I hope everyone had a great Thanksgiving Day, and there was plenty to be thankful in the mortgage markets with the early Christmas gift from the Fed that sent mortgage backed securities higher and sent mortgage rates lower, kicking off increased inquiries for mortgages. But was that all that happened last week?
Certainly not, as we saw some more favorable data hit the airwaves and the breakout of the trading range virtually opens the door wide open for lower mortgage rates, avoiding those deadly piranhas I mentioned last week. While the main event for the week was supposed to be the Personal Consumption Expenditures, or PCE, data, it was overwhelmed on Tuesday by the Fed’s announcement it was going to buy up mortgage backed securities. among other other things. Since data had failed numerous times to send mortgage rates lower, mortgage bonds needed this announcement to break through the ceiling of resistance.
As the data flowed last week, we saw continued signs of our struggling economy, including a still weak housing market. Consumer Confidence is down, though we can all be thankful that at least inflation is not going through the roof. Yes, there is even talk of deflation these days and that may very well happen as this Christmas season is poised to bring plenty of red ink to retailers. Indeed, Personal Spending was down despite Personal Income ticking slightly higher, but the PCE showed inflation in check, though the Core level is still a bit higher than what the Fed typically likes to see.
The question for now is just how high mortgage bonds can reach this time. There are some cautions that remain, but I am also very optimistic as we will see more data flowing this week that could propel MBS to heights not seen since January, if not even higher. They will certainly have a tough fight ahead of them, but the fire has been lit and the flames will likely be fueled further by data this week…
- Monday: ISM Index (10:00)
- Tuesday: No data
- Wednesday: ADP Employment Index (8:15), Productivity (8:30), ISM Services Index (10:00), Beige Book (2:00)
- Thursday: Initial Jobless Claims (8:30)
- Friday: Non-farm Payrolls (8:30), Unemployment Rate (8:30), Average Work Week (8:30), Hourly Earnings (8:30)
See what I mean by data that can propel mortgage bonds? The week starts off with another set of data that lets traders dwell on the gloominess of the economy and then it ends with the Jobs Jamboree, which will almost certainly see unemployment rise again.
Now for the cautions, which can be seen in the charts. Stochastic indications remain in the overbought zone and are “flatlining”, meaning things may change soon. Mortgage bonds will face several layers of resistance if they want to break to new heights, so the road ahead will be tough. Resistance will be faced at September’s highs, followed by January’s. The good news is that all moving averages are now below current pricing.
This week will be an interesting one to say the least. What I am expecting is a pull back to occur at some point, maybe even back the highs of last month, followed by a resumption of price increases which hopefully will let us see mortgage rates even lower than what we have seen all year.
On a positive note, even if mortgage rates were to increase, they are still very low relative to previous economic cycles that produced mortgage rates above 10%.
Thanks for this excellent update. It’s great to get the most recent news and stay informed.
Interesting week, all right. Somebody came out with a paper which says we’ve been in a recession since Dec 07. Totally wiped out all the gains from a better than expected Black Friday. It takes them a year to figure out we’ve been in a recession? And they panic about it now, after 1 year. And when do we find out we’re out of the recession?
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thanks Robert for the post, always look forward to seeing the update. so you say you see rates going back up and then upfully lower then wht we are at now when you do think that will happen? it would have to happen with in the next two months rates tend to rise spring and summer.
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Sorry guys. I am very busy and have been unable to reply many times, but wanted to answer some of your questions.
@Ditech – Who said mortgage rates aren’t going back to 10%? It will take some time, but I wouldn’t be surprised to see them get there when all of the “dust settles”.
@Ling – 1 year to figure out we are in a recession, 2 years to figure out we’re doing out of it. Expect that news in 2011 sometime (guessing)
@VA Loans – The picture changes whenever big news hits the airwaves, but I expect rates to drop some, then rise to heights not seen in many years. Part of the reason I think rates will drop is the determination of Paulson and Bernanke to use taxpayer money to reach their goal of “4.5%”. My guess is they will be the creators of a “mortgage rate bubble”.
Thanks to the everyone for following and the kind words. It does appear that “spammers” are beginning to show up in force though. This week’s update will be up early tomorrow.
Thank you for your article. Do you not think that actions should be taken as soon as problems appear on the horizon, rather than when they get out of control?
Good article.
There has been plenty of opportunity to identify the problems that have arisen, but they were brushed under the carpet, because of the bullish markets.
Its difficult to stand up in such a boom and say “hang on, this person shouldn´t be getting finance”.
Interesting week, all right. Somebody came out with a paper which says we've been in a recession since Dec 07. Totally wiped out all the gains from a better than expected Black Friday. It takes them a year to figure out we've been in a recession? And they panic about it now, after 1 year. And when do we find out we're out of the recession?