Real Estate and Mortgage Market Update for Wednesday 02-22-2012

Interest rate markets started a little better this morning with stock indexes in the US weaker and selling in the Europe stock markets. Europe’s purchasing managers. Data out in Europe was weaker than estimates and still concerns that Greece’s austerity agreement is so severe its economy will continue to decline and in time the country will not be able to achieve the goals set out in the agreement with the IMF, the EU and the ECB. European stocks retreated for a second day after a report showed services and manufacturing output in the euro area unexpectedly contracted in February. The composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January; estimates were for the index to come at 50.5. A separate report showed German services and manufacturing expansion unexpectedly slowed in February amid declining orders at factories.

Fitch lowered the rating of Greek debt to C from CCC, saying Greece is highly likely to default on its debt.  U.S. treasuries are also betting that Greece will default, as a reaction the U.S. bond market will continue to be well supported on sell-offs.  Pulling the other direction, investors are increasing concerns on  inflation to six-month highs in trading of Treasury Inflation Protected securities.  Inflation fears won’t dissipate with interest rates at these low levels, however we see little pricing pressure in labor costs or commodities like crude oil.  Crude has jumped over $6.00/barrel in the last couple of weeks, mostly on Iranian fears.  When global equity markets increase crude follows but higher energy prices will very likely curb discretionary consumer spending and dampen the optimistic economic outlook.

A couple of technical levels were tested and held yesterday;the 10-Year Note yield increased to 2.06% where we have support at 2.08% area, the DJIA tested 13K yet backed away into the close (12,996).  Prior to 930am the DJIA traded down just 4 points while the 10-Year Note traded at 2.05%; not much change from yesterday’s closes (MBS prices at 9:00 +1/32 (.03 bps).

At 930am the DJIA opened down -11, 10-Yer Note up +6/32 at 2.04% (-2 bps) and MBS prices up +5/32 (.15 bps).  MBS prices were generally unchanged until 920am so early pricing doesn’t likely reflect the better levels at 930am.

At 1000am January Existing Home Sales increased 4.3% from December against forecasts of  up +1.6%.  December sales however were revised to -0.5% from +5.0%.  According to NAR there is a 6.1 month supply of homes; -0.4% to 2.31 million, the lowest level since March 2005.  Distressed sales accounted for 35% of all sales compared to 32% in December.  There was little initial reaction to the report.

At 100pm the Treasury will auction $35B of 5-Year Notes.  Yesterday’s 2-Year Note auction met with OK demand but not as strong as traders were expecting.

mortgage applications decreased 4.5% from one week earlier, according to data from the mortgage Bankers Association’s Weekly mortgage Applications Survey for the week ending February 17, 2012.  The Refinance Index decreased 4.8% from the previous week.  The seasonally adjusted Purchase Index decreased 2.9% from one week earlier.  The unadjusted Purchase Index increased 1.4 percent compared with the previous week and was 9.2 percent lower than the same week one year ago.  The four-week moving average for the seasonally adjusted Market Index is down 0.30%.  The four-week moving average is down 3.21% for the seasonally adjusted Purchase Index, while this average is up 0.33% for the Refinance Index.  The Refinance share of mortgage activity decreased to 80.1% of total applications from 81.1% the previous week.  The adjustable-rate mortgage (ARM) share of activity decreased to 5.3% from 5.4% of total applications from the previous week.

In January 2012, among Refinance borrowers, 57.2% of applications were for fixed-rate 30-year loans, 24.4% for 15-year fixed loans, and 5.5% for ARM’s.  The share of Refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15-Year and 30-Year terms was 12.9% of all Refinance applications.  The average contract interest rate for 30-Year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.09% from 4.08%, with points increasing to 0.53 from 0.51 (including the origination fee) for 80% loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.32% from 4.30%, with points decreasing to 0.42 from 0.44 (including the origination fee) for 80% loans.  The average contract interest rate for 30-Year fixed-rate mortgages backed by the FHA remained unchanged at 3.87%, with points decreasing to 0.41 from 0.78 (including the origination fee) for 80% loans.  The average contract interest rate for 15-Year fixed-rate mortgages increased to 3.38% from 3.33%, with points decreasing to 0.37 from 0.40 (including the origination fee) for 80% loans.  The average contract interest rate for 5/1 ARMs increased to 2.94% from 2.93%, with points increasing to 0.44 from 0.42 (including the origination fee) for 80% loans.

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Real Estate and Mortgage Market Update for Tuesday 02-21-2012

Greece got its bailout money early this morning.  Yesterday Europe’s markets rallied on the news, today Europe’s equity markets are weaker.  Finance ministers awarded 130 billion euros ($173 billion) in aid, engineered a central-bank profits transfer and coaxed investors into providing more debt relief in an exchange meant to tide Greece past a March bond repayment.  Stocks fell and the euro fluctuated as investors speculated the deal won’t fix Greece’s long-term challenges.  The assistance brings at least 386 billion euros to the sums spent or committed to save Greece, Ireland and Portugal from bankruptcy.  A step in the right direction, but still some hurdles remain.  Greece has to enact the prescribed austerity and economic reforms that could prove too much to deliver amid a fifth year of recession, and risk falling foul of social unrest and upcoming elections.  Greece met a key condition for aid by spelling out 325 million euros in additional spending cuts.  The International Monetary Fund (IMF) must now decide how much it is willing to contribute to the package.  While a euro-zone statement spoke of a “significant contribution” from the IMF to the three-year loan package, it was unclear whether the fund would stick to its practice of delivering a third of the aid money.  Greece isn’t going to be left all alone dealing with their budgets; a European Commission task force will  be put in place in Greece in an “enhanced and permanent presence on the ground” to improve the workings of the Greek bureaucracy, according to the statement.

