Month: April 2012

Mortgage Rate Update April 30, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

It’s a new week but the theme is unchanged.  The domestic economy continues to show signs of weakness and concern over Spain is ongoing.  However, interest rates cannot seem to move any lower.

IN THE US INCOMES ARE UP BUT SPENDING IS DOWN

The Commerce Department released figures this morning showing that US incomes grew by slightly more than was expected last month but that consumers spent slightly less.  An important inflation gauge within the report showed that prices rose as expected.  All-in-all the report has not had a substantial impact on the markets.

Looking ahead for the week the economic calendar is full with the monthly trifecta of employment reports (ADP jobs report, weekly jobless claims, and all-important jobs report) kicking off on Wednesday.

In Spain the statistics bureau confirmed what was already assumed.  The country is officially in a recession after their economy contracted by .3% in Q1.  In response Standard & Poor’s downgraded much of Spain’s banking sector.

Bad news for Europe & the US economy is generally good news for mortgage rates.  However, technical trading patterns are currently preventing rates from moving below all-time low levels.

Current Outlook: locking bias

Mortgage Rate Update April 27, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

Since the European debt crisis remains front and center for the financial markets we’ll start there.

BULLS SHOULD HAVE A HAY-DAY THIS YEAR WITH UNEMPLOYMENT IN SPAIN AT 18-YEAR HIGH

Spain announced today that their unemployment rate rose to the highest level in 18 years at 24.4%.  For workers under the age of 24 the unemployment rate is approximately 50%.  Spain’s economy is not healthy which does not bode well for their ability to remain solvent.  The announcement adds more fuel to euro crisis fire and should help US interest rates remain low.

Here in the US the first reading on Q1 gross domestic product (GDP) showed that the economy grew at a 2.2% pace.  This was below expectations of 2.5%.

Despite the slower than expected economic growth more than 70% of US corporations have reported better than expected Q1 earnings.  Normally good news for stocks is bad news for mortgage rates but the debt crisis in Europe continues to overshadow other data.

Mortgage rates remain at all-time lows.  Where will they go from here?  If history is any indication they will not go lower so I will maintain a locking bias.

Current Outlook: locking bias

Mortgage Rate Update April 26, 2012

Posted on by Evan in Rate Update

Mortgage rates are priced slightly better today.

In yesterday’s ‘rate update’ I laid out my prediction for how the Fed’s monetary policy statement would ready and how it would impact mortgage rates.  I got half of my prediction right.  The Fed DID NOT indicate that any further quantitative easing was imminent BUT this DID NOT cause mortgage rates to rise like it did 6 weeks ago.

RESULTS FROM A SURVEY SHOW EUROPEANS HAVE NO CONFIDENCE IN THEIR ECONOMY

Why did the interest rate markets react differently to a very similar statement?  Clearly the reemergence of the European debt crisis is playing a major role.  On that note, it was reported earlier today that economic confidence on the part of European businesses and consumers fell sharply in April to the lowest level in over 2 years.  Since the recipe for solving the debt crisis is partially based on economic growth in the region this news is causing jitters which helps US interest rates remain low via the “flight-to-safety” trade.

Here in the US weekly jobless claims were reported to have declined by less than expected last week.  However, the Labor Department revised higher previously released figures showing that the employment picture remains weak.  Bad news for the economy is good news for mortgage rates.

It wasn’t all bad news though.  The National Association of Realtors reported that pending homes sales jumped by 12.8% in on a year over year basis.  Tomorrow we’ll get an initial reading on Q1 GDP.  Technical trading patterns continue to suggest locking is the best bet.

Current Outlook: locking bias

Mortgage Rate Update April 25, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

It’s a very busy day in the interest rate markets with attention squarely focused on the Fed.  The Federal Open Market Committee (FOMC) wraps up its regularly scheduled 2-day monetary policy meeting today and will issue its policy statement at 12:30 EST.

If you’ll remember back to the last FOMC meeting their policy statement was notable for leaving out any mention of further quantitative easingwhich is a monetary policy tool designed to keep long-term rates low.

TODAY'S FOMC MONETARY POLICY STATEMENT CARRIES A LOT OF WEIGHT.

