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Austin Mortgage Market Update – For the week of July 26, 2010

For the week of July 26, 2010 – Vol. 8, Issue 30

>> Austin Mortgage Market Update INFO THAT HITS US WHERE WE LIVE Tuesday, June Housing Starts came in down 5.0% from May to a 549,000 annual rate. This was below expectations, but still up 15.1% from the low they hit in April 2009. Most of the drop came from volatile multi-family starts. Single-family starts were down a mere 0.7%. Most significantly, housing completions shot up 26.2% in June, the biggest monthly gain going back to the late 1960′s. Builders clearly shifted focus from starting to finishing, as they pushed to close sales qualifying for the homebuyer tax credit. Finally, Building Permits were UP 2.1% for June, beating expectations, so things are looking up for the months ahead. Thursday saw June Existing Home Sales down 5.1% to an annual rate of 5.37 million. But this beat expectations for the fourth time in five months and was 9.8% above sales a year ago. The median price for an existing home also gained in June, coming in at $183,700. This is up 1.0% from last year. In addition, the FHFA price index for homes financed by conforming mortgages went up 0.5% in May, increasing for the third month in a row. National average rates for fixed rate Austin mortgages hit new lows, according to Freddie Mac’s weekly survey of conforming loans. So refinance applications shot up 7.6% over the week before, but best of all, purchase loan applications were also up a healthy 3.4%. >> Review of Last Week UP WE GO… It was another interesting week on Wall Street, with stocks briefly headed in the wrong direction before ending the week decidedly UP. The fact was, the good economic news simply outweighed any disappointments by a lot. The net result for the stock markets left all major indexes resoundingly UP for the week…from 3% to 4%! Topping the disappointments were Fed Chairman Ben Bernanke’s comments before Congress that the U.S. economic outlook is “unusually uncertain.” This allowed him to add that the Fed stands ready to take additional action, if necessary, to either do more boosting or halt inflation. OK, but right now there’s plenty of evidence the world’s largest economy is recovering just fine, if at a slightly slower rate than before. Earnings from IBM and Amazon.com also disappointed, but overall there were pretty slim pickings for the bears. There actually was a big batch of strong earnings. Of the 150 S&P500 companies who have reported Q2 results, 85% of them beat earnings estimates by an average of 7%. General Electric raised its quarterly dividend 20%, the first increase since it historically cut its dividend over a year ago. Even the media is beginning to admit companies appear to be doing well. Then Friday we got the long-awaited results of the European bank stress tests, which came out better than expected. There was some grousing over how stressful the tests truly were, even though the Committee of European Banking Supervisors hadn’t seemed too soft before. For the week, the Dow ended UP 3.2%, to 10424.62; the S&P 500 was UP 3.5%, to 1102.66; and the Nasdaq was UP 4.1%, to 2269.47. Good news for the European banks and the stock market wasn’t so good for the bond market. Investors stopped chasing safety plays, so bond prices suffered. The FNMA 30-year 4.0% bond we follow fell 16 basis points for the week, ending at $101.75. But, as reported above, national average rates for conforming mortgages remain at record low levels. >> This Week’s Forecast FROM NEW HOMES TO Q2 GDP… This week takes us on an economic trip across topics that range from Monday’s June New Home Sales (expected to rise a bit) to Friday’s Advanced Q2 GDP, likely to settle on moderate growth just shy of 3%. In between, Wednesday’s Durable Goods Orders should be up, showing business continues to recover. We’ll also watch Tuesday’s Consumer Confidence and Friday’s Michigan Consumer Sentiment. These are forecast to dip just a little. Q2 corporate earnings reports continue, including BP, Boeing, Exxon Mobil, Sony, and Visa. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of July 26 – July 30 Date Time (ET) Release For Consensus Prior Impact M Jul 26 10:00 New Home Sales Jun 310K 300K Moderate Tu Jul 27 10:00 Consumer Confidence Jul 51.0 52.9 Moderate W Jul 28 08:30 Durable Goods Orders Jun 1.0% –0.6% Moderate W Jul 28 10:30 Crude Inventories 7/24 NA 0.360M Moderate Th Jul 29 08:30 Initial Unemployment Claims 7/24 464K 464K Moderate Th Jul 29 08:30 Continuing Unemployment Claims 7/17 4.550M 4.487M Moderate F Jul 30 08:30 GDP–Adv. Q2 2.5% 2.7% Moderate F Jul 30 08:30 GDP Chain Deflator–Adv. Q2 1.1% 1.1% Moderate F Jul 30 08:30 Employment Cost Index Q2 0.5% 0.6% HIGH F Jul 30 09:45 Chicago PMI Jul 56.5 59.1 HIGH F Jul 30 09:55 Univ. of Michigan Consumer Sentiment Index Jun 67.5 66.5 Moderate >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months Since Fed Chairman Bernanke still finds things “uncertain,” economists are more certain than ever the Fed will keep rates at super-low levels for the rest of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Aug 10 0%–0.25% Sep 21 0%–0.25% Nov 3 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Aug 10 <1% Sep 21 <1% Nov 3 1%

