Trading activity is very light in the mortgage market this morning. There is absolutely nothing in the way of economic data, debt supply or Federal Reserve speakers that will create a stir among mortgage investors today.
The few mortgage-backed security trades that have been completed so far in this session are likely taking their directional cues from the trajectory of stock prices. Falling stock prices tend to support steady to fractionally lower mortgage interest rates while rising stock prices tend to drag rates higher.
Yesterday the S&P posted its worst one-day percentage fall in three weeks. The resulting reallocation of capital from these riskier assets classes into "safe haven" investment vehicles like government debt obligations and mortgage-backed securities helped hold interest rates relatively steady just as rates appeared to be on the verge of drifting higher.
Looking ahead - the coming holiday shortened week will be a busy one. Monday's October Existing Home Sales figures together with Wednesday's New Home Sales number and the inflation component contained in the October Personal Income and Spending report will draw more than a passing glance from mortgage investors. Both housing reports are expected to show solid month-over-month improvements in the pace of sales -- driven in large part by the influence of the first-time home buyer tax-credit program. Most analysts see a very benign reading for inflation at the consumer level baked-into-the-cake for the personal consumption index component of the broader income and spending figures from last month. If these projections are "on-the-money" - there is nothing on next week's economic calendar that will likely serve to induce mortgage investors to push rates notably higher.
The government's borrowing needs are certainly not influenced in the least by major national holidays. The Treasury Department will be conducting a $44 billion 2-year note auction on Monday, a $42 billion 5-year note auction on Tuesday followed by a $32 billion 7-year note offering on Wednesday. That's a huge amount of supply to run into the credit market in a shortened week. Most analysts believe that these offerings will find solid demand, particularly by foreign investors. If that assessment proves accurate, the impact of these auctions on the trend trajectory of mortgage interest rates should be minimal.
Friday, November 20, 2009
STATED LOAN??
This loan program that I will describe is going to be catered to those clients – probably the higher-end clients – that are looking to purchase or refinance but can’t, due to debt-to-income reasons, credit, etc. This is an ASSET-BASED LOAN. Here are the Benefits:
-Fixed interest rates between 2.5% and 4.5%
- Interest-Only quarterly loan payments
- Loan terms of 3, 5, 7, or 10 years
- Low closing costs
- No credit check
- No income verification
- Funds may be used for any purpose including personal or business use
- Non-personal recourse loan. The only collateral are the pledged securities.
- Loans available for up to 80% of the securities value.
- The borrower receives all dividends and upside market appreciation on the securities
- Quick Fundings - usually in a matter of days
What Assets Qualify:
Securities that qualify as collateral are Publicly and Actively traded stocks, mutual funds, bonds and treasury notes that are not restricted in any manner. Most foreign securities are acceptable.
Those NOT Acceptable would be 401K, Commodities, Annuities, Money Markets, CD’s, etc.
Loan Minimums:
· Minimum Loan Amount is $100,000
· Minimum Loan Term is 3 Years
· ONCE AGAIN – No Verification of credit history, income, employment or the intended use of the funds.
This loan can be refinanced or renewed with the lender when their term ends. The big part to impart to your client – THIS IS A LOAN – NOT A BUY OR SALE – SO IT IS NOT REPORTED TO THE SEC, IT IS NOT TAXED BECAUSE IT IS NOT INCOME – IT IS A LOAN.
The loan could be tax-deductible if used for a Business Loan – consult your CPA. Maybe you have a commercial client or one that owns their own business – they could use this financing for an Operating Capital or Expense Capital and then it could be tax deductible.
Once again, you can use the loan for anything – it’s the client’s money; PURCHASE, REFINANCE, CASH-OUT, NEW CONSTRUCTION, RENOVATIONS, COMMERCIAL, INVESTMENT, RE-INVESTMENTS, BUSINESS LOAN, ETC.
Like I said – information like this gives you a reason to go to your clients and offer them a solution – you are their expert – you can direct them and help them and therefore they will ALWAYS be loyal to you!!
See how much more I offer than your Average LO??!!
