In short, when investors look ahead, they see few reasons for Texas mortgage rates to move lower and many possible causes for them to move higher. The major negatives for Austin mortgage rates include stronger than expected economic growth, domestic and foreign opposition to quantitative easing, and concerns about lower foreign demand for US securities.

Beginning in late August, the Fed hinted that they would initiate a new stimulus program to purchase Treasury securities, which is known as quantitative easing. In the short-term, Treasury buying by the Fed increases demand for bonds, including mortgage-backed securities (MBS). In anticipation of this added demand, investors purchased MBS, which pushed Texas mortgage rates lower.

After the Fed’s official announcement on November 3, Texas mortgage rates began to move higher for a variety of reasons. Stronger than expected economic data caused investors to raise their outlook for economic growth, which generally leads to higher inflation. In addition, there was substantial opposition to the quantitative easing program from other countries and from many US politicians and economists, meaning that the Fed will face strong resistance to an expansion of the program. Investors had viewed the $600 billion initial level as a first step which would likely be increased in the future. Stronger economic growth and opposition to quantitative easing has reduced the likelihood that the program will be increased.

The recent news has not been uniformly negative for mortgage rates. Current inflation levels remain extremely low. In fact, the Consumer Price Index data released this week showed that annual core inflation dropped to a record low in October. Bottom line, though, when mortgage rates reached such extremely low levels, it left them in a position to reverse direction very quickly.

Nevertheless, stocks are off 200 and treasuries/mortgage backs have been goosed higher.  Currently, the 10 year note is up 5/32’s while mortgage backs are plus 6/32’s. Shaping up to be a nice day.

Stocks have been in the driver’s seat today, slipping by over 100 points as Big Blue (IBM) and Apple disappointed the market with weak results. China, raising its lending rate by .25%, helped the dollar but put additional pressure on stocks. You would think that note and mortgage back pricing would have gotten a boost from all this equity punishment. Not to be. Currently, the 10 year note is off 8/32’s. Good news is that mortgage backed securities have tightened to treasuries.

Overall, trading today has been a range-bound affair with prices above yesterday’s lows and below yesterday’s highs. Traders call this an “inside day” which is simply a neutral pattern. Expecting mortgage pricing to hold steady is a pretty good bet.

As expected, the Fed made no change in the fed funds rate at Tuesday’s meeting. Its statement was very similar to the last one, but investors focused on one important difference. Fed officials stated that they are “prepared to provide additional accommodation if needed to support the economic recovery.” Investors interpreted this to mean that additional bond purchases by the Fed could take place in coming months. While the Fed is expected to purchase Treasury securities rather than mortgage-backed securities (MBS), increased demand for Treasuries would be favorable for Austin mortgage rates. As usual, investors immediately priced in this information, and Austin mortgage rates improved. Of course, if this action by the Fed never becomes necessary, then Austin mortgage rates could give back this week’s gains.

The housing data released during the week generally matched expectations. While there are differences in regional performance, overall the housing market is holding steady above the lows reached during the recent financial crisis or improving modestly. August Existing Home Sales rose 8% from July. Inventories of unsold existing homes declined 1% to an 11.6-month supply. August New Home Sales were unchanged from July. August Housing Starts rose 11%, and Building Permits, a leading indicator, rose 2%. The September NAHB home builder confidence index was unchanged from August.

In particular, Friday’s weaker than expected Employment data was positive for mortgage rates. Against a consensus forecast for a loss of -90K jobs, the economy lost -131K jobs in July. This included the loss of -143K census positions. Private employers added 71K jobs, below expectations of 100K. The Unemployment Rate remained at 9.5%. Average Hourly Earnings, a proxy for wage growth, rose at a tame 1.8% annual rate.

