Austin Mortgage Blog

Archive for February, 2009

Our one trick pony (Federal Treasury) buying mortgage backs, attempting to keep mortgage rates low

Slip sliding away, you know the closer your destination , the more you slip sliding away.

Simon and Garfunkel hit song not only talks about lost opportunities in life but in mortgage pricing as well. Case in point:

• Weekly unemployment Claims up 36K to 667K, 
• Continuing Claims up 114K, both record highs
• Durable Goods, down 5.2%, more than twice the market’s expectation
• Completing the hat trick, New Home Sales fell to a new all time low 309K units. 

One would think with this type of glooming economic data that bonds would rally and mortgage pricing improve. Not the case. Currently, the 10 year note is off 14/32’s trading at a yield of 3.0%. As we mentioned yesterday, this is the line in the sand that will need to hold. If not, expectations will be for another 1 point loss to our target yield of 3.09% will develop.

The 30 year bond has also suffered, down 45/32’s to yield 3.68%. All of the above has its roots embedded in a few fundamental issues. First is the supply of treasuries coming to market. Today we will auction 22 billion of 7 year notes for the first time in 16 years. Flooding the market with paper is definitely weighing on the fixed income sector. Number two, a bear market rally is likely developing in stocks. Currently, the Dow is up over 80 points with investors smelling a rally within the bear market trend.

Financials are leading the charge as Fed Chief Bernanke reiterated a number of times how the government is not interested in nationalizing the banks. Mortgage backs have been the bright spot in fixed income, down 3/32’s as spreads between MBS and treasuries continue to tighten. Trouble is, we’re down over 1 point for the week. Technically, the chart has a bearish bias as 14 day slow stochastic and 8 day ADX are endorsing a bearish trend. Good news is we still have our one trick pony (Federal Treasury) buying mortgage backs, attempting to keep mortgage rates low.

Hang in there, the clouds will lift soon.

We expect the lower levels to hold and better mortgage pricing to emerge into next week

Sorry — this post was from yesterday — couldn’t get to WordPress!

Here it is:

With 5 minutes to go, stocks have rallied back from down over 150 points to nearly unchanged. With that trade, bonds set sail, falling off a cliff on the chart. Currently, the 10 year note is down 39/32’s (yield 2.94%) while mortgage backs are off 3/4th of a point.

We talked earlier about a close above 2.90% (yield) giving traders what we call a “breakout” pattern. Unfortunately, this will come to fruition, unless something miraculous happens in the last hour of cash trading. Given the breakout pattern is in vogue, the next target would be 2.99%-3.0% in yield on the 10 year note. The bearish tone is endorsed by sell signals on hourly charts but daily charts have not yet made a strong commitment.

Elliot wave patterns are also looking for a 5th wave high (rally) so there is hope. Expect mortgage pricing to worsen by at least another .50% over the next day or two (trading to the target of 3.0%) before any attempt at a rally will be made. We do however, expect the lower levels to hold and better mortgage pricing to emerge into next week, based solely on the weak economy and Treasury participation to help keep mortgage rates low.

Hang in there.

The mortgage banking world is changing right before our eyes

The 10 year note is up 17/32’s (yield 2.72%), mortgage backs up 1/32nd, and stocks up 80 points on the Dow.

Sir Bernanke is speaking on Capitol Hill and the President will address the nation tonight.

The mortgage banking world is changing right before our eyes so don’t take anything for granted.

This type of market will typically tread water until better info becomes available, forming a trending market

Both stocks and bonds have been a little sloppy today, trading in opposite directions.

Stocks opened on the plus side, getting a lift from White House statements talking about keeping banks and other financial institutions in private hands, not having any intentions of nationalizing them. Citibank, however, is back with hat in hand, looking for additional funds to keep the doors open. Looks like the tax payers could own as much as 40% of that mess within days.

The news initially rallied stocks and hurt bonds/mortgage backs. Since the open, stocks have lost their luster, currently down 160 points on the big board.

No news today, other than our politicians talking it up, but the balance of the week will be chocked full of Consumer Confidence and the FHFA House price index tomorrow, Existing Home Sales on Wednesday, Weekly Claims, Durable Goods, and New Home Sales on Thursday, and preliminary GDP/ Chicago PMI on Friday.