For the moment Greece has stepped back from the cliff.  While there is a certain amount of relief around the world that Greece won’t default for now, the longer outlook isn’t that rosy.  Greece is unlikely to avoid defaulting on its debt.  The austerity and spending cuts achieved by EU leaders and Greek politicians is so draconian that in the end Greek citizens and politicians will not be able to carry out the demands placed on the conditions to get the bailout.  Likely not news to Europe’s leaders but they did manage to plug the dike while the EU wrestles with Portugal and Ireland.  That Greece will eventually fail isn’t a concern now.  In a year or two it will not be able to abide the rules set down unless the rules are relaxed.  Markets will worry about it later. 

U.S. interest rates are a little higher on the Greek news.  The 10-Year Note at 700am was down -10/32 at 2.04%.  There has been more lifting of the safety hedges that have been in place for months on concerns Greece would be forced into default, still unable to meet the demands from the EU and ECB.  U.S. stock indexes were a little better but not much with both markets still assessing the details from the Brussels summit.  Although treasuries are starting soft the MBS markets have improved this morning from Friday’s closes.  Recently the mortgage markets has held well in the face of a little weakness in treasury markets. 

There are no data points today.  This week’s economic calendar has January Existing and New Home Sales and $99B of Treasury auctions as main scheduled drivers.  Although Greece has dodged default there are still some key elements to be resolved like how much will private creditors have to swallow, and how much will the IMF contribute?  Those questions will be answered positively but still some concerns remain.

At 930am the DJIA opened up +28, the 10-Year Note down -12/32 at 2.04% (+4 bps), but mortgage prices continue to hold well, up 5/32 (.15 bp).  MBSs are seeing increased demand since the HARP 2 plan was announced, investors seeking yield seem less fearful of MBSs as they begin to realize that the new MBS coupons have goodloans instead of the bad loans that made up pools a few years ago.  The yield differential between the bellwether 10-Year Treasury and 30-Year mortgages is narrowing.  By 1000am the DJIA fell back to unchanged. 

Crude oil is up over $104.00/barrel this morning on increasing concerns over Iran and its sanctions; Iran saying it won’t sell oil to Britain and France.  The two countries don’t purchase much oil from Iran however it is the fear factor of further disruptions that is propelling oil prices higher.  In the last eight days crude has jumped $5.00/barrel.

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Real Estate and Mortgage Market Update for Thursday 02-16-2012

830am economic releases took the small improvements out of the bond market this morning and improved the weak stock index futures which were trading lower.  Weekly Jobless Claims were thought to be up 7K, as reported claims fell again by 13K to 348K, the lowest level in four years; Continuing Claims declined to 3.426 mil frm 3.526 mil last week.  January Housing Starts were in line, up 1.5% to 699K annualized units; single family starts though fell 1.0%.  January Building Permits were expected down 0.6% but actually increased 0.7%.  January Producer Price Index expected up 0.3% up just 0.1%, however the more important core (excluding food and energy) surprisingly increased 0.4%.  Inflation, the constant fear for fixed income investors, based on the January data is increasing a little.  Treasuries slipped on the data taking mortgage prices lower.  Fortunately for the bond market the Federal Reserve has made it clear that the inflation data it focuses on isn’t CPI (Consumer Price Index) but the personal consumption expenditures that accompanies the monthly personal income and spending data.  On a year-to-year basis the overall PPI up 4.1% and the core up 3.0%.

Three data points at 830am turned the 10-Year Note from up +5/32 in price to down -9/32 at 900am,the yield prior to 830am 1.92%, at 900am 1.97%.  MBS prices up +3/32 (.09 bps) prior to 830am, at 9:00am down  -7/32 (.22 bps).  DJIA futures prior to 830am down -50, at 900am up +7, not getting the bounce traders were expecting on the better claims and housing data.

At 930am the DJIA opened up +18, the 10-Year Note down -8/32 at 1.96% (+3 bps) and MBS prices down -6/32 (.18 bps).

Nothing new out of Europe last night about Greece.  Yesterday there were rather harsh comments from Greece officials toward Germany’s finance minister complaining that Germany wants Greece out of the EU.  Greek politicians continue to add more cuts in order to achieve the needed funds to avoid defaulting in March, frustration increasing as each time Greece believes it has met the criteria set out by the EU, IMF and ECB it seems it comes up less than what is demanded.  Greek citizens rioting and unsettling officials of the troika leading to more details and further austerity.

The final data today at 1000am is the February Philadelphia Federal Reserve Business Index expected at 10.0 from 7.3 in January, right in line at 10.2.  Interior components; New Orders Index 11.7 from 6.9,  Employment 1.1 from 11.6 in January and Prices Paid at 38.7 from 31.8.  Any index under zero is considered contractions, the higher the index the better the outlook.  Employment at close to zero and a big decline from January provides another perspective on the stronger decline in weekly claims earlier this morning.   There was no market reaction to the data in either stocks or bond markets.

Longer term interest rates continue to trade within a very tight range; essentially neutral, not bearish but not bullish either.  Safety into treasuries over the Europe debt issues continues but with less than in the past.  The 10-Year Note, driver for 30-Year mortgages is finding resistance at 1.90% and support at the 2.00% level.  MBSs are trading in an even tighter yield range.  The remainder of the day rate markets will track equity indexes and whatever any news out of Europe.

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Real Estate and Mortgage Market Update for Wednesday 12-15-2012

Interest rate markets started unchanged this morning.  At 830am the N.Y. Empire State Manufacturing Index,expected at 15 from 13.5 in January, jumped to 19.5; however the components were not that strong.  The New Orders Index at 9.7 from 12.1, Employment at 11.8 from 13.7 and Prices Paid at 25.9 from 26.4.  Stock market key indexes were stronger at 830am than at 900am with the DJIA up +40.  At 900am ahead of two more data points the 10-Year Note was unchanged as were mortgage prices. 

At 915am January Industrial Production was unchanged against forecasts of an increase of 0.6%; December Production however was revised from up +0.4% to up +1.0%.  January Capacity Utilization at 78.5%, about in line with estimates but December was revised from 78.1% to 78.6%.  Reaction was mute, no change in the bond market or in the stock indexes prior to the 930am open.  

At 930am the DJIA opened up +16, the 10-Year Note was unchanged and MBS prices on 30-Year Note was down -2/32 (.06 bps).

