Austin Mortgage Blog

Posts Tagged ‘mortgage austin’

Trust me, the pattern is bullish

Meant to post this yesterday:

Couple of things I’d like to point out as we close out the trading day.  First of all, the market had an “outside day up.”  What this means is that we made a lower low than the previous day, only to close above yesterdays high level.  In Austin mortgage terms, we had pricing at one time today that was worse than yesterdays only to close above yesterday’s best level.  Trust me, the pattern is bullish.

The tricky part of a bear market is that it can turn at any time.  Look at the chart.  You will see the down trend line that began in late February.  Way on the right side, you will see that last bar of the chart has reversed and is now ascending on that down trend line.  Also, if you look at the oscillator SStoch, meaning slow stochastic, you’ll see that it has yet to cross.  A cross is needed to confirm that the sellers have lost their edge.  RSI and MACD are neutral and of little help.  The point I’m trying to make is yes, we’ve had a good day but no, do not trust it.  It’s looking better and the bears will need to prove themselves tomorrow.  If they don’t, we’ll feel a lot better about a range developing between 3.75% and 4.0%.

One more thing, for those of you who would like to know more about a tool we use call Fibo Retracement Levels, I’ve put them on the chart.  Notice that we start at the highs which represents the top or 1.0 and stretch to the bottom labeled 0.00.  This would be a full retracement (high to low or low to high).  Fibonacci theory relies on measured moves within one standard deviation.  Therefore, the most likely targets lie at .375, .50, and .625.  We like the way that 3.75% come in at the 50% retracement level.  “If” we’ve put in a bottom for this trading turn, that’s the most likely target.  If the bears take over, we’ll be on our way to 4.25%.  Don’t go to sleep out there but at the same time, you may now exhale.  Hope you enjoy and are learning something from this rambling missive.

Austin Mortgage Rates Rise on Weak Auctions

A combination of factors was negative for mortgage markets this week, and Austin mortgage rates ended higher. Large budget deficits and economic troubles in smaller European Union nations made bonds less attractive to global investors. In addition, stock market gains sent the Dow to an 18-month high, which pulled funds out of fixed income investments. Finally, with just one week remaining for the Fed’s MBS purchase program, comments from Fed Chief Bernanke about potential future MBS sales added to the pressure in mortgage markets.

For months, investors have been concerned that the enormous supply of debt needed to fund US government spending would force yields on US Treasury securities to rise to attract purchasers. This is what took place this week. Demand was surprisingly weak at all of this week’s record Treasury auctions, especially from foreign investors, and yields were pushed higher. Since mortgage-backed securities (MBS) compete for investors with Treasuries, MBS yields rose as well, pushing Austin mortgage rates higher.

In a speech on Thursday, Fed Chief Bernanke added to the volatility in mortgage markets with his comments about the possible timing of future sales of MBS from the Fed’s portfolio. To support the economy, the Fed has purchased almost $1.25 trillion of MBS since the start of 2009. The Fed has made clear from the start that it was a temporary measure and that it would eventually sell its MBS holdings when the economy was healthy enough. Earlier this month, Bernanke stated that he did not expect the Fed to sell assets “in the near term”. On Thursday, however, his language changed a little. While Bernanke assured investors that MBS sales would be gradual and that they would only take place if the economy were strong enough to handle it, he opened the door for the start of Fed MBS sales at an earlier date than previously anticipated.

No Surprises From Fed Meeting

There were no major surprises in the economic data or the Fed announcement this week. As a result, while volatility remained day to day, Austin mortgage rates ended nearly unchanged for the third straight week.

As expected at its meeting on Tuesday, the Fed held the fed funds rate steady, and the accompanying statement contained few changes. The statement retained the language about the fed funds rate remaining at extremely low levels for at least several months. The Fed’s assessment of the economy was a little more upbeat at this meeting, but pointed out that economic improvement will occur slowly. The Fed continued to signal that the $1.25 trillion MBS purchase program will conclude at the end of March. With less than two weeks of Fed MBS purchases remaining, investors will be watching closely to see if the Fed’s exit has an impact on Austin mortgage rates.

This week’s inflation data showed that inflation is not a concern right now. The February Core Consumer Price Index (CPI) increased at a low 1.3% annual rate. The Fed’s target range is commonly believed to be a 1.5% to 2.0% annual rate. The current low inflation environment makes it easier for the Fed to continue to hold the fed funds rate low to stimulate the economy.

Week Ahead Next week, Existing Home Sales will be released on Tuesday, and New Home Sales will come out on Wednesday. Durable Orders, an important indicator of economic activity, is also scheduled for Wednesday. A revised report on first quarter Gross Domestic Product (GDP), the broadest measure of economic activity, will come out on Friday, along with Consumer Sentiment. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Several Fed officials will be speaking during the week as well.