Austin Mortgage rates moved even lower during the week

Austin Mortgage rates moved even lower during the week, as uncertainty about the pace of the economic recovery has increased investor demand for relatively safer assets such as government guaranteed mortgage-backed securities (MBS). The Fed Chairman acknowledged during the week that the economic outlook is even more difficult than usual to predict right now. Uncertain economic growth with low inflation is a favorable environment for Austin mortgage rates.

In his semi-annual testimony to Congress, Fed Chief Bernanke described the economic outlook as “unusually uncertain”. According to Bernanke, this is the worst labor market since the Great Depression, and it is recovering more slowly than expected. Still, the Fed forecasts modest economic growth in 2010 with low inflation. Important for mortgage rates, Bernanke expressed reluctance to provide further monetary stimulus, unless the economy falters badly. He suggested that the upside of additional Fed actions may be limited, while the downside is that it would raise future inflation expectations.

In the housing sector, June Existing Home Sales declined 5% from strong May levels to an annual rate of 5.37M units, which was well above the consensus forecast of 5.10M. Existing sales were 10% higher than one year ago. First-time buyers accounted for 43% of existing home sales in June. Existing home sales have been helped in recent months by the homebuyer tax credit. Even with the end of the tax credit, though, the National Association of Realtors (NAR) expects annual existing home sales to increase in 2010 and to rise further in 2011.

With the market being so psycho and at historic lows in Austin mortgage rates, best to be careful

In the “Strange Case of Dr Jekyll and Mr Hyde”, Robert Louis Stevenson wrote about a London lawyer who investigates the strange occurrences between Dr. Jekyll and Mr Hyde.  The tale is one of a split personality, one that has both good and evil which are quite distinctive of each other.  If Robert Stevenson were alive today, he could write the same piece as an op-ed for the Wall Street journal.  Yesterday, the stock market’s personality was one of fear and confusion when Fed Chief Bernanke opened his mouth, calling the economy “unusually uncertain.”  The results produced a 100 plus point selloff.

Today, the good personality appears, as the Fed Chief stuck to yesterday’s script and Big Caps like Caterpillar and 3M wacked it out of the park (better bottom line earnings and top line revenue stronger than expected).  Results, Dow up over 200 points as if everything in the economy is all right.  Euro zone manufacturing numbers were better than expected, adding a little icing on the cake.  The point I’m trying to make here is that volatility is at all time highs.  This is a product of an economy that is slowly coming out of a recession, showing bright spots from time to time while evil in the form of housing and employment woes let their personality loose just the same.  Expect this type of market trashing until a clear direction can be found.  One that points to a double dip or one that points to a more sustained recovery.  We believe the latter has the highest percentage outcome.

Reasons being are that the Euro zone appears to be stabilizing (tomorrow’s stress test results will be key), large blue chip companies are doing pretty well despite the gloom and doom, and interest rates, both by the Fed and the market (mortgage backs) will be low until the aforementioned bias is intact and investor sentiment turns bullish.  Just the same, do not take anything for granted.  Earlier today, Weekly Unemployment Claims jumped 37K to 464K while Continuing Claims fell 223K.  Distortions here are huge, maybe Consensus worker layoffs and long term claimants felling off the table.  Time will tell.  June Existing Home Sales took a dip as well, down 5.1%, the second consecutive month of declines.  The number was actually better than economists expected.  Wow, great news, their only down 5.1%.  Let’s call the Claims and Existing Sales today’s evil twins.

