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Karen Reeber
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Mortgage Rates Ended Nearly Unchanged

Monday, July 6th, 2009

There was very little daily movement in mortgage rates during the holiday-shortened week, and they ended the week nearly unchanged. The economic news during the week contained few surprises.

Following better than expected results for May, investors were closely watching the June Employment report for clues about the timing of any economic recovery. Thursday’s data showed that the economy lost -467K jobs in June, and the Unemployment Rate rose to 9.5% from 9.4% in May. Average Hourly Earnings, a proxy for wage growth, rose at a slim 2.7% annual rate. High unemployment and slow wage growth have caused consumers to save more and spend less. Since consumer spending accounts for about 70% of economic activity, the slowdown in spending has had a large impact on economic growth. For mortgage rates, however, low wage inflation and slow economic growth are favorable.

While the Employment report may have captured the most attention, the week began with a significant annoucement from Chinese officials. According to the head of China’s central bank, there will be no sudden changes to China’s foreign reserve policy, meaning that China will not pull back from buying US bonds. Over recent months, investors have been concerned that foreign central banks would decide to scale back their purchases of US bonds, so this was very welcome news. Recent Treasury auctions have confirmed that foreign demand remains strong.

Treasury auctions may have the greatest impact on mortgage rates next week, with auctions on Tuesday, Wednesday, and Thursday. It will be a light week for economic data. ISM Services will be released on Monday. The Trade Balance, Import Prices, and Consumer Sentiment will come out on Friday.

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The Difference Between Short-Term & Long-Term Rates

Tuesday, June 2nd, 2009

As the pressure for higher mortgage rates has increased in recent weeks, investors have speculated that the Fed would step in to “defend” certain interest rate levels, but that hasn’t happened. This week, Fed officials explained that their mortgage-backed securities (MBS) purchases are designed to support the mortgage market and not to set rates. The Fed’s MBS purchases of $25.5 billion this week were similar to levels seen in recent weeks. Disappointed that the Fed hasn’t increased its quantity of asset purchases, investors sold MBS this week, and mortgage rates moved higher.

A number of factors have been developing which typically push interest rates higher. The coming supply of debt needed to pay for government programs will compete for investor funds. Despite strong demand for this week’s large Treasury auctions, investors are concerned that higher rates will be required in the future. In addition, an improved economic outlook has made investors more willing to mov e funds to riskier assets and away from safer assets such as bonds. It also means that higher inflation may be a concern sooner than previously expected.

The difference between short-term and long-term rates reached record spreads during the week. With the Fed-controlled fed funds rate close to zero, short-term rates remained low. Long-term rates, which are market-controlled and influenced by investor expectations, rose significantly. A wide yield curve spread is often found during periods when the economy is strengthening.

Next week, the important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 550K jobs in May. Before the Employment Data, the ISM index, Personal Income, and Construction Spending will come out on Monday. Pending Home Sales, a leading indicator for the housing mar ket, will be released on Tuesday. ISM Services will be released on Wednesday, and Productivity is scheduled for Thursday. Fed Chief Bernanke will be testifying on Wednesday.

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Economic Data Pushed Mortgage Rates Lower Last Week

Tuesday, May 26th, 2009

While weaker than expected economic data pushed mortgage rates lower last week, concerns about the coming supply of debt needed to pay for government programs moved mortgage rates higher this week, leaving rates nearly unchanged over the past two weeks.

This week, the economic data had little impact, but mortgage rates moved higher for a variety of other reasons. The Treasury announced a huge $101 billion in auctions next week, meaning additional supply for the market to absorb. Compounding the problem, the UK was placed on the watch list on Thursday for a possible downgrade of the credit rating for its debt, due to its high level of government debt. A lower credit rating implies greater risk, pushing yields higher. Investors are now concerned that the US also may be at risk of a downgrade. Finally, there was hope that the Fed would step up its asset purchases, but the Fed held steady its level of Treasury and mortgage-backed security (MBS) buying this week, disappoint ing many investors.

