Archive for October, 2009

Today: Equities Went Up - Equities were slashed yesterday after the new home sales report posted an unexpected 3.6% decline for September. The S&P 500 fell 1.95%, the Nasdaq shed 2.67%, and the Dow moved further south from the 10k mark as it fell 1.21% to 9,762.69.

This morning, ahead of the first look at Q3 GDP, markets were cautious but generally went up. That’s not bad considering economists at Morgan Stanley, BofA-Merrill Lynch, and Goldman Sachs all reduced their estimates for the preliminary survey earlier in the week.

Freddie and Fannie: Marginal Adjustments Made to Rates Last Week - Mortgage rates for the last week have remained relatively unchanged according to information released by Freddie Mac from its weekly Primary Mortgage Market Survey and Fannie Mae's report on average yields.

Fed MBS Purchases Still Slowing. No Effect on Values Yet - The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the five trading days between October 22 and October 28, the Federal Reserve purchased a total of $21.906 billion agency MBS. In those five days the Federal Reserve sold $3.906 million agency MBS (dollar rolls) with the majority of roll transactions in FN 5.0s and FN 4.5s.

New Home Sales Fall For First Time in Six Months - This month single family new home sales fell for the first time since March. The annual pace of new homes sales was 402,000 sales per year, well below economist expectations for a pace of 440,000 annual new home sales. This is a 3.6% month over month decline. August new home sales data was also revised lower, from 429,000 to 417,000 sales per year. New home supply was unchanged at 7.5 months. The median home sale price was 204,800, 9.1% lower from September 2008. New home sales in the Northeast were unchanged, the Mid-West was 34% higher, the South experienced 10% less new home sales, and the West was 10.6% slower. Once again, only one geographical region experiences growth.

Mortgage Applications Decline. Refinance Demand Drops 16.2%. Purchases Down 5.2% - In last week's release, which reported data for the week ending October 16, mortgage application activity fell 13.7% as mortgage rates rose from 5.02% to 5.07%. The Refinance Index, adjusted for the Columbus Day holiday, decreased 16.8% from the previous week while the seasonally adjusted Purchase Index moved lower as well, decreasing 7.6% from one week earlier. The refinance share of mortgage activity fell to 65.0% of total applications from 67.4% in the previous week. In today's release, which covers new loan applications for the week ending October 23, the MBA reported that demand for new mortgages dropped 12.3%, even as mortgage rates fell from 5.04% to 5.07%.

Home Prices Higher in August. Will Housing Continue to Stabilize? This month, the S&P Case Shiller Home Price Index continued to improve as prices in 17 of 20 metro cities increased in August, California, in particular, has seen some real positive prints in recent months.

Overall, the 20-city index rose 1.2%, better than economist expectations for a read of +0.7% and the 10-city home price index increased at a rate of 1.3%. Year over year the 20-city index is 11.3% lower, again better than the market's expectation of -11.9%.

Upcoming expiration of the Federal First-Time Buyer’s Tax Credit in November and anticipated higher unemployment rates through year-end may have had a dampening effect on home prices.

Ten-Year Note Yields Declined on Tuesday - Bonds gained some ground Tuesday, pushing yields lower, after yields on benchmark securities reached the highest levels in almost two months and attracted buyers.

Ten-year note yields declined 5 basis points, to 3.51%. The yield had risen the previous four days and closed Monday at 3.56%, the first time above 3.50% since Aug. 21.

The Week Ahead: Treasury Auctions, Housing Data, Durable Goods, GDP - Eight trading days have passed since the Dow crossed 10,000 for the first time in over a year. Yet mixed data and third-quarter earnings since then have caused equities to dance around the psychological threshold. On Friday the Dow closed at 9,972; heading into the week futures are pointing slightly upwards. Wall Street is looking for Q3 GDP to climb 3% in Thursday’s release. If that’s the case the markets could gain enough momentum to stop the dance and remain steady in five-digits. However, consumer sentiment, flat wages, and weak spending could all bring stocks down. And that’s not even mentioning the perennial concerns of the jobs market.

Aside from equities, WTI Crude is beginning the week at $79.59 per barrel, Spot Gold is a bit lower at $1053.70, and the 10-year Treasury yield is 3.49%, rates have been moving up in the last 3 weeks!

Jobless Claims Led Higher by Layoffs in Manufacturing and Construction - This data set tracks new filings for unemployment insurance benefits and the number of Americans who continue to receive state unemployment benefits (called continuing claims or insured unemployment). The fact that this data is released on a weekly basis makes it very appealing to traders and economists as it provides a week over week view into the health of the domestic labor market. Trader's and economists are looking for hints into questions like: Are jobs being created? Are jobs being lost? Does the trend indicate more job losses ahead? Does the trend indicate firms are expanding and hiring more in the process?

