Last Friday mortgage prices increased a little, but not much; holiday trade generally doesn’t amount to much. This morning the bond and mortgage markets opened better with no data points today; this week however, is filled with data beginning tomorrow. The dollar is stronger again this morning, not what equity markets want to see, the stock index futures were lower as a result. The US rate markets are supported on concern the rescue for Ireland will fail to contain Europe’s sovereign-debt crisis, increasing demand for the safety of U.S. government debt. Next up are Portugal and Spain as Europe’s debt issues show little signs of being contained. The tensions between South and North Korea continue to be a concern but so far as these kinds of face offs go, it hasn’t been a major impact on the markets.

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Christmas shopping (yes, I said Christmas) was slightly stronger than last year. Consumer spending on Black Friday was up about 0.3%, with most retailers better but still remains an unfinished story. Not anyway scientific, I was out briefly on Sunday and wasn’t impressed with what I saw at the most prestigious malls in Indy, not as much traffic as one would have expected. Most analysts expect stronger Christmas sales than last year, but refrain from becoming too optimistic.

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More QE 2 Fed buying today; the Fed is scheduled today to buy $1.5B to $2.5B of Treasuries due from February 2021 to November 2027 and $6B to $8B in government debt maturing from May 2013 to November 2014. The central bank plans to focus about 86% of its purchases on notes due in 2.5 years to 10 years, leaving the 30- year bond as the security that most closely reflects market expectations for inflation. Since the Fed’s Nov. 3 announcement, the 30-year yield rose 0.28 percentage points, suggesting growing investor confidence in the central bank’s efforts to avoid deflation as the economy expands.

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Date Time (ET) Statistic For Market Expects Prior
11/30/10 09:00:00 AM Case-Shiller 20-city Index Sep 1.00% 1.70%
11/30/10 10:00:00 AM Consumer Confidence Nov 52 50.2
12/01/10 08:15:00 AM ADP Employment Report Nov 58K 43K
12/01/10 08:30:00 AM Productivity-Rev. Q3 2.40% 1.9
12/01/10 10:00:00 AM ISM Index Nov 56.5 56.9
12/01/10 10:00:00 AM Construction Spending Oct -0.50% 0.50%
12/01/10 02:00:00 PM Auto Sales Nov 3.71M 3.68M
12/01/10 02:00:00 PM Truck Sales Nov 5.35M 5.59M
12/01/10 02:00:00 PM Fed’s Beige Book Dec
12/02/10 08:30:00 AM Continuing Claims 11/20/10 4200K 4182K
12/02/10 08:30:00 AM Initial Claims 11/27/10 422K 407K
12/02/10 10:00:00 AM Pending Home Sales Oct 0.00% -1.80%
12/03/10 08:30:00 AM Nonfarm Payrolls Nov 130K 151K
12/03/10 08:30:00 AM Nonfarm Private Payrolls Nov 140K 159K
12/03/10 08:30:00 AM Unemployment Rate Nov 9.60% 9.60%
12/03/10 10:00:00 AM Factory Orders Oct -1.30% 2.10%

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Overall, the most important day of the week is Friday with the employment figures being released, but we may also see sizable movement in rates Wednesday. Friday’s employment data could cause a significant change in rates, but Wednesday’s ISM index is also one of the more important reports we see each month. If Friday’s data reveals stronger than expected results we may see rates spike higher after its release, possibly erasing any gains from the week. It will probably be the key to rates moving lower or higher for the week. I suspect it will be another fairly active week for the markets and mortgage pricing, so it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.

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Credit scores are becoming more and more important to home buyers.  Mortgage rate pricing is based in part on credit scores.  A home loan refinance may not make sense because a score is 1 point below a 680 or 720.  Someone with a 619 FICO score will have trouble qualifying for a mortgage to buy that first home.  Fair Isaacs now has a cool new tool to estimate a FICO score without pulling a credit report.  Check out the Free FICO® Credit Score Estimator.

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Reprieve after six straight days of worsening fixed mortgage rates. Rates on 15 and 30 year fixed rate purchase and refinance loans ended yesterday, October 28th in a positive (lower rate) direction.