Have a GREAT Weekend – Happy Selling and Be Safe in your Holiday Travels!! Please call me if you have any questions on Anything!!
drew
-Fixed interest rates between 2.5% and 4.5%
- Interest-Only quarterly loan payments
- Loan terms of 3, 5, 7, or 10 years
- Low closing costs
- No credit check
- No income verification
- Funds may be used for any purpose including personal or business use
- Non-personal recourse loan. The only collateral are the pledged securities.
- Loans available for up to 80% of the securities value.
- The borrower receives all dividends and upside market appreciation on the securities
- Quick Fundings - usually in a matter of days
What Assets Qualify:
Securities that qualify as collateral are Publicly and Actively traded stocks, mutual funds, bonds and treasury notes that are not restricted in any manner. Most foreign securities are acceptable.
Those NOT Acceptable would be 401K, Commodities, Annuities, Money Markets, CD’s, etc.
Loan Minimums:
· Minimum Loan Amount is $100,000
· Minimum Loan Term is 3 Years
· ONCE AGAIN – No Verification of credit history, income, employment or the intended use of the funds.
This loan can be refinanced or renewed with the lender when their term ends. The big part to impart to your client – THIS IS A LOAN – NOT A BUY OR SALE – SO IT IS NOT REPORTED TO THE SEC, IT IS NOT TAXED BECAUSE IT IS NOT INCOME – IT IS A LOAN.
The loan could be tax-deductible if used for a Business Loan – consult your CPA. Maybe you have a commercial client or one that owns their own business – they could use this financing for an Operating Capital or Expense Capital and then it could be tax deductible.
Once again, you can use the loan for anything – it’s the client’s money; PURCHASE, REFINANCE, CASH-OUT, NEW CONSTRUCTION, RENOVATIONS, COMMERCIAL, INVESTMENT, RE-INVESTMENTS, BUSINESS LOAN, ETC.
Like I said – information like this gives you a reason to go to your clients and offer them a solution – you are their expert – you can direct them and help them and therefore they will ALWAYS be loyal to you!!
See how much more I offer than your Average LO??!!
Have a GREAT Weekend – Happy Selling and Be Safe in your Holiday Travels!! Please call me if you have any questions on Anything!!
drew
Thursday, November 19, 2009
Thursday, November 19, 2009
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.
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.
Wednesday, November 18, 2009
Wednesday, November 18, 2009
Trading in the mortgage market got off to a wobbly start this morning - buffeted by a mixed-bag of macro-economic news. A stronger-than-expected gain of 0.3% in the headline consumer price index was initially a bit unsettling for investors since it hinted at an uptick in inflation pressure on Main Street - a condition that put early upward pressure on mortgage interest rates.
Once market participants took the time to drill deeper into the data it became readily apparent that inflation pressures at the core level (a value stripped of the more volatile food and energy components) of the index remained extremely benign and the early upward pressure on mortgage interest rates quickly abated. It was essentially a "no-brainer" for investors since the data indicated that a spike in prices on used cars and trucks together with new vehicles accounted for more than 90% of the rise in core prices.
In a separate report the Commerce Department announced construction of new homes fell 10.6% on a seasonally adjusted basis in October, the lowest level since April and the biggest percentage drop since January. Roughly half of the outsized drop in the housing start figure was related to the very volatile multifamily segment of this data series. Total building permits fell 4.0% in October. As is the case with housing starts, the multifamily segment put a large negative dent in the total permits figure, with an 18% month-over-month decline.
The "so what" factor here is that the single-family segment of the housing industry is by far healthier than the raw data would lead you to believe. The slump in October residential construction was probably the result of the impending conclusion of the first-time homebuyer tax credit program. Buyers likely retreated from the new home market as it became increasingly risky that a home sale would be completed before the tax credit expired on November 30th. On this front, the extension and expansion of the tax credit for single-family purchase over the next three quarters will help substantially. Sustained growth in housing starts and building permits will not likely fully develop until national employment prospects brighten considerably.