Consumers drive output of goods and services in the US. The more workers earn, the more income they have to spend. The more consumers spend the more the economy grows. Because this labor market data has such large implications over the future consumer spending, Jobless Claims are a component of the Leading Economic Indicators.

U.S. Mortgage Rates Rise for Second Consecutive Week - Mortgage rates for 30-year fixed U.S. home loans rose for a second consecutive week, making borrowing more expensive and threatening signs of stabilization in the housing market.
The average 30-year rate climbed to 5 percent from 4.92 percent last week. The 15-year rate increased to 4.43 percent from 4.37 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement.

Rising borrowing costs reduced mortgage applications last week. The Mortgage Bankers Association’s index of applications to purchase a home or refinance fell 14 percent and homebuilders broke ground on fewer homes than anticipated in September. A government tax credit for first-time homebuyers is set to expire at the end of November.

MBA: Refinance Loan Applications Fall 16.8%. Purchase Apps Decline 7.6% - The Mortgage Bankers Association today released the Weekly Survey on Mortgage Application Activity for the week ending October 16, 2009.

Housing is a key component of economic forecasts, thus real estate surveys and housing data are closely scrutinized by policy makers.

In the week ending October 9, rising mortgage rates slowed the pace of new loan applications. The average 30 year fixed mortgage rate rose to 5.02% and the refinance index fell by 0.1% while the purchase index dropped 5.0%. In week prior to October 9, new application activity increased 16.4% as mortgage rates fell below 5.00% to five month lows.

In today's release, which reports on the week ending October 16, mortgage application activity fell 13.7% as mortgage rates rose from 5.02% to 5.07%.

State of Housing: Tax Credit Must Be Extended to Sustain Stability - With the $8,000 homebuyer tax credit due to expire in little more than a month, the Congress is looking into the possibility of extending it for another six months and perhaps even expanding the program's reach.

The Senate Banking Committee held a hearing on Tuesday as part of its consideration of a proposal to extend the November 30 end date of the homebuyers' tax credit and possibly extend it beyond first-time buyers.

Stocks Hit New 2009 Highs on Earnings, Oil Rally, Dollar Weakness - US equities opened at fresh one-year highs on Tuesday morning. Sentiment was higher owing to Apple’s post-closing bell announcement that it had sold 7.4 million iPhones and more than 3 million computers. November contracts for light, sweet crude are coming close to the psychological barrier of $80 per barrel this morning. Prices have advanced for eight straight days as the US dollar continues to struggle near one-year lows. The euro approached $1.50 versus the greenback overnight before retreating.

Single Family Housing Starts Increase in September. Building Permits Decline - New housing starts rose less than expected to 590,000 annualized units, economists were expecting a rise of 610,000 units after a read of 598,000 in August (which was revised lower to 587,000 annual units). The rise in new housing starts was a factor of a 3.9% increase in single family construction starts while multifamily starts fell by 15.2%. Building permits fell by 1.2% to 573,000 annual units led by a 3.0% decline in single-family permits while multi-family permits rose by 6.0% to 123,000 annualized units.

 
Bonds Hit the lowest in a week - Bond 10-year yields down to the lowest in a week, after a pair of government reports showed wholesale prices fell at twice the rate predicted by economists and the home-building market remained sluggish. Hopefully rates should stay flat in the short term.

The Week Ahead: Busy Week for Housing, Earnings - Last Week saw equities hit 12-month highs across the globe, including in Australia, Hong Kong, India, Russia, Europe, England, Brazil and of course the US. The Dow hit the 10,000 mark mid-week but closed under that psychological threshold on Friday. The S&P 500 gained 1.5% overall, pushing the gains since early March to an astonishing 59.4%. Meantime, WTI crude oil has jumped 120% from its February low of $34 per barrel. A 2009 peak was hit last week as it rose 9.4% $78.53. Never mind 2009 highs, Spot Gold hit an all-time high at $1,070.40 per ounce last Wednesday, though on Sunday night it had fallen to $1049.95.

Key Q3 Earnings Reports This Week:

Texas Instruments, Apple (Monday); Caterpillar, Yahoo, Pfizer (Tuesday); Boeing, Wells Fargo, eBay, Freeport (Wednesday); UPS, 3M (Thursday); Microsoft (Friday).

Key Events This Week:

Monday:  Homebuilder Sentiment survey from the National Association of Home Builders

Tuesday: Charles Plosser, President of the Philly Fed, speaks on monetary policy to the Stanford Institute for Economic Policy Research in Palo Alto, California.

