WR Starkey Mortgage News Market Comment - Week of November 2nd, 2009 Mortgage bond prices rose last week pushing mortgage interest rates lower. Rates spiked higher Monday morning as stocks surged and the Treasury auctions loomed. Fortunately, foreign demand for the notes was solid, helping to keep mortgage rates low. The stock markets remained volatile all week with the Dow Jones index swinging by triple digits both up and down. For the week, interest rates improved by about 1/4 of a discount point. The Fed meeting on Wednesday will be the most important event this week. Productivity and employment figures are likely to move the market. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis ISM Index Monday, Nov. 2, 2009 53.0 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. Factory Orders Tuesday, Nov. 3, 2009 Up 1.0% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. ADP Employment Wednesday, Nov. 4, 2009 Down 190k Important. An indication of unemployment. A larger decrease in payrolls may bring lower rates. Fed Meeting Adjourns Wednesday, Nov. 4, 2009 No rate change Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. Preliminary Q3 Productivity Thursday, Nov. 5, 2009 Up 5.8% Important. A measure of output per hour. Improvement may lead to lower mortgage rates. Employment Friday, Nov. 6, 2009 Unemp. @ 9.9%, Payrolls -166k Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates Volatility Likely The likeliness of mortgage interest rate volatility this week is very high considering the abundance of important economic releases. Each piece of data has the ability to cause volatility in the financial markets. Floating ahead of the data exposes a person to a tremendous amount of risk. It is possible for interest rates to improve if the data shows weakness in the economy with few price pressures. However, any surprises will likely be bad for mortgage interest rates. Governmental actions in addition to the economic data continue to weigh upon the financial markets. We are really in uncharted territory here with the wobbly underpinnings of the economy. Credit remains tight, as lending has become more stringent. However, there still remain funds available. Real estate transactions continue to take place despite perceptions to the contrary. The important thing to remember is that even the Treasury officials trying to shore the economy do not know exactly what the future holds. With this in mind, be cautious during these times of economic uncertainty and be ready to lock in the event interest rates start to spike higher. Market Comment - Week of October 26, 2009 Mortgage bond prices ended the week nearly unchanged despite considerable market volatility. Trading was up and down all week. Rates improved the first portion of the week as stocks fell below key psychological levels. Unfortunately a reversal the middle portion of the week eroded the earlier improvements. Data was mixed with tame inflation readings but generally stronger than expected economic activity. For the week, interest rates were near unchanged. The Treasury auctions will take center stage again this week. If there is strong foreign demand it will likely spill over to the mortgage bond market. Weak auctions will likely result in mortgage interest rate increases. Employment cost index data will also be carefully watched. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis 2-year Treasury Note Auction Tuesday, Oct. 27, 2009 None Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. New Home Sales Wednesday, Oct. 28, 2009 Up 2.6% Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. 5-year Treasury Note Auction Wednesday, Oct. 28, 2009 None Important. $41 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Q3 Advance GDP Thursday, Oct. 29, 2009 Up 3.1% Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. 7-year Treasury Note Auction Thursday, Oct. 29, 2009 None Important. $31 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Personal Income and Outlays Friday, Oct. 30, 2009 Unchanged, Down 0.4% Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates. Q3 Employment Cost Index Friday, Oct. 30, 2009 Up 0.5% Very important. A measure of wage inflation. Weakness may lead to lower rates. U of Michigan Consumer Sentiment Friday, Oct. 30, 2009 70.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates Existing Home Sales Last week's existing home sales data shocked the market with a stronger than expected increase. Sales rose 9.4%, considerably stronger than the expected 5.5% increase. Some analysts attribute the surge in sales to the $8000 tax credit that is currently set to expire at the end of November. Lower home prices and historically low mortgage interest rates also factored into the increase. From a national perspective this is a positive report. However, the fact that some major metropolitan areas of the country failed to see improvements is an example of the axiom that real estate is local. There is still uncertainty regarding the future state of the economy. Mortgage rates are great. Take advantage of them while that remains the case. Market Comment - Week of October 19th, 2009 Mortgage bond prices fell sharply last week driving mortgage rates higher. Rates were under pressure from better than expected economic news and rising stocks. Retail sales, weekly jobless claims, and industrial production data were all better than expected. The improved economic outlook had investors flocking to buy stocks, which helped the Dow Jones index to close over 10,000. For the week, interest rates rose nearly 7/8 of a discount point. The producer price index data to be released Tuesday will be the most important data this week. Any signs of inflation will generally not bode well for mortgage bonds. The Fed "Beige Book" will factor into trading this week. Stock strength and dollar valuation will play a pivotal role in mortgage interest rates as well. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Housing Starts Tuesday, Oct. 20, 2009 Up 1.5% Important. A measure of housing sector strength. Weakness may lead to lower rates. Producer Price Index Tuesday, Oct. 20, 2009 Up 0.1%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates. Fed "Beige Book" Wednesday, Oct. 21, 2009 None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. Leading Economic Indicators Thursday, Oct. 22, 2009 Up 0.8% Important. An indication of future economic activity. A smaller increase may lead to lower rates. Existing Home Sales Friday, Oct. 23, 2009 Up 5.5% Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. Housing Starts Housing starts data is a leading indicator of the state of our economy. This report, provided by the Bureau of the Census, takes into account data from both single-family homes and multi-family dwellings. Building permits are also released with the housing starts data. By knowing the number of permits issued monthly, analysts can attempt to estimate for the upcoming months. Normally, starts are 10% higher than permits since all locations are not required to have a building permit. Housing starts and permits give a warning of future economic activity. In effect, a rise in housing starts can lead to a fall in the bond market and vice versa. Consumers tend to hold off on the purchase of new homes, new cars, and other big-ticket items if they are worried about the future of the economy. Housing is an important part of our economy. Continued declines in housing starts can lead to continued economic slowdown and essentially a deeper recession. On the other hand, increases in housing starts could signal a possible reversal. From the opposite perspective, changes in interest rates often lead to changes in housing starts. High interest rates can cause a significant decline in home sales, which can lead to a drop in housing starts. Just the opposite happens when rates drop and is one of the additional reasons the Fed is trying to keep rates low. Low mortgage rates affect both home sales and housing starts. The housing market across the country is a vital component in sustaining the economy. For some time homeowners generally saw an increase in the value of their homes. Unfortunately now that has all changed. The softening of the housing market tied to credit concerns continues to have many worried. Most economists believe more pain is headed our way from the housing sector. There is still uncertainty regarding the future state of the economy. Mortgage bonds have been volatile and improvements are not a given despite the recent Fed efforts to purchase mortgage bonds. The good news is that mortgage interest rates remain historically low. Be cautious. Market Comment - Week of October 12th, 2009 Mortgage bond prices fell last week pushing mortgage interest rates higher. The Treasury auctions were mixed with the 3 and 10-year auctions showing decent foreign demand. Unfortunately the 30-year auction was a huge disappointment and caused mortgage interest rates to worsen Thursday. The fear of future rate hikes sent mortgage bonds lower Friday pushing mortgage interest rates higher. For the week, interest rates rose by about 1/2 of a discount point. The consumer price index will be the most important release this week. Any signs of inflation will generally not bode well for mortgage bonds. Retail sales and the Fed minutes are also likely to factor into trading this week. Any surprises may lead to mortgage interest rate volatility. -------------------------------------------------------------------------------- Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Retail Sales Wednesday, Oct. 14, 2009 Down 2.0% Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. Business Inventories Wednesday, Oct. 14, 2009 Down 0.8% Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. Fed Minutes Wednesday, Oct. 14, 2009 None Important. Details of the last Fed meeting will be thoroughly analyzed. Consumer Price Index Thursday, Oct. 15, 2009 Up 0.2%, Core up 0.1% Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. Philadelphia Fed Survey Thursday, Oct. 15, 2009 None Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Industrial Production Friday, Oct. 16, 2009 Up 0.1% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. Capacity Utilization Friday, Oct. 16, 2009 69.7% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. U of Michigan Consumer Sentiment Friday, Oct. 16, 2009 73.5 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Tax Credit A slew of professionals tied to the housing sector made eager pleas to Congress last week requesting the $8000 first time homebuyer tax credit be extended. The benefit was part of the stimulus plan and is set to expire the end of November. The White House indicated the program "helped the economy" and led to "quite a bit of success" and noted consideration of extending the program. There are additional proposals in the Senate to not only extend the program but also to increase the tax credit and remove the first time homebuyer qualification. Unfortunately the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the isle concerned. The House voted Thursday to extend the credit for American service members another 12 months. Both parties have members pushing for the extension to apply to all purchasers. Analysts indicate some sort of extension is very likely. Last week was a great example of the danger of thinking rates would always improve. The good news is that despite last week's bounce higher, rates still remain historically favorable.