Our window of opportunity is here again and not sure how long it will last. Interest rates are reaching under 5% and the time to refinance is now if you haven't done so already.
This is due to a bond rally on weak stocks.
Contact me if you have any questions (310) 963-8315
Rick
Wednesday, July 8, 2009
Friday, July 3, 2009
Economic Outlook
There was very little daily movement in mortgage rates during the holiday-shortened week, and they ended the week nearly unchanged. The economic news during the week contained few surprises.
Following better than expected results for May, investors were closely watching the June Employment report for clues about the timing of any economic recovery. Thursday's data showed that the economy lost -467K jobs in June, and the Unemployment Rate rose to 9.5% from 9.4% in May. Average Hourly Earnings, a proxy for wage growth, rose at a slim 2.7% annual rate. High unemployment and slow wage growth have caused consumers to save more and spend less. Since consumer spending accounts for about 70% of economic activity, the slowdown in spending has had a large impact on economic growth. For mortgage rates, however, low wage inflation and slow economic growth are favorable.
While the Employment report may have captured the most attention, the week began with a significant announcement from Chinese officials. According to the head of China's central bank, there will be no sudden changes to China's foreign reserve policy, meaning that China will not pull back from buying US bonds. Over recent months, investors have been concerned that foreign central banks would decide to scale back their purchases of US bonds, so this was very welcome news. Recent Treasury auctions have confirmed that foreign demand remains strong.
Also Notable:
Following better than expected results for May, investors were closely watching the June Employment report for clues about the timing of any economic recovery. Thursday's data showed that the economy lost -467K jobs in June, and the Unemployment Rate rose to 9.5% from 9.4% in May. Average Hourly Earnings, a proxy for wage growth, rose at a slim 2.7% annual rate. High unemployment and slow wage growth have caused consumers to save more and spend less. Since consumer spending accounts for about 70% of economic activity, the slowdown in spending has had a large impact on economic growth. For mortgage rates, however, low wage inflation and slow economic growth are favorable.
While the Employment report may have captured the most attention, the week began with a significant announcement from Chinese officials. According to the head of China's central bank, there will be no sudden changes to China's foreign reserve policy, meaning that China will not pull back from buying US bonds. Over recent months, investors have been concerned that foreign central banks would decide to scale back their purchases of US bonds, so this was very welcome news. Recent Treasury auctions have confirmed that foreign demand remains strong.
Also Notable:
- The Unemployment Rate climbed to the highest level since 1983
- April Pending Home Sales rose for the fourth straight month
- The European Central Bank (ECB) held rates unchanged
- HUD announced that the LTV requirement for the Making Home Affordable plan will be raised to 125% from 105%
Week Ahead:
Treasury auctions may have the greatest impact on mortgage rates next week, with auctions on Tuesday, Wednesday, and Thursday. It will be a light week for economic data. ISM Services will be released on Monday. The Trade Balance, Import Prices, and Consumer Sentiment will come out on Friday.
Friday, June 26, 2009
Economic Outlook
With major economic data, large Treasury auctions, and a Fed meeting on the schedule, it was a busy week for mortgage markets. In the end, it was the Treasury auctions which had the greatest impact on mortgage rates. Demand was very strong at the auctions, which pushed mortgage rates lower. Wednesday's Fed announcement and mixed economic data were roughly neutral for mortgage rates.
Much of the rise in interest rates we saw in late May and early June was due to concern about the enormous supply of debt the government needs to issue to pay for all the stimulus programs. The question was whether investors would require significantly higher yields to continue purchasing bonds. Strong demand from both domestic and foreign investors at this week's Treasury auctions eased those concerns for now and helped mortgage rates to reverse some of their recent increases.
As expected, the Fed made no change in the fed funds rate. However, investor expectations varied widely for the Fed's statement, but the statement revealed no significant shifts in policy. In particular, there was no change in the timing or the quantity of future MBS and Treasury purchases. In addition, the statement contained no discussion about exit strategies to eventually unwind Fed stimulus programs. Overall, the Fed simply held the course, and mortgage rates were nearly unchanged after the news.
In the housing sector, May Existing Home Sales rose 2.4%. It was the first time since September 2005 that Existing Home Sales increased for two months in a row. The inventory of unsold homes declined to a 9.6-month supply from a 10.1-month supply in April. A NAR survey revealed that 29% of sales were to first-time homebuyers, helped by the $8,000 tax credit, low mortgage rates, and favorable affordability levels.
Other interesting facts:
Much of the rise in interest rates we saw in late May and early June was due to concern about the enormous supply of debt the government needs to issue to pay for all the stimulus programs. The question was whether investors would require significantly higher yields to continue purchasing bonds. Strong demand from both domestic and foreign investors at this week's Treasury auctions eased those concerns for now and helped mortgage rates to reverse some of their recent increases.
