philly region and Leading Indicators.
The week wraps up with a data less day on Friday.
Last week Fed Governor Duke called to attention overtightened lending standards in the mortgage market. Well, this weekend, a few more changes were implemented that do not make it any easier for a borrower to qualify for a mortgage loan.
Here is a summary of the changes:
This week begins with an empty economic calendar, but the rest of the week is busy!
Tomorrow we get a few economic reports. The first of which is expected to be a market mover in the months ahead: INFLATION DATA...the Producer Price Index. Higher inflation implies to value of fixed income investment will lose value over time, this forces market participants to demand higher returns to compensate for lost value. Unfortunately this leads to higher mortgage rates...let’s hope this month's report does not provide reason to believe that inflation will become a problem in the near term.
We also get a couple readings on the strength of manufacturing on Tueday. The Empire State Manufacturing Survey and Industrial Production. While these two reports are indeed important, there is an event that will likely overshadow data: day 1 of the Federal Open Market Committee’s two day meeting. The FOMC is the Fed committee which determines monetary policy for the United States. The FOMC meets eight times a year to set our nation’s monetary policy and give an outlook on future economic growth. The Fed's main job is to set monetary policy in a manner that supports long term ecomic growth and stable employment all while while keeping inflation in check.
Wednesday brings us a much more important reading on inflation, the Consumer Price Index. Tuesday’s PPI measures inflation on the producer level while Wednesday’s CPI read provides a look into inflation on the consumer level. Often times, when consumer demand is low and spending is weak, producer's will attempt to cut costs in specific areas, like labor, in an effort to offset the rising cost of the inputs that are used to build their "widgets".
Besides the CPI release, the market will another opportunity to judge the health of the housing market on Wednesday. First out is the release of the weekly Mortgage Bankers’ Associations Application Index which is followed by Housing Starts and Building Permits data. Building permits data is of the utmost importance as it is a forward looking indicator in the housing market. Building Permits data provides an estimate on the number of homes planning on being built. It tracks how much future construction activity we can expect to take place. This data is a part of Conference Board's Index of Leading Economic Indicators.
Lastly, the MOST IMPORTANT EVENT OF THE DAY on Wednesday will be the conclusion of the FOMC meeting, which is marked by the release of the FOMC Statement. It is widely accepted that the Fed will maintain the current Fed Fund rate, however market participants remain skeptical of shifts in the sentiment of their statement, from a more guarded tone to a less defensive outlook with embedded caveats. Call then "if then's" and "but's". If the Fed sees a much improved economy, then it could lead to monetary policy tightening sooner rather than later which means mortgage rates move higher. But the outlook remains clouded by several uncertainties, two of which are the labor market and housing. See what I mean by "if, then" and "but" now?
Thursday brings us the usual Weekly Jobless Claims which is expected to show a decline in the number of Americans filing for first time unemployment benefits from the prior week. In addition, we get the Philly Fed Survey which gives us a measure on the strength of business conditions in the Philly region and Leading Indicators.
The week wraps up with a data less day on Friday.
Last week Fed Governor Duke called to attention overtightened lending standards in the mortgage market. Well, this weekend, a few more changes were implemented that do not make it any easier for a borrower to qualify for a mortgage loan.
Here is a summary of the changes:
- Minimum FICO score is now 620.
- Maximum Debt to Income(DTI) of 45% with exceptions to 50%. DTI is the ratio of your income to total monthly obligations. If gross income is $5000 per month and total debt obligations are $2000 per month, your DTI is 2000/5000 or 40%.
- Chapter 7 Bankruptcy must be discharged for at least 4 years.
- Chapter 13 Bankruptcy must be filed for at least 4 years and discharged for at least 2 years or dismissed for at least 4 years.
- Foreclosure greater than 5 years but less than 7 years requires a 680 FICO and a 90% maximum loan to value.
- Reserves are calculated at 70% for stocks, bonds and mutual funds(used to be 100%) while 401k’s are now calculated at 60%. If you have $100,000 in your 401k account, the lender reduces to show only $60,000 in reserves.
- Units loan to value has been reduced to 75%.
If you are looking to obtain a new mortgage loan, you should discuss the above changes with Franklin Advantage, they may affect your ability to qualify.