At 1000am Feruaryb NAHB Housing Market Indexwas expected at 26 from 25 in January, increased to 29; Single Family Sales at 30 from 25 in January, six-month out sales index at 34 from 29 in January.  A better report but no reaction to it in financial markets. 

The markets were quiet this morning and likely will stay that way until at least 200pm when the minutes from January 25th FOMC meeting will be released.  How much, if any, talk took place about the possibility of another easing move from the Federal Reserve and the discussions on how long to keep rates low.  The Fed’s outlook for the economic recovery isn’t as optimistic as in the private sector. 

Greece was dealt another blow in its efforts to get financial aid to avoid default next month.  Euro area finance officials are investigating delaying parts or all of the second bailout while still avoiding a disorderly default, Reuters reported, citing several European Union sources.  A decision slated for tonight on aid totaling 130 billion euros ($171 billion) was postponed until February 20th at the earliest.  Greek Finance Minister Evangelos Venizelos said Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.  Europe’s finance ministers canceled a Brussels meeting slated for today on concern about the lack of assurances from Greek leaders to stick to spending cuts.  They will hold a teleconference instead.  Meanwhile China said it will get more involved in Europe’s bailout effort.  China, which holds the world’s largest currency reserves, can provide help through avenues including the central bank and its sovereign wealth fund, said a People’s Bank of China governor.  In the past China has said it would help, but not likely unless Greece gets its bailout funds that continue to allude it.

 

mortgage applications decreased 1.0% from one week earlier, according to data from the mortgage Bankers Association’s (MBA) Weekly mortgage Applications Survey for the week ending February 10, 2012.  The Refinance Index increased 0.8% from the previous week to its highest level since August 8, 2011.  The seasonally adjusted Purchase Index decreased 8.4% from one week earlier.  The Refinance share of mortgage activity increased to 81.1% of total applications from 80.5% the previous week.  This is the highest Refinance share since January 20, 2012.  The adjustable-rate mortgage (ARM) share of activity decreased to 5.4% from 6.0% of total applications from the previous week.  The average loan size in the United States in January 2012 was $226,000.  Average loan size has been increasing in recent months, up from $225,000 in December 2011 and up from $207,000 in January 2011.  The average contract interest rate for 30-Year Fixed-Rate mortgages with conforming loan balances ($417,500 or less) increased to 4.08% from 4.05%, with points increasing to 0.51 from 0.44 (including the origination fee) for 80% loans.  The average contract interest rate for 30-Year Fixed-Rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.30% from 4.29%, with points increasing to 0.44 from 0.43 (including the origination fee) for 80% loans.  The average contract interest rate for 30-Year Fixed-Rate mortgages backed by the FHA decreased to 3.87% from 3.89%, with points remaining unchanged at 0.78 (including the origination fee) for 80% loans.  The average contract interest rate for 15-Year Fixed-Rate mortgages remained unchanged at 3.33%, with points increasing to 0.40 from 0.37 (including the origination fee) for 80% loans.  The average contract interest rate for 5/1 ARMs increased to 2.93% from 2.91%, with points increasing to 0.42 from 0.40 (including the origination fee) for 80% loans.

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Real Estate and Mortgage Market Update for Tuesday 02-14-2012

Prior to 830am treasuries and mortgage prices were up a little but generally unchanged.  At 830am January Retail Sales,expected up +0.8% overall and up +0.5% when auto sales are excluded, as reported it was a strange outcome.  Overall sales were up just 0.4% but when auto sales are eliminated sales were up 0.7% suggesting not many autos sold.  The reaction improved treasury and mortgage prices and pushed stock indexes lower.  Also at 830am January Import Prices were up 0.3% and export prices up 0.2%. 

German Finance Minister Wolfgang Schaeuble said Europe is better prepared for a Greek default than two years ago.  German investor confidence surged to a 10-month high in February as global growth improved and Europe’s debt crisis showed signs of abating.  Italian and Spanish borrowing costs fell to the lowest in at least 11 months at debt sales today as investors ignored downgrades by Moody’s Investors Service.  Euro-area finance ministers are due to convene in Brussels tomorrow for their second extraordinary meeting in a week after telling Greek officials to identify additional cuts of 325 million euros ($428 million).  The measures are among conditions that must be met by tomorrow for Greece to secure a 130 billion-euro rescue needed to avert financial collapse.  The comment that Europe is better prepared for a default in Greece might temper a default if Greece cannot meet requirements needed for the bailout.  No matter the day or the new Greece’s debt issues seem to go on forever, will it end soon?  The bond market this morning is seeing some buying, some over weaker retail sales but also some safety buys on Schaeuble’ s comments.

At 930am the DJIA opened down -30; the 10-Year Note was up +7/32 at 1.95%, MBS prices were up +6/32 (.18 bps) from yesterdays close.

At 1000am December Business Inventories, expected up 0.5%, as reported +0.4%, sales were up 0.7% with a 1.26 month inventory to sales ratio.  The equity market saw some initial selling on the data with rate markets edging a little higher in prices.

The 10-Year Note, better this morning, has moved to its 40-day average, for the last five sessions the note yield has been above it.  Interest rates continue to trade in a narrow range with not much changes in either mortgage rates or the yield on the 10-Year Note.  Tomorrow the Federal Reserve will release the minutes of the January 25th FOMC meeting, today like yesterday, we don’t expect much movement in either bonds or mortgage prices.  The rest of the session will focus on how equity markets trade; there is a growing belief that stocks are set to continue the recent rally.  Although opening a little weaker this morning if the market turns around and rallies as it did yesterday after opening weaker, it will take away any significant improvement in the bond and mortgage markets.

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California to Receive $18 Billion in Mortgage Settlement

On February 9, Attorney General Kamala D. Harris announced that California secured up to $18 billion for its distressed homeowners as part of a $25 billion national multistate settlement with the country’s five largest loan servicers. More than $12 billion will be used to offer short sales or write down loans over the next three years for about 250,000 underwater homeowners in California, according to the attorney general. Relief will go to areas hardest hit by the foreclosure crisis within the first year of the settlement.

