Real Estate and Mortgage Market Update for Friday 05-18-2012

Friday’s bond market has opened in negative territory with no relevant economic data being posted this morning, erasing a good part of yesterday’s afternoon strength. The stock markets are relatively flat with the Dow up 7 points and the Nasdaq up 1 point. The bond market is currently down 8/32, but due to strength late yesterday we should still see an improvement of approximately .125 of a discount point in this morning’s mortgagepricing.

Bond prices moved higher during afternoon trading yesterday, causing some lenders to improve their rates intra-day. If your lender did post revised pricing yesterday afternoon, you may see little change or a slight increase in this morning’s rates. However, if yourlender waited until this morning to reflect that afternoon improvement, you should see slightly lower rates compared to yesterday morning.

There is nothing of relevance scheduled for release today, so I would not be surprised to see a fairly calm day in bond trading, assuming the stock markets don’t rally or go into selling mode. If the major stock indexes move noticeably higher than current levels, we may see bond prices worsen, likely leading to upward revisions to mortgage rates later today. On the other hand, if the Dow and Nasdaq fall well into negative ground, we could see the bond market recover this morning’s early losses and mortgage rates move slightly lower.

Next week doesn’t bring us any major economic reports or other events that are likely to be highly influential to bond trading and mortgage pricing. There is a handful of relevant economic reports scheduled in addition to two semi-important Treasury auctions, but none of them are considered to be highly important to the markets. None of the reports are scheduled for release Monday, so weekend news and Monday’s early stock trading will likely drive bond trading and mortgage rates that day. Look for details on next week’s events in Sunday’s weekly preview.

Real Estate and Mortgage Market Update for Thursday 05-17-2012

Thursday’s bond market has opened flat despite a weaker than expected economic report. The stock markets opened in negative territory but have since improved off their earlier lows. The Dow is currently down 9 points while the Nasdaq has lost only 7 points. The bond market is currently unchanged from yesterday’s close, but we will still may see a slight improvement in this morning’s mortgage pricing due to strength late yesterday.

Yesterday’s afternoon release of the minutes from the last FOMC meeting didn’t reveal any major surprises but did indicate that there is concern about the economy and fiscal issues late next year. They hinted that the Fed may be prepared to do something to help boost economic growth if the economy does not pick up momentum on its own. The leading ideas are a QE3 program or extending the current campaign of swapping short-term holdings to long-term debt, known as Operation Twist. The renewed optimism about more stimulus coming from the Fed helped boost bond prices late yesterday and caused some lenders to slightly improve mortgage rates.

There were two pieces of economic data posted this morning. The first came from the Labor Department, who announced that 370,000 new claims for unemployment benefits were filed last week. This matched the previous week’s revised total, meaning there was no change from two weeks ago to last week. Analysts were expecting to see a slightdecline in new claims, so we could technically consider this data a bit favorable for bonds and mortgage rates. But, the truth is that it doesn’t carry enough significance to influence trading or rates with such a minor variance. Therefore, we are considering the data to be neutral and a non-factor in today’s pricing.

The second of the morning and the final report of the week was April’s Leading Economic Indicators (LEI). The Conference Board said late this morning that the LEI fell 0.1% last month when it was expected to rise 0.2%. This means the index is predicting flat economic growth over the next several months. That makes the results good news formortgage rates, but unfortunately this data is also considered moderately important so its impact on today’s bond trading and mortgage pricing has been minimal.

There is nothing of relevance scheduled for release tomorrow, so look for the stock markets and news from Greece to be the biggest factors in changes to mortgage pricing tomorrow. Stock gains will likely translate into bond weakness and higher mortgagerates, while stock losses should lead to an improvement to rates. Any progress in the Greece political stalemate will also influence the markets, particularly if something gives that indicates the current bailout agreement in place will be honored. That would probably fuel a stock rally and bond selling, meaning mortgage rates could move higher.

