Rate Update August 5, 2010

Mortgage rates are unchanged this morning.

All eyes are focused on tomorrow’s monthly jobs report from the Bureau of Labor Statistics.  Typically this report will shape the directon of mortgage rates for the following few weeks.

In general, when the employment figures in this report are reported better than expected mortgage rates rise and vice versa.  Analysts are currently calling for 70,000 jobs lost in the month of July.  However, the loss is mainly due to temporary US Census workers re-entering the unemployed workforce.  It is expected that the report will show 100,000 private sector jobs created.

Although this seems aggressive to me it is very difficult to predict employment numbers; especially during an economic recovery.  The safe play is to lock in ahead of tomorrow’s report.

Current outlook: locking

Rate Update July 1, 2010

Mortgage rates are basically unchanged this morning.

If you were looking for some positive economic news from ‘rate update’ today then please stop reading at this point.

Weekly jobless claims were reported to rise for the second week in a row today.  The 4-week moving average rose for the first time in weeks which is not a good indication of the economy’s trajectory.

The National Association of Realtors reported that pending home sales fell by 30% in May.  The markets were expecting a decline following the expiration of the tax credit but of a much smaller magnitude.  The silver lining in this report is that Portland (ME :)) bucked the national trend by having pending home sales increase in May.

Lastly, construction spending and manufacturing activity were reported worse than expected.

We are now less than 24 hours from the release of the all-important jobs report.  You can read about how this report tends to impact mortgage rates HERE.  Last months report was much worse than expected and mortgage rates have decreased substantially since June 4th.  One analyst I read is reporting that the markets are expecting 105,000 jobs created by the private sector but I don’t see how that could be. I believe a weak report is already baked into interest rates so even if the report is bad I wouldn’t expect mortgage rates to get all that much better.

I am recommending a locking position in the near term.

Current outlook: locking

Bull and Bear tug-of-war

Readers of this blog are probably well aware of the fact that mortgage rates have basically remained in a tight sideways range since mid-January.  Followers of the stock market know that the equity markets have effectively traded sideways over that time as well.  The WSJ published this article today summarizing two opposing views of stocks from a couple heavyweights which seems to represent the polarizing opinions on Wall Street that keeps the market from having a clear direction up or down.  One of the viewpoints is from Robert Shiller who is a bear and argues that stocks are currently overvalued.  The opposite view is from his close friend Jeremy Siegel who I got to see speak in Portland a few months ago.  He argues that on a historical scale stocks look cheap right now.  What I find interesting is that effectively each uses historical data dating back to the 19th century to support their views.  In effect they are looking at the same data and drawing two completely different conclusions.

If you are a stock market fan then the article is worth a read.

Rate Update February 26 , 2010

Most mortgage rates are unchanged this morning.

Mortgage-backed bonds (MBS’s) continue to trade sideways up against stiff technical resistance.  I continue to believe that it would take an unexpected event for mortgage rates to move substantially lower.

Interest rates have benefited over the past week from renewed concerns over Greece’s fiscal health.  They have yet to come up with a credible plan to solve their problems.  As a result investors around the world have pursued “safer” investments which helped yesterdays’ 7-year note auction by the US Treasury as well as mortgage-backed bonds (MBS’s).

On the economic front existing home sales were reported weaker than expected for January.  The report is raising concerns over the housing recovery ahead of the expiration of the homebuyer tax credit.  Furthermore, although GDP growth showed strong gains last month the consumer spending component was weaker than expected which has analysts concerned over the pace of an economic recovery.  Fortunately the inflation component also showed slow gains which should help long-term interest rates remain low.

For now I am favoring a locking position given that I don’t believe mortgage rates will get substantially better but there is plenty of room for them to get worse.

Current outlook: locking bias

Rate Update February 25, 2010

Most mortgage rates are unchanged this morning.

Mortgage-backed bonds (MBS’s) are benefiting from a weak open in the equity markets this morning.  The Dow Jones Industrial Average is currently off 150 points on worse than expected job claims numbers and renewed concerns over Greece.

Fed Chairman Ben Bernanke announced today that the Fed was looking into derivatives held by US banks linked to Greece’s financial instability.  The announcement is causing financial stocks to move lower.

Yesterday’s $42 billion 5-year note auction was met with marginal demand.  Today the US Treasury is set to deliver $32 billion in 7-year notes.

Tomorrow brings a slew of economic reports that can impact the markets.  We’ll keep you posted.

Current outlook: locking bias

Rate Update February 2, 2010

Mortgage rates are mostly unchanged from yesterday.

There is not much in the way of substantial economic data today.  Stocks are trading higher thanks to better than expected Q4 earnings from D.R. Horton (DHI).  The homebuilder reported a quarterly profit for the first time since 2007.

Bond traders appear to be on hold until tomorrow when the Treasury announces the bond supply for next week’s auctions.  In the past two auction weeks the US Treasury has auctioned almost $120 billion per week.  An announcement north of this could pressure rates higher.

And from Gobblers Knob, PA this morning Punxsutawney Phil did witness his shadow which means 6 more weeks of winter….bummer.  Someone should ship that rat to Mongolia.

Mortgage rates have now traded in a tight range for an extended period so we’ll need to be cautious of a break-out in the future.

Current outlook: locking

Fed’s statement suggests higher mortgage rates

As expected the Fed announced today that they would leave short-term interest rates near historic lows.  No surprises there.  However, there was a couple interesting excerpts from their post-policy meeting statement which suggest mortgage rates are poised to move higher (also not a surprise if you’ve followed my blog posts time and time again).

Here is a link to the full statement & here are the highlights:

*The Fed’s view is a little rosier: Since April the Fed has continually stated that economic activity would be “weak for a time.”  Today, they changed the wording to state economic activity would be “moderate for a time.”  The change in wording is sign that they believe the economy is improving.  Good news for the economy is bad news for mortgage rates.

*The Fed will stop buying mortgage-backed bonds (MBS’s): As I wrote about in my November newsletter as soon as the Fed announced that they would begin buying MBS’s in November of 2008 rates nose dived.  The Fed has been very transparent in communicating that they would discontinue this program at the end of the first quarter and they reiterated that today by stating “on March 31, the Fed will complete its purchases of $1.25 trillion of mortgage-backed securities.”  They go on to say “Fed officials believe mortgage rates could rise when it stops its purchases, but most believe it will be less than half a percentage point and possibly less.” and possibly more.  They did leave the door open to change their minds regarding this policy.

All in all the statement is reassuring from the standpoint that the Fed seems to be confident the economy is improving which means more jobs!!!!!!  The drawback is that we know that when the economy improves and the government unwinds their stimulus efforts mortgage rates will move higher.