All of the above has pinched the 10 year note and mortgage pricing but to no great degree.  10 year down 10/32’s, MBS off 4/32’s.  The selling has not hurt the chart, just neutralized conditions a bit.  We see neither bull nor bear in control or as we like to call it, a Goldilocks market (just right).  With the market being so psycho and at historic lows in Austin mortgage rates, best to be careful.  You never know if tomorrow will be Dr Jekyll or Mr Hyde.

Failure to rally isn’t bad, just paints the chart neutral which will cause Austin mortgage rates/pricing to stay close to current levels

Part of the yesterday’s late market action, stocks rally/bonds slipping, had to do with a rumor about the Fed.  Word has it that they may stop paying interest on excess reserves and step back into the market buying fixed income assets (treasuries and mortgage backs).  Given that backdrop, Gentle Ben heads to the hill today, testifying to the Senate in his annual Monetary Report to Congress.  This could be a market mover so heads up around 2:00 pm cst.  Otherwise, its steady as she goes with stocks plus 9 points on the Dow, 10 year note down 3/32’s, and mortgage backs unchanged.

Technically, the early strength helped to recover from yesterday’s selling.  That has put the chart back into a neutral pattern, allowing the slightly bullish trend to continue on the daily chart.  We came close to our target of 2.88% but no cigar.  Now the market will need to rally soon or this will become just another range trade.  Failure to rally isn’t bad, just paints the chart neutral which will cause Austin mortgage rates/pricing to stay close to current levels.  Kinda like being all dressed up and no place to go.

Austin Mortgage Market Update – For the week of July 19, 2010

For the week of July 19, 2010 – Vol. 8, Issue 29

>> Austin Mortgage Market Update INFO THAT HITS US WHERE WE LIVE Some analysts feel the homebuyer tax credits artificially boosted the housing market by pushing forward home sales that would have happened later. Others feel most buyers would have bought anyway. In any case, there’s now concern about a coming drop in sales. Well, June sales figures should still benefit from activity spurred on by the tax credits. And tax credit sales should even help monthly reports through September, now that buyers in contract on April 30 have been given until September 30 to close. Nonetheless, we ought to keep an eye on monthly Pending Home Sales, which track signed contracts that turn into sales a few months out. Even though we may have a sales dip after the tax credit, the fact remains that near historic low mortgage interest rates are getting people back into the market. These rates, combined with today’s prices, have made homes more affordable than they’ve been in years, letting many buyers move up to better neighborhoods with more choices. But buyers shouldn’t wait. The National Association of Realtors chief economist sees the median home price rising nationally 2% to 3% this year. The NAR’s CEO feels sales will pick up in the fall and that the down-cycle has run its course. The chief economist at Moody’s Economy.com also believes the housing crash is nearly over. And we all know Austin mortgage rates won’t stay at their current levels indefinitely. In other words, this could be one of the best times to buy a home in decades. >> Review of Last Week UP AND DOWN… The stock market indexes were up nicely through Wednesday, continuing last week’s rally, then slipped slightly on Thursday before plunging more than 261 points Friday. For the week, the declines hovered around 1%, not too bad considering the volatile atmosphere of the proceedings on Wall Street. The problems Friday centered on a drop in the University of Michigan Consumer Sentiment number and soft top-line Q2 revenues from Bank of America, Citigroup, and GE, even though bottom-line earnings from these behemoths beat expectations. The big disappointment came from Google, which missed earnings estimates even though revenue grew a faster than expected 25% for the quarter. But Google was the ONLY major company reporting last week that did not BEAT earnings forecasts. We also heard complaints about some of the economic data. The trade deficit increased in May, but exports are UP 21.0% in the past year. Yes, May retail sales were off half a percent, but the annual growth rate for retail in the last nine months remains a respectable 6.7%. The Producer Price Index (PPI) and Consumer Price Index (CPI) showed wholesale and consumer inflation down a tad in June. This got analysts fretting about deflation, but both PPI and CPI are actually up from a year ago. Nonetheless, negative feelings prevailed, so for the week, the Dow ended down 1.0%, to 10097.90; the S&P 500 was down 1.2%, to 1064.88; and the Nasdaq was down 0.8%, to 2179.05. As stocks slid, the bond market attracted a slew of investors on the proverbial flight to safety. Prices headed north, as the FNMA 30-year 4.0% bond we follow cruised UP 41 basis points for the week, ending at $101.91. Freddie Mac’s weekly survey reported that national average rates for conforming mortgages remain at record low levels. >> This Week’s Forecast BACK TO HOUSING… Last week’s tsunami of economic data lacked any info on the housing market. This week’s reports make up for that, beginning with June Housing Starts and Building Permits on Tuesday. Starts are expected to be down slightly, with permits virtually flat. Thursday we’ll see June Existing Home Sales, which may be down a bit. We’ll also look at the Leading Economic Indicators (LEI) Index, which could be a tad off for the month. Q2 corporate earnings reports continue, including: Amazon.com, AT&T, Caterpillar, Coca-Cola, Goldman Sachs, IBM, PepsiCo, and Texas Instruments. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of July 19 – July 23 Date Time (ET) Release For Consensus Prior Impact Tu Jul 20 08:30 Housing Starts Jun 570K 593K Moderate Tu Jul 20 08:30 Building Permits Jun 575K 574K Moderate W Jul 21 10:30 Crude Inventories 7/17 NA –5.06M Moderate Th Jul 22 08:30 Initial Unemployment Claims 7/17 445K 429K Moderate Th Jul 22 08:30 Continuing Unemployment Claims 7/10 4.600M 4.681M Moderate Th Jul 22 10:00 Existing Home Sales Jun 5.04M 5.66M Moderate Th Jul 22 10:00 Leading Economic Indicators (LEI) Index Jun –0.4% 0.4% Moderate >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months According to just about every economist out there, the Fed will probably keep rates at super-low levels for the rest of the year, as inflation is expected to remain benign during that time. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Aug 10 0%–0.25% Sep 21 0%–0.25% Nov 3 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Aug 10 <1% Sep 21 <1% Nov 3 2%