Sir Bernanke will be testifying tomorrow and Treasury Secretary Geithner will provide more details on banks/toxic asset bailouts on Wednesday. Throw in another 94 billion of treasury paper going to auction and you have a witches brew for volatility.

For now, the bulls have kept the market (treasuries/mortgage backs) from deteriorating further by holding above the lows of last week (high yield mark). Conditions do remain mixed as buy signals are present on daily charts but trend studies lack direction signals. This type of market will typically tread water until better info becomes available, forming a trending market.

Elliot Wave studies still remain bullish but need a new rally to make their case. Best to take the safety off and play a little more defense.

If this happens, your 401K which is now a 201K, will turn into a 101K…

Ah, meant to post this Friday….

Yesterday’s close on the Dow, a 6-year low, has brought back the flight to quality crowd who are hitting the offer for bonds, notes, mortgage backs, gold, and anything else that fall under the safe haven umbrella. Stocks took out the November low, punishing most sectors, especially the financials.

Fears of nationalizing Citi and B of A are doing the damage. S & P futures however, are still holding above the November low (740), now trading at 762. It is the last line in the sand and if violated, especially on a day end closing basis, should start another leg down towards 6000 (Dow). If this happens, your 401K which is now a 201K, will turn into a 101K. Fingers crossed for that level to hold.

Earlier today, CPI, inflation at the consumer level, came in spot on up .3% headline and up .2% core. The print left inflation unchanged for the 12 month period ending January 2008 while achieving the lowest level gain in 53 years. Fast money traders have done their best Sugar Ray Robinson imitation as the bob and weave trading is a fast moving target. When it comes to the economy, there is no quick fix on the road to redemption. The bad news is there’s probably more economic pain on the horizon to be endured as we wring out the excess. Time will heal the destruction but many are growing impatient with the White House, the Treasury, and questionable “plans” that look more like entitlement to me than anything else.

Technically, the buying today has kept the market from building on yesterday’s bearish trend. For the strength to be meaningful, we need to see a close below 2.73% on the 10 year note (currently at 2.728%). Elliot Wave patterns remain constructive but added and continued momentum is needed for this to be more than a one hit wonder. Currently, the 10 year note is plus 35/32’s, mortgage backs up 10/32’s, and stocks off 124 points on the Dow.

Be careful out there.

Looks good but as many trader has said in the past, “don’t get married to it”

Meant to post this yesterday….

Doom and gloom as grabbed the stock market by the throat this morning, sending stocks reeling for nearly 300 points on the big board.  Pick your poison, whether it be:

• The Stimulus (Spending) Plan, 
• The market’s lack of confidence in Treasury Secretary Geithner, 
• Global economies and equities slumping, 
• State and Local municipalities with their backs against the door (some near broke), 
• Or the sobering reality that this recession is going to be much deeper than any we’ve been through.  

The reality is it’s all of the above and then some.  February’s Empire State (NY) Manufacturing Index didn’t help matters either as the print came in at a record low, minus 34.65.  No need to give you the details, they all stunk.  

The plus side of Wall Street’s G and D is the flight to quality that has happened in gold, treasuries, and mortgage backs.  Gold in closing in on $1,000.00 an oz, the 10 year note is up 1 and 24/32’s, trading at 2.67%, and mortgage backs in the lower rates are up 11/32’s and 6/32’s on the higher rates.  Keep in mind that the market sold off hard on Friday and many did not reprice due to the short trading day.  That has been adjusted in today’s pricing. 

One piece of encouraging news came via the TIC report, a measure of net purchases/sales of treasuries by foreign entities.  The net effect was a positive 18.5 billion buys verses sells, telling us that those across the pond and worlds beyond still like our paper.  Maybe they think if we default they’ll have a shot at owning Disney Land or Beverly Hills. 

The week ahead will feature New Residential Construction, PPI, and CPI as the headline economic releases.  Take advantage of the market where appropriate as today’s strength has willing sellers (hedge funds).  It also should be evident to you that a “trend’ may last 2 days or 2 hours so don’t miss the bus.  Technically, the charts are more positive than negative with a 5^th wave high forming on the Elliot Wave studies. 

Looks good but as many trader has said in the past, “don’t get married to it.”