To stimulate the economy, the Fed purchased $1.25 trillion in mortgage-backed securities (MBS) in 2009 and early 2010. Due to defaults, refinancings, and maturities, some MBS “roll off” the Fed’s portfolio every month. Until recently, investors expected the Fed to let its portfolio slowly shrink in this fashion. Tuesday, though, a Wall Street Journal article suggested that Fed officials are considering a plan to replace those securities with new purchases to further stimulate the economy. Investors are divided about whether recent economic data has been weak enough for the Fed to decide to do this. It may be addressed at the August 10 FOMC meeting. While the demand created by this action would be small compared to the original MBS purchase program, it would further support low 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 10 year note now trading at 3.09%, a level not seen since last April, many are talking about our market being “bubble-ishous”.  The other contingent thinks bond prices are just “insane”.  With the 10 year yield at levels not seen since 2008 and 1962, one would think that a correct is imminent.  Quite possible but not a given.  Technically, our chart work makes a case for 2.92% to 2.78% on the 10 year note.  All depends on stocks and the economy.  Even the FOMC “downgraded” the economy to underperform.

Early buying today has started to show signs of a new bullish trend, endorsed by almost every oscillator.  The key to a new trend will be a close below 3.09% on the 10 year note.  This will activate a break of the major double top which has been in place for over a year.  “If” this happens, the next target will be 2.88%.  Not to throw cold water on the bulls but we think this market is a little long in the tooth, pricing in as much bad news as one could imagine.

Not to say we will not see lower Austin mortgage rates and better pricing but for that to come to fruition, we’ll need a major catalyst.  Something like a stock market rout or collapse of Greece.  In English, the smart money will bet against this, at least for a corrective trade that could take the 10 year note back to 3.25%.  Pricing was struck with MBS unchanged, now down 5/32’s. Trigger fingers are getting twitchy.

With Austin mortgage rates at or near historic lows, best bet is to take a little off the table before the market “potentially” picks your pocket. Careful out there.

FHFA (home price index) was plus .8% in April, reversing a two month slide.  On balance, housing looks to be stable but guarded.  Pimco strategist, Richard Clarida is on the wire talking about the Fed changing their language in tomorrow’s policy statement.  The change is regarding the economy as “sluggish” from stable, noting that since April, world and US economies have softened.  We have treasury paper coming to auction as well.  2’s today, 5’s tomorrow, and the 7 year note on Thursday.  Shouldn’t be a problem here.

We also got a peek at early predictions of month end extension needs.  Those are for money funds, etc. that much adjust to meet the Barclay’s index.  Extension needs for June look to be a bit larger than normal with the treasury complex needing to add .6 years and MBS .10 years.  In a nut shell, this will create buying in fixed income, adding support to Austin mortgage pricing.  Technically, the bias is neutral looking to buy weakness and sell strength.  Nothing new here as this has been the trend for the past several sessions.

In recent weeks, Austin mortgage rates have fallen to the lowest levels in decades. This has occurred, in part, due to the economic troubles in Europe, which reduced the willingness of investors to hold risky assets such as stocks. During periods of uncertainty, it’s common for investors to seek a higher level of relatively safer assets, including United States mortgage backed securities (MBS). On Thursday, however, a series of global headlines from Europe, Asia, and Australia contained positive news for economic growth, which caused investors to move back toward riskier assets and out of bonds. The stock market rallied, and Austin mortgage rates moved higher.

On Thursday, lawmakers introduced a proposal which, if passed, will extend the “close-by” deadline to receive the home buyer tax credit from June 30 to September 30. The legislation doesn’t affect who may qualify for the tax credit. To qualify, you still must have signed a contract by April 30, but it will relieve some of the pressure to close by June 30. Buyers who had not expected to close by June 30 may now be able to qualify. ]]> http://www.maxleaman.com/marketupdate/global-economic-news-pushes-up-mortgage-rates/feed/ 1 http://www.maxleaman.com/marketupdate/into-the-close-stocks-dow-and-naz-on-the-big-board-are-making-a-comeback-down-87-points/ http://www.maxleaman.com/marketupdate/into-the-close-stocks-dow-and-naz-on-the-big-board-are-making-a-comeback-down-87-points/#comments Tue, 25 May 2010 19:37:03 +0000 Max Leaman Austin Mortgage http://www.maxleaman.com/marketupdate/?p=1396 Continue reading →]]> Just a heads up as the market is on the move.  Into the close, stocks (Dow and Naz) on the big board are making a comeback, down 87 points.  Naz is off 18 points, cutting its losses in half.  With the Dow down nearly 300 at one time, the reversal seems to have legs.  We also have 45 minutes to go so anything can  happen.  More importantly, the 10 year note and mortgage backed securities are starting to dip.  The 10 year note has cut its gains in half on the day.