Mortgage Market News for the week ending March 25, 2011

Treasury Will Sell MBS

With no major developments in Japan or the Middle East and little economic data on the schedule, mortgage markets had one of their quietest weeks of the year. The only significant market moving news was an unexpected announcement from the Treasury on Monday, which pushed mortgage rates a little higher. For the rest of the week, mortgage rates barely changed.

The Treasury announced on Monday that it will begin selling its remaining $142 billion in agency-guaranteed mortgage-backed securities (MBS) holdings. Beginning this month, the Treasury plans to sell up to $10 billion per month, as they wind down the emergency programs put in place in 2008 during the financial crisis. The expected increase in future supply pushed MBS prices lower. Mortgage rates, which are largely based on MBS prices, moved higher. The big question now is what the Federal Reserve plans to do with its larger $944 billion MBS portfolio. A similar announcement from the Fed would have a much larger negative effect on mortgage rates.

The housing sector data released this week was weaker than expected. February Existing Home Sales fell 10% from January. The inventory of unsold existing homes rose to an 8.6-month supply from a 7.5-month supply in January. Distressed sales accounted for 39% of all sales. Median existing home prices dropped 5% to the lowest level since April 2002. February New Home Sales fell 17%. As a result of price declines and continued low mortgage rates, home affordability is at the most favorable level in years, according to data from both the NAR and the NAHB.

Also Notable:

The Jobless Claims four-week average declined to the lowest level since July 2008

The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week

Gold prices rose to record levels near $1,435 per ounce

Portugal's sovereign debt rating was cut by S&P

Week Ahead The biggest economic event next week will be the important Employment report 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 gain of 170K jobs in March. Before the employment data, Pending Home Sales, Personal Income and the Core PCE price index will come out on Monday. Chicago PMI will come out on Thursday, and the ISM Manufacturing index will be released on Friday. Consumer Confidence, Factory Orders and Construction Spending will round out the schedule. There will be Treasury auctions on Monday, Tuesday, and Wednesday. The FDIC is expected to release its proposed definition of a Qualified Residential Mortgage (QRM) next week as well. This announcement will begin to clarify which loans will be subject to risk retention.

Mortgage Market News for the week ending March 18, 2011

 Rates Lower on Global Events

World events overshadowed domestic news in driving mortgage rates this week. The disaster in Japan and the violence in the Middle East helped push mortgage rates a little lower. Stronger than expected US economic data had just a small impact.

The current environment is rare in that unrelated events in different parts of the world are exerting such a strong influence on US mortgage rates. While global economic growth rates are always a significant factor, they generally shift at a gradual pace. What makes the disaster in Japan so unusual is that it produced a very abrupt decline in the economic outlook for Japan. Slower economic growth in Japan will likely contribute to slower US growth, which is favorable for mortgage rates. Uncertainty in the Middle East is also favorable for mortgage rates, as it leads to higher oil prices which slow economic growth. Changing conditions in the Middle East pushed rates in both directions during the week as violence increased in Bahrain, but may be diminishing in Libya.

A week with a packed economic calendar and a Fed meeting was pushed to the background by the news from other countries. This week's generally stronger than expected economic data might otherwise have caused mortgage rates to move higher. Rising food and energy prices produced higher than expected inflation readings in February. Core CPI inflation, which excludes food and energy, rose just 1.1% from one year ago, but it has been moving higher in recent months. The Fed statement contained no surprises and produced little reaction.

Also Notable:

• The Philly Fed regional manufacturing index surged to the highest level since 1984
• The Jobless Claims four-week average declined to the lowest level since July 2008
• The Fed statement provided a modest upgrade to the US economy
• The G7 intervened after the value of the yen relative to the dollar reached record levels

Week Ahead
Next week, Existing Home Sales will be released on Monday, and New Home Sales will come out on Wednesday. Durable Orders, an important indicator of economic growth, will be released on Thursday. The final revisions to fourth quarter 2010 GDP will come out on Friday, along with Consumer Sentiment.