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www.PaulCantor.info

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The House and Senate both approved H.R. 3081 which included the extension of the increased conforming loan limit in high cost areas. This extension covers conforming loans limits that are backed by Fannie Mae, Freddie Mac and FHA (Federal Housing Administration) and will be in effect through the new fiscal year which ends September 30, 2011.  The maximum amount of conforming and FHA loans will remain as high as $729,750.  Here are some of the conforming loan limits in Virginia:

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Richmond City MSA $528,750
Washington DC Metro $729,750
Charlottesville MSA $425,000
Winchester MSA $475,000
VA Beach/Norfolk MSA $428,750

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It is expected that President Obama will sign the legislation.

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www.paulcantor.info

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Mortgage Market Review

Sep 27, 2010

Mortgage rates ended last week pretty much unchanged from the beginning of the week.  As expected the Fed left rates unchanged and want to keep rates low for some period of time.  Mortgage bonds gained some ground in the mid week, which was lost due to some positive data and a rising stock market.  Generally speaking, stock market strength makes bonds less appealing to investors and leads to higher mortgage pricing.

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This Week:

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Date Time (ET) Statistic For Market Expects Prior
09/28/10 09:00:00 AM Case-Shiller 20-city Index Jul 3.30% 4.23%
09/28/10 10:00:00 AM Consumer Confidence Sep 53 53.5
09/29/10 10:30:00 AM Crude Inventories 09/25/10 NA 0.970M
09/30/10 08:30:00 AM GDP – Third Estimate Q2 1.60% 1.60%
09/30/10 08:30:00 AM GDP – Deflator Q2 1.90% 1.90%
09/30/10 08:30:00 AM Initial Claims 09/25/10 457K 465K
09/30/10 08:30:00 AM Continuing Claims 09/18/10 4450K 4489K
09/30/10 09:45:00 AM Chicago PMI Sep 56 56.7
10/01/10 08:30:00 AM Personal Income Aug 0.30% 0.20%
10/01/10 08:30:00 AM Personal Spending Aug 0.30% 0.40%
10/01/10 08:30:00 AM PCE Prices – Core Aug 0.10% 0.10%
10/01/10 09:55:00 AM U MI Consumer Sentiment – Final Sep 67 66.6
10/01/10 10:00:00 AM Construction Spending Aug -0.50% -1.00%
10/01/10 10:00:00 AM ISM Index Sep 54.8 56.3
10/01/10 02:00:00 PM Auto Sales Sep 3.8M 3.7M
10/01/10 02:00:00 PM Truck Sales Sep 4.9M 4.96M

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This week the bond and mortgage markets don’t have much data to look at until the end of the week; in the meantime Treasury will borrow $100B in 2 yr notes, 5 yr notes ands 7 yr notes on Monday through Wednesday. Interest rates on treasuries declined last week when the Fed said it would do more quantative easing to keep the economic recovery moving, if necessary. Markets jumped on the statement as if it is reality. Stock investors drove the DJIA up 253 points, sent the 10 yr note yield down 14 basis points in rate to 2.62%, while mortgage rates held generally unchanged.

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This week’s data has consumer confidence, the final Q2 GDP expected unchanged from previous reports at +1.6% growth, weekly jobless claims on Thursday expected to hold steady but down about 8K. Claims still hovering in the 450K a week range. Friday the critical Sept ISM manufacturing index is expected top have declined a little, from 56.3 to 54.5; the ISM report is one of the month’s more critical. With the Fed poised for more easing the 10 yr note, driver for mortgage rate direction, is likely to run out to test the low rate set back in August (25th) at 2.45%, trading at 2.62% at the end of last week. Mortgage rates however, are not likely to move much lower until the 10 yr can break into new low rates and that will require actual Fed easing. The elections so far haven’t had much impact on the bond market, but as the calendar ticks off investors will likely become a little more edgy—-both bullishly and bearishly

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On the heels of the disappointing existing home sales numbers yesterday, sales of new homes reach new low last month.  Other data pointing to a no-recovery is the orders for durable goods lower than anticipated.
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www.paulcantor.info

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We have some stating that inflation may be hitting sooner than expected.  This would mean higher mortgage rates.  Although nobody knows where the bottom of the rate will / have hit, their is no question that mortgage rates are at near all time lows and home owners and home buyers should take advantage of these.  Home affordability is very high.  It is better to buy than to rent.