Although the actual settlement has not yet been released, the attorney general has stated that other financial benefits for California include $849 million for reFinancing 28,000 borrowers who are underwater but current on their payments; $279 million restitution for 140,000 homeowners who were foreclosed upon between 2008 and 2011; $1.1 billion for unemployed homeowners, transitional assistance, and repairing blight; $3.5 billion to extinguish unpaid loans that remain after foreclosure for 32,000 homeowners; and $430 million to the state attorney general’s office for costs and fees. As part of a California guarantee, if the lenders fail to reduce principal balances by a minimum of $12 billion, they will be required to pay fines up to $800 million to the state.

The loans involved in this settlement are those owned or serviced by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial Inc. The settlement releases the five named lenders from certain federal and state claims pertaining to robo-signing and other foreclosure misconduct by the lenders. It does not affect any individual’s rights to bring legal action against a lender. It also does not apply to the majority of mortgage loans, which are those owned by Fannie Mae or Freddie Mac.

This mortgage settlement does not change any homeowner’s existing financial relationship with a settling lender. It does not relieve homeowners from any obligation. It does not require a settling lender to stop any foreclosure.

Homeowners seeking relief under the settlement agreement should contact their loan servicer or a HUD-approved housing counselor. More information including detailed FAQs is also available from the California Attorney General’s website, or visit the National mortgage Settlement website.

Real Estate and Mortgage Market Update for Monday 02-13-2012

Treasury and mortgage prices opened slightly lower this morning with stock indexes trading better.  Stocks advanced and the euro strengthened while German bonds fell after Greek lawmakers approved austerity plans to secure rescue funds.  Passage of the austerity bill puts the spotlight on a meeting of euro-area finance ministers Wednesday that must decide whether to approve the second bailout.  Rioters protesting the measures battled police and set fire to buildings in downtown Athens.  Austerity cuts are so severe that citizens are revolting, although parliament approved the budget cuts 199 to 74.  In this constantly fluid situation, it presently looks like Greece will avoid default getting the needed funds.  The key to approval of the budget is Germany.  If Germany likes it, it will get done, if not, no deal.  Greece’s debt problems are less a market factor today than it was a few months ago,  Markets have adjusted to whatever occurs with a strong bias that the EU, ECB and IMF will not let Greece go down now; later it is likely but not now.

After little data last week markets will face a number of key data points this week.  The FOMC minutes will attract a lot of attention.  Was there much discussion about another QE from the Fed?  The Fed and private analysts are presently at odds over the economic outlook this year and next.  The Fed lowered its GDP forecasts for 2012 and 2013 while private forecasts have been more optimistic.  Last week someone tossed out 15,000 or the DJIA and Barron’s put the number on the cover of this week’s paper.  The Fed isn’t buying it, seeing the economic recovery still very vulnerable.  As long as the data continues to improve as it has for most of the last two months, the Fed will not launch a new round of stimulus, it may however increase the purchases of MBSs to keep mortgagerates from increasing much.  That said, in our view if interest rates increase mortgagerates will also but much less than treasuries if the Fed continues to buy.

At 930am the DJIA opened up +50, the 10-Year Note was down -2/32 at 1.99% (+0.5%) and mortgage prices were down -1/32 (.03 bp).  Quiet so far this morning with no data to look to and not much enthusiasm about the Greek budget approval.  Traders and investors are believing that Greece will now get the funds to avoid default now.  A short term fix but markets don’t look forward more than a week or so these days.

The President will put forth his 2013 budget today; a ritual that in some sense has little meaning these days.  Congress hasn’t passed a budget in three years and won’t likely do it this year.  He calls for $1.5 trillion in tax increases as well as spending to boost jobs as part of a 2013 budget request that projects the deficit shrinking next year to $901B (2012 deficit projected at $1.3 trillion).  The tax increases would mostly fall on the wealthy, through a new 30% minimum tax on those earning more than $1 million annually, allowing Bush-era tax cuts to expire for families taking home more than $250,000 and capping the value of itemized deductions for top earners at 28%.  No news that Republicans don’t agree.  Most of the President’s budget has already been opposed.  Next month Republicans will come up with their budget. In the end there will be no Congressional approval of any budget with politicians deadlocked in ideological gridlock.

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Real Estate & Loans Market Update for Thursday 02-09-2012

Prior to 800am Treasuries were generally unchanged.  At 800am news wires lit up reporting that Greece has passed the austerity plans necessary to get the funds to avoid default on March 20^th.  The reaction sent the 10-Year Note yield to 2.04%, however the MBS markets held firm at unchanged.  While it appears that a deal within Greece on cutting spending has been accomplished, after all the false starts over the last six months markets are waiting for confirmation from the troika (ECB, IMF, and EU).  After 45 minutes the ECB said it had gotten the word that a deal has been reached.  European stocks rose for the first time in four days, U.S. index futures gained and the euro strengthened.  By 900am the 10-Year Note yield increased to 2.05% and a there was a little more pressure on MBS prices.  Greece faces a 14.5 billion-euro bond payment on March 20th and is struggling to obtain Financing to avert a collapse of the economy that could spark a new round of contagion in the euro area.

The ECB left interest rates unchanged at its policy meeting today.  ECB Chief Mario Draghi said the economic outlook faces “downside risks.”  “The economic outlook remains subject to high uncertainty and downside risks,” Draghi said at a press conference in Frankfurt today.  Last month, he said the outlook was subject to “substantial” downside risks.  The euro currency rallied on the Greek news and no change in interest rates but it was short lived and the currency backed off its strongest levels against the dollar, still however a little better at 900am.

Here in the U.S. Weekly Jobless Claims this morning were much better than what was expected.  Claims were thought to have increased a little last week; claims declined 15K to a new recent low of 358K for new filings.  Continuing Claims at 3.51 mil were up from 3.45 mil; Continuing Claims have been about this level for weeks. 

The 10-Year Note yield jumped to 2.06% on the Greek newsthen found support for the moment at 2.05%.  The equity market opened a little stronger at 930am on the news in Greece and the unexpected decline in Weekly Jobless Claims.  The DJIA opened up +15, the 10-Year Note opened at 2.04% and MBS prices were down just slightly -3/32 (.09 bps) and unchanged from 930am yesterday.