Friday, December 11, 2009
Rates Move Higher as Qualifying Gets Tougher
Qualifying for a mortgage is becoming more and more difficult. Lenders are tightening guidelines even further than what Fannie Mae and Freddie Mac will accept. Additionally, it appears that lenders are looking for any reason to deny a loan. Federal Reserve Governor Elizabeth Duke spoke about this in a conference in Chicago yesterday calling attention to over tightening mortgage underwriting standards which is prohibiting a housing recovery. In the speech she stated “Even taking into account the excesses of the bubble period, it appears that lenders have tightened underwriting terms so much that the lack of credit availability is at least partially an impediment to homeownership.”
Mortgage rates moved higher today as MBS prices fell following two better than expected economic reports. The move lower in MBS prices forced lenders to reduce rate sheet rebate, pushing consumer borrowing costs higher for the third consecutive day. The streak of rising rates was started by a weak 3 year note auction on Tuesday which carried over into Wednesday and Thursday after the Treasury found it difficult to attract demand for their auctions of 10 year notes and 30 year bonds. Unfortunately the negative momentum extended into today thanks to retail sales and consumer sentiment releases were better than anticipated.
In regards to the retail sales report....this data measures the monthly change in total receipts at retail stores that sell both durable and non durable goods. Since consumer spending accounts for two-thirds of GDP, market participants track this report to get a read on economic momentum. More spending by consumers would lead to growth in corporate profits, which is good for stocks and bond for bonds and MBS prices.
The report indicated that retail sales were greater than originally forecast, overall sales increased at a rate of 1.3% while core retail sales, which does not include auto sales rose at a rate of 1.2%. This was the third increase in the last four months.
The second report that pushed rates higher was the University of Michigan’s Consumer Survey. The UofM questions 500 households each month on their personal financial conditions and attitudes about the overall economy. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. The prior two months showed consumers becoming less optimistic and expectations for this report called for a slight increase. The report indicated that Consumer Sentiment is much higher than expected coming in at 73.4 after last month’s 67.4 reading.
As year end approaches, Wall Street will become progressively more quiet as traders and sales staff take vacation time to enjoy the holiday season. This implies rates have the potential to bounce around in a volatile manner as "thin" trading conditions (illiquid/quiet) will generate wider ranges. Again this makes it difficult to formulate an accurate outlook. While there is the potential for rates to move higher, we believe the market views current rates as cheap, which should provide some support and help keep rates from rising further. But again, I remind that year end trading conditions can be volatile and often times the market's reaction to news events can move rates in a wider range.
Mortgage rates moved higher today as MBS prices fell following two better than expected economic reports. The move lower in MBS prices forced lenders to reduce rate sheet rebate, pushing consumer borrowing costs higher for the third consecutive day. The streak of rising rates was started by a weak 3 year note auction on Tuesday which carried over into Wednesday and Thursday after the Treasury found it difficult to attract demand for their auctions of 10 year notes and 30 year bonds. Unfortunately the negative momentum extended into today thanks to retail sales and consumer sentiment releases were better than anticipated.
In regards to the retail sales report....this data measures the monthly change in total receipts at retail stores that sell both durable and non durable goods. Since consumer spending accounts for two-thirds of GDP, market participants track this report to get a read on economic momentum. More spending by consumers would lead to growth in corporate profits, which is good for stocks and bond for bonds and MBS prices.
The report indicated that retail sales were greater than originally forecast, overall sales increased at a rate of 1.3% while core retail sales, which does not include auto sales rose at a rate of 1.2%. This was the third increase in the last four months.
The second report that pushed rates higher was the University of Michigan’s Consumer Survey. The UofM questions 500 households each month on their personal financial conditions and attitudes about the overall economy. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. The prior two months showed consumers becoming less optimistic and expectations for this report called for a slight increase. The report indicated that Consumer Sentiment is much higher than expected coming in at 73.4 after last month’s 67.4 reading.
As year end approaches, Wall Street will become progressively more quiet as traders and sales staff take vacation time to enjoy the holiday season. This implies rates have the potential to bounce around in a volatile manner as "thin" trading conditions (illiquid/quiet) will generate wider ranges. Again this makes it difficult to formulate an accurate outlook. While there is the potential for rates to move higher, we believe the market views current rates as cheap, which should provide some support and help keep rates from rising further. But again, I remind that year end trading conditions can be volatile and often times the market's reaction to news events can move rates in a wider range.
Thursday, December 10, 2009
To Rise or Not to Rise; That is the Question
Mortgage rates ticked higher following a weak 10yr note auction yesterday, and then again this morning ahead of the 30 year bond auction.