Enjoy the historic low Austin mortgage rates

“Regulators, mount up”! Not exactly what Warren G. had in mind when he recorded the song but fitting just the same.  Next time we see a regulator entering our building, his or her card will read, “ Joe Regulator, we regulate any stealing of his property and we darn good too, but you can’t be a geek off the street, gotta be handy with the steel if you know what I mean, earn your keep”!  Just had to have a little fun with the passing of FinReg.  As my first boss always told me, “ Change is always for the better but sometimes it takes time to see it.”

Stocks are getting pounded, down 200 on the Dow, the 10 year note is up 12/32’s, and mortgage backs are plus 4 to 6/32’s depending on the coupon. Why you ask.  First up, CPI, inflation at the consumer level fell .1% while the “core index” (ex-food and energy”, rose .1%.  Tame by any means with a whiff of deflation in the cards (slim chance in our opinion).  Michigan Sentiment Survey was the one that raised an eyebrow, falling nearly 10 points to 66.5.  Economists noted that consumers have gone into a cocoon, chaining their wallets to themselves only to be opened for necessitates.  Expect Retail Sales to soften in the future.

BP finally put a cork in their crude oil jug, a welcome site indeed. Technically, the late rally (yesterday) provided the perfect set up for a continuation pattern (further rally).  Stocks are really the major influence here.  We see this a just a move to the top of the range (2.90% 10 year note).  Any where here, current mortgage pricing or a little better is a good place for borrowers to lock in their Austin mortgage interest rates.  Any reversal in stocks will simple reverse our direction and take the market to the lower part of the range.  Enjoy the historic low Austin mortgage rates.

Austin mortgage rates remaining low well into the third quarter

Big week ahead as stocks kick off  2^nd quarter earnings and the economic news calendar heats up.  On the stock front, the key to earnings will not be earnings at all, as they are expected to be good to very good.  What traders will be looking for is guidance going forward.  In other words, how do CEO’s feel about the business climate going into the second half of the year?

Alcoa kicks it off with their release due out after the closing bell.  Bonds, notes, and mortgage produce seem to be in a reactive mode, trapped between financial crisis, economic challenges ahead, government regulation, and regulative groups that will take on a life of their own.  Fed Chief Bernanke was on the biscuits and gravy circuit this morning, talking about small business having access to credit being “crucial” given that this sector employs one half of all Americans and accounts for 60% of gross job creation.