At 1000am December Wholesale Inventories, expected up +0.4% was reported up 1.0%; the higher inventory levels will likely increase Q4 GDP a little when the preliminary report is out on the 29^th. 

At 100pm the final auction this week; $16B of 30-Year Bonds.  Yesterday’s 10-Year Note auction met with good demand. 

The market reactions on the Greek news has been rather subdued.  The equity market was better but not much and the interest rate markets moved to their support level (2.05% on the 10-Year Note) and so far have held.  The MBS market slightly lower in price.  Traders and investors are taking the Greek news with a little grain of salt given the number of times in the past that failed.  Nevertheless there will be a deal for Greece to get the funds necessary to avoid default.  For the last four sessions the 10-Year Note yield has been increasing.  Traders were exiting those safety trades that pushed the 10-Year Note yield to 1.80%.  mortgage markets compared to treasuries have been stable with not much change while the 10-Year Note yield increased 25 bps from its low on Feb 1^st.

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Market Update for Wednesday 02-08-2012

In early trading this morning the 10-Year Note yield touched 2.00% ahead of the $24B 10-Year Note Auction later this afternoon (100pm).  mortgage prices started slightly weaker with both the 10-Year Note and MBS prices holding well so far, with no economic releases scheduled again today.  Stock index futures traded slightly better prior to the open at 930am.  At 900am this morning, after testing support at 2.00% the 10-Year Note was back to 1.98%, unchanged from yesterday and mortgage prices were also unchanged.

At 930am the DJIA opened generally unchanged (-3 points); the 10-Year Note was down -132 at 1.98% (unchanged) and mortgage prices were also unchanged.  Investors should have 100% of investments in equities because of valuations and higher returns than bonds, said Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager. 

Greece remains a major focus for markets as it struggles to come up with a debt relief plan.  Greece’s prime minister delayed a meeting of Greece’s political parties again yesterday, the second delay in as many days.Greek Prime Minister Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after he missed another deadline to secure a second aid package.  The ECB is prepared to swap its holdings of Greek government bonds to contribute to a reduction of the country’s debt burden, Dow Jones reported yesterday, citing unidentified people briefed on the talks.  The agreement could reduce Greece’s debt by as much as 11 billion euros, Dow Jones said.  A formal offer for the debt swap must be made by Febuary 13th to allow all procedures to be completed before the March 20th bond comes due.  Parliament may be called to vote on the terms of the write-down on February 12th, state-run Athens News Agency reported yesterday, without saying how it got the information.

mortgage applications increased 7.5% from one week earlier, according to data from the mortgage Bankers Association’s (MBA) Weekly mortgage Applications Survey for the week ending February 3, 2012.  The Refinance Index increased 9.4% from the previous week.  The seasonally adjusted Purchase Index increased 0.1% from one week earlier.  The four-week moving average for the seasonally adjusted Market Index is up 4.88%.  The four-week moving average is up 0.65% for the seasonally adjusted Purchase Index, while this average is up 5.72% for the Refinance Index.  The Refinance share of mortgage activity increased to 80.5% of total applications from 80.0% the previous week.  The adjustable-rate mortgage (ARM) share of activity increased to 6.0% from 5.6% of total applications from the previous week.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05%, the lowest rate in the history of the survey, from 4.09%, with points increasing to 0.44 from 0.41 (including the origination fee) for 80% loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.29%, the lowest rate in the history of the survey, from 4.33%, with points increasing to 0.43 from 0.41 (including the origination fee) for 80% loans.  The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.89%, the lowest rate in the history of the survey, from 3.96%, with points increasing to 0.78 from 0.61 (including the origination fee) for 80% loans.  The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.33%, the lowest rate in the history of the survey, from 3.36%, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80% loans.  The average contract interest rate for 5/1 ARMs decreased to 2.91% from 2.94%, with points increasing to 0.40 from 0.39 (including the origination fee) for 80% loans. 

At 100pm the Treasury will auction a new 10-Year Note, selling $24B of the notes.  Yesterday’s 3-Year Note didn’t do quite as well as previous 3-Year Note auctions.  Today’s 10-Year Note auction with the yield close to 2.00% on the current 10-Year Note will be a good test of demand after yields have increased over the last week.  If demand is weak look for the 10-Year Note to exceed 2.00%; a strong auction will likely rally the 10-Year Note and mortgages.  In the meantime the bond market will likely be relatively flat this morning ahead of the auction.

MBS markets are holding well from a technical perspective while the bellwether 10-Year Note is slightly bearish, trading above its 40-day average on the yield and the relative strength index above the pivotal 50 level.  That said, so far the 10-Year Note is holding its first support at 2.00%.  The outlook for the rate markets depends on three factors, (1) the Greek debt issues, (2) how the stock market trades and (3) today’s $24B 10-Year Note Auction.  As for lower rates ahead, the 10-Year Note has heavy lifting to do when it moves below 2.00%.  There is huge resistance at 1.80%.  mortgage rates don’t have much more improvement left at the moment, however there is not much likelihood mortgage rates will increase much either.

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Marketup Updates for Tuesday 02-07-2012

Very early this morning the U.S. stock indexes were weak following Europe’s equity markets.  The 10-Year Note at 700am was down -2/32.  By 830am however the 10-Year Note fell further, down 11/32 at 1.94% (+4 bps), MBS prices were down -2/32 (.06 bps).  This is another day with no economic data until 300pm this afternoon when December Consumer Credit is reported (expected up +$8.5B).  At 100pm the Treasury will auction $32B of 3-Year Notes,  Last month’s 3-Year Note Auction drew the largest demand on record for a 3-Year Note.

There was a little volatility early this morning when a story hit that Greece was close to a deal to avoid default.  It didn’t last long though as there were no follow-up details.  No one will jump the gun on Greece’s ability to get a deal with creditors resolved given that Greek officials have constantly said a deal was close and would be completed in “a few days”.

German Chancellor Angela Merkel said time was running out for Greece to accept conditions for a bailout.  Meanwhile Greek Prime Minister Lucas Papademos meets political leaders today to discuss more cuts needed to get a rescue package. They have already agreed to make further cuts this year equal to 1.5% of gross domestic product.  They have yet to decide how to recapitalize banks, ensure the viability of pension funds and reduce wages to increase the economy’s competitiveness.  Yesterday the Prime Minister was reported to have asked for a detailed analysis from his staff on how Greece will fair if it decides to simply default.

In this global economy, markets pay a lot of attention to what is occurring in Europe and China.  China’s industrial output growth will probably slow this quarter as the world economy cools and the euro area’s crisis worsens, the Ministry of Industry and Information Technology said today. “The global economy is slowing down, Europe’s sovereign-debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile,” the ministry said.  German industrial output unexpectedly dropped the most in three years in December as Europe’s debt crisis weighed on confidence and the global economic slowdown damped demand.  Production fell 2.9% from November, when it stagnated, the Economy Ministry in Berlin said today.  Economists had expected output to remain unchanged.

I guess it is obvious that Europe’s debt crisis is so extreme that coming up with any solution is elusive at best.  Banks won’t be able to take the haircut necessary, the ECB doesn’t have the funds to absorb much of the massive debt and the IMF won’t do much until there is some kind of assurance the EU countries can manage their budgets with huge spending cuts.  In the meantime the economy in Europe is teetering on the edge and holding back what might be a solid global economic rebound.  In the case of Greece, if it does default the repercussions in U.S. markets may not be as serious as investors now believe.  Estimates we hear are that the U.S. equity market might lose 3.0% to 5.0% if Greece defaults; not good but if that were all there is likely it would be recovered quickly.  Where the serious implications occur is a Greek default would likely lead to other sovereigns tossing in the towel unwinding the EU.

The DJIA opened down -20 at 930am, the 10-Year Note down -14/32 the weakest so far at 1.95% (+5 bps) and MBS prices holding but likely lenders will price defensively, at 930am -2/32 (.06 bp).

Federal Reserve Chairman Bernanke will testify on the economy at 1000am at the Senate Budget Committee.

Technically the 10-Year Note is presently testing its 40 day MA at 1.95%,a close above 1.95% would support a move to 2.00%.  The relative strength index is at neutral 50.  Although the note looks a little soft so far today, it is unlikely that interest rates will increase much.  Equally as we have commented a few times, we do not believe there is a lot left in the present rally.  The 10-Year Note has a wall at 1.80%.  It is in a range between 2.00% and 1.80% and likely will stay there.  mortgage rates also confined to a 15 to 20 basis point range in rates.

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Three tips for staging your home to sell

Today’s buyers are looking for turnkey homes. That is, they want to move right in without having to do a lot of work. Buyers with busy lifestyles pay a premium for listings that are in prime condition. Staging can make the difference between a listing selling or not, the time it takes to sell, and the ultimate sale price.

Sellers who are financially strapped often have a hard time accepting that they’ll need to invest in preparing a house for sale even though they may sell for less than they paid. Fix-up costs can mount up; your agent can help you prioritize so that you don’t waste money. It’s important to keep your goal in mind, which is to sell your house in a difficult market.

Recently, a home in an affluent city came on the market in “as is” condition. It had been lived in for decades without much upgrading. Although located in a desirable area, the listing was vacant, dark and showed poorly. The sellers refused to do any work to improve its appeal.

After months on the market with no significant interest, the sellers pulled the house off the market and made improvements. The wall-to-wall carpet was pulled up to reveal hardwood floors that were then refinished. Painters lightened the interior and a professional stager was hired to bring in furniture, artwork, house plants and accessories. The listing was put back on the market with a fresh look and sold right away.

HOUSE HUNTING TIP: Although listings staged by a good decorator show well and often sell quickly, you don’t need to spend a lot to put your home into shape for marketing. Most homeowners have too many personal possessions in their home from a sale standpoint. Decluttering is something most sellers need to do.

Consider hiring someone to help you sort, pack, donate and recycle items that you no longer want. You may be able to take a tax deduction for things you donate. Make sure to get a receipt. Your real estate agent should be able to recommend someone who can help you clear your house of clutter if you are overwhelmed by the project.

Your agent, or stager, may ask you to put away collections of art, personal photos, etc. This can be difficult for most sellers because, for them, it’s part of the emotional appeal of their home. Your house won’t look like your home after you’ve removed personal possessions and moved what’s left around to display the house to its best advantage.

That’s the point of the preparation process. You don’t want prospective buyers focusing in on your personal property; you want them to focus on the house. Keep in mind that how you live in your home and how it should look when it goes on the market are not the same.

Some sellers complain that their house looks too stark without all their possessions. Even so, it helps you to detach yourself emotionally from the property. Also, less personal property usually gives homes a more spacious feel. When buyers are looking for the most for their money, bigger is usually better.

To close the deal, a listing should be spotless and inviting. Bring in new house plants to put in strategic locations, like orchids in the bathrooms. In dark spots that need a dash of warmth and color, use bromeliads.

THE CLOSING: If you can’t pull this together yourself, or with the help or your agent, hire a good stager for a consultation or a proposal for full or partial staging.

By Dian Hymer

How to sell my house fast

Market Update for Monday 02-06-2012

Treasuries and mortgages opened unchanged this morning with no news.  Greece still can’t finalize anything on their debt workout.  It’s been three weeks and counting since Greek officials said they were close to an agreement with creditors.  Last week’s January Employment Report was much better than even the most optimistic forecasts and counter to the pessimistic outlook delivered from the Federal Reserve at the conclusion of the Jan 25^th FOMC meeting.  Not only was the employment data stronger but the two ISM reports for January (Manufacturing and Service Sector) were better than what had been expected.