As expected, the Fed made no change in the fed funds rate. However, investor expectations varied widely for the Fed's statement, but the statement revealed no significant shifts in policy. In particular, there was no change in the timing or the quantity of future MBS and Treasury purchases. In addition, the statement contained no discussion about exit strategies to eventually unwind Fed stimulus programs. Overall, the Fed simply held the course, and mortgage rates were nearly unchanged after the news.
In the housing sector, May Existing Home Sales rose 2.4%. It was the first time since September 2005 that Existing Home Sales increased for two months in a row. The inventory of unsold homes declined to a 9.6-month supply from a 10.1-month supply in April. A NAR survey revealed that 29% of sales were to first-time homebuyers, helped by the $8,000 tax credit, low mortgage rates, and favorable affordability levels.
Other interesting facts:
- The May Core PCE inflation index rose at a tame 1.8% annual rate
- The World Bank cut its forecast for global economic growth this year
- Fed Chief Bernanke performed well during Congressional questioning
- The Fed purchased $22 billion in agency MBS during the week ending 6/24
Next week, the important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 370K jobs in June. Before the Employment data, the Chicago PMI and ISM national manufacturing indexes will come out on Tuesday and Wednesday. Pending Home Sales, a leading indicator for the housing market, will be released on Wednesday. Consumer Confidence, Construction Spending, and Factory Orders will round out the schedule. Mortgage markets will be closed on Friday ahead of the July 4th holiday.
Saturday, June 13, 2009
Econonmic Outlook
After rising significantly over the last couple of weeks, mortgage rates moved higher again this week, but at a much slower pace. Strong demand for this week's large Treasury auctions helped keep mortgage rates relatively stable. At current yields, both foreign and domestic investors showed above average interest in adding bonds to their portfolios.
Behind the recent rise in mortgage rates has been an improved economic outlook and concerns about the enormous supply of new debt needed to pay for government programs. This leaves the Fed in a difficult position. Fed officials would like to keep mortgage rates low to lift the economy. To accomplish this, however, the Fed would have to significantly increase its purchases of mortgage-backed securities (MBS), requiring it to issue even more debt and adding to inflation concerns.
Most analysts believe that the Fed is unlikely to expand its MBS purchase program. At the June 24th meeting, they instead expect the Fed to discuss an eventual exit strategy for the program, which might include stretching out their time frame for purchasing MBS. Reducing the weekly purchases would allow the Fed to gradually scale back its involvement in the market. The MBS purchase program has helped bring mortgage rates down since it was announced in November, but the Fed cannot continue to intervene in MBS markets indefinitely. Slowly reducing their MBS purchases may be the best way to minimize the impact on the market as they make their exit.
Other Notable Facts:
Behind the recent rise in mortgage rates has been an improved economic outlook and concerns about the enormous supply of new debt needed to pay for government programs. This leaves the Fed in a difficult position. Fed officials would like to keep mortgage rates low to lift the economy. To accomplish this, however, the Fed would have to significantly increase its purchases of mortgage-backed securities (MBS), requiring it to issue even more debt and adding to inflation concerns.
Most analysts believe that the Fed is unlikely to expand its MBS purchase program. At the June 24th meeting, they instead expect the Fed to discuss an eventual exit strategy for the program, which might include stretching out their time frame for purchasing MBS. Reducing the weekly purchases would allow the Fed to gradually scale back its involvement in the market. The MBS purchase program has helped bring mortgage rates down since it was announced in November, but the Fed cannot continue to intervene in MBS markets indefinitely. Slowly reducing their MBS purchases may be the best way to minimize the impact on the market as they make their exit.
Other Notable Facts:
- May Retail Sales showed small gains from April
- The Fed's Lacker expects a "bottoming-out process" in housing later this year
- Oil prices reached $73 per barrel, the highest level of the year
- The Fed purchased $23 billion in agency MBS during the week ending 6/10
Next Week:
The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production and Housing Starts will be released on Tuesday. The Empire State and Philadelphia Fed regional manufacturing indexes will round out the schedule.
Monday, June 8, 2009
This Week's Economic News
This week brings us the release of four pieces of data for the markets to digest. The most important news will be posted late in the week, so we may see the most movement in rates during those days. The first part of the week will likely be driven by stock market gains or losses.
The week's first but least important data is April's Goods and Services Trade Balance report Wednesday morning. This report gives us the size of the U.S. trade deficit and will be released at 8:30 AM. It isn't likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $28.7 billion deficit.
Late Wednesday, the Federal Reserve will release its Beige Book. This data details economic conditions throughout the U.S. by region. It is relied upon heavily by the Federal Reserve during FOMC meetings to determine monetary policy. If it shows surprisingly softer economic activity, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing, we could see mortgage rates revise higher Wednesday afternoon.
