Daily Commentary by Larry Baer: Mortgage investors are developing
"target fixation" with respect to all the Congressional
saber-rattling and political posturing surrounding the effort to find a way
down from the fiscal cliff. Nothing else matters - macro-economic news
has become little more than background noise.
An increasingly
large number of mortgage investors are moving to the sidelines in the absence
of progress on the fiscal cliff negotiations in Washington.
With the exception
of the government crew tasked with buying up to $40 billion per month of
agency-eligible mortgage-backed securities as part of the QE 3 initiative from
the Federal Reserve -- few other traders are active in the mortgage market -
reducing substantially the normal market reaction to economic reports.
News of an improvement in Q3 Productivity and a resulting decline in Unit Labor
Cost drew nothing more than a disinterested yawn from credit market
participants. An improvement in the Institute
of Supply Management's
Service Sector Index suffered the same fate.
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.
A resolution of the
issue by Christmas, a week before the deadline, remains uncertain but not out
of the question. If/when a political compromise is reached to avoid the
"fiscal cliff" -- stocks will likely rally at the expense of rising
mortgage interest rates (as long as the deal is something more than a simple
extension of the current deadline). Until/unless a fiscal agreement is
achieved - a primary support for steady to perhaps fractionally lower mortgage
interest rates will remain firmly in place.
FYI: As they
do every Wednesday, the Mortgage Bankers of America released their Mortgage
Application Survey for the week ended November 30th. The
composite index, a value measuring demand for both refinance and purchase
money-mortgages rose by 4.5% -- driven almost exclusively by a healthy 6.1%
gain in refinance loan requests. The purchase index rose 0.1% from the
previous week. While the number of purchase applications taken over the
past four-weeks has increased by 17% -- overall purchase money mortgage demand
is flat for the year.
Refinance
applications accounted for 82.5% of all applications taken for the week.
The contract rate
for 30-year fixed-rate conforming mortgages fell by 1 basis-point to
3.52%. The interest rate is 9 basis-points lower as compared to its level
four-weeks ago and it is down 66 basis-points from this time one-year
ago.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
