Austin Mortgage Blog

Posts Tagged ‘inflation’

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 Market Update – For the week of June 28, 2010

For the week of June 28, 2010 – Vol. 8, Issue 26

>> Austin Mortgage Market Update INFO THAT HITS US WHERE WE LIVE Last week May existing home sales came in UP 19.2% over a year ago. Nonetheless, after beating expectations three months in a row, monthly sales fell short of the gain expected, off 2.2%. But the months’ supply of existing homes dropped from 8.4 to 8.3 months, as inventory slid to 3.89 million homes. And the median price is rebounding, UP 2.7% over last year. Finally, the April FHFA home price index was UP 0.8% for homes financed with conforming mortgages. May existing home sales came off as disappointing because experts predicted a sales gain after the homebuyer tax credit ended. We saw spikes in February, March and April in pending home sales, which track signed contracts. Clearly many of these have not yet closed so they can be counted as sales. Analysts now expect these gains to show up in June. There’s no question the tax credit encouraged people to buy earlier than they would have. But, overall, home prices, Austin mortgage rates and inventory declines continue to be encouraging signs in the U.S. housing market. May new home sales fared worse, dropping 32.7%, to a 300,000 annual rate. This was also seen as fallout from the end of the homebuyer tax credit. But April’s 446,000 annual rate indicates the real trend is probably in between, around 375,000, which some analysts feel is enough for builders to move the homes they’re starting. Builders can also take consolation in the fact that the new homes inventory is at 213,000, its lowest level in forty years. >> Review of Last Week ONE OUT OF THREE… Stocks suffered their first off week in three, mostly because investors chose to fret over economic data, Fed speak that didn’t meet their expectations and new banking regulations coming out of Washington. In the end, the financial legislation that got through Congress was less harsh than anticipated, which lifted bank stocks and the whole tone of Friday’s trading session, although all three stock market indexes ended down for the week. But on the economic front, investors wouldn’t budge from their worries. May’s existing and new home sales didn’t meet forecasts, so the positive data in those reports was ignored. Similarly, after the FOMC meeting, Wall Street focused on the changes to the Fed’s policy statement that sounded less upbeat. Example: the economic recovery is now “proceeding” instead of “continued to strengthen.” Investors skipped over the good news the Fed will continue to keep the funds rate at 0%–0.25% for an “extended period.” And there was other good news. The mid-Atlantic region’s Richmond Fed index was +23 for June, showing rapid growth in manufacturing. Shipments of core capital goods are UP 16.5% annually in the last three months, one of the biggest gains in 20 years! And capital goods orders are ahead of shipments for the third month in a row. Finally, real Q1 GDP was revised down to 2.7% annual growth, but this is still a very good number in light of the economically damaging record East Coast snow storms. Q1 corporate profits were UP 36% annually, which should spike both investment and payrolls going forward. For the week, the Dow ended down 2.9%, to 10143.81; the S&P 500 was down 3.7%, to 1076.76; and the Nasdaq was also down 3.7%, to 2223.48. Some of the week’s economic data certainly helped bonds, as did the sliding stocks that sent investors scurrying for safe havens to park their money. This benefited bond prices, so the FNMA 30-year 4.0% bond we now follow did well, UP nicely for the week, ending at $100.81. It’s no surprise that Freddie Mac’s weekly survey reported national average mortgage rates holding near record low levels. >> This Week’s Forecast INFLATION, PENDING HOME SALES, JOBS… We’ll have the important PCE inflation reading today, which is expected to remain benign. The week also features the Chicago PMI and the ISM Manufacturing Index, which should continue to show recovery in manufacturing. Thursday gives us May Pending Home Sales, which are expected to decline after the end of the homebuyer tax credit. The big news will be Friday’s June Employment Report. Experts see some job losses after last month’s gains, but the unemployment rate should remain under 10%. We’ll then have our long holiday weekend — Happy Fourth of July! >> 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 June 28 – July 2 Date Time (ET) Release For Consensus Prior Impact M Jun 28 08:30 Personal Income May 0.5% 0.4% Moderate M Jun 28 08:30 Personal Consumption Expenditures (PCE) May 0.1% 0.0% HIGH Tu Jun 29 10:00 Consumer Confidence Jun 62.0 63.3 Moderate W Jun 30 09:45 Chicago PMI Jun 59.0 59.7 HIGH W Jun 30 10:30 Crude Inventories 6/26 NA 2.02M Moderate Th Jul 1 08:30 Initial Unemployment Claims 6/26 458K 457K Moderate Th Jul 1 08:30 Continuing Unemployment Claims 6/19 4.510M 4.548M Moderate Th Jul 1 10:00 ISM Manufacturing Index Jun 59.0 59.7 HIGH Th Jul 1 10:00 Pending Home Sales May –10.5% 6.0% Moderate F Jul 2 08:30 Average Workweek Jun 34.2 34.2 HIGH F Jul 2 08:30 Hourly Earnings Jun 0.1% 0.3% HIGH F Jul 2 08:30 Nonfarm Payrolls Jun –100K 431K HIGH F Jul 2 08:30 Unemployment Rate Jun 9.8% 9.7% HIGH >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months The Fed made it clear last week they will most likely keep rates low for the remainder of the year. Most economists believe that will be the case. 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 2% Sep 21 3% Nov 3 9%