The housing data released this week was mixed. While April Housing Starts and Building Permits fell to record lows, the weakness came from multi-family units. Construction of single-family homes actually rose 3% from March, its second consecutive monthly increase. In addition, the National Association of Home Builders (NAHB) may confidence index rose to the highest level since September 2008.

Last week, the Secretary of the Department of Housing and Urban Development (HUD) announced that home buyers would be able to use the $8,000 first-time home buyer tax credit for down payments on FHA loans through the use of bridge loans. HUD also posted the information on its website (HUD Mortgagee Letter 09-15). Since then, HUD has completely removed the information from its website. While no official explanation has been given, it appears that HUD and the IRS need more time to research the details of the program before moving forward.

Next week, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Existing Home Sales and New Home Sales will come out on Wednesday and Thursday, respectively. Durable Orders, an important indicator of economic activity, will be released on Thursday. The Chicago PMI national manufacturing index is scheduled for Friday, along with the first revision to first quarter Gross Domestic Product (GDP). Consumer Confidence and Consumer Sentiment will round out the economic reports. Mortgage markets will be closed on Monday for Memorial Day.

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Mortgage Rates Fell Moderately During the Week

Tuesday, May 19th, 2009

After several weeks of improving economic forecasts, weaker than expected economic data this week tempered some of the optimism for a near-term recovery, which was favorable for mortgage markets. Tame inflation data and sustained Fed purchases of mortgage-backed securities (MBS) also helped. As a result, mortgage rates fell moderately during the week.

With a full economic calendar, the biggest surprise this week was the unexpectedly weak Retail Sales report. Retail Sales account for about 70% of economic activity, and many investors were hopeful that the report would lend support to the idea that the economy is poised to turn higher. Instead, a moderate decline in the monthly data caused investors to question how quickly the economy will rebound. For mortgage markets, weaker economic activity is good news, since it generally means lower inflation. The monthly inflation reports released this week showed that inflation is not a concern in the short-term. The April Consum er Price Index (CPI) was unchanged from March, and Core CPI inflation rose at a moderate 1.9% annual rate.

The Secretary of the Department of Housing and Urban Development (HUD) announced this week that home buyers will be allowed to use the $8,000 first-time homebuyer tax credit for down payments on purchases financed by FHA loans. FHA will allow approved lenders, nonprofits, and government agencies to advance the funds in the form of bridge loans that buyers would use for down payments. Buyers would repay the loans after they receive their tax refunds. The FHA will release more details on the program soon.

It will be a light week for economic data. The FOMC minutes from the April 29 Fed meeting will be released on Wednesday. These detailed notes on the discussion at the meeting often reveal additional insight into the Fed’s actions. Housing Starts will come out on Tuesday. The only other reports will be Leading Indicators and the Philly Fed index on Thursday. Mortgage markets will close early on Friday for Memorial Day weekend.

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Week In Review For The Real Estate

Tuesday, May 12th, 2009

From 5/3/2009- 5/9/2009. 30 listed homes went under contract and/or sold in Farmington Hills last week from $17,000 to $1,100,000, 22 of which were bank owned or otherwise distressed sales.

46 new listings came on the market last week from $29,900 to $3,995,000, 13 of which are bank owned homes or otherwise distressed properties.

And, for the rental market, 6 homes recorded as being rented over the last week by an agent. Overall, 5 more homes were added to the rental market by an agent.

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Economic Outlook

Tuesday, May 12th, 2009

Increased optimism about the pace of an economic recovery helped the stock market and hurt bond markets this week. As a result, mortgage rates ended the week a little higher. Mortgage rates are being pressured by concerns that an economic rebound will bring increased inflation sooner than recently thought. In addition, large Treasury auctions are adding significant supply to the market, forcing yields higher. Fortunately, foreign investors remain active buyers and Fed purchases continue at a strong pace.

