Rate Update Archives - Page 155 of 170

Bernanke’s outlook & mortgage rates

Posted on August 22, 2008 by Evan in Economics & Interest Rates, General Mortgage Info., Rate Update, The Fed

In his speech to the worlds most powerful central bankers today Fed Chairman Ben Bernanke spoke briefly about inflation according to this NY Times article.

From the article, “Mr. Bernanke, while acknowledging ‘an increase in inflationary pressure,’ reasserted his view that in the near future, the upswing in inflation from the oil and food shocks was likely to moderate.”

If his outlook proves correct this would be a good sign for mortgage rates. Mortgage rates have ticked higher over the past few months in response to higher inflationary pressures (i.e. commodity &/ energy prices). If these pressures to moderate then hopefully mortgage rates will also move lower.

Mortgage-backed bonds still attract investors

Posted on August 22, 2008 by Evan in Economics & Interest Rates, For Professionals, General Mortgage Info., Rate Update

I often reference “mortgage-backed bonds” (AKA MBS’s) in my daily rate updates. If you follow rate update consistently then you know that when MBS prices fall interest rates rise and vice versa.

The WSJ published a story today regarding investor confidence in high-quality MBS’s and how they remain attractive for bond investor guru Bill Gross & PIMCO.

Here are a few good takeaways and what it may mean for interest rates in the near term:

* “Freddie’s mortgage bonds were trading at a risk premium of around 2.64 percentage points over the 10-year Treasury note’s yield, which was quoted late Thursday at 3.837%.” -A ‘risk premium’ is the spread that an investment earns above and beyond the 10-year US Treasury note (considered to be an extremely safe investment). The idea is that the larger the spread the more risky the market perceives that investment. The current spread between MBS’s & 10-year Treasury notes is relatively high compared to historical standards. The good news is that in all likelihood we will see the spreads shrink in the future which means mortgage rates will have to come down or Treasury yields will have to move higher (or some combination of the two).

* “Even though Congress passed legislation last month allowing the Treasury Department to provide liquidity to Fannie and Freddie, the Treasury has stopped short of announcing any immediate bailout plans. The uncertainty about the government’s plans have fueled sharp price swings in the companies’ stocks, bonds and mortgage bonds” -This helps to explain why mortgage rates have been as volatile as they have been over the past couple weeks. This will likely persist for a few months.

* “Fannie and Freddie guarantee or own nearly half of the total $12 trillion U.S. mortgages outstanding. They have long been the mortgage-bond market’s backstop, stepping in to buy when other investors have failed to materialize. With their finances under pressure, however — both companies have reported losses as the housing market has weakened sharply — they have been curtailing their mortgage purchases.” -This is not terribly encouraging. The housing market needs the two GSE’s to stabilize the secondary market for mortgages.

Posted on August 22, 2008 by Evan in Rate Update

Mortgage rates moved modestly higher this morning as we had predicted in yesterday’s ‘rate update’.

Yesterday mortgage-backed bonds reversed lower yesterday on technical trading patterns as well as pressure from higher oil prices. (Reminder: mortgage rates move inversely with mortgage-backed bond prices.)

Today mortgage backed bonds have opened up the day trading down at important technical levels. Looking at the chart below you can see today’s bond prices trading just above the 40 & 50 day moving average lines (grey & black lines) at the far right of the chart. If bond prices can bounces off this level it will bode well for mortgage rates. If they dip below this level then we’d probably see 30 yr rates move back to the 6.50% level.

Fed Chairman Ben Bernanke is scheduled to speak to the world’s top central bankers at an annual symposium in Jackson Hole, WY today. His comments always have the capability of moving the markets so we’ll be listening for him as well today.

Current Outlook: floating bias

Rate Update August 21, 2008

Posted on August 21, 2008 by Evan in Rate Update

Rates are modestly lower this morning.

Yesterday mortgage-backed bonds were able to rally in the afternoon thanks to the factors outlined in yesterday’s ‘rate update’.

However, these factors may be overshadowed by rising oil prices. Oil prices have bounced off recent lows of $111/ barrel and are now trading up near $120. Higher oil prices will renew inflationary fears which are not good for mortgage rates.

Bailout concerns continue to surround mortgage giants Fannie Mae & Freddie Mac following Sunday’s article in Barron’s which suggested that government intervention was inevitable. It’s difficult to speculate what this would mean for the mortgage industry but I will try to keep you posted as I learn more.

To learn more on this subject:

Here is a link to blog posting about Fannie Mae & Freddie Mac and the role they play in the mortgage industry.

Here is a link to bog posting about Sunday’s Barron’s article.

Current Outlook: locking bias

Rate Update for August 20, 2008

Posted on August 20, 2008 by Evan in Rate Update

Rates are modestly lower this morning.

Renewed credit worries have helped mortgage rates remain low in the face of hot inflation data. Here are links to the articles that were referenced in today’s rate update video:

–Blog posting & link to Sunday’s Barron’s article regarding the inevitable nationalization of Fannie Mae and Freddie Mac (this article had kicked off renewed credit worries and likely caused the 20% drop in Fannie Mae and Freddie Mac stock prices on Monday).

–Associated Press article about “liar loans” (appeared in Oregonian yesterday as well as yahoo.com and other news sites).

–Blog posting regarding tax holdbacks (please feel free to write a comment on my blog and/ or pass along to others who would benefit from this information).