May's Retail Sales data will be released Thursday morning. This report measures consumer spending, which is important to the bond market because consumer spending makes up two-thirds of the U.S. economy. Analysts are expecting to see that sales rose 0.3% last month. A smaller than expected rise in sales would be good news for the bond market and could lead to lower mortgage rates Thursday.
The last report of the week is June's preliminary reading to the University of Michigan Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 68.6. A small than expected reading would be considered good news for bonds, but since this report is only moderately important it likely will not influence mortgage rates considerably.
Also worth noting are two relevant Treasury auctions scheduled for this week. The 10-year Treasury Note sale is scheduled for Wednesday while the 30-year Bond sale will be held Thursday. Results of both auctions will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading, however, weak demand could lead to selling and an increase to mortgage rates.
Overall, it is going to be a fairly busy week for the financial markets, but the most action will probably come in the latter days. I think that Thursday will be the single most important day of the week, but as we saw last week, we don't need significant news from economic reports for the markets to move heavily and mortgage rates to change. Accordingly, this would be a very good week to maintain fairly constant contact with your mortgage professional—particularly after last week's selling.
The week's first but least important data is April's Goods and Services Trade Balance report Wednesday morning. This report gives us the size of the U.S. trade deficit and will be released at 8:30 AM. It isn't likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $28.7 billion deficit.
Late Wednesday, the Federal Reserve will release its Beige Book. This data details economic conditions throughout the U.S. by region. It is relied upon heavily by the Federal Reserve during FOMC meetings to determine monetary policy. If it shows surprisingly softer economic activity, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing, we could see mortgage rates revise higher Wednesday afternoon.
May's Retail Sales data will be released Thursday morning. This report measures consumer spending, which is important to the bond market because consumer spending makes up two-thirds of the U.S. economy. Analysts are expecting to see that sales rose 0.3% last month. A smaller than expected rise in sales would be good news for the bond market and could lead to lower mortgage rates Thursday.
The last report of the week is June's preliminary reading to the University of Michigan Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 68.6. A small than expected reading would be considered good news for bonds, but since this report is only moderately important it likely will not influence mortgage rates considerably.
Also worth noting are two relevant Treasury auctions scheduled for this week. The 10-year Treasury Note sale is scheduled for Wednesday while the 30-year Bond sale will be held Thursday. Results of both auctions will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading, however, weak demand could lead to selling and an increase to mortgage rates.
Overall, it is going to be a fairly busy week for the financial markets, but the most action will probably come in the latter days. I think that Thursday will be the single most important day of the week, but as we saw last week, we don't need significant news from economic reports for the markets to move heavily and mortgage rates to change. Accordingly, this would be a very good week to maintain fairly constant contact with your mortgage professional—particularly after last week's selling.
Saturday, June 6, 2009
Economic Outlook
Investors have been concerned for quite a while about the coming supply of new debt needed to pay for all the government stimulus programs. On top of that, the economic outlook has been improving sooner than expected. The combination of these two potentially inflationary developments pushed mortgage rates higher during the week.
The economic surprise this week came from the Employment report. Although the economy lost -345K jobs in May, it was far fewer than the consensus estimate for a loss of -525K jobs. The Unemployment Rate jumped to 9.4% from 8.9% in April. A surge in people entering the labor force was responsible for the unexpected increase in the Unemployment Rate. The labor market is typically one of the last areas to show improvement during an economic rebound, so signs of a turnaround are particularly significant.
Fed Chief Bernanke supported the notion that the recession would end this year. In testimony before Congress this week, Bernanke stated that he still expects the economy to move higher later this year, although it may take a while for growth to return to average levels. He looked ahead to measures needed once the economic crisis has passed, such as containing the budget deficit and reducing government control of markets. At this point, most investors believe that the Fed is not inclined to expand the mortgage-backed security (MBS) purchase program beyond its current level of $1.25 trillion, unless economic growth falls short of the Fed's outlook.
More evidence that the economy may be rebounding came from this week's housing data. April Pending Home Sales rose for the third consecutive month, increasing 7% from March. Pending Home Sales are a leading indicator, meaning that future New and Existing Home Sales reports may show increases.
Other facts:
The economic surprise this week came from the Employment report. Although the economy lost -345K jobs in May, it was far fewer than the consensus estimate for a loss of -525K jobs. The Unemployment Rate jumped to 9.4% from 8.9% in April. A surge in people entering the labor force was responsible for the unexpected increase in the Unemployment Rate. The labor market is typically one of the last areas to show improvement during an economic rebound, so signs of a turnaround are particularly significant.
