Daily Commentary by Larry Baer 11.30.2012

 Daily Commentary by Larry Baer:  The only thing really driving changes in mortgage interest rates between now and the end of the year is comments and headlines on the fiscal cliff negotiations.  Economic data may cause a temporary little flutter in the market - but any substantial shift in the current trend trajectory of mortgage interest rates will almost certainly be tied to events surrounding the looming fiscal cliff.

Keeping the nation in suspense down to a white-knuckle deadline has become the rule rather than the exception in Congress in recent years. Persistent worries about the lack of progress in Washington to avert the economically crippling effects of the looming "fiscal cliff" continues to underpin the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.  The "sticking points" in the negotiations appear to be the impasse created by the president's call for $1.6 trillion in new tax revenue and the fact there has not been any serious discussions with regard to Republicans' call for changes to entitlement programs.  The clock is ticking.

The Commerce Department reported earlier this morning consumer spending fell 0.2% in October for the first time in five months.  Some of the decline was attributed to the impact of superstorm Sandy.  Income was unchanged during the month for the first time since April and followed a 0.4% gain in September.  A 29% drop in gasoline prices helped to keep inflation contained in October.  The Fed's favorite measure of inflation at the consumer level (the personal consumption expenditure index) nudged up 0.1% after posting a 0.3% gain in September.  Mortgage investors reviewed these numbers - and yawned. 

Looking ahead to the coming week the following noteworthy economic reports will be competing with "fiscal cliff" headlines for the attention of mortgage investors - November's Institute of Supply Management's Manufacturing index on Monday at 10:00 a.m. ET; November's Institute of Supply Management Service Sector Index on Wednesday at 10:00 a.m. ET followed by the November Nonfarm Payroll report on Friday morning at 8:30 a.m. ET.  All three reports are expected to show values mortgage investors will likely deem to be mortgage interest rate neutral.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.29.2012

Daily Commentary by Larry Baer:  Second verse same as the first.

Keeping the nation in suspense down to a white-knuckle deadline has become the rule rather than the exception in Congress in recent years. Persistent worries about the lack of progress in Washington to avert the economically crippling effects of the looming "fiscal cliff" continues to underpin the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.  The "sticking points" in the negotiations appear to be the impasse created by the president's call for $1.6 trillion in new tax revenue and the fact there has not been any serious discussions with regard to Republicans' call for changes to entitlement programs.  The clock is ticking.

Uncle Sam will be in the credit market looking to borrow $29 billion in the form of 7-year notes today.  The yield on these notes may have to ratchet higher this time around to draw sufficient demand from both foreign and domestic investors.  If so, this event will likely exert some slight upward pressure on mortgage interest rates before the end of the day.

All that glitters is not golden.  The government reported earlier this morning they had revised their first-estimate of third-quarter Gross Domestic Product (the statistical "guesstimate" of the value of all the goods and services produced in the country) higher to 2.7% from the initially reported 2.0%.  While on its face the revised number looked significantly better -- a closer evaluation of the components of the report makes it abundantly clear to mortgage investors the apparent improvement is nothing more than a statistical distortion. 

The economy got a big boost from defense spending in the third-quarter that is highly unlikely to last.  Military outlay's surged 12.9% after falling in the previous three quarters.  It was the largest positive contribution to growth from government spending in three-years.   And if that was not enough to make investors discount the big reported GDP gain - inventory accumulation accounted for more than 40% of the improvement, a surge which is both unsustainable and a negative for forward looking quarters.

A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 393,000.  Hurricane Sandy continues to distort this data currently rendering it of little use to mortgage investors in terms of their attempt to take the pulse of the labor sector.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.28.2012

 Daily Commentary by Larry Baer:  Different day - same story.

Persistent worries about the lack of progress in Washington to avert the economically crippling effects of the looming "fiscal cliff" continues to underpin the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.  The "sticking points" in the negotiations appear to be the impasse created by the president's call for $1.6 trillion in new tax revenue and the fact there has not been any serious discussions with regard to Republicans' call for changes to entitlement programs.  The clock is ticking.

Uncle Sam will be in the credit market looking to borrow $35 billion in the form of 5-year notes today.  Most analysts expect this sale to go off without a hitch.  If their assessment proves accurate - this event will have a negligible impact on the current trend trajectory of mortgage interest rates.