Weekly Economic Summary - Last week in review (May 7 – 11, 2012)

Last week, the National Association of realtorS^® said that of the 146 Metro cities surveyed, home prices rose in 74 of them in Q1 2012. This is up from 29 cities that saw an increasein home prices in Q4 2011. In addition, the National Association of realtorS^® stated that inventories for existing homes fell 22% since this time last year and are down 41% since the peak in mid-2007. While the housing market has a long way to go, this report was a nice step in the right direction.

There was also news from the National Federation of Independent Business, which said that its small business optimism index gained 2% in April as the survey revealed that companies have increased plans for hiring and investing in the future. While companies added new employees at a slower pace in April than in March; the index rose to 94.5, the highest level since February of 2011. Overall the report showed that our economy is improving but is still fragile. The state of our economy is part of the reason for the improvement in bonds (and home loan rates, which are tied to mortgage bonds) of late.

Another big reason that bonds and home loan rates have been improving is the uncertainty out of Europe. France elected a new president, and this change of the guard represents the ninth EuroZone leader swap since the financial crisis began. Greece is also back in the news and their citizens are not taking to the austerity measures either. The New Democracy government, a pro-bailout party, is having trouble gathering the support to rule the government. This has sparked some safe haven trading into our bonds, as investors see U.S. bonds as a safe place for their money.

Weekly Economic Forecast Third Week of May 2012

Interest rates are likely to continue lower on increasing fears Europe is facing defaults from Greece and increasing likelihood Greece will depart the EU.  If Greece were to exit the EU it may set up a domino effect with Ireland, Portugal and Spain to follow.  Europe’s attempt at severe austerity efforts to bring countries” fiscal spending under control has failed.  In Germany over the weekend Angela Merkel’s party suffered another defeat in local elections, last weekend another local election went against her.  Germany is the rock in Europe and voters are showing their resistance to any additional help from the country.  In Greece over the weekend the attempt to form a coalition government has failed leading now to another general election.  Most Greeks are rebelling against the austerity pledge Greek officials agreed on a few months ago.

This week after a week with little domestic economic data, there are a number of key data points on Tuesday, Wednesday and Thursday. April reports for the most part; Retail Sales, Consumer Price Index (CPI), Housing Starts and Permits, Industrial Production and Factory Use, the Philadelphia Federal Reserve May Index.  The minutes from the 4/25 Federal Reserve Open Market Committee (FOMC) meeting will get a lot of focus, looking for clues about another possible QE.  We expect the Federal Reserve will not initiate another QE but there are many analysts and economists thinking the Federal Reserve will ease one more time.  If the Federal Reserve were to ease again it would likely have to happen at the next FOMC meeting in June, after that the Federal Reserve will likely refrain with elections coming in November.

Weekly Economic Summary First Week of May 2012

The Jobs report showed that 115,000 jobs were created in April, with 130,000 private sector jobs offsetting government job losses. This number was a disappointment and below expectations. The only silver lining in the report were upward revisions to the previous month’s readings which added 53,000 more jobs than what was previously reported.

The unemployment rate dropped to 8.1% — the lowest since January 2009. However, thedecline was mainly due to the labor force shrinking by 300,000, rather than by robust job growth. As expected, we are starting to hear more and more about the Labor Force Participation Rate (LFPR). The LFPR dropped to 63.6, the lowest ratio since December 1981. Why is this important? The LFPR gives us a clear read of who is working and who is not.  And if someone is not participating, then they are probably receiving some sort of social security or unemployment insurance. The bottom line is that it is tough to pay down debt when there are not enough people participating in the labor force.

Overall the Jobs report was underwhelming and, unfortunately, further accommodative monetary policy or more bond buying (known as Quantitative Easing or QE3) will have a very limited effect on job growth. And the debt drama in Europe continues to escalate, as both Italy and Germany reported higher than expected unemployment rates, while Spain has slipped into its second recession since the financial crisis.