Comments from Fed Chief Bernanke and generally stronger than expected economic data fueled upward revisions to the consensus economic forecast this week. In Tuesday’s testimony to Congress, Bernanke offered his most optimistic economic outlook since the recession began. He expects economic activity to “bottom out, then to turn up later this year”. He warned that the labor market may recover very slowly, but he expects that the Unemployment Rate will peak below 10%. He pointed to the decline in mortgage rates as a successful outcome of Fed programs and suggested that there have been signs that the housing market may be near a bottom. Housing sector data released during the week supported his view. Pending Home Sales, a leading indicator for the housing market, rose 3%, and Construction Spending posted gains as well.

In a typical economic recovery, the labor market is one of the last areas to turn around, and the pattern is expected to hold this year. The April Employment report showed that the economy lost -539K jobs, which was a large number but fewer than expected. The Unemployment Rate rose to 8.9% from 8.5% in March. The consensus outlook is that a pickup in the job market will lag an improvement in the overall economy by several months.

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales on Wednesday and Industrial Production on Friday will provide important indications of economic activity. Retail Sales account for about 70% of economic activity. The Trade Balance, the Empire State index, and Consumer Sentiment will round out a busy week

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Fed Meeting Regarding Mortgage Rates

Monday, May 4th, 2009

Mortgage rates moved lower ahead of Wednesday’s Fed meeting, but they rose following the Fed announcement and ended the week a little higher. Demand for the $101 billion in this week’s Treasury auctions was average, and foreign investors purchased a healthy 29% to 33% of each auction. The stock market ended the week with little change. Nearly all of the movement in mortgage rates during the week was related to the Fed meeting.

In anticipation of the announcement of favorable new Fed actions, mortgage rates moved lower early in the week. Some investors were looking for the Fed to expand its purchases of Treasury securities, which would be positive for mortgage rates. Those investors were disappointed, however, as the Fed announced no new initiatives. The Fed made no change in rates, holding the fed funds rate close to zero. According to the Fed, the economic outlook has “improved modestly” since the March 18 meeting. A lack of new Fed programs and confirmation of improv ed economic prospects pushed mortgage rates higher.

Overshadowed by the Fed meeting, an important report on first quarter Gross Domestic Product (GDP) presented data which supports the Fed’s economic outlook. GDP fell -6.1%, which was significantly weaker than the consensus forecast. However, a breakdown of the GDP report reveals that the weak headline number for the first quarter may not be reflective of the current condition of the economy. GDP fell more than expected mainly due to declines in inventories and business investment. Consumer spending actually far exceeded expectations. If this trend continues, then businesses will have to begin to rebuild depleted inventories, lifting future economic activity.

The important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 620K jobs in April. Before the Employment Data, Pending Home Sales and Construction Spending will come out on Monday. Pending Home Sales is a leading indicator for the housing market. The ISM Services index will be released on Tuesday, while Productivity is scheduled for Thursday. There will be large Treasury auctions on Tuesday, Wednesday, and Thursday. The results of the government’s stress tests for 19 large financial institutions will be released on Thursday.

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Mortgage Rates Moved Very Little This Week

Tuesday, April 28th, 2009

With little economic news released during the week, and with a Fed meeting and large Treasury auctions scheduled for next week, mortgage rates moved very little this week. Fed purchases of mortgage-backed securities (MBS) during the week were at average levels. Treasury yields and the stock market also were little changed ahead of next week’s major economic events.

The fed funds rate is already close to zero, so no change in rates is expected at Wednesday’s Fed meeting, but investors have widely mixed views on what the statement will say. At the last meeting on March 18, the Fed shocked investors with an aggressive expansion of its mortgage-backed securities (MBS) purchase program from the previously announced $500 billion to a total of $1.25 trillion. On Wednesday, will the Fed reveal new measures to stabilize the financial system or boost the economy? Will it expand existing programs? Has the Fed’s outlook for the economy improved at all? The Fed’s last announcement had an enormous impact on mortgage rates, and this statement will be highly anticipated as well.