The Department of Labor released the weekly jobless claims numbers this morning. This data totals the number of Americans that filed for first time unemployment benefits in the prior week. Recent reports have shown a steady decline in the number of filers after peaking over 650,000 earlier this year. Higher jobless claims indicate consumers will have less money to spend into the economy. Less money being spent is not good for corporate profits and stocks; thus the fixed income sector usually benefits from a higher than expected reading.
Today’s report showed that 474,000 Americans filed for first time jobless insurance benefits, worse than the 460,000 economists had forecast. This is an increase of 17,000 from the prior week and ends a streak of five consecutive weeks of improvement. Continuing claims, which totals the number of Americans who continue to file jobless claims, came in at 5.16 million, a decline of over 300,000 from the prior week and better than anticipated. Offsetting the steep decline in continuing claims was the number of Americans receiving extended benefits, which rose by over 130,000 to 4.59 million. This brings the total number of Americans filing for unemployed benefits to over 10 million.
Released at the same time was a report from the Commerce Department on our nation’s trade gap. The trade deficit unexpectedly narrowed by 7.6% to -$32.9billion in October, beating economist forecasts of -$36.8billion. This means we import, in dollar terms, $32.9 billion more goods than we export to other nations. Leading the way was an increase in exports, which are benefiting from a weaker dollar and stronger demand abroad. A weak dollar makes our exported goods cheaper to buy. This is positive news for economic growth here and implies growing demand abroad.
With the economic reports basically being a wash, all eyes were left to focus on the final Treasury auction for the week. The Department of Treasury auctioned $13billion 30 year bonds this afternoon.
The 3 year Treasury note auction on Tuesday was average at best, yesterday's 10 year note auction saw weak demand, which pushed mortgage rates higher as benchmark Treasury yields rose and MBS prices fell. Unfortunately, today's 30 year bond auction saw similar demand to yesterday's 10yr issuance, however, MBS prices did not reacted the same way they did yesterday, instead they moved marginally higher. While a mortgage sell off seems to have been averted for the moment, MBS price appreciations have not been large enough to warrant a reprice for the better, thus the increases seen in mortgage rates this morning...are holding steady.
While the$13 billion 30 year bond did not go well, the streak of rising mortgage rates appears to have stalled for the time being...to lock or float, that is the question.
In previous months, Treasury yields and mortgage rates have risen prior to bond auctions, however following the completion of each auction cycle, mortgage rates moved lower as MBS prices rebounded. This has been largely a function of a reliable rates range, which has held true since summer. While we are already seeing signs of this dynamic occurring again, other technical factors associated with year end strategies on Wall Street may stall a correction back to the middle of the range, which would allow lenders to offer lower mortgage rates.
The Department of Labor released the weekly jobless claims numbers this morning. This data totals the number of Americans that filed for first time unemployment benefits in the prior week. Recent reports have shown a steady decline in the number of filers after peaking over 650,000 earlier this year. Higher jobless claims indicate consumers will have less money to spend into the economy. Less money being spent is not good for corporate profits and stocks; thus the fixed income sector usually benefits from a higher than expected reading.
Today’s report showed that 474,000 Americans filed for first time jobless insurance benefits, worse than the 460,000 economists had forecast. This is an increase of 17,000 from the prior week and ends a streak of five consecutive weeks of improvement. Continuing claims, which totals the number of Americans who continue to file jobless claims, came in at 5.16 million, a decline of over 300,000 from the prior week and better than anticipated. Offsetting the steep decline in continuing claims was the number of Americans receiving extended benefits, which rose by over 130,000 to 4.59 million. This brings the total number of Americans filing for unemployed benefits to over 10 million.
Released at the same time was a report from the Commerce Department on our nation’s trade gap. The trade deficit unexpectedly narrowed by 7.6% to -$32.9billion in October, beating economist forecasts of -$36.8billion. This means we import, in dollar terms, $32.9 billion more goods than we export to other nations. Leading the way was an increase in exports, which are benefiting from a weaker dollar and stronger demand abroad. A weak dollar makes our exported goods cheaper to buy. This is positive news for economic growth here and implies growing demand abroad.
With the economic reports basically being a wash, all eyes were left to focus on the final Treasury auction for the week. The Department of Treasury auctioned $13billion 30 year bonds this afternoon.