As a result mortgage rates rose by approximately .25% in the following weeks.

Since then the economic recovery has appeared more vulnerable and the European Debt crisis has reemerged.  Many investors believe the Fed will be forced to engage in another round of quantitative easing later this year which is partially why mortgage rates are back down at all-time low levels again.

This may be the case but I don’t believe the Fed will explicitly announce anything today.  Therefore, I see a case for mortgage rates rising just like 6 weeks ago.  I shifted to a locking bias on Friday and will maintain it today.

Current Outlook: locking bias

Mortgage Rate Update April 24, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

Spain, Italy, and the Netherlands were all able to successfully sell government debt at regularly scheduled bond auctions earlier today (click HERE to understand why the Netherlands is all of a sudden important).  Had demand for their auctions been week it would have stoked concern and likely helped US interest rates move lower.  The US is up next with $35 billion in 2-year notes scheduled to be auctioned this afternoon.  Click HERE to understand how government borrowing can impact mortgage rates.

There were a couple significant housing related economic reports released today.  The S&P Case-Shiller home price index was released for February and showed continued declines on a year-over-year basis.  However, on a seasonally adjusted basis home prices in the PDX-metro region increased modestly (the non-seasonally adjusted figure fell slightly).

In a separate report the Commerce Department reported that new homes sales decreased sharply last month from the month before.  However, compared to a year ago new homes sales were up by 7.5%.  Furthermore, they revised previously released figures for January and February higher.  All in all the report was healthy which is a good signal for the hosing market but all else being equal bad news for mortgage rates.

All eyes are now focused on tomorrow’s Fed monetary policy statement and news conference.  I’ll discuss that in tomorrow’s ‘rate update’.

Current Outlook: locking bias

Mortgage Rate Update April 23, 2012

Posted on by Evan in Rate Update

Mortgage rates are priced better today.

Holland and Hollande are driving interest rates thus far today.

As I wrote about in last Thursday’s ‘rate update’ the French presidential elections took place over the weekend and the challenger, Francoise Hollande, from the Socialist Party performed well.  He is attracting support from French voters because he believes the country needs to focus on creating growth instead of cutting spending.  His view contracts with the latest EU treaty signed earlier in the year and creates more uncertainty around the debt crisis there.

A MESSAGE FROM US MORTGAGE APPLICANTS WHO ARE ABLE TO LOCK IN HISTORICALLY LOW RATES

Coincidentally, the country Holland is exacerbating anxiety as well.  The Dutch Prime Minister is unexpectedly resigning his position after budget talks broke down between two rival political parties.  Apparently the US Congress is not the only political institution in the developed world incapable of compromise.  Similar to the French political divide Dutch leaders are caught between obligations to austerity under the EU treaty and their constituents wishes for investments in growth.

When investors fret over the European Debt Crisis it helps interest rates in the US move lower via the “flight-to-quality” trade.  The US 10-year treasury yield is back down near 1.90% which has proven to be a significant technical layer of resistance.  In the face of $99 billion in US debt auctions & the Fed monetary policy meeting concluding on Wednesday I still believe locking is the best approach.

Current Outlook: locking bias

Mortgage Rate Update April 20, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

Interest rates have held steady, just above all-time low levels, for the past couple weeks now.  The WSJ published this quote from a trader this morning which sums up the current state of the interest rate markets, “We are at yield levels that require a constant flow of fear to hold.“

The direction of interest rates next week are likely to be impacted by two things.  First, as I explained in yesterday’s ‘rate update’ this weekend’s presidential elections in France could have an effect on mortgage rates here in the US.  Click HERE to understand how.

NEXT WEEK'S FOMC MEETING IS GOING TO BE WATCHED VERY CLOSELY

Second, the Federal Reserve Open Market Committee (AKA “the Fed”) has their regularly scheduled monetary policy meeting early next week.  If you’ll remember back to their meeting 6 weeks ago the Fed DID NOT make any mention of plans to extend quantitative easing (designed to keep long-term interest rates low) beyond the end of June 30th.  However, since then the economic outlook has softened here in the US and the Euro-zone debt crisis has reemerged.