Wednsday: Eric Rosengren, President of the Boston Fed, speaks on regulatory and monetary policy as he opens the bank’s annual Cape Cod economic conference in Chatham, Massachusetts.

Thursday: Eric Rosengren, President of the Boston Fed, speaks at the bank’s annual Cape Cod conference for the second day. He will Deiver a paper on whether financial stability should be added to the Fed’s objective.

Friday: Donald Kohn, Vice Chairman of the Fed, speaks in a panel discussion on international perspectives, at the Boston Fed's annual conference in Cape Cod.

Stocks Off the Lows of the Day - Equities opened lower this morning following disappointing earnings results from Bank of America, a losses were extended into the session when it was reported that consumer sentiment took a dip in the first two weeks of October, suggesting retail sales in the holiday period could be weaker than forecasts assumed. After being down more than 1.00% in the lunch hour, stocks were making a small comeback from the lows of the day.

Freddie Mac: Mortgage Rates Rise from Recent Lows - Freddie Mac's Primary Mortgage Market Survey for the week ended October 15 was released on Thursday. The report showed all four mortgages tracked by the survey had risen during the week.

The 30-year fixed-rate mortgage averaged 4.92 percent with 0.7 point for the week ended October 15. A week earlier the average was 4.87 percent also with 0.7 point.

The 15-year FRM had an average contract interest rate of 4.37 percent compared with the all-time record low of 4.33 percent reached the previous week. Fees and points were unchanged at 0.7 point.

The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) increased from 4.35 percent to 4.38 percent. Fees and points also rose from 0.5 point to 0.6 point.
The one-year ARM increased 7 basis points to 4.60 percent. Fees and points remained stable at 0.5 point.

According to Frank Nothaft, Freddie Mac vice president and chief economist, "Mortgage rates rose slightly over the week, but rates on 30-year fixed mortgages remained below 5 percent for the third consecutive week. Homeowners are taking advantage of these low rates to refinance their current balances. Over the past five weeks ending October 9, more than 3 out of 5 mortgage applications were for refinancing, according to the Mortgage Bankers Association.

Fed Continues to Slow MBS Purchases - The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the four trading days between October 8 and October 14, the Federal Reserve purchased a total of $21.42 billion agency MBS. In those four days the Federal Reserve sold a total of $5.32 billion agency MBS with almost all sales being Fannie Mae 5.5 MBS coupons. After sales, the Fed's weekly net purchases were $16.1 billion.

The goal of the Federal Reserve's agency MBS program is to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.

Mortgage Applications Dip as Rates Rise Above 5% - Demand for mortgage applications was unable to keep pace with the five-month peak reached in final week of September, according to the Mortgage Bankers Association on Wednesday. The weekly survey said rates for a 30-year mortgage moved above 5% for the time in four weeks, driving down the indexes for new mortgages, refinancing, and purchases.

Average mortgage rates for a 30-year loan moved up to 5.02% in the week ending October 9. Higher rates helped drive applications down 1.8%, following a 16.4% surge in the prior week’s survey.

Despite the one-week loss, average lending rates remains at historic lows and the four-week average for mortgage applications is up +5.6%.

Refinances, which accounted for 67.4% of all loans in the period, fell by 0.1%, and purchases dropped 5.0%.

Yesterday, a report from Zillow.com showed the state average is below 5.15% in all 50 states. Lenders in New York and Illinois offer the highest rates with an average of 5.15%, while rates in Colorado, Virginia and Washington are currently the lowest at 4.90%.

MBA Forecasts Slow Economic Recovery, Less Refinances, More Purchases - The Mortgage Bankers Association has issued an economic forecast that projects further increases in unemployment but continued low interest rates, high rates of refinancing, and a turn-around in economic production.

The association expects economic growth to continue for the rest of this year but to slow down again during the first half of the next. The MBA says real GDP which will be a negative 0.5 percent in 2009 despite gains in the second half of the year will rise to about 3 percent in 2010.

While many forecasters are saying that employment is improving, MBA sees unemployment continuing to climb, reaching 10 percent from the current 9.8 percent by the end of the year and peaking at 10.2 percent before it begins to decline at the midpoint of 2010.

The forecast projects that mortgage rates will remain stable at around 5 percent through the end of the year but will rise to around 5.6 percent by the end of 2010. The low rates will spur refinancing which are expected to hit $1.25 trillion by the end of 2009 from $777 billion in 2008. As rates rise, however, the refinancing boom will slow to around $745 billion next year. All originations, however, are expected to reach $1.5 trillion as modest increases in home sales compensate for the decline in refinancing. Purchase originations this year are about 2 percent below the level of 2008 but should rise next year by about 12 percent from the total the 2009 figure of $718 billion.