Posted: 10/10/2008 8:48:00 AM
Today is the type of day you dont want to get out of bed. We are seeing an unprecedented global event and until this crisis eases, there is no where to hide. Everything is selling off with the exception of gold. Usually when the stock market sells off, mortgage backed securities benefit and rates move lower, but not the case. Hopefully, everyone locked their loans early in the week when rates on 30 year mortgages where around 5.5%, if you havent, you will see rates that are about .75% higher then just a few days ago.
The only economic news was the release of trade numbers. Economists where expecting the trade balance or imbalance to be at a -60.0billion but the number came in better at -59.1billion and the prices paid component shows that import prices fell by more then expected which is good news for inflation. However, these reports mean nothing today as panic is in the market.
Currently the Dow is down 366, oil is down 6.50 a barrell and gold is up 7.50. If you are planning on buying or refinancing you better lock lock lock. Do not float in this environment. We could see a turn around and lower rates soon but nothing is acting like it should.
Posted: 10/9/2008 7:00:00 AM
Our 5.5 fnma mortgage backed security is under selling pressure again today causing interest rates on mortgages to be higher. Even though the federal reserve cut the fed funds rate yesterday and odds are very good that they will cut again at the upcoming meeting on October 29th, it is having a opposite effect on mortgage rates. Please review yesterday's update as we posted a link to an article you can read on this topic. The big question at this point, is this a temporary move higher before rates start moving down again? All economic reports from around the world, all the speak from the treasury department, the feds all point to rates moving lower but until investors regain their appetite for mortgage backed securities we will have to wait.
In economic news we had the release of jobless claims. Economists where expecting jobless claims to fall from last months reading of 497,000 to 475,000. The actual number came in basically on target at 478,000. The continuing claims though are still at a 5 year high. This shows continued weakness in the labor market which is helping to keep inflation in check which is good for mortgage rates, but as i have been typing this update mbs have fallen to the lows of the day.
Tomorrow bring us the release of trade balance and import numbers. Historically speaking, these reports have a minimal effect on mortgage backed securities. We will let you know the numbers tomorrow. Hopefully, you took our advice yesterday and locked your loan as it could be a while before rates get back to prior days levels.
And as always, stay tuned to our blog and we will post updates as necessary.
Posted: 10/8/2008 7:42:00 AM
Today in a surprise move the federal reserve along with other central banks around the globe cut the fed funds rate by .50% to 1.5%. The fed funds rate is the rate of interest that 1 bank borrowers from another bank. Now, before you get all excited and think that mortgage rates are now .5% lower, they are not. The fed does not set rates on mortgages, investors set rates on mortgages by the buying and selling of mortgage backed securites. The fed fund rate is a small piece of the puzzle to what determines rates on mortgages. It is still our belief that rates will trend lower, but today rates are unchanged from yesterday.
In other news, we had the release of pending home sales. Economists where expecting a 1% drop but the number came in at a surprisingly stong rise of 7.4%. This is good news for the housing market as it appears home sales are improving, could we have found the bottom?
Investors appear to be very confused as to what to do with their money. The Dow futures this morning before the announcement of the surprise cut was down about 200 points, after the announcement the Dow shot up to positive 200 but then went back into the negative before opening. Currently the Dow is trading up 113 but it has been all over the place. Our 5.5 mbs also has been all over the place, lots of uncertainty as to what is going to happen. Now as i have been typing this update the Dow has now turned to the negative.
It still appears that floating is a safe call, but with all the uncertainty you may sleep better knowing that you locked in your rate today. Stay tuned and we will update you if the market turns for the worse and rates go higher.
For an excellent read on the topic of fed rate cut does not always lead to lower mortgage rates, read an update from back in Feb of this year, by clicking the following link http://www.mortgagenewsdaily.com/2282008_Mortgage_Rates_Fed.asp
And as always, stay tuned and we will update as needed.
As i was about to post this, our 5.5's mbs have sold off big time. Locking now makes sense as rates are going to be worse by about a .25 in discount. Here is good example of the fed funds rate has the opposite effect on mortgage rates. This could be a short term sell off as most indicators are still pointing to lower rates but those rates could be weeks to months from now.
Posted: 10/7/2008 7:13:00 AM
Today our 5.5 mortgage backed securities opened a little below yesterdays close. We had a stong day yesterday for mbs and today we appear to be in a holding pattern.
Today brings us the release of the minutes from the last fed meeting. These minutes gives investors insight into the thinking of the federal reserve board. We get this information at 2pm eastern time and if there are any surprises within, we will get back to you. Earlier the fed announced that they will start buying commercial paper. This news relates to us as it will create more liquidity. Initially, the Dow loved the news and shot higher but since has turned back to the negative.