Low Inflation Helps Austin Mortgage Rates

Economic data moved Austin mortgage rates this week. Slower than expected economic growth data and low inflation figures were favorable for the Austin, TX mortgage market. As a result, Austin mortgage rates ended the week lower.

Heading into a Fed meeting next week, the low inflation data released this week means there is little pressure on the Fed to begin raising the fed funds rate. May Core Consumer Price Index (CPI) inflation rose at a 0.9% annual rate, the lowest level in four decades. Usually the major task of Fed officials is to prevent inflation from moving too high, but they are now concerned about the risk that inflation will drop too low. Fed officials are most comfortable when inflation remains in the 1.5% to 2.0% range. This also means that there is little inflationary pressure to push Austin mortgage rates higher. Of course, with expectations set so low, if inflation were to surprisingly increase in coming months, it could cause a large reaction in the Austin mortgage market.

Will the “close by” deadline to receive the Home Buyer Tax Credit be extended? The answer to this question is not known as of this Friday morning. The Senate has approved an amendment to a larger bill to do so, but the larger bill is still being debated and its passage is not certain. Extending the “close by” deadline will benefit qualifying home buyers who are not able to close by June 30, the original deadline. Extending the deadline sooner rather than later would help relieve some anxiety. Right now, people in all phases of the home buying process are working very long hours to close an unusually large number of purchases before the end of the month.

Austin mortgage rates declined during the week, reaching the lowest levels of the year

This week, uncertainty about the pace of the economic recovery caused investors to shift to relatively safer assets, including government insured mortgage-backed securities (MBS). Also positive for mortgage markets, the economic data released this week showed that inflation remains extremely low. As a result, Austin mortgage rates declined during the week, reaching the lowest levels of the year.

Concern about the level of global economic growth drove financial markets this week. Troubled European countries will be forced to reduce government spending, and Chinese officials indicated that they will tighten monetary policy to reduce inflation. In the US, it’s not clear to what degree the new financial regulation bill will cause banks to reduce lending, leading to slower economic growth. In response to periods of uncertainty such as this, investors seek to reduce risk by moving to safer assets such as bonds, and greater demand for MBS pushes mortgage rates lower.

This week’s news from the housing sector was mixed. April Housing Starts increased above the consensus forecast to the highest level since October 2008. Building Permits, a leading indicator, declined moderately. The May NAHB Homebuilder confidence index rose to the highest level since August 2007. Even with the end of the homebuyer tax credit, the builders surveyed remained optimistic about the next six months.

New Home Sales gains also smell of the last mad rush for 8K in buyers credit money before we put that program to bed the end of next week

TGIF.  Bonds, notes, and mortgage back traders have all turned sellers today on a mixture of fundamental and technical data.  Word on the street has it that at least one half of the Fed Governors (FOMC) feel that the time is getting near to sell assets.  With 1.75 trillion dollars worth of mortgage backs, agency paper, and god knows what, unloading this on the market is not bond friendly.  Keep in mind that they are in unchartered policy territory, caught in their own wicked web of quantitative easing/zero interest rates and super hero inflation fighter/bloated balance sheet reducer.  Interesting as well that they are having the debate in a much more public forum right before next week’s FOMC meeting.

In other news, Durable Goods, items which are supposed to last 3 years or more, fell 1.3% yet ex-transportation, the index was plus 2.8%.  Orders for transportation equipment fell 12.9%, dragging the overall index into the red.  New Home Sales were also released, up 26.9% to 411K annual units.  The print blew away economists estimates of plus 330K.  Every region of the country rebounded with the “South rising again”, up 43% month on month.  Although the numbers were great, they are coming off the worst month (February) in 22 years.  The gains also smell of the last mad rush for 8K in buyers credit money before we put that program to bed the end of next week.