Last week the borrowing costs on 30-year fixed rate mortgages, excluding fees, averaged 4.83%, down 0.07% from the previous week and the lowest since mid-May. Mortgage interest rates are hovering within shouting distance of the all-time record low of 4.61% set during the week ended March 27th -- yet according to data provided by the Mortgage Bankers of America -- the demand for home purchases dropped to a 12-year low last week.
The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 2.5% for the week ended November 13th. Purchase application requests were down 4.7% while refinance application activity dropped by 1.4%. Certainly the Obama administration's extension of the $8,000 first-time home buyer credit and the addition of the $6,500 credit for home owners buying a new residence will help forward looking loan demand. There is no doubt that lower rates, increased affordability indexes, lower property values and extended tax credits all help bring the dream of American homeownership closer to reality - but the key ingredient to a full recovery in the housing sector is still missing.
Without a solid and sustain improvement in the labor sector it really doesn't matter how low interest rates go or how much tax credit is offered - the pace of residential real estate sales will continue to wallow near historical lows. Hope for a better tomorrow and financial security drive home demand - tax credits and the current level of mortgage interest rates are only secondary considerations. The major of economists firmly believe a better tomorrow is coming - but the general agreement is that it probably won't begin to convincingly manifest itself until the mid part of next year. Those that find a way, any way, to make it from here to there, will no doubt be handsomely reward for their effort.
Once market participants took the time to drill deeper into the data it became readily apparent that inflation pressures at the core level (a value stripped of the more volatile food and energy components) of the index remained extremely benign and the early upward pressure on mortgage interest rates quickly abated. It was essentially a "no-brainer" for investors since the data indicated that a spike in prices on used cars and trucks together with new vehicles accounted for more than 90% of the rise in core prices.
In a separate report the Commerce Department announced construction of new homes fell 10.6% on a seasonally adjusted basis in October, the lowest level since April and the biggest percentage drop since January. Roughly half of the outsized drop in the housing start figure was related to the very volatile multifamily segment of this data series. Total building permits fell 4.0% in October. As is the case with housing starts, the multifamily segment put a large negative dent in the total permits figure, with an 18% month-over-month decline.
The "so what" factor here is that the single-family segment of the housing industry is by far healthier than the raw data would lead you to believe. The slump in October residential construction was probably the result of the impending conclusion of the first-time homebuyer tax credit program. Buyers likely retreated from the new home market as it became increasingly risky that a home sale would be completed before the tax credit expired on November 30th. On this front, the extension and expansion of the tax credit for single-family purchase over the next three quarters will help substantially. Sustained growth in housing starts and building permits will not likely fully develop until national employment prospects brighten considerably.
Last week the borrowing costs on 30-year fixed rate mortgages, excluding fees, averaged 4.83%, down 0.07% from the previous week and the lowest since mid-May. Mortgage interest rates are hovering within shouting distance of the all-time record low of 4.61% set during the week ended March 27th -- yet according to data provided by the Mortgage Bankers of America -- the demand for home purchases dropped to a 12-year low last week.
The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 2.5% for the week ended November 13th. Purchase application requests were down 4.7% while refinance application activity dropped by 1.4%. Certainly the Obama administration's extension of the $8,000 first-time home buyer credit and the addition of the $6,500 credit for home owners buying a new residence will help forward looking loan demand. There is no doubt that lower rates, increased affordability indexes, lower property values and extended tax credits all help bring the dream of American homeownership closer to reality - but the key ingredient to a full recovery in the housing sector is still missing.
Without a solid and sustain improvement in the labor sector it really doesn't matter how low interest rates go or how much tax credit is offered - the pace of residential real estate sales will continue to wallow near historical lows. Hope for a better tomorrow and financial security drive home demand - tax credits and the current level of mortgage interest rates are only secondary considerations. The major of economists firmly believe a better tomorrow is coming - but the general agreement is that it probably won't begin to convincingly manifest itself until the mid part of next year. Those that find a way, any way, to make it from here to there, will no doubt be handsomely reward for their effort.
Tuesday, November 17, 2009
Tuesday, November 17, 2009
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 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.
Monday, November 16, 2009
Monday, November 16, 2009
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.
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.
Friday, November 13, 2009
Friday, November 13, 2009
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.
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.
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