As for rates, we dont have any clear direction as of yet today. There will more then likely be a struggle between the stock market and the bond market. If we have a big improvement in the Dow, it could be at the cost of bonds. MBS are off the lows of the day but still not back up to yesterdays close, but we should see the same rates today that we had yesterday. If you are closing soon, locking today may not be a bad idea, but for longer term closings, float club appears in order.
As i am finishing typing this update, our 5.5 FNMA mbs has improved back up to the closing level of yesterday.
Posted: 10/6/2008 6:37:00 AM
Our 5.5 FNMA bond has opened higher today resulting in about a .25 to .375 improvement in discount, this means rates are better for mortgages.
This week brings us very little in regards to market moving economic data. Today there are no relevant reports, Tuesday brings us the release of the minutes from the last Fed meeting, Wednesday brings us pending home sales, Thursday we get the release of jobless claims and Friday, the week is capped off with Import prices and trade balance. Historically, none of these reports are major market movers for our mortgage backed securites so it appears we will have to ride the wave of headline reports and tape bombs.
All major stock markets moved lower today and appears that our very own DJIA will also open lower. We are seeing a flight to quality with investors selling equities(stocks) and buying fixed income(treasuries and MBS). Treasuries are enjoying more buying and the spread, which is the difference in yield between mbs and treasuries, continues to stay at historically high levels. Float club is in session and it appears to be safe to stay in the pool!
Posted: 10/3/2008 7:14:00 AM
Today we got the release of the monthly jobs numbers for September and they were disappointing to say the least. Nonfarms payroll, which was expected to come in at a loss of 100,000 actually came in at a loss of 159,000 jobs. The unemployment rate held steady at 6.1% and hourly earnings only rose .2% compared to the .3% rise that was expected. These reports are very mortgage backed security friendly; however, mbs have done the complete opposite and sold off. You would expect that these reports would trigger a flight to quality, meaning investors selling equities and buying fixed income investments. Well, not the case today. One explanation is that investors feel that such a bad report will force the House of Representives to pass the $700 billion rescue plan, so investors are buying equities and currently the Dow is up 130 points. This rise in equities is being paid for by the selling of fixed income.
Today will sure be an interesting day with the rescue plan to be voted on, Wells Fargo and Citigroup appear to be in a spat over acquiring Wachovia bank, and we are having a slight rally in the Dow. The day is still early and as I have been typing this update we are starting to see mbs come off the lows. We will post back if the market turns south in a bad way but it is still our opinion that we are due for a rally in mbs and lower rates ahead.
For a more technical analysis and updated reports, click on the Mortgage Professional link at the top of the page.
Posted: 10/2/2008 7:57:00 AM
Today, our mortgage backed securities have opened higher and continue an upward trend, which is good news. We had the release of a couple economic reports which show continued weakness in our economy. First we had the release of the weekly jobless claims. Economists where expecting 475,000 but the number came in higher at 497,000. The more closely watched continuing claims has risen by 48,000 to 3.59 million which is the highest it has been since September of 2003. This continued weakness in jobs helps to keep wage based inflation in check so this report has helped mbs' improve today. Next, we had the release of factory orders where economists where expecting a drop of -1.8% but the number came in much worse at -4%. This is a sign of the continuing problems with companies obtaining credit, thus the need for the rescue bill to be passed.
Last night the Senate passed a new version of the $700 billion rescue plan by a vote of 74 to 25. The passage of this bill should help to reduce rates but we still need the House of Representatives to pass the bill. There is a lot of uncertainty of whether the house will pass it. Until this bill gets done, we will probably not see a big improvement to rates and investors are in wait and see mode.
In other news which also help improve mbs pricing is oil is down almost $4 and European economy is also struggling. We live today in a global economy, so as the global economy also is slowing which helps to reduce inflation. And as we have stated many times, the mortal enemy to mortgage rates is inflation as it eats away at the rate of return of your mortgage. You need to remember, your mortgage is an investment to some investor, so you might be paying a 6% rate of interest but that also means that some investor is earing a 6% return. As inflation rises, that 6% fixed return gets smaller and smaller. A lot of consumers have asked why are 15 year mortgages at a lower rate then 30 year mortgages? Well, since 15 years is a shorter term, there is less time for inflation to eat away at that fixed return, thus you get a lower rate.
Floating appears to be a very safe call but tomorrow brings us the big piece of chicken, the nonfarm payrolls. Economists are expecting a loss of 105,000 jobs and the unemployment rate to hold steady at 6.1%. We will let you know tomorrow the exact numbers.