Earlier this morning the Commerce Department reported new home sales in October slipped 0.3% lower - falling below most economists' expectations for a steady to slightly higher month-over-month sales pace.  Even more disappointing was the fact that September sales were downwardly revised by 4.4% -- all but completely wiping out the previously reported strong gain.  The revision leaves the third-quarter acceleration in home sales much weaker, bringing growth down from an annualized 17% to 5%.  Still, the housing market is slowly improving.  Compared with year ago levels - sales are up by a strong 17% in October.

As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey figures for the week ended November 23^rd.  The composite index, a value representing both refinance and purchase loan requests, fell by 0.9%.  Even so, the composite index is nearly 4% higher from four weeks ago and up a solid 45.5% compared to this time last year.

The survey showed purchase-money application traffic increased by 2.6% for the week while the number of refinance applications taken declined by 1.5%.  Refinance applications accounted for 80.8% of all applications taken and they represent 78.2% of the prospective loan volume.

The contract rate for 30-year fixed rate conforming mortgages fell by 1 basis point to 3.53%.  The interest rate is 12 basis-points lower from four-weeks ago and 68 basis-points lower from the year ago mark.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.27.2012

Daily Commentary by Larry Baer:  Persistent worries about the lack of progress in Washington to avert the economically crippling effects of the looming "fiscal cliff" continues to underpin the near-term prospects for steady to perhaps fractionally lower mortgage interest rates.

Uncle Sam will be in the credit market looking to borrow $35 billion in the form of 2-year notes today.  Most analysts expect this sale to go off without a hitch.  If that assessment proves accurate - this event will have a negligible impact on the current trend trajectory of mortgage interest rates.

Earlier this morning a gauge of U.S. business spending, a component of the broader October Durable Goods Orders report, increased by the most in five months.  A fourth straight month of declines in shipments highlighted the damage fears of tighter fiscal policy next year is currently wreaking on the economy.  Overall durable goods orders were unchanged last month -- while the ex. transportation component rose 1.5% after posting a 1.7% increase in September.  Mortgage investors took notice of the numbers -- and concluded the entire data set is currently mortgage interest rate neutral.

In other relevant news of the day -- home prices in 20 major U.S. cities grew 0.4% in September, reinforcing the view the housing sector is beginning to show signs of sustainable growth.  The driving force behind the uptick in home prices is an improvement in consumer confidence -- which has now risen to a four-and-a-half-year high. 

Over the past few months, consumers have grown increasingly more upbeat about the current and expected state of the job market, and this turnaround in sentiment is boosting housing demand.  While persistently low mortgage rates and improving employment prospects are attracting more buyers, consumers still face tight credit standards.   Unless/until the current credit standards are relaxed to less stringent levels - it is a virtual certainty a more dynamic recovery in the housing sector will not be forthcoming.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.26.2012

Daily Commentary by Larry Baer:  This week's three-part $99 billion Treasury debt auction and the entire battery of macro-economic reports scheduled for release over the coming five business days will take a distant back-seat to the tone and tenor of the "fiscal cliff" negotiations in Washington.  There are only 36 days until the automatic legislative triggers are tripped launching $600 billion of government spending cuts and tax increases onto the back of an already struggling economy.  Most analysts believe a failure to resolve this issue by midnight on December 31^st dramatically increases the likelihood the economy will plunge into another recession by mid-2013. 

Optimism among market participants that Democrats and Republicans will be able to set aside their respective party's political agenda and craft a bi-partisan agreement has waned a little this morning.  The longer it takes for a compromise resolution to be achieved and the more belligerent the debate becomes - the stronger the near-term support for steady to perhaps fractionally lower mortgage interest rates will become.  That is good news.

The bad news - at least in terms of the trend trajectory of mortgage interest rates -- is the almost certainty that once the "fiscal fog" clears, the stocks markets will likely begin a strong rally -- producing noticeable upward pressure on mortgage rates in the process.  

From a technical perspective it appears mortgage interest rates will likely trend sideways to fractionally lower between now and the week ended Friday, December 21^st.  From that point forward the probabilities begin to strongly favor the idea mortgage interest rates are poised to begin a slow, but progressive move higher - confirming the growing assumption the lowest mortgage rates in modern history were set during the last five trading days of September, 2012.    

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME