Wednesday, February 17, 2010

The sense of uncertainty that has enveloped Europe's fiscal outlook since Greece's elevated public debt levels first surfaced a week or so ago is still taking "center-stage" in the mortgage market - easily trumping today's other U.S. economic news. European leaders have been quick to voice support for Greece, but slower to provide details on how they will help restore Athens to fiscal health.



A very successful 15-year euro-bond auction by Spain earlier this morning and a report indicating Greek budget revenues in January exceeded the indebted country's target -- was soothing enough to global market participants that they chose to fractionally reduce their multi-week "flight-to-quality" buying spree favoring dollar-denominated assets like Treasury obligations and mortgage-backed securities - a condition almost exclusively responsible for this morning's upward pressure on mortgage interest rates.



News from the Commerce Department earlier today highlighting a 2.8% surge in housing starts last month has been largely shrugged off as more a function of the scramble to beat the closing deadline for those participating in the government's homebuyer tax credit programs. Building permits, a sign of future construction, fell 4.9%.



Mortgage investors also gave this morning's report from the Federal Reserve showing a 0.9% increase in industrial output for January nothing more than a passing glance. Almost all of the increase in activity at the nation's factories is a function of inventory rebuilding. If final demand does not increase soon - inventory levels will stabilize - resulting in a major slump for overall industrial production. Capacity utilization, a measure of slack in the economy, rose to 72.6% from 71.9% in December. No big whoop here either - the January gain still leaves this measure 8 percentage points below its average from 1972 to 2009.



The Mortgage Bankers of America have released their mortgage application survey index for the week ended February 12th. The overall index fell 2.1% from the prior week. Refinance applications were lower by 1.2% while loan requests for home purchases slumped 4.0%. Fixed 30-year mortgage rates averaged 4.94% and were unchanged from the prior week.