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Inflation, not deflation, Mr. Bernanke Caixin Online

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www.paulcantor.info

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The Fed last week at its FOMC meeting came as close as it likely can in assessing the near future for the US economy as declining; “The pace of economic recovery is likely to be more modest in the near term than had been anticipated”. The Fed can’t outwardly get much more negative without a self-fulfilling prophesy; the statement ratified what was becoming increasingly obvious even to the bulls that staunchly resisted reality. At the meeting the Fed, increasingly concerned that the economy is teetering, initiated another quantative easing move when the FOMC said the Fed would continue buying treasuries, using pay downs on the $1.25T of MBSs it holds from last year. A clear sign the Fed “hopes” lower rates will help—-pushing on a string however, low rates alone will not stop the economic slide. The wake-up call should be obvious; until consumers are confident their jobs are secure and the housing sector improves lower rates won’t do the job.

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This week brings us the release of four reports that may influence mortgage rates, but only one of them is considered to be highly important. With no relevant auctions or speeches on tap, I suspect we will see much less movement in mortgage rates this week compared to the past couple of weeks. There is no relevant data scheduled for release tomorrow, so look for the stock markets to drive bond trading and mortgage rates.

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This Week’ Economic Calendar:

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Tuesday;

8:30 am July housing starts and permits (+1.2% and -2.3% respectively)

July Producer Price Index (+0.2%, ex food and energy +0.1%)

9:15 am  July Industrial Production (+0.6%, +0.1% in June)

July Capital Utilization (74.5% frm 74.1% in June)

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Wednesday;

7:00 am  MBA weekly mortgage applications

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Thursday;

8:30 am  Weekly Jobless Claims ( -9K to 475K)

10:00 am July Leading Economic Indicators (+0.2%)

Aug Philadelphia Fed Business Index (+7.5 frm +5.10)

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Three of the week’s four reports will be posted Tuesday morning. The first is July’s Producer Price Index (PPI) that gives us an indication of inflation at the producer level of the economy. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for an increase of 0.2% in the overall and a 0.1% increase in the core data reading. A larger increase in the c ore data could push mortgage rates higher Tuesday morning. If it reveals weaker than expected readings, we may see mortgage rates improve as a result.

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The second report of the day is July’s Housing Starts data. This report gives us an indication of housing sector strength and future mortgage credit demand. However, it isn’t considered to be of high importance to the bond market or mortgage pricing and usually doesn’t cause much movement in mortgage rates unless it varies greatly from forecasts. It is the least important of the week’s reports and is expected to show a small increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.

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July’s Industrial Production is the third. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets, but will likely not have much if an impact on mortgage rates due to the importance of the PPI reading. Current forecasts are calling for a 0.6% increase in production.

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The Conference Board will give us its Leading Economic Indicators (LEI) for July late Thursday morning. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker than expected reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Thursday if the stock markets remain calm. It is expected to show an increase of 0.2 % in the index, indicating minor economic growth over the next couple of months.

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Overall, look for Tuesday to be the busiest day of the week with the PPI being released. The rest of the week will likely be influenced more by stock prices than anything else, which may be quite volatile. Therefore, keep an eye on the markets and maintain contact with your mortgage professional if you have not locked an interest rate yet.

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Freddie Mac announced the results of its quarterly Product Transition Report Thursday.  Two quotes from  Freddie Mac  Chief Economist, Frank Nothaft sum it up:

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“Average interest rates on 30-year and 15-year fixed-rate mortgage loans fell pretty consistently through the latter half of the quarter, hitting 50-year lows in June according to Freddie Mac’s Primary Mortgage Market Survey®. The ability to lock in a principal and interest payment at below 5 percent for 30-years is rare enough. The fact that a 30-year fixed-rate mortgage can be obtained for 4.5 percent or a 15-year mortgage for 4.0 percent is an amazing opportunity for borrowers.”

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“The share of borrowers shortening their amortization terms is at its highest level in six years. In the second quarter of this year, 30 percent of borrowers who originally held a 30-year fixed rate loan refinanced into a 15- or 20-year FRM. If the borrower had a 30-year fixed rate loan at a 6.5 percent interest rate and a $200,000 principal balance, they could refinance and cut their payment by about $250 a month with a new 30-year fixed-rate loan or for about the same monthly payment as their old loan they could save some $70,000 in interest over the life of the loan with the shorter 20-year term loan.”

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www.PaulCantor.info

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