As the aforementioned quote suggests, the current level of rates assumes that the Fed will likely extend quantitative easing programs to help ensure the economic recovery stays on track.  Should the Fed exclude any comment of this in their statement next week I foresee rates increasing by .125%-.25%.  Given that I don’t think rates have much room to improve I am shifting to a locking bias.

Current Outlook: locking bias

Mortgage Rate Update April 19, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

I bet you’ve been wondering how this weekend’s presidential primary election in France will impact mortgage rates here in the US.  OK, maybe not but I’m going to tell you anyways.

As we’re seeing with Spain & Italy debt problems can spread quickly as investors get nervous about austerity cuts and counter-party risk amongst the Euro-zone’s financial institutions.  If things get worse in Europe then France is widely seen as the “next domino to fall”.  Given that austerity cuts are a politically unpopular platform investors are growing concerned about France’s ability to reduce its debt loadand help curb the debt crisis.

BELIEVE IT OR NOT THIS WEEKEND'S ELECTIONS IN FRANCE COULD HAVE AN IMPACT ON MORTGAGE RATES HERE IN THE US

If fears continue to mount it could help US mortgage rates move lower.  Should the Socialist party contender show well in this weekend’s elections it would stoke further fears.

Here at home another weaker than expected jobs report out this morning is raising concerns about the strength of the economic recovery.  The weekly jobless claims report showed that the number of people filing for unemployment benefits declined by less than had been expected.  Furthermore, the 4-week moving average for weekly jobless claims rose to the highest level since the end of January.

Also disappointing the markets this morning was a report out from the National Association of Realtors which showed that existing homes sales declined last month by 2.6%.  However, the good news is that homes sales were up 5.2% from March of 2011.  I think I can safely speak for everyone in the Portland-Metro market by saying that anecdotal evidence suggests we’re out performing the rest of the country because it feels like we’re up by 10+% from last year.

Both momentum and the economic landscape suggest that rates probably will not rise in the near-term.  However, as I explained yesterday technical trading patterns are preventing rates from improving so I will remain in a neutral position.

Current Outlook: neutral

Mortgage Rate Update April 18, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

Uncertainty persists in Europe which is why mortgage rates have retreated back near all-time lows over the past 10 days.

Earlier today the Italian Government announced that it was cutting its economic growth & fiscal forecasts and warned that they would not be able to balance their budget in 2013 as previously pledged.  Furthermore, Spain’s Central Bank announced that the country’s commercial banks’ ratio of bad loans rose to the highest level in 17 years and added that they’d need over €45 billion to stay afloat.  Bad news for Europe typically helps interest rates in the US move lower via the “flight-to-quality” trade.

Despite the reemergence of bad news in Europe mortgage rates here in the US cannot manage to penetrate below current levels.  If you look at the chart for the US 10-year Treasury yield, which mortgage rates closely follow, you’ll see that there is a technical level of resistance at 1.90%.  Unless the 10yr can break below that level I don;t see mortgage rates getting significantly better.

Current Outlook: neutral

Mortgage Rate Update April 17, 2012

Posted on by Evan in Rate Update

Mortgage rates are unchanged today.

The Spanish Government attracted greater demand than was expected earlier today in an auction of T-bills and notes.  The markets are interpreting this as a sign that maybe the crisis is not as bad as previously thought.  The yield on the 10-year Spanish note is back below 6.00% and that is putting pressure on US interest rates to rise.

IS US HOME CONSTRUCTION HEADED UP OR DOWN?

Here at home a mixed bag of economic data is failing to draw much attention.  On one hand US home building construction fell sharply last month according to the Commerce Department.  However, when you strip out multi-family construction the number was not as bad.  On the other hand new permits for new construction rose by more than expected.  In a separate report US industrial production & capacity were reported in line with expectations.

The stock market is entering the meat of earnings season with big corporations releasing Q1 results and forward forecasts almost daily.  It’s important to consider the impact that the stock market can have on mortgage rates (when stocks are up rates continue to climb and vice versa).  I expect sentiment on Spain and US stocks to drive mortgage rates the rest of the week.

I am going to shift to a neutral position.

Current Outlook: neutral