35 billion of 3 year notes just crossed the block at 1.055% with 41% going to indirect bidders (low side). The bid to cover was 3.20%, beating the average of 3.05%.  21 billion of 10 year notes will come tomorrow and then 13 billion of 30 year bonds on Wednesday.  Should not be a problem to get rid of the paper.  Technically, the market tested the 38% retracement level last Thursday and bounced, suggesting that the move was corrective in nature.  Daily studies however, are not positioned to endorse a new rally, instead projecting a “trendless” period of time.  What this tells us is that we will continue to trade the small range that has been with us for a couple weeks now, swinging from high to low, low to high depending on stocks and ‘headlines”.

Nothing huge here as we see Austin mortgage rates remaining low well into the third quarter.

Fed thinking projects a low Austin mortgage interest rate environment until sustainable employment growth materializes

Bonds, notes, and mortgage backs have been slowly fading as the day moves on, due in part to stocks opening higher and holding their gains.  Currently, the Dow is up 183 points and nervous about the last hour of trade, waiting to see if the rally can hold or fades as has been the pattern.  No news today but Fed Governor Fisher (Texas) was on CNBC, talking about a slowing second half yet one that will avoid a double dip.  Interesting that he is considered a hawk, one that has been tough on monetary policy and inflation.  In the conversation, he comments about no need for further asset purchases but with a slowing second half of the year in his forecast, low inflation and a weak economy seem to be in play.  This follows the Fed thinking and projects a low Austin mortgage interest rate environment until sustainable employment growth materializes.  Most of the trade has been done within a 1 point range with willing sellers and buyers at the extremes.  Markets like this need a catalyst to move.  Maybe tomorrow’s Weekly Claims will get some trending action going.  So for right now, the market is not too hot, not too cool, but just right.

Austin mortgage interest rates appear to be locked in a tight range, trading at or near the best levels we’ve seen in 14 months

As we start a new week after a long weekend, quiet trading has been the mood for both bonds and stocks.  Stocks are higher however, bouncing from severe oversold conditions and “no bad news” over the weekend.  Rumor has it that bank stress tests in Europe are looking to be better than excepted, helping the banking sector both in Euro land and stateside do a bit better.  Currently, the Dow is plus 136 while the Naz is up 30.

Bonds, notes and mortgage backs have held in there, even as stocks hold their gains.  10 year notes are plus 4/32’s and mortgage pricing is flat to plus 2/32’s.  As we have mentioned in the past, Austin mortgage interest rates appear to be locked in a tight range, trading at or near the best levels we’ve seen in 14 months.  Reasons being are the lack of employment growth in the US, soft housing, Europe feeling queasy, and China concerns over growth.  Tough to find a reason for higher yields, worsening mortgage pricing well into the third quarter.

Earlier today, the Institute for Supply Management (ISM) non-manufacturing index fell to 53.8.  The jobs component fell below 50 for the first time since December 2007.  Adds fuel to our bias I just wrote about.  The week ahead is light on news with Thursday’s Weekly Jobless Claims highlighting the week.  Technically, notes and mortgage pricing will take their cue from stocks.  That said, S&P futures are now breaking back above the neck  line taken out last week.  In English, stocks put in several negative sessions doing some technical damage.  They are trying to reverse it this morning.

“If” they can hold gains, further upside (stock rally) will be in the cards.  That should put pressure on mortgage pricing but not in a huge way.  Look for a lack luster trade as we move into the shortened week.

Weak Economic Growth Helps Austin Mortgage Rates

After dropping to the lowest level in decades last week, Austin mortgage rates fell even further this week. Weak economic data from the United States, China and Europe caused investors to question the pace of the global economic recovery. Slower economic growth was positive for Austin mortgage rates and negative for the U.S. stock market.

Friday’s important Employment report reflected a slowly improving labor market. The economy lost -125K jobs in June, which was very close to expectations. The figures include a loss of -225K census workers who completed their temporary assignments. The private sector added 83K jobs. The Unemployment Rate fell to 9.5% from 9.7% in May, but this was due to 650K people leaving the labor force. The labor force consists of everyone in the US who either has a job or is looking for one, and the Unemployment Rate measures the percentage of the labor force without jobs.

There was mixed news in the housing sector this week. May Pending Home Sales declined 30% from April, as many buyers rushed to sign contracts ahead of the April 30 deadline to qualify for the homebuyer tax credit. On a more positive note, the “close-by” deadline for the homebuyer tax credit has been extended to September 30. Although the tax credit is not available for new contracts signed after April 30, extremely low Austin mortgage rates and high home affordability levels make conditions very favorable for home purchases.