Given the fundamentals of the economy, bond pricing is very expensive, meaning that if that market was not being influenced by outside forces (global debt crisis, etc.) Austin mortgage rates would simply move higher.  That’s why borrowers need to be careful as every day is a new day and expecting the unexpected is more common place than you think.  We tipped you off to the technical trade that was developing yesterday and our bearish expectations.  It was a text book classic double top, fuel injected 6 speed and Hemi powered, convertible top with navigation and a kicker sound system.  Sorry, I got carried away.  The pattern did play out and added to the bond bearish news of the day, having pinched mortgage pricing for another .25 point.  Currently, the 10 year note is off 11/32’s (yield 3.82%), MBS off 8/32’s, and stocks up 9 points on the Dow.

We still feel that the trade is range bound between 3.75% and 3.83% so given our digits, additional selling is starting to lose favor.  Short term momentum is over sold in both notes and bonds which should give us a little support as well.  Call the market neutral with a little recovery due as we move into the last week of the month.  We’ll try to wrap this up later today.

A couple of missed earnings reports and a sack of rotten Gyros did the trick

Finally, a little economic news to chew on.  First up, PPI, inflation at the wholesale level grew .7% in march while the core index was plus .1%.  Gas and food were the drivers of the headline number, up 2.1% and 2.4% respectfully.  The “core” index strips out food and energy which is why that component is nearly flat.  Given the numbers, we see very little inflation at hand or in the pipeline.

Weekly Unemployment Claims were also released, posting a drop of 24K.  The level however remains stubbornly high at 456K, an indication that it will take some time to turn this Titanic around.  Existing Home Sales, a piece of data near and dear to our hearts rose 6.8% to 5.35 million annualized.  Inventory rose as well, up 1.5% which represents 8 months of supply.  With the 8K buyers credit saying adios later this month, long term projections for a housing recovery are murky.  We shall see.

Last but not least was the FHFA Purchase only House Price Index.  Overall, the index was off .2% in February and down 3.4% year on year.  Prices declined in the South Atlantic, New England, and West North Central areas while modest increases were seen in the Middle Atlantic, Pacific, and West South Central regions.  High inventory levels due to foreclosures will continue to put this index under pressure.

Earlier today, treasury yields fell to their lowest levels in a month as Greece continues to slip into the ocean.  Yields on Greek 2 year notes are now over 11% as their yield curve inverts.  That’s the technical term for going on life support before someone pulls the plug.  Stocks are also in the soup, down 74 points on the Dow.  A couple of missed earnings reports and a sack of rotten Gyros did the trick.

Mortgage companies and loan officers telling borrowers and REALTORS they have guaranteed USDA money is plain and simple not true

Let me set the record straight on the availability of USDA funds. First of all, USDA has NOT been reallocated and will run out of money soon.  Locking in a loan does NOT guarantee a borrower will receive USDA money. Mortgage companies and loan officers telling borrowers and REALTORS that THEY have guaranteed USDA money is plain and simple not true.  The only way to guarantee a loan from USDA is to have USDA approve the loan and issue the certificate. USDA approval can only happen once the mortgage company approves first, and then sends the loan to USDA for approval.  I have received emails from loan officers who read my blog. They are adamant that USDA funds are still available to guarantee their customers. I will take the high road with this program and let the other guy be the one explaining to the REALTOR and borrower that USDA ran out of funds despite being told otherwise.  Disappointing your customer will be multiplied by 10.  Telling the truth will earn you respect. Borrowers still MIGHT be able to get a USDA loan, but I would never guarantee a loan program that is likely to run out of funds before closing.

CPI, inflation at the consumer level, rose a meager .1% while the core (ex-food and energy) remained unchanged. Owner’s equivalent rent (.25% of the index) helped the core index while a drop in transportation costs (-.1%) helped the overall index.  The report was a good one, telling us that there is little to no inflation in the pipeline.  Retail Sales were also released, up a better than expected 1.6% with the ex-autos component  up .6%.  The breakdown was interesting as retail stores increased sales (primarily women’s and teen apparel) yet electronic sales fell 1.3%.  Sales of food and beverages rose .2% and as I mentioned, clothing sales jumped 2.3%.

Year on year, total retail sales are up 7.6% which looks good on the surface but digging into the details, there are concerns. One is that the majority of sales involve purchases of less than $500.00.  Probably pent up demand as sales, especially fashion have not been great since 2007.  The other question is how sustainable is this pace given our soft employment picture.

Mortgage applications for last week were on the slide as well, down 9.6% with both refi’s and purchase applications off an equal amount. A spike in interest rates combined with an under employed borrower will continue to be a challenge.  The good news here is that Austin interest rates will stay low until the recovery brings housing into the mix.  At that time, Austin mortgage rates will go up a bit but no one will care as the public will feel better about the future and homes for sale will have 3 contracts to present the first week they are on the market.  Get ready, it will happen.