“If” the discount rate happens, we would expect a further back up in mortgage pricing (worsening) and traders changing their mindset to one of pricing in a Fed Funds rate hike in June.

Fixed income traders went “palms out” (sellers) on rumors that the Fed is going to raise the discount rate for the second time this afternoon.  So far, the Fed has refused comment.  Once the rumor made its way through trading pits, huge volume spikes were seen in 10 year note put buyers (buying options that benefit if the market trades to higher yields), libor rates jumped, along with large sellers of Eurodollar strips.

The London Forex is talking about the Fed’s announcement, commenting that if it happens, timing will be today at 4:30 est.  MBS are now off 5/32’s and the 10 year note is down 7/32’s.  Trading has steadied out albeit at the worst levels of the day.

“If” the discount rate happens, we would expect a further back up in mortgage pricing (worsening) and traders changing their mindset to one of pricing in a Fed Funds rate hike in June.  All seems a bit premature to me.  I would recommend that borrowers stay defensive into the day’s close.

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.

FOMC left interest rates unchanged and did not remove the statement, “low interest rates for and extended period of time”

FOMC left Austin interest rates unchanged and did not remove the statement, “low interest rates for and extended period of time”.  Treasuries and stocks have improved on the news yet mortgage backed securities are only 1/32^nd better.  Market looks OK but still is tough to trust.  Full press release below.

Release Date: March 16, 2010

For immediate release

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.

Our best case is for Austin mortgage rates to hold steady so use this time to be a little defensive

Earlier this morning, Housing Starts fell 5.9% to 575 thousand units while Building Permits dropped 1.6% to 612K.  The data was close to economist’s expectations.  Regions were mixed with the Northeast declining 9.6% and the South down 15.5%.  The Midwest however jumped 10.6% and the West was up 7.9%.  Multifamily units fell 76K.

The big story of the day will be front and center at 1:15 pm cst.  That being the FOMC one day meeting to determine short term interest rates and make any changes to the policy statement.  For the most part, it looks like they could have mailed this one in with the only possible change coming in policy language regarding “low interest rates for an extended period of time”.  Some analysts are looking for the word “extended” to be dropped.  We see no change to rates or policy as we view the Fed to be “out of bullets” given zero percent interest rates and quantitative easing bloated balance sheet issues.  In our opinion, all they can do is manage expectations until the economy starts to pick up and then shift to an exit strategy.

What happens if all of the above is true?  The most likely outcome will be stocks doing better as they view “cheap’ money to continue.  That could put pressure on our mortgage pricing.  If they remove the “extended” language, both stocks and our Austin mortgage pricing would most likely suffer as traders attention would turn to Fed Funds rate hikes being priced in (in the near future).  As you can see, our best case is for Austin mortgage rates to hold steady so use this time to be a little defensive into the announcement.

Currently, the 10 year note is up 6/32’s (yield 3.68%), mortgage backs unchanged to off 1/32^nd (widening spreads), and stocks up a baker’s dozen on the big board.

Even though this morning’s calendar has had its fair share of data, most markets have been quite with little volatility

Even though this morning’s calendar has had its fair share of data, most markets have been quite with little volatility.  Earlier today, the New York Fed’s Empire Manufacturing Index fell 2.05 points to 22.86.  The print was close to expectations with new orders up nearly 17 points and shipments plus 10 points.  Inventory rebuilding supported the number with unfilled orders, inventories, and employment all showing positive gains.  The proof will be if buyers take the new merchandise off the shelves.

Industrial Production/Capacity Utilization were also on the menu, up .1% and .2% in February.  This release had a heavy dose of weather related slow down, affecting construction and other outdoor occupations in its wake.  We would expect a much stronger number for March.

One of indexes we follow is the Treasury International Capital Flows or TIC data.  The index measures net acquisition of securities by foreign parties.  The data shows a slowdown of 33.4 billion in purchases for January.  This lagging indicator is important to our industry and to Uncle Sam’s debt.  China is till the top purchaser so let’s hope our Treasury Secretary and Google don’t tick em’ off too bad.

Technically, we are trading near the upper end of a narrow range.  The trade is constructive, holding gains of late last week.  With the FOMC meeting tomorrow ( 1 day meeting), we expect the market to stay quiet until the policy statement is released (1:15 pm cst tomorrow).  Currently, the 10 year note is off 3/32’s (yield 3.72%), mortgage backs off 2/32’s, and stocks off 35 points on the big board.