Fed Chief Bernanke supported the notion that the recession would end this year. In testimony before Congress this week, Bernanke stated that he still expects the economy to move higher later this year, although it may take a while for growth to return to average levels. He looked ahead to measures needed once the economic crisis has passed, such as containing the budget deficit and reducing government control of markets. At this point, most investors believe that the Fed is not inclined to expand the mortgage-backed security (MBS) purchase program beyond its current level of $1.25 trillion, unless economic growth falls short of the Fed's outlook.
More evidence that the economy may be rebounding came from this week's housing data. April Pending Home Sales rose for the third consecutive month, increasing 7% from March. Pending Home Sales are a leading indicator, meaning that future New and Existing Home Sales reports may show increases.
Other facts:
- The Unemployment Rate rose to the highest level since 1983
- The European Central Bank (ECB) held rates steady
- Oil prices reached $70 per barrel, the highest level of the year
- The Fed purchased $26 billion in agency MBS during the week ending 6/3
Next week, the most significant economic data will be the Retail Sales report on Thursday. Retail Sales account for about 70% of economic activity. In addition, the Trade Balance and the Fed's Beige Book will be released on Wednesday. Import Prices and Consumer Sentiment will come out on Friday. There will be large Treasury auctions on Tuesday, Wednesday, and Thursday as well.
Monday, June 1, 2009
This Week's Economic News
Monday's bond market has opened down sharply following stronger than expected economic news and a significant rally in stocks. The Dow is currently up over 200 points while the Nasdaq has gained 50 points. This has led to heavy selling in bonds, pushing the benchmark 10-year Treasury Note down 60/32. However, the impact on this morning's mortgage rates will likely be much less than one may expect. We will probably see an increase of approximately .250 of a discount point in this morning's rates compared to Friday's morning rates due to significant strength late Friday.
April's Personal Income and Outlays data was posted at 8:30 AM, but it showed stronger than expected readings in both portions. It revealed an increase in income of 0.5%, which was a large variance form the 0.2% decline that forecasted. The surprise in the spending reading was only by .1%, but the report indicated that consumer ability to spend grew rapidly and that they were spending more than thought. This is bad news for bonds because increases in consumer spending translates into economic growth. The spike in income may also raise wage-inflation concerns once the economy begins to recover.
The Institute for Supply Management's (ISM) manufacturing index also exceeded forecasts, however, by a much more moderate amount. The index rose to 42.8 last month, compared to predictions of 42.3. This means that surveyed manufacturers were more optimistic about business conditions than in April and by a wider margin than analysts had expected. This is also bad news for bonds because expanding manufacturing activity means the economy may be stabilizing.
There is no relevant data due to be posted tomorrow, but Wednesday has two reports scheduled for release. The first and possibly the only relevant news is the Commerce Department's release of April's Factory Orders data late morning. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much change in rates this month. Current forecasts are expecting to see an increase in orders of 0.3%.
The second report of the day may have a noticeable impact on the markets or be a non-factor depending on its results. The Institute for Supply Management will release its services index late Wednesday morning. It is expected to show a reading of 45.0, with the same principals as Monday's manufacturing index. If this reading varies greatly from forecasts, we may see volatility in the markets and mortgage rates. However, if its results are in the general area of expectations, it will likely have no influence on the markets and mortgage pricing.
April's Personal Income and Outlays data was posted at 8:30 AM, but it showed stronger than expected readings in both portions. It revealed an increase in income of 0.5%, which was a large variance form the 0.2% decline that forecasted. The surprise in the spending reading was only by .1%, but the report indicated that consumer ability to spend grew rapidly and that they were spending more than thought. This is bad news for bonds because increases in consumer spending translates into economic growth. The spike in income may also raise wage-inflation concerns once the economy begins to recover.
The Institute for Supply Management's (ISM) manufacturing index also exceeded forecasts, however, by a much more moderate amount. The index rose to 42.8 last month, compared to predictions of 42.3. This means that surveyed manufacturers were more optimistic about business conditions than in April and by a wider margin than analysts had expected. This is also bad news for bonds because expanding manufacturing activity means the economy may be stabilizing.
There is no relevant data due to be posted tomorrow, but Wednesday has two reports scheduled for release. The first and possibly the only relevant news is the Commerce Department's release of April's Factory Orders data late morning. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much change in rates this month. Current forecasts are expecting to see an increase in orders of 0.3%.
The second report of the day may have a noticeable impact on the markets or be a non-factor depending on its results. The Institute for Supply Management will release its services index late Wednesday morning. It is expected to show a reading of 45.0, with the same principals as Monday's manufacturing index. If this reading varies greatly from forecasts, we may see volatility in the markets and mortgage rates. However, if its results are in the general area of expectations, it will likely have no influence on the markets and mortgage pricing.
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