Real Estate and Mortgage Market Update for Monday 05-07-2012

Treasuries and mortgages are fractionally better this morning but not much. Friday the 10-Year Note pushed through 1.90%, a key technical resistance level. Stock indexes in pre-market opening were trading weaker supporting the bond market. In Europe over the weekend Greece and France voted out the leadership that drove the massive austerity plans that have crippled Europe. France elected Francois Hollande and ousted Sarkozy; Sarkozy and Germany’s Angela Merkel were the architects of the severe cuts in spending in the debt riddled countries of Greece, Portugal, Ireland, Italy and Spain that has routed what was left of the economies and driven unemployment to depressionary levels. The results of the elections in the two countries came after a tumultuous few weeks that saw the Dutch government fall as Britain’s conservative led coalition took a whipping in local elections. Most analysts believe voters in Europe are in favor of balanced budgets and good fiscal governance but the spending cuts are too severe and too quick. Germany and France, especially Germany, have forced unemployment higher and dealt the euro economy into a very deep recession.

Here in the U.S. the stock market had a bad week last week and we expect additional selling this weekas investors are increasingly concerned valuations in many of the “hot” issues have become too expensive. Europe’s recession is slowing China and investors see recent U.S. data as evidence the U.S. will slow. That the U.S. will slow growth flies in the face of the most recent Federal Reserve forecasts. Last week the Federal Reserve raised its outlook for GDP growth this year and next compared to their outlook in January. Uncertainty is the word of the moment.

At 930am the DJIA opened down -46, NASDAQ down -13, S&P down -4; 10-Year Note up +2/32 at 1.87% while mortgage prices up 2/32 (.06 bps).

This week Treasury will auction $72B of notes and bonds; $32B of 3-Year Notes tomorrow, $24B of 10-Year Notes on Wednesday and $16B of 30-Year Bonds on Thursday. There isn’t much in the way of key economic releases this week. This afternoon at 300pm March Consumer Credit; it is one our favorite reports each month although there isn’t a lot reaction when it hits. Credit is expected to have increased $11.0B after +$8.7B inFebruary; our focus is on revolving credit (credit card usage) not so much on the headline. Consumer Credit has been surging the last six months driven by non-revolving credit, credit in large part that’s used to fund vehicle purchases. Revolving credit, which also turned higher late last year, has however been lagging and contracted slightly for a second month in a row.

Weekly Economic Summary – Fourth Week of April 2012

After last week’s regularly scheduled meeting of the Federal Open Market Committee (FOMC), Fed Chairman Ben Bernanke acknowledged that conditions in our economy are improving modestly, but he noted that the housing market remains depressed. One example of this is new home sales, which fell 7.1% in March to 328,000 units on an annual rate.

Bernanke also noted that inflation is higher in the short-run due to higher energy costs, but that the Fed expects prices to tone down over the longer-term. Remember, inflation hurts the value of fixed investments like bonds (including mortgage bonds, to which homeloan rates are tied) so inflation staying in check is crucial when it comes to home loanrates remaining near record best levels.

One important subject the Fed didn’t mention in their Policy Statement was another round of bond buying to stimulate our economy (known as Quantitative Easing or QE3). This wasn’t much of a surprise because after several moves to prop up the economy the Fed must see where upcoming economic reports go before venturing to underwrite the economy further. If the housing market remains depressed and the economy doesn’t pick up steam, QE3 could be a very real possibility.

There was a bit of a sluggish read on our economy last Friday, after the Fed’s mid-week meeting. The advanced (first of three readings) of Gross Domestic Product (GDP) for the 1st quarter of 2012 came in at 2.2%, well below expectations. This was also well below the 3% final 4th quarter 2011 GDP reading. Within the report it showed that the personal consumption expenditure inflation reading rose at the fastest pace since the 2nd quarter of 2011. This is definitely something the Fed is watching closely.

As 2012 continues to unfold, inflation, the housing market, our sluggish economy, and our ever-growing debt are important issues that the Fed and government need to address. Seeing the debt crisis in Europe escalate puts a sense of urgency on our government to reign in our annual budget deficit and overall debt. This mix of factors will continue to impact the direction in which bonds and home loan rates move in the weeks ahead.

State-by-state Unemployment Chart

 

 

 

 

 

 

As you can see in the chart below, unemployment continues to be a concern around the nation. Watch for the Labor Department’s Jobs Report on Friday, to see how bonds and home loan rates are impacted.