Posted: 10/1/2008 7:34:00 AM
Today brings us the release of a couple economic reports. First, we had the release of the ISM index which economists where expecting a reading of 49.5 but the actual reading came in much worse at 43.5. This survey shows that are manufacturing segment is contracting and not expanding as readings under 50 show contraction and over 50 show expansion. Remember the general rule, bad news for the economy is generally good news for lower mortgage rates. We also had the release of construction spending which came in better then expected at a 0.0% change from the prior month. Mortgage backed securites, which opened much higher after yesterdays close, got an additional boost from these reports.
Currenly the Senate is in debate and will vote on the rescue plan brought to us by Sec. Paulson and Big Ben Bernanke. It appears that this important legislation will pass the Senate and be brought to the House of Representatives later this week for them to vote on again with slight changes.
On Friday, we will get the biggest report of the week, and the one report that can move the markets more then just about any other report, nonfarm payrolls. Currently economists are expecting a loss of 105,000 jobs from the prior month and the unemployment rate to hold steady at 6.1%. If these reports come in worse then expected, we should get an additional boost to mbs.
What does this mean for mortgage rates? It has been our opinion that mortgage rates are heading lower. This opinion is based on fundamental and technical analysis of incoming data and historical trends. So, floating right now seems to make the most sense but as always you need to consider your risk tolerance. We have stated many times, it is better to lock a rate when you should have floated then it is to float a rate when you should have locked. We feel the risk to floating is minimal at best and if you must lock, wait to later in the day as lenders will be looking to reprice for the better. Stay tuned to our blog and we will get back to you if things change.
Posted: 9/30/2008 7:41:00 AM
Today brought us the release of a couple economic reports and just like other reports we have recieved over the last couple weeks, nobody cares.
First, we had the release of the Chicago PMI which came in at 56.7. This is down slightly from last month but well within concensus estimates. Next came the release of consumer confidence which came in above estimates and higher then the prior month at 59.8. It will be interesting to see where this report comes in next month due to the present rescue bill and our current situation.
It appears we are going to continue are trip sideways in rates. After a disappointing House vote yesterday that resulted in no passage of the rescue bill, we will continue our pause mode with very little movement in rates. Until Congress can put aside their party politics and put the American citizens first, it appears this trend will continue and MBS will trade in a narrow range formed since the bailout a couple weeks ago of Fannie and Freddie. In related news, the Case Shiller home price index showed that month over month home values dropped .88% and year over year there has been a decline of 16.35%. Remember, real estate is all about location. Not every home in America has lost value and there are still many areas of the country that property values are inching up or worst case staying flat. Areas such as California and Florida have experienced bigger price declines where as areas such as Texas has experience very little if any decline.
As always, for a more technical anaylsis you can click the link at the top of the page for the professional blog which is intended for mortgage professionals. In that blog, more technical jargon is used and the average consumer may find it a bit overwhelming.
Posted: 9/29/2008 6:16:00 AM
Big news over the weekend is the rescue plan seems to have support and will be voted on today. Until this important legislation is passed, it seems we will continue to run in place and rates will continue to move sideways. I prefer to use rescue plan and not bailout as the government is not just giving the money to wall street. The government is getting assets which it can later sell to recoup the $700 billion and maybe just make a profit as it did during the savings and loan rescue of the 90's.
This week brings us a lot of important economic reports which historically move the markets, however, we have already had the release of 4 reports and it seems no one cares. We really need this bill to pass so the market can start acting like it should.
Todays reports:
1. Personal Income - economists where expecting a .2 increase after a -.6 fall last month, the number came in at a
disappointing -.5, this should be good news for mbs!
2. Personal Spending - economists where expecting a .2% increase after a .1% increase last month, the number came in
at a disappointing .0%, this should be good news for mbs!
3. Personal Consumption Expenditure, which measures inflation and as stated many times, inflation is the mortal enemy of mortgage rates. Economists where expecting a .2% increase after a .2% increase last month, the number came in right on at .2% but the year over year number is at a higher then the fed likes level of 2.6%, this is mixed news as the monthly number came in where expected but year over year is still above where the Feds want it to be.
Tomorrow bring us the release of the Chicago PMI, which measures the strength of the manufacturing segment of our economy and the release of Consumer confidence. Wednesday brings us the release of ISM index, another report on the strength of our manufacturing segment, and the ADP National Employment report which shows the number of new jobs created. This report is of less significance then the non farms payroll report which will be released Friday. Also on Friday we will get the rest of the employement numbers including national unemployment rate, hourly earnings and average work week.
In more news today, it is being reported that Citigroup will acquire Wachovia banking operations, another victim of the credit crisis. But like everything else lately, this big news item will take a back seat to the $700 billion rescue plan.
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