Happy New Year! Where do we begin on this first trading day of the new year?  How about at the beginning.  Before we can do that, let’s review 2010.

2010 was a mortgage banking year synonymous with the “perfect storm.”

  • Double-dip recession fears,
  • European debt crisis,
  • rising unemployment, etc. etc. took the 10-year treasury note from 3.75% in January to 2.39% in October.

Texas mortgage rates dropped into the high 3’s to low 4’s and everyone and their brother wanted to refinance Austin mortgages. Those people that had a job and remained confident with their personal balance sheets, took a leap of faith and bought a new home at the highest affordability levels in history.  The Fed started operation “Quantitative Easing” and put 8k in every first time home buyers pot.  Life was good and it still is.

Investor sentiment changed course in late October, feeling more confident the economy, which was once in recession, is now making the transition from recovery to expansion. That sentiment, coupled with a fickle and illiquid holiday market, took the 10 year note on a ride to finish the year at 3.31% after printing 3.54% in December.

So what’s ahead in 2011? No one knows for sure.  We do know that treasury and mortgage pricing will be looking for clues.  Clues as to whether or not the economy is really expanding or needs more time to clear the mine fields.  Will the debt crisis in Euro land heal or blow up?  Will the employment picture in our country start to improve?  Answers to both will unfold as we move into the first quarter.  Our big picture outlook tends to follow the thinking of expansion within the economy but will be two steps forward and one step back.

Keep in mind that we have come though a time period that has seen historic financial devastation and the consequences that go with it. Think Fed and governmental regulation.  Getting back to even will take a lot longer than in previous recessions.  Patience will be a virtue, something few of us have.  The future will create opportunity.  Once the expansion can be trusted, consumer confidence will improve, employment will gain strength, and with 11 million housing units available to purchase (homeowners selling, foreclosures, etc), affordability will be great and consumers will start to see that they are not alone when making an offer on a home.

Time table on this recovery is optimistically 3rdquarter 2011. Realistically, early 2012.  In the meantime, many mortgage lenders will struggle with changes in compliance and regulatory issues. Their costs will become a bigger concern as Uncle Sam forces them to conform.  Loan officer compensation will affect everyone and most certainly mortgage company balance sheets.  Fortunately, I work for PrimeLending, A PlainsCapital Company. PrimeLending is at the forefront of the mortgage industry and quite simply: PrimeLending allows me to provide the best rates, loan products, customer service, 30-day closings and more to my clients. This mortgage company enables me to make promises to clients and realtors and KEEP them.

As far as the market is concerned, the tactical bias is neutral to start the year. We feel with a new set of books, investors and traders alike will see yields have moved a little too far a little too fast.  This should give us a New Year’s rally or at least some stability in mortgage pricing.  10 year note yields should produce a short term range of 3.30% to 3.39% (currently at 3.35%).  Longer term will depend on a number of factors, the biggest being employment or the lack thereof.  We’ll get that party started with this Friday’s release of December 2010 figures.