The Commerce Department reported this morning that housing starts fell 4.0% in December. Most investors shrugged the slump in home construction off - noting that much of the country was in the grips of a major cold snap during the month -- making the digging of footings and the pouring of concrete almost impossible. Even though builders were not at their construction sites they were busy - filing new building permits. Building permits soared 10.7% higher in December - strongly suggesting home builders will be very busy once the spring thaw begins.
The Mortgage Bankers of America chimed in with their standard Wednesday report regarding loan demand for the past week. The MBA said their figures showed overall mortgage loan demand surged 9.1% higher. The increase was driven by a 10.7% increase in refinance requests, while home purchase demand rose 4.4%. The contract rate for 30-year fixed rate mortgages finished at 5.0%, down 13 basis points from the prior week level.
A separate report from the Labor Department showed producer prices rose 0.2% last month as food prices rose, leading the overall index to its largest year-over year gain since October 2008. The more important core rate of inflation at the wholesale level (a value stripped of the more volatile food and energy components) was unchanged in December -- effectively counterbalancing the headline gain in the produce price index. Mortgage investors gave the bit of inflation news nothing more than a passing glance and a disinterested yawn this morning.
Much of today's price improvement is likely due to positive mortgage investor reaction regarding the news that Scott Brown, a Republican, had defeated Democrat Martha Coakley in the political race to fill the vacant Massachusetts Senate seat left by the late Senator Edward Kennedy.
Partisan politics aside - most mortgage investors are keenly aware that without filibuster-proof control of the Senate by one party, approval for new programs - such as an overhaul of the healthcare system - which could require heavy government spending -- will be harder to obtain.
The "so what" factor here is straightforward. Uncle Sam is the mortgage market's biggest competitor in terms of attracting capital from both global and domestic investors. The possibility that the capital demand coming from Uncle Sam may be diminished in coming months tends to be supportive of at least steady mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at tomorrow's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Wednesday, January 20, 2010
Tuesday, January 19, 2010
Tuesday, January 19, 2010
The coming week's economic calendar doesn't offer much of substance for mortgage investors to chew-on during the coming four-day holiday shortened trading sessions. There are no scheduled government debt auctions and members of the Federal Open Market committee have entered their "period of silence" in front of their two-day meeting next week.
It is likely mortgage investors will take at least a passing glance at Thursday's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at Thursday's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Friday, January 15, 2010
Friday, January 15, 2009
Credit market investors are breathing a huge sigh of relief now that Uncle Sam has wrapped up his $84 billion, four-part auction and is not expected to be back in the credit markets for a couple of more weeks.
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
Tuesday, January 12, 2010
tuesday, January 12, 2010
Uncle Sam is in the credit markets today looking to borrow $40 billion in the form of 3-year notes. Demand for this debt offering will likely be solid - since the big run-up in yields last month left prices at very attractive levels. Bigger test of investors' appetite for more government debt will come tomorrow when Uncle Sam looks to off-load a $21 billion stack of 10-year notes followed by a $13 billion wad of 30-year bonds on Thursday.
The economic calendar has nothing to offer today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to push mortgage interest rates higher.
The economic calendar has nothing to offer today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to push mortgage interest rates higher.
Friday, January 8, 2010
Friday, January 8, 2010
The Labor Department reported earlier this morning that 85,000 more jobs were lost in December than were created. Revisions to prior month's figures showed the economy actually added 4,000 jobs in November rather than losing 11,000 as was initially reported. The government's "do-over" for October resulted in reported job losses of 127,000.
The majority of economists had projected a headline payroll loss in December of 8,000. These same economists are now blaming their wide miss on December job market conditions on the weather - pointing out two major storms blanked the Northeast and Midwest during the data survey period.
In my judgment, the fact the national jobless rate reminded at 10.0% in December is the most significant and telling element of the entire report. The detail in this morning's report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The bid "so what" factor behind all this mumbo-jumbo is significant. If these people were still actively looking for work and had been counted as unemployed in the latest survey period -- the national jobless rate would have been 10.4% or higher. Since the current story from the labor sector strongly suggests employment growth will remain puny for sometime yet to come - today's job report is supportive of steady to potentially lower mortgage interest rates.
Looking ahead to next week -- Uncle Sam will take center stage from Monday to Thursday. He'll be in the credit markets looking to borrow roughly $100 billion in the form of inflation index 10-year notes on Monday, 3-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Wednesday's 10-year notes and Thursday's 30-year bonds will likely exert the most potential upward pressure on mortgage rates.
In terms of macro-economic data Thursday's December Retail Sales figures and Friday's December Consumer Price Index will attract the most attention from mortgage investors. Both reports are expected to be mortgage market neutral.
The majority of economists had projected a headline payroll loss in December of 8,000. These same economists are now blaming their wide miss on December job market conditions on the weather - pointing out two major storms blanked the Northeast and Midwest during the data survey period.
In my judgment, the fact the national jobless rate reminded at 10.0% in December is the most significant and telling element of the entire report. The detail in this morning's report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The bid "so what" factor behind all this mumbo-jumbo is significant. If these people were still actively looking for work and had been counted as unemployed in the latest survey period -- the national jobless rate would have been 10.4% or higher. Since the current story from the labor sector strongly suggests employment growth will remain puny for sometime yet to come - today's job report is supportive of steady to potentially lower mortgage interest rates.
Looking ahead to next week -- Uncle Sam will take center stage from Monday to Thursday. He'll be in the credit markets looking to borrow roughly $100 billion in the form of inflation index 10-year notes on Monday, 3-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Wednesday's 10-year notes and Thursday's 30-year bonds will likely exert the most potential upward pressure on mortgage rates.
In terms of macro-economic data Thursday's December Retail Sales figures and Friday's December Consumer Price Index will attract the most attention from mortgage investors. Both reports are expected to be mortgage market neutral.
Wednesday, January 6, 2010
Wednesday, January 6, 2010
Different day - same story.
Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
One of these two groups of mortgage investors is headed for a spanking behind the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
As I write, market chatter regarding the possibility the Fed will choose to expand and/or extend their direct mortgage-backed security purchase program is nothing more than just idle talk.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the prevailing macro-economic data happens to be.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
In other news of the day the Mortgage Bankers said their index of mortgage applications for the week ended January 1st rose 0.5% from the previous week. The purchase application component of the index was up 3.6% while refinance loan requests fell 1.6%. Refinance applications accounted for 68.2% of all loan requests during the reporting period.
Tuesday, January 5, 2010
Tuesday, January 5, 2010
Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
The capital market is an arena in which losers pay winners every day. One of these two groups of mortgage investors is headed for a spanking in the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the activity levels in the manufacturing sector happen to be or whether the economy is creating or destroying jobs.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
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