European bank supervisors may discuss easing requirements for lenders to hold capital against sovereign debt this week as part of more than 30 meetings this month to track banks’ progress in complying with updated requirements, two people with knowledge of the discussions said.  After three weeks of discussions and nothing coming from it, Fitch said a Greek disorderly default “cannot be wholly discounted.”  “Fitch expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place,” the ratings company said in a statement today.  “However, a disorderly default, which may include an exit from the euro zone, cannot be wholly discounted.”  European leaders stepped up pressure on Greek politicians to accept the conditions for a 130 billion-euro ($171 billion) bailout, saying time was running out.

Today we have no scheduled reports.  This week the economic calendar doesn’t offer much. The Treasury will auction $72B of notes and bonds this week beginning tomorrow through Thursday.

At 930am the DJIA opened down -60, the 10-Year Note  down -3/32 to 1.94% (+1.5%) and mortgage prices up +1/32 (.03 bp).  Treasuries facing auctions this week are hanging back with yields unchanged after Friday’s drumming over the Jan employment report.

This Week’s Economic Calendar:

01/07/12: 0100pm $32B 3-Year Note Auction

0300pm December Consumer Credit (+$8.5B, +$20.4B in November)

01/08/12: 0700am MBA mortgage Applications

0100pm $24B 10-Year Note Auction

01/09/12: 0830am Weekly Jobless Claims (+3K to 370K; continuing claims 3.475 mil from 3.437 mil)

10:00am December Wholesale Inventories (+0.4%)

0100pm $16B 30-Year Bond Auction

01/10/12: 0830am December Trade Balance (-$48.2B)

0955am University of Michigan Consumer Sentiment Index (74.0 from 75.0)

0200pm January Treasury Budget (-$40.0B)

Treasuries continue to weaken this morning.  After opening slightly better the 10-Year Note at 1000am was down -4/32 at 1.94% (+1.5%) with MBS trade down -1/32 (.03 bp) at 1000am.  Technically still positive but softening now.  As we have noted countless times, the 10Year Note struggles when it falls below 2.00%, mortgage rates remain subject to treasuries and also have demonstrated an inability to fall when at the present levels.  Safe haven to treasuries has waned even with the potential of Greece deflating.  Traders don’t believe Greece will default even with nothing being finalized for weeks and the clock ticking for Greece to make its next payment next month.

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Market Update for Friday 02-03-2012

If the monthly employment data ever came close to forecasts the world would stop rotating.  The January Unemployment Rate fell to 8.3% from 8.5% in December and was expected unchanged in January.  Non-Farm Jobs increased 243K with forecasts up +135K; Non-Farm Private Jobs were +257K with forecasts up +170K.  November Non-Farm Jobs were revised from up +100K to +157K, Factory Jobs were +50K and Service Producing Jobs were +162K.  As for the decline in the Unemployment Rate, the implication is that many more unemployed have stopped looking for a job.  The reaction in financial markets was swift and the 10-Year Note yield increased 9 basis points to 1.90%, MBS prices declined 8/32 (.25 bp) as of 900am.  Stock indexes rallied, up 110 points on the DJIA and also rallied Europe’s markets.  The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey.

A week ago at the conclusion of the FOMC meeting Bernanke said unemployment was not likely to decline as the economy was faltering.  The Federal Reserve was so certain about the sluggish outlook it announced it would keep rates low until the end of 2014.  The Federal Reserve isn’t likely to back off their outlook on one employment report but trading this morning in the FF futures market is marked to the Federal Reserve increasing the FF rate at the end of 2013.  Markets now consider whether the Federal Reserve will increase buying of Treasury’s and MBSs.  The Federal Reserve purchased $2.3 trillion of debt in two rounds of quantitative easing.  At the conclusion of the Jan 25^th FOMC meeting Bernanke said he was considering another round of QE if the economy isn’t recovering.  After the employment report another easing move doesn’t seem likely now.

You can skip this paragraph if you have read it before.  Greek officials are out this morning saying a deal is almost complete with investors to fend off defaults by getting another infusion of cash.  For all of three weeks the deal has “almost” been completed.  Markets have become numb to the continual news that has had no substance; everyone now is from Missouri.

At 930am the DJIA opened up +110, the 10-Year Note down -27/32 at 1.92% (+10 bps) and MBS prices for 30-Year mortgages down -12/32 (.37 bps).  Technically, the 10-Year Note has some support at 1.93%, the high so far today.

At 1000am the January ISM Services Sector Index, expected at 53.0 from 52.6, as released the index jumped to 56.8 with every component better.  New Orders at 59.4 from 54.6, Employment at 57.4 from 49.8 and Prices Paid at 63.5 from 62.0.  The 10-Year Note and mortgages saw more selling while the DJIA popped up more.

Also at 1000am December Factory Orders, thought to be up +1.5%, increased 1.1% but November was revised to up +2.2% from +1.8%.

We have noticed that the 10-Year Note had technical resistance at 1.80%,the low yield back in mid-December; it failed so far.  The low on the 10-Year Note was 1.81%, triggered by the January Employment report this morning the 10-Year Note yield has moved to 1.93%, up 11 basis points this morning.  On numerous occasions I have commented that the 10-Year Note has a strong recent history that it can’t sustain long under 2.00% and moves from lows at 1.80% have all been swift.  The 10-Year Note has technical support at 1.93%.

The data this morning; the Employment and the ISM Services, were surprisingly stronger than markets were expecting.  The 10-Year Note is now likely to increase to test 2.00%.  Better economic outlook today with the data and no safety moves to treasuries over Europe at the moment.

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Market Update for Thursday 02-02-2012

It was generally a quiet open this morning with Treasuries fractionally weaker but MBS prices with a minor improvement.  At 900am the 10-Year Note was down -1/32 at 1.84% and MBS’s up +2/32 (.06 bp).  830am data; Weekly Jobless Claims were expected to increase a few thousand, as released the claims fell 12K to 367K; Continuing Claims reported 3.437 million from 3.567 million last week.  Continuing Claims are the lowest since Sept 6^th 2008.  Q4 Non-Farm Productivity was right on, up +0.7%, Q3 Productivity was revised from up +2.3% to +1.9%.  The dip in productivity in Q4 implies higher prices to some extent, however that isn’t likely with the U.S. economy soft.  Also at 830am Q4 Unit Labor Costs were expected up +0.7% but increased 1.2%,  again implying higher end costs for some goods.  Also there is no pricing power in the economy now. 

