Fast market conditions are ruling the day post FOMC, with light selling hitting both treasuries and mortgage backs. Big picture sees the Fed on hold for “an extended period of time”. Bright spots point to the employment picture improving and hints of economic growth.
Overall, we feel that the housing market is stabilizing but will need to content with another wave of foreclosures as homeowners remain underwater and the loan modification programs to date have been a bust.
With trading volume starting to fall off a cliff, expecting the market to move much in any direction is possible but probably not in the cards. Next week will be worse.
Last week gave us more proof the country's housing market is heating up. According to Freddie Mac's quarterly national Conventional Home Price Index (CMHPI), home prices were UP 0.9% in Q3 for their second quarterly increase in a row!
This week's economic news was mixed for mortgage markets. A speech from Fed Chief Bernanke pushed mortgage rates lower early in the week, but weak results in the Treasury auctions caused them to turn higher again later in the week. In the end, mortgage rates finished with little net change.
Currently we are trading fast money conditions with the 10 year note down 12/32’s (yield 3.44%), mortgage backs off 9/32’s, and stocks off 4 points. Unless we get a rebound quickly, a price change for the worse will be in vogue.
The market has been under a little pressure all day, primarily due to hedging for today’s 10 year note auction (21 billion). The market seems to be set up for consolidation, but one that will take the yield only a few bps higher. Traders will most likely buy the dip and then repeat the process tomorrow for the 30 year auction (13 billion).
As we look through the forest to find a tree, the positive technical development today was that Trend Intensity turned neutral from bearish. Not huge you say but it’s baby steps, kinda like ‘What about Bob.” The study remains trend ready but with both bears and bulls getting the Rolling Stones treatment (No Satisfaction), expecting any new market moving trend to develop, good or bad, is unlikely soon. Prices now sit in the middle of the range and seem to be quite comfortable, typical of a market that can’t decide which way to go. Daily charts give sellers and edge but that’s 51/49 at best. Expect the market to tread water with spurts of volatility from time to time.
Overall, we like the market if for no other reason that investor fear will keep a bid in treasuries which in turn will support mortgage backed securities. Just remember that directional changes can be like playing “crack the whip.” Most probably outcome will be a triangle formation on the 10 year note chart, keeping mortgage pricing in a fairly tight range until the new year.
Positive economic reports on housing continue, with October Pending Home Sales UP 3.7%. This was the ninth month in a row Pending Home Sales rose and the index is now 31.8% over October last year. Since this tracks the level of contracts on existing homes, Existing Homes Sales should continue their impressive rise for the next couple of months.