Next week’s large Treasury auctions of over $100 billion also may influence mortgage rates. MBS yields must compete with Treasury yields to attract investment funds. If Treasury yields rise, then MBS yields typically follow to some degree. The government needs to issue a huge amount of debt to pay for all its new programs. Investors are concerned that there will not be enough demand for all the Treasuries unless yields move higher. In particular, purchases of US securities by foreign investors may not expand to help absorb the added supply. The results of the Treasury auctions on the first three days of the week will be important for mortgage rates.

Important economic data may take a backseat next week to the Fed meeting and Treasury auctions. The Fed’s announcement will be released on Wednesday at 2:15 et. Expectations vary widely for what the Fed will say (see abo ve). The most significant economic report will be Wednesday’s release of first quarter Gross Domestic Product (GDP). GDP is the broadest measure of economic activity. The two national manufacturing indexes, the Chicago PMI and the ISM index, will come out on Thursday and Friday respectively. Personal Income, Factory Orders, Consumer Sentiment, and Consumer Confidence will round out a busy week. There will be Treasury auctions on Monday, Tuesday, and Wednesday.

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Upward Pressure on Mortgage Interest Rates

Tuesday, March 31st, 2009

Mortgage bond prices fell last week applying upward pressure on mortgage interest rates. The bond market got a shock from a surprise increase in new home sales, stronger than expected durable goods orders, and some stock strength.

There were also concerns about the US dollar in general and dollar denominated securities as China expressed interest in substituting the yuan to dollar peg in exchange for a new international currency. Fortunately the Fed continued to come to the rescue buying mortgage backed securities in an effort to keep interest rates relatively steady and low. For the week, interest rates on government and conventional loans rose by about 1/8 to 1/4 of a discount point.

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Market Recap For The Week 2/8/2009-2/14/2009

Tuesday, February 17th, 2009

Government announcements dominated the financial news this week for the market. Updates on two major programs both were favorable for mortgage markets, and mortgage rates fell modestly during the week.

The most highly anticipated news concerned Tuesday’s speech from Treasury Secretary Geithner on the financial institution assistance plan. This “Financial Stability Plan” involves multiple programs to remove bad assets from banks’ books and to support new lending. It also contains funds to help prevent foreclosures. Investors were sorely disappointed by the lack of details about how the plans would work, however, and they responded to the uncertainty by purchasing relatively safer assets. The stock market plunged, while Treasury and mortgage-backed security markets rallied, pushing rates lower. Geithner suggested that more information about a plan to purchase troubled assets and a comprehensive housing program will be released in the next few weeks.

Later in the week, the House and the Senate agreed on a compromise $789 billion fiscal stimulus plan, which is expected to pass within days. The Obama administration estimates that the plan will create 3.5 million jobs. Both the House and the Senate had passed versions which were larger than the final compromise plan, and the reduction in scope helped mortgage markets. A smaller plan means that the government will have to issue less debt. Unfortunately, one of the spending cuts in the final plan was a provision for a $15,000 home buyer tax credit, which came with an estimated price tag of $35 billion. Instead, the government will leave in place an existing $7,500 tax credit, applicable to only first time home buyers. The primary change to the tax credit is that it will no longer need to be repaid. The estimated cost of this $7,500 tax break is less than $3 billion.

Inflation data will highlight a full Economic Calendar next week. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. Industrial Production, an important indicator of economic activity, and Housing Stats will be released on Wednesday. In addition, investors will continue to wait for details from the Treasury on the Financial Stability Plan. Mortgage markets will be closed on Monday in observance of Presidents Day.

Information provided by one of my highly trusted mortgage representative area advisers for Farmington Hills. Let me know if you would like to speak with him at greater length!

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