At 930am the DJIA opened up +11, the 10-Year Note down -2/32 at 1.84% (+0.5%) and MBS’s up +2/32 (.06 bp).

Still waiting; the world is waiting patiently for how Greece will dodge the default bullet.  Greece and its creditors are locked in talks over a debt-swap deal for the nation.  Bondholders last week lowered their demands for an average coupon on the new debt they would get after European officials demanded they take steeper losses.  The ECB is likely to refuse to show its hand on how it will help cut Greece’s debt burden until the deal is reached.  Two weeks ago Greece officials were saying a deal would be finalized quickly but now as it continues to drag on with nothing resolved we have to question just how close a deal is.  Close is good in horseshoes but is a little tenuous when nothing happens day in and day out. 

Earlier this morning the Challenger Jobs Report on layoffs was worse than expected.  Layoff announcements rose to 53,486 in January from 41,785 in December in what is not a good signal for tomorrow’s employment report.  At 12,426, announcements were heaviest by far in the retail sector which the report stresses is probably not a seasonal effect as post-holiday layoffs of temporary employees are not usually announced.  Remember this report is a count of announcements only.  Challenger suggests that the retail layoffs reflect restructurings and/or store closures or other cost-cutting measures in the retail sector (Bloomberg). 

The remainder of the day is likely to be quiet with January Employment out tomorrow morning.  The report is expected to show Non-Farm Jobs increased of 135K overall and Non-Farm Private Jobs increase of +170K.  The Unemployment Rate is expected unchanged at 8.5%.  The real Unemployment Rate is about 16.0% if those that have stopped looking are added back.  Usually the report sets off a lot of volatility as it rarely matches estimates. 

Federal Reserve Chief Ben Bernanke is about to testify in Congress.  Grilling’s from Congress are commonplace however nothing likely will emerge that will move markets in any substantive way.

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Market Update for Wednesday 02-01-2012

At 815am ADP reported its Private Jobs data for January; forecasts were for an increase of 200K jobs, as reported +170K.  ADP revised December job growth from 325K to 292K.  Prior to the report the 10-Year Note traded lower by 8/32 and the reaction to the weaker report was briefly back to unchanged but by 900am was down by -6/32 with MBS prices at 900am down -1/32 (.03 bp).  U.S. equity market trading prior to the open at 930am had indexes trading higher in line with better markets in Europe.  On Friday the BLS report is forecast to show the U.S. added 145,000 jobs, according to 81 economists in a separate survey, compared with 200,000 the previous month.  The unemployment rate is forecast to remain steady 8.5%. 

China reported an unexpected increase in manufacturing today which spurred rallies in Europe’s markets.  Borrowing costs in Italy fell slightly on sales to the lowest since October as stock gains spurred demand for riskier assets.  Portugal’s notes rose as borrowing costs declined at bill sales.  The German 10-Year yield rose two basis points, or 0.02 percentage point, to 1.81% at 152 p.m. London time after falling to 1.78% yesterday, the lowest since January 18, and the same yield as US 10-Year Notes.
At 930am the DJIA opened up +75, the 10-Year Note down -10/32 back to 1.83% (+3 bps) and MBS prices -3/32 (.09 bps).

Weekly MBA mortgage Applications for last week will be out at 700am today.  mortgage applications decreased 2.9% from one week earlier, for the week ending January 27, 2012.  The refinance Index decreased 3.6% from the previous week.  The seasonally adjusted Purchase Index decreased 1.7% from one week earlier.  The four-week moving average for the seasonally adjusted Market Index is up 4.11%.  The four-week moving average is up 2.48% for the seasonally adjusted Purchase Index, while this average is up 4.22 % for the refinance Index.  The refinance share of mortgage activity decreased to 80.0% of total applications from 81.3% the previous week.  The average contract rate for 30-Year Fixed mortgages with conforming loan balances ($417,500 or less) decreased to 4.09% from 4.11%, with points decreasing to 0.41 from 0.47 (including the origination fee) for 80% loans.  The average contract interest rate for 30-Year Fixed mortgages with jumbo loan balances (greater than $417,500) decreased to 4.33% from 4.39%, with points increasing to 0.41 from 0.40 (including the origination fee) for 80% loans.  This is the lowest 30-Year jumbo rate since MBA started tracking the series in January 2011.  The average contract interest rate for 30-Year Fixed mortgages backed by the FHA decreased to 3.96% from 3.97%, with points increasing to 0.61 from 0.57 (including the origination fee) for 80% loans.  The average contract interest rate for 15-Year Fixed mortgages decreased to 3.36% from 3.40%, with points increasing to 0.41 from 0.40 (including the origination fee) for 80% loans.  The average contract interest rate for 5/1 ARMs increased to 2.94% from 2.91%, with points decreasing to 0.39 from 0.41 (including the origination fee) for 80% loans.

Next up, at 1000am, January ISM Manufacturing Index,expected at 54.5 from 53.9; as reported 54.1 from a revised 53.1 in December; New Orders Index 57.6 from 54.8. Employment at 54.3 from 54.8 and Prices Paid at 55.5 from 47.5.  Not much of an initial reaction in either stock indexes of the bond and mortgage markets.

Finally today, December Construction Spending was expected up 0.4%, as reported was up +1.5% but November was revised lower to +0.4% from +1.2% as originally reported.

The Treasury announced next week’s quarterly refunding detailsthis morning; a total of $72B, $3B more than last month on the 30-Year Bond.

Technically, the 10-Year Note has once again found resistance at 1.80% for the moment.  The overall low yield was 1.70% back on September 23, 2011.  At the present level the 10-Year Note and MBS’s are looking a little overbought based on momentum oscillators.  If the bond market has run out of fuel, technically we would continue a bullish outlook as long as the 10-Year Note doesn’t move above 1.93%.  MBS’s have support at 103.08 bps, presently at 103.25 bps.

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