Daily Commentary by Larry Baer: The
yield on 7- and 10-year U.S. Treasury notes fell to 60-year lows this morning
as worries of contagion from Spain's
ailing banks created another round of safe-haven buying among global investors.
Spain's
financial woes, rising Italian borrowing costs and uncertainties over the Greek
national elections scheduled for June 17th sent global investors
into an almost panicked "flight-to-quality" buying spree. As if they weren't already worried enough
about the health of the global economy -- news that U.S. pending homes sales
unexpectedly fell 5.5% in April caused heavy selling in the stock markets -- a condition that provided additional
support to the current move to lower mortgage interest rates here at home.
In my judgment the reaction to this mornings
5.5% decline in the pending home sales number for April may be
"overcooked" a bit. Even with
the slump in April -- the pending home sales index is 14.4% higher than in
April 2011, which makes for 12 consecutive months of strong year-over-year gains. Pending home sales are currently much higher
in all regions on a year-ago basis - ranging from 5.0% in the West to 23% in
the Midwest.
This index bears watching in coming months - but right now it appears to
me the media is making more out of the April decline than is probably
justified.
Speaking of home sales - the Mortgage Bankers
of America
has released their Mortgage Application Survey for the week ended May 25th.
The mortgage application composite index (includes both purchase and refinance requests)
declined 1.3% during the survey period.
Refinance requests were down 1.5% from the prior week but is still up
19% from the month ago mark and up 87.4% from this time one year ago. Purchase application traffic is down 0.6%
from a week ago, down 2.7% from four weeks ago and down 5.4% from this same
time frame in 2011. Refinance
applications accounted for 76.6% of all applications and 75.1% of the current
perspective loan volume.
The contract rate for 30-year fixed rate
conforming mortgages finished at 3.91%, down 2 basis points from the week ago
level, down 14 basis-points from four-weeks ago and 77 basis-points from a year
ago.
Mortgage investors will be looking for clues
as to whether another interest rate friendly round of bond purchases from the
Fed may be in the cards before the summer is over. Thursday's 8:30 a.m. ET release of revised Q1
Gross Domestic Product figures together with Friday's May Nonfarm Payroll
report will be key pieces of evidence.
If, as expected, first-quarter economic growth as represented by GDP
posts a reading of 2.0% or more and May nonfarm payrolls hit 150,000 or so -
the hope for more interest rate friendly bond purchases from the Fed will fade
rather sharply. In my judgment it will
likely take a revised Q1 GDP number of 2.0% or less together with a May nonfarm
payroll number of 125,000 or less to support the prospects for yet lower
mortgage interest rates. While such an
outcome is certainly possible - at this juncture it does not appear to be very
probable.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