Stimulus Plan First-Time Homebuyer Tax Credit

Stimulus Plan First-Time Homebuyer Tax Credit

The Stimulus Plan was signed into law by President Obama today. It contains a new tax credit for first-time homebuyers. Essentially, first-time homebuyers within certain income limits who purchase a home in 2009 before December 1, 2009 will receive a tax credit of up to $8,000. The program is similar to the $7,500 tax credit which applied to home purchases made in 2008 after April 9. A comparison of the two credit programs is outlined below.

While the Stimulus Plan was still being debated, the Senate version originally included a $15,000 tax credit for all homebuyers. To lower the cost of the Stimulus Plan, the final version of the Plan contained this smaller tax credit, and this tax credit is applicable only to first-time homebuyers.

To qualify as a first-time home buyer as defined in the programs, the purchaser (and the purchaser’s spouse) may not have owned a home in the three years prior to the purchase date of the home. Single family homes qualify for the program. The home must be the primary residence.

Both tax credits are subject to the same adjusted gross income limitations (full credit for AGI less than $75,000 single/$150,000 joint, phased out for AGI up to $95,000 single/ $170,000 joint).

The amount for either credit is the lesser of 10% of the home purchase price or $7,500 or $8,000, as applicable.

While a purchaser still owns the home, the $7,500 credit must be repaid in equal payments over a period of 15 years, starting with the 2010 tax filing. The $8,000 credit will not need to be repaid. Again, the $7,500 credit needs to be repaid, while the $8,000 credit does not!

Upon sale of the home, any portion of the $7,500 credit not yet repaid is due in full.  No portion of the $8,000 credit is due upon sale of the home, if the home is owned for more than three years.  If the home is sold within the first three years, the full amount of the credit is due upon sale.

The $7,500 credit was not available to any purchaser utilizing state/local revenue bond money to help finance the home purchase. There is no such restriction on the $8,000 credit.

Under both the $7,500 and the $8,000 programs, the credit will be claimed on the purchaser’s income taxes. Any amount in excess of taxes owed will be refunded to the purchaser.

Additional information about the tax credit can be found on the websites of the National Association of Realtors (www.realtor.org) and the National Association of Home Builders (www.nahb.org).

Please feel free to call me, Max Leaman, with any questions (512) 293-1239.

If red is in vogue, then both bonds and stocks have dressed appropriately.

Happy Friday the thirteenth and Valentines eve.  If red is in vogue, then both bonds and stocks have dressed appropriately. 

Stocks off 42 points on the big board, the 10-year note down 1 point( yield 2.85%), 30-year bond down 2 and 3/4^th point (yield 3.60%), and mortgage backs off a smooth ½ point.  

The University of Michigan Sentiment Survey, which was expected to rise 1 point, fell 5 points to 56.2.  Most components of the survey slipped since January, portraying a consumer who is hunkered down in preservation mode.  Technically, the big picture has improved for the bulls (rally lovers) with the rebound we seen over the past week.  The short term however is overbought, backed by Elliot Wave patterns favoring the correction.

Hot off the wire, the Obama Administration just announced plans to lower financing costs for homeowners with problem mortgages

Hot off the wire, the Obama Administration just announced plans to lower financing costs for homeowners with problem mortgages. 

After testing the means of the borrower and setting a new value for the home, the government will subsidize the monthly mortgage payments.  FNMA and FHLMC will assist in the process.  Not much change with mortgage pricing  (still down 2/32’s in choppy trading) as this has to do with the problem children already on the books. 

Could be a good thing to help stabilize the foreclosure crisis.

Market reaction has been bearish for both bonds and stocks

Weekly Unemployment Claims dropped 8K to 623K while Continuing Claims rose 11K to a new record high.  The four-week moving average rose to 607K, the first time we’ve been in the 600 handle since November 1982. 

Retail Sales were also released, surprising to the upside with a print of plus 1%.  The ex-autos component was also higher, up .9%.  Better than expected sales at auto retailers, gas stations, and general merchandise did the trick.  Gift card redemptions may have been behind this however, distorting the numbers for January. 

Last but not least, Business Inventories fell 1.3% and Sales dropped 3.2%, a bit more that market consensus.  Market reaction has been bearish for both bonds and stocks.  Currently, the 10-year note is off 3/32’s, trading at 2.81%. 

Careful out there.