Current Outlook: neutral with floating bias

Rate Update for August 19,2008

Posted on August 19, 2008 by Evan in Rate Update

Rates are unchanged again this morning.

Last Thursday the Labor Department issued the monthly Consumer Price Index (CPI) report which showed that prices at the consumer level in our economy grew at the fastest pace in 17 years.

Today, the Labor Department released the monthly Producer Price Index (PPI) report which reports on prices at the wholesale/ manufacturing level of our economy. The report indicated that prices increased by 1.2% in the month of July alone & 9.8% on a year-over year basis! This marks the fastest growth in wholesale prices in over 20 years!

This double shot of hit inflation news ordinarily would be terrible for mortgage rates but they have yet to move higher. Why?

It may be because traders believe that much of the cause for the rapid increase in prices can be credited to higher oil prices in July. Since oil prices have declined in August they may believe that the increases in July are temporary.

Furthermore, stocks are not taking the inflation data well so we are also seeing a “flight to quality” in the financial markets.

Current Outlook: neutral

Rate Update for August 18, 2008

Posted on August 18, 2008 by Evan in Rate Update

Rates are effectively unchanged again this morning.

Looking ahead this week the biggest piece of economic news will be delivered tomorrow when the Producer Price Index (PPI) report is released. This report, which indicates inflationary pressure at the wholesale level of our economy, is likely to come in “hot” as did the CPI from last Thursday.

The question remains to be seen how the market reacts. Despite high inflationary figures reported in the CPI mortgage rates have yet to be pressured higher probably because oil and commodity prices have eased thus far in the month of August.

For now we’ll shift our outlook to neutral.

Current Outlook: neutral

Don’t forget about fiscal literacy

Posted on August 16, 2008 by Evan in For Professionals, Housing & Real Estate, Miscellaneous, Personal Finance, The Fed

The NY Times published a good article today outlining the presidential hopeful’s views on financial regulation (click this link to view). By the sounds of it we can expect greater governmental oversight over the financial markets in the coming years.

It is no surprise that a reaction for greater financial regulation has resulted following the third financial collapse in as many decades. In the 1980s the savings and loan crisis forced 747 financial institutions to fail. In the 1990s it was the dot-com bubble that burst wiping out approximately $5,000,000,000,000 ($5 trillion) in market capitalization in only 2 years. Currently, we find ourselves in the largest credit & housing expansion and downturn in US history (the extent of the housing cycle is creatively displayed in this video by John Burns).

In each instance the pattern of activity tends to be similar. At first a small group of people begin to acquire an asset (i.e. stock, house, mortgage-security) and that asset class performs extremely well over a short period of time. Word spreads that this particular asset class is a great investment and more and more people get involved. So on and so forth until rationality has left the marketplace and folks are buying up the asset left and right without any regard to the actual fundamentals behind the investment. Along the way enterprising and dishonest salesman find ways to “help” less educated and less sophisticated buyers get into the game. Around this time is typically when the music stops and those left holding the asset are the ones who lose huge.

To a degree this explains how each of the aforementioned economic bubbles have occurred. Many people have blamed the period of deregulation in the financial markets from 1970-2000 for allowing so many people to get into financial trouble. If this is indeed the cause then it would only make sense to have the government tighten down on the financial markets. It is no surprise then that the two presidential hopefuls are proponents of this approach as is Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

Although I do agree with these people that some additional governmental regulation would be helpful (so long as it is actually enforced) I think the greater preventive measure lies in our education system. For me this period in our history is only partially about lack of government oversight and is more about lack of fiscal literacy among consumers.

The Economist wrote an excellent article about fiscal literacy which I posted on my blog back in April (view it by clicking this link). My hope is that the presidential nominees will spend time this fall talking about ways to improve our national education system so that in the future consumers will be able to ask informed questions, properly analyze their options, and make quality decisions regarding their financial matters. Otherwise we may find ourselves in this position again next decade.

Rate update August 15, 2008

Posted on August 15, 2008 by Evan in Rate Update

Rates are effectively unchanged again this morning.

Following yesterday’s hot CPI data we got a slew of inflation related news that is helping support mortgage-backed bond prices today.

*Gold prices are finishing the week with one of the steepest weekly declines since March. Gold prices tend to reflect the market’s future inflation expectations so the fact that prices are coming down is a good sign for future inflation.

*Oil prices also continue to fall. Crude oil is now trading down around $112 per barrel which is over 20% off recent highs.

Lower energy & commodity prices bode well for mortgage rates because they will help to ease inflationary concerns.

However, we remain concerned about the technical trading picture for bonds. Bonds face significant overhead resistance which is why we continue to favor locking.

Current Outlook: locking

Rate Update for August 14, 2008

Posted on August 14, 2008 by Evan in Rate Update

Rates are effectively unchanged this morning despite worse than expected inflation data.

The Labor Department reported earlier this morning that the Consumer Price Index (CPI) rose by .8% in July alone. On a year-over-year basis CPI rose by 5.6% which is the biggest rise in consumer prices since 1991. Core CPI, which strips out volatile food and energy prices, rose by .3% in July and 2.50% year-over-year.

As we know inflation is the enemy of mortgage rates. Today’s report is not likely to help mortgage rates move lower anytime soon. However, the markets were bracing for a poor report so the bond market is not reacting too terribly bad yet.

From a technical standpoint a negative trend line has developed since mid-July. If you look at the chart below you’ll see a blue line which is acting as a ceiling of resistance. This resistance level will make it hard for rates to move lower.