Mortgage Rates Drop On Crisis in Japan

Mortgage Rates Drop On Crisis in Japan

17Mar11

Mortgage rates moved lower this week after the earthquake and subsequent nuclear fears in Japan sent investors toward U.S. Treasury bonds, putting downward pressure on both yields and interest rates, according to mortgage financier Freddie Mac.
That pushed the popular 30-year fixed mortgage to 4.76 percent during the week ending March 17, down from 4.88 percent last week and 4.96 percent a year ago.
The 15-year fixed slipped to 3.97 percent from 4.15 percent, and is more than a quarter-percent below the 4.33 percent average seen last year.
Meanwhile, the five-year adjustable-rate mortgage crept down to 3.57 percent from 3.73 percent, and sits about a half-point below the 4.09 percent average seen last year.
Finally, the one-year ARM dipped to 3.17 percent from 3.21 percent, and is about a point below the 4.12 percent average seen this time a year ago.
Remember, good news generally pushes interest rates up, while bad news generally leads to an easing in rates.
The mortgage rates above are good for conforming loan amounts at 80 percent loan-to-value; pricing adjustments may increase or lower the rate you ultimately receive, and mortgage points must also be paid.
Mortgage points averaged 0.7 on fixed mortgages and 0.6 percent on ARMs – I believe that includes the loan origination fee.
Jumbo loans continue to price a half percentage point or more higher than conforming mortgages.

Mortgage Market News for the week ending March 11, 2011

Mortgage Rates Improve

Concerns about the pace of global economic growth and continued violence in the Middle East helped mortgage rates improve this week. Very strong demand for this week's longer-term Treasury auctions was also favorable. As a result, mortgage rates moved lower during the week.

The fighting in Libya continued this week, and violence spread to Saudi Arabia. Geopolitical tensions generally benefit bonds as investors seek out relatively safer assets. Unrest in oil-producing nations has the added impact of pushing oil prices higher. When consumers and businesses must spend more for energy, they have less money to spend on other items. This slows economic growth and can reduce expectations for future inflation, allowing investors to accept lower yields.

Extremely strong demand for this week's 10-year and 30-year Treasury auctions reinforced the view that many investors are seeking to reduce the risk in their portfolios. Despite budget deficit concerns, US government-guaranteed securities remain one of the primary "safe" assets for global investors. Demand for the longer-term auctions was well above average from both foreign and domestic investors. Increased demand drives bond prices higher and yields lower.

Also Notable:
• February Retail Sales rose 1.0% from January
• Moody's downgraded Spain's sovereign debt rating
• Oil prices remained above $100 per barrel
• The Dow stock index dropped below the 12,000 level

Week Ahead

The biggest economic event next week will be Tuesday's FOMC meeting. Investors will be looking for an update on the Fed's plans for the quantitative easing program. 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 Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, an important indicator of economic growth, is scheduled for Thursday. Housing Starts will be released on Wednesday. Import Prices, Empire State, Leading Indicators, and Philly Fed will round out a busy week.

Mortgage Market News for the week ending March 4, 2011

Little Change in Rates

While investors continued to closely watch the events in the Middle East, there were few new developments there during the week. As a result, this week's important economic data had the greatest influence on mortgage rates. Daily volatility was high as investors reacted to the major economic reports, but mortgage rates ended the week essentially unchanged.

Much stronger than expected economic data during the week caused investors to prepare for the possibility that the economy is growing more rapidly than expected. The Chicago PMI manufacturing index rose to the highest level since July 1988, and the ISM Services index rose to the highest level since August 2005. Weekly Jobless Claims dropped to the lowest level since May 2008. Meanwhile, the Fed's Beige Book reported that many companies were passing through price increases due to rising commodity prices. As expected, mortgage rates reacted to the data by moving higher.

The results from Friday's Employment report were strong, but they did not exceed expectations. Against a consensus forecast for an increase of 200K jobs, the economy added 192K jobs in February. The Unemployment Rate declined to 8.9% from 9.0% in January. The gains were strong nearly across the board, with the exception of the government sector. Over the longer-term, the private sector must produce new jobs to sustain a recovery, so strength in the private sector was a good sign for the future. Average Hourly Earnings, a proxy for wage growth, fell short of expectations, remaining unchanged from January. Some investors were prepared for a much higher jobs number, and the on target results prompted a reversal of the rise in mortgage rates from earlier in the week.

Also Notable:

The January Core PCE price index was just 0.8% higher than one year ago

Bernanke upgraded the Fed's forecast for 2011 GDP growth by 0.5% to 3.5% to 4.0%

The ECB (European Central Bank) held rates unchanged

The Treasury will auction $66 billion in 3-yr, 10-yr, and 30-yr securities next week

Week Ahead After a big week, the Economic Calendar will be much lighter next week. The most significant report will be Retail Sales on Friday. Retail Sales account for about 70% of economic activity. The Trade Balance will come out on Thursday, and Consumer Sentiment will be released on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Treasury auctions recently have been market moving events.