As far as the market is concerned, stocks are better (up 50 on the big board), the 10 year note is off 6/32’s (yield 3.83%), and mortgage backs are off the same amount (6/32’s). Buyers have not been able to maintain overnight gains which is consistent with a trendless market.  As we may see more range trading ahead, the overall chart picture has improved on both the market profile and slow stochastics metrics.  The improvement we see in a number of studies will keep us in the neutral/bullish camp for the time being.

For the market to do better (Austin mortgage pricing improvement), we need to breach and close above 116 10 (below 3.83% yield)

Today’s trade has been one of bullish trending action for both bonds and stocks. Stocks are higher on good earnings expectations and some positive movement on the Greek debt crisis. Word has it that EU/IMF has a plan for 40 to 61 billion EU on a three year loan at 5.0%. Trouble is that it would address their liquidity issues but not their solvency. Treasuries and mortgage backs continue to grind higher (lower yields) due to tactical reallocations and sellers that appear to be “worn out”.

One word of caution as you look at the chart. Currently, we’re right up against the top of the range (116 10 in futures and 3.83% 10 year note yield). For the market to do better (Austin mortgage pricing improvement), we need to breach and close above 116 10 (below 3.83% yield). Otherwise, all that has happened is that we’re tested the top of the range and we’ll once again consolidate, moving back towards the center of the range. Traders like the set up and prefer to short (sell) the market at this level with tight stops. Meaning that if their wrong, they will know quickly and will get out with small losses.

The economic calendar heats up as well this week. Housing data tomorrow, inflation and Retail Sales on Wednesday, housing, inflation, and Weekly Claims Thursday, and Michigan Sentiment Survey on Friday.

A mortgage price change for the worse is right around the corner

CPI, inflation at the consumer level, was unchanged for February with the core index up .1%.  Moderating energy prices along with a weak jobs market and not so confident consumer sentiment has made the inflation picture a non issue.  Weekly Unemployment Claims were also released, falling 5K to 457K.  Continuing Claims jumped another 12K but the most startling print came via the number of people who have used all their traditional benefits and are now collecting extended payments.  That number jumped 352K.

Leading Indicators for the month of February were also on the docket, rising .1% but still point to a slow recovery.  Only 4 of the 10 components showed signs of improvement.  Last but not least was the Philly Fed Survey which improved 1.3 points to 18.9. However,  New orders declined from 22.7 to 9.3 and Capital Expenditures fell from 16.3 to 9.7.  The news does not bode well for business investment in the first quarter.  I’m going to cut this short as the market is starting to slip.  Currently, the 10 year note is off 9/32’s (yield 3.68%) and mortgage backs are off 4/32’s.  A mortgage price change for the worse is right around the corner.  More in a few.

“If” the health care bill comes to a vote this week and passes, stocks could very well change their tune

Apologies – meant to post this yesterday!

For better or worse, Fed policy, as dictated in yesterday’s meeting, will keep the bond market stuck in a range.  Given the supply/demand issues with quantitative easing, our mortgage pricing we have seen over the past month could continue for weeks.  On one hand we have the Fed stopping its purchase of mortgage backs at the end of the month.  They have been buying 10 billion a week.  On the other side, the market has built up a sizable short position in MBS from both the portfolio side and the Fannie/Freddie buy back that will last until August.

As we mentioned yesterday, all the Fed can do is manage their way to the end game, looking for the private sector to pick up steam so we can get back to “normal”.  Earlier today, PPI, inflation at the wholesale level, fell .6% headline while the core index (ex-food and energy) rose .1%.  This is the largest decline in seven months.  Energy prices were the heavy hitter, falling 2.9% with gasoline prices down 7.4%.  Inflation by any standard is a non-issue given this data.  Fed Chief Ben Bernanke will be on the hill today, testifying before the House Financial Services Committee.

Currently, everyone is wearing green as the 10 year note is up 2/32’s (3.64% yield), MBS up 1/32^nd, and stocks up 30 something on the big board.  Technically, the 10 year note retested the peak set on February 5^th, pulled back a little, but still trades in the upper end of the range.  The trade doesn’t seem to have a lot of momentum, telling us that this is more about short covering (traders who bought the market now selling) than it is about new buyers coming into the market.  Stocks are at a crossroads as well, grinding higher in what looks like a gravity defying move.

“If” the health care bill comes to a vote this week and passes, stocks could very well change their tune.  Bottom line here is that most markets are neutral, waiting for something to fuel a trend change.