Commentary: The trend trajectory of mortgage interest rates continues to be far more influenced by investors' perception of the degree of progress, or lack thereof, European leaders are making on euro zone debt and banking issues. As I have mentioned before -- the fear currently gripping investors' mind-set is that an outright loss of confidence in Europe will lead to a global market collapse -- which then plunges the U.S. and the rest of the world back into the depths of economic recession.
Should such a disaster unfold -- dollar denominated assets like Treasury debt obligations and mortgage-backed securities will be in high demand - a condition virtually guaranteed to push mortgage interest rates lower. The bad news part of this story is that a large part of the pool of currently existing qualified borrowers will shrink - simply because they are caught up in another major swoon in the labor market as companies of every size race to cut operating cost in the face of plunging demand.
The stakes are high -so high in fact the likelihood global leaders will do whatever it takes to avoid such a catastrophe is exceptionally high as well. Until a viable plan is developed to avert this financial threat - headlines out of Europe regarding the financial crisis there will continue to trump most other factors currently influencing the trend trajectory of mortgage interest rates. I'll keep you posted as events unfold.
Here at home the Commerce Department reported this morning that inflation pressures at the consumer level (net of food and energy costs) rose at its slowest pace in six months in September -- offering credit market investors assurances that the sharp price increases reflected in yesterday's headline producer price index are not finding their way through to the consumer. Benign consumer inflation pressure tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Mortgage investors were initially stunned this morning by a separate report from the Commerce Department showing September housing starts soared 15% higher on a seasonally adjusted annual basis - completely obliterating economists' consensus estimate calling for a gain of 3.4%. The shock wore off quickly as traders drilled deeper into the detail of the report. Starts of buildings with two or more units rose 51.3% while single-family home construction - a segment which actually accounts for a larger share of the market - increased at a far more modest 1.7%. The headline number was muted even farther by data showing building permits - a harbinger of housing starts yet to come - fell a much weaker-than-expected 5.0%. Permits were held back by a big 14.5% fall for buildings with two units or more while the single-family component fell by a modest 0.2%. No matter how analysts try to "slice-and-dice" this data the result remains the same - the housing sector is far from recovery - a fact supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey figures for the week ended October 15th. Overall mortgage demand dropped on a week-over-week basis by 14.9% with purchase-money requests off by 8.8% and refinance demand down by 16.6%.
The contract rate for 30-year conforming mortgages finished the week at 4.33%, up 8 basis-points from the prior week, up 4 basis-points from four-weeks ago, and down 17 basis-points from year ago levels. Refinance requests represented eight out of every ten applications taken last week.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