The 3 year Treasury note auction on Tuesday was average at best, yesterday's 10 year note auction saw weak demand, which pushed mortgage rates higher as benchmark Treasury yields rose and MBS prices fell. Unfortunately, today's 30 year bond auction saw similar demand to yesterday's 10yr issuance, however, MBS prices did not reacted the same way they did yesterday, instead they moved marginally higher. While a mortgage sell off seems to have been averted for the moment, MBS price appreciations have not been large enough to warrant a reprice for the better, thus the increases seen in mortgage rates this morning...are holding steady.
While the$13 billion 30 year bond did not go well, the streak of rising mortgage rates appears to have stalled for the time being...to lock or float, that is the question.
In previous months, Treasury yields and mortgage rates have risen prior to bond auctions, however following the completion of each auction cycle, mortgage rates moved lower as MBS prices rebounded. This has been largely a function of a reliable rates range, which has held true since summer. While we are already seeing signs of this dynamic occurring again, other technical factors associated with year end strategies on Wall Street may stall a correction back to the middle of the range, which would allow lenders to offer lower mortgage rates.
Wednesday, December 9, 2009
Rates Holding in Range
The mortgage market started off yesterday's session on fire. Mortgage-backed securities prices were deep in the green and investors issued aggressive rate sheets. It was a great start to the day, but it didn't last. After reaching a peak in the morning, MBS gains gradually leaked out before morning appreciations were eventually erased in the early afternoon. Following the price decline, most lenders repriced for the worse, increasing consumer borrowing costs on the day, but not venturing too far from recent averages.
This morning the Mortgage Bankers Association released their weekly applications index. This data tracks the weekly change in the amount of mortgage applications submitted at major lenders, for both purchases and refinances. The report showed that purchase activity rose 4.0% following last week’s 4.1% increase while the refinance activity posted a healthy 11.1% gain thanks to record low mortgage rates in the previous week.
That is it as far as economic reports today, but we do have a potential market moving event at 1pm today. The U.S. Department of Treasury will hold its second auction of the week, offering $21 billion in 10 year notes. Yesterday’s 3 year note auction was, more or less, average. The relatively uneventful results of the auction combined with a quiet (illiquid) MBS market contributed to MBS price declines and higher mortgage rates. To remind readers, as MBS prices move lower, lenders are forced to offer higher borrowing costs to consumers. The same holds true today, a lackluster auction will pressure mortgage rates higher.
This morning the Mortgage Bankers Association released their weekly applications index. This data tracks the weekly change in the amount of mortgage applications submitted at major lenders, for both purchases and refinances. The report showed that purchase activity rose 4.0% following last week’s 4.1% increase while the refinance activity posted a healthy 11.1% gain thanks to record low mortgage rates in the previous week.
That is it as far as economic reports today, but we do have a potential market moving event at 1pm today. The U.S. Department of Treasury will hold its second auction of the week, offering $21 billion in 10 year notes. Yesterday’s 3 year note auction was, more or less, average. The relatively uneventful results of the auction combined with a quiet (illiquid) MBS market contributed to MBS price declines and higher mortgage rates. To remind readers, as MBS prices move lower, lenders are forced to offer higher borrowing costs to consumers. The same holds true today, a lackluster auction will pressure mortgage rates higher.
Tuesday, December 8, 2009
Rates Move Lower As Auction Looms
All of the losses suffered in the rates market following the much better than expected employment report have now been recouped. Prices of mortgage backed securities have steadily improved yesterday, allowing many lenders to reissue rate sheets with better rebate and lower consumer borrowing costs. Although no data was released, there was plenty of Fed speak to move the markets. Of particular note, interest rate friendly comments from Ben Bernanke, the Chairman of the Federal Reserve, helped the rally gain momentum.
Like yesterday, today's calendar does not offer any headline economic data. However, at 1pm, the Treasury will auction $40 billion 3 year Treasury notes. Market participants look at the demand for our nation’s debt to gauge how successful. So far this year, demand especially from foreign investors, has remained very strong, which is one of several factors contributing to stable mortgage rates, near historically low levels. With year end fast approaching, demand is expected to remain strong, however a weak auction could pressure mortgage rates higher.
Like yesterday, today's calendar does not offer any headline economic data. However, at 1pm, the Treasury will auction $40 billion 3 year Treasury notes. Market participants look at the demand for our nation’s debt to gauge how successful. So far this year, demand especially from foreign investors, has remained very strong, which is one of several factors contributing to stable mortgage rates, near historically low levels. With year end fast approaching, demand is expected to remain strong, however a weak auction could pressure mortgage rates higher.
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