Austin Mortgage Market Update – For the week of March 15, 2010

For the week of March 15, 2010 – Vol. 8, Issue 11

>> Austin Mortgage Market Update INFO THAT HITS US WHERE WE LIVE There wasn’t a ton of housing news last week, but one can always find a few significant items. For example, foreclosure filings in February were down 2% from January and up just 6% from a year ago — their smallest increase in four years. Most significantly, in the six states that made up 61% of the national total for February, foreclosure filings were down 15% from a year ago. We’re definitely heading in the right direction. On the mortgage front, the Mortgage Bankers Association reported applications for purchase loans were up a seasonally adjusted 5.7% from the week before. It looks like people are trying to take advantage of today’s historically low rates before the end of the month. That’s when the Fed stops buying mortgage bonds, which has helped keep rates low, and no one knows what will happen once that Fed buying program ends. Mortgage applicants also have their eye on the homebuyer’s tax credit, which requires a signed contract by April 30. Finally, current buyers are getting today’s great prices, which may not be headed much lower. One property search site announced that sellers had lowered prices on less than 20% of their listed homes, for the first time since they started tracking price reductions last April. >> Review of Last Week SLOWLY RISING… Like bread dough in the pan, the markets kept rising, though ever so slowly, last week. Basically, investors remained positive if not exactly exuberant. There were no big market moves to speak of, the result of no big news coming out of a fairly sparse economic calendar. Economic readings included January’s trade deficit shrinking to $37.3 billion, with the total volume of imports plus exports finally falling after months of rebounding. But experts weren’t worried, since this happens in normal times and total trade volume remains up at a 26% annual rate since last Spring’s bottom. We had new unemployment claims down by 6,000 last week. Continuing claims increased 37,000, but the four-week average stayed at its lowest level in around fourteen months. Some observers expect a large payroll increase in March. Let’s hope they’re right. Friday’s February Retail Sales report was a stunner. Overall retail sales were UP 0.3% — way better than expected — and sales excluding autos were UP 0.8% — way WAY better than expected! These are amazingly strong numbers, considering they’re for the year’s shortest month, whose shopping days were shortened even more by record snow storms and other forms of harsh weather in several regions of the country. Those worried about the consumer’s participation in this recovery, please take note! For the week, the Dow headed UP 0.6% to 10624.69; the S&P 500 hiked UP 1.0%, to 1149.99; while the Nasdaq climbed UP 1.8%, to 2367.66. A ton of supply hit the bond market last week, but demand was pretty strong too. Treasuries did well selling at lower-than-expected yields. There were also successful offerings in the municipal and corporate markets. The FNMA 30-year 4.5% bond we watch ended the week down just a tad, 31 basis points, closing at $100.88. On average, mortgage rates remain at their historically low levels, dipping slightly in last week’s Freddie Mac Survey. >> This Week’s Forecast HOME BUILDING, MANUFACTURING, INFLATION AND, OH YES, THE FED… A few useful economic indicators this week, highlighted by the Fed’s latest pronouncement on the funds rate come Tuesday. No one expects any movement on the rate just yet. Also Tuesday will be another take on the mindset of homebuilders, with Housing Starts and Building Permits. Lots of data on the manufacturing sector that’s been leading the recovery, with the Empire State and Philadelphia Fed indexes bracketing Industrial Production and Capacity Utilization. Finally, let’s keep an eye on inflation, with PPI wholesale numbers on Wednesday and CPI consumer figures the next day. >> 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 March 15 – March 19 Date Time (ET) Release For Consensus Prior Impact M Mar 15 08:30 Empire State Manufacturing Index Mar 21.45 24.91 Moderate M Mar 15 09:15 Industrial Production Feb 0.0% 0.9% Moderate M Mar 15 09:15 Capacity Utilization Feb 72.6% 72.6% Moderate Tu Mar 16 08:30 Housing Starts Feb 570K 591K Moderate Tu Mar 16 08:30 Building Permits Feb 602K 622K Moderate Tu Mar 16 14:15 FOMC Rate Decision 3/16 0%-0.25% 0%-0.25% HIGH W Mar 17 08:30 Producer Price Index (PPI) Feb -0.2% 1.4% Moderate W Mar 17 08:30 Core PPI Feb 0.1% 0.3% Moderate W Mar 17 10:30 Crude Inventories 3/13 NA 1.43M Moderate Th Mar 18 08:30 Initial Unemployment Claims 3/13 450K 462K Moderate Th Mar 18 08:30 Continuing Unemployment Claims 3/6 4.500M 4.558M Moderate Th Mar 18 08:30 Consumer Price Index (CPI) Feb 0.1% 0.2% HIGH Th Mar 18 08:30 Core CPI Feb 0.1% 0.2% HIGH Th Mar 18 10:00 Leading Economic Indicators (LEI) Feb 0.1% 0.3% Moderate Th Mar 18 10:00 Philadelphia Fed Index Mar 18.0 17.6 HIGH >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months Coming out of the Fed meeting on Tuesday, virtually no economists expect to see a hike in the benchmark Fed Funds Rate. With inflation always a concern, some experts are beginning to think we may see a hike in the rate in the second half 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 Mar 16 0%–0.25% Apr 28 0%–0.25% Jun 23 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Mar 16 <1% Apr 28 <1% Jun 23 5%