Daily Commentary by Larry Baer: Different day - only slightly different
story.
The risk, however
slim, that the United
States might default on its sovereign debt if
it does not raise its borrowing limit in the next few weeks will probably build
a short-term ceiling over mortgage interest rates. Global investors see
the political squabbling surrounding the expansion of the nation's borrowing
limits as temporary. The political pushing and shoving is certainly a
distraction - but it does not diminish the fact the U.S. debt market is one of
the safest places on earth to park cash - a condition that proves solid support
for the prospects of relatively steady if not fractionally lower mortgage
interest rates for the foreseeable future.
As I mentioned in
this week's edition of "Viewpoint" -- House Republicans will take a
stab at passing a three-month extension of the federal borrowing authority this
week. They are looking to buy time for the Democratic-controlled Senate
to pass a budget plan that shrinks budget deficits.
The Treasury needs
congressional authorization to raise the current $16.4 trillion limit on U.S
debt before the government starts issuing "hot checks" - estimated to
be a possibility sometime between February and early March.
The unique thing
about the pending legislation in the House is it contains a provision that
withholds payment to members of Congress if a budget is not in place by April
15th. House Majority Leader Eric Cantor said in an emailed
statement last Friday, "If the Senate or House fails to pass a budget in
that time (by April 15th), members of Congress will not be paid by
the American people for failing to do their job. No budget, no pay."
The Senate has not passed
a formal budget in nearly four years, while the House has passed budgets that
have failed in the Senate.
The media is going
to have a "field day" with this one. There are major questions
whether the bill will even make it through the House - and if it does - whether
it will have the intended effect.
Political
uncertainty almost always proves supportive of the prospects for steady to
perhaps fractionally lower mortgage interest rates - and there has seldom been
a time when uncertainty has been as dominant a component of the market
environment as it is currently.
The ceiling
currently holding mortgage interest rates down may soon get some reinforcement
from the stock markets. My models continue to flash signals suggesting
the stock markets are poised for a sizeable sell-off - which may begin as early
as this week. If so, look for capital flowing out of riskier asset
classes like stocks to follow the well-worn path back into the safe harbor
of Treasury debt
obligations and agency-eligible mortgage-backed securities. The stronger
the stock market sell-off -- the greater the prospects for fractionally lower
mortgage interest rates.
The National
Association of Realtors reported earlier this morning December Existing Home
Sales fell a disappointing 1.0% on a month-over-month basis. The November
existing homes sales figures was revised downward by 1.0% as well.
Despite the softer-than-expected pace of sales over the past two months, the
overall rate of existing home sales are running at the fastest clip since the
first half of 2007. Even more remarkable is the fact that 2012 sales are
up 9.0% from 2011, marking the fastest rate of acceleration for existing home
sales since 2003. The available inventory of existing homes for sales is
very low -- a major factor in the 11.5% average price appreciation last
year. Today's overall solid existing home sales report was broadly
anticipated and therefore exerted no perceptible influence on the trend
trajectory of mortgage interest rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
