Greetings from Santa Cruz, Bolivia this time. Saturday night, part of our voyage was to fly to La Paz, Bolivia, then over here. You may have already heard of La Paz due to its airport being the second highest commercial airport in the world with an elevation of just over 13,300 feet. Since the airport is over 10,000 feet, we are required to use oxygen for all operations during which our cabin is above 10,000 feet. Mortgage bonds may need oxygen if they reach the heights that Treasury Secretary Paulson wants them to go.
Last week saw a reiteration from the Fed that they are going to keep buying mortgage backed securities and Paulson even came out saying he wants to drive mortgage rates down to 4.5%. As the data flowed, we saw more and more reasons to focus on our dismal economy and forget about inflation, but do not let that sleeping giant awaken unnoticed, for it will awaken eventually.
The week started off with a worse than expected ISM Index, followed by ISM Services Index. The big kicker of the week, besides the Fed and Paulson’s statements indicating the buying of MBS will continue, was the ADP Employment Report, and ultimately the horrendous jobs report. Strangely, if you watched the bond prices during the week, they moved down at the beginning and changed course only towards the end, with mortgage rates ending the week slightly worse. Once again, we are seeing data unable to move the markets solidly as news and even technical indications take control.
What does the future hold, though? This week will be fairly quiet when it comes to data, with some moderately impacting reports due out, that is until Friday’s Retail Sales. With a better than expected Black Friday, it will be interesting to see the Retail Sales numbers. We will also see the PPI on Friday. Here is the breakdown of scheduled data…
- Monday: No data
- Tuesday: Still no data
- Wednesday: Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30), Balance of Trade (8:30)
- Friday: Retail Sales (8:30), Producer Price Index (PPI – 8:30), Consumer Sentiment (8:30)
As you can see, technical indications and news will be in control, at least until Friday. That spells more of a pullback and mortgage bond pricing, resulting in slightly higher mortgage rates in all likelihood this week. Keep in mind that Bernanke and Paulson are determined to get those mortgage rates down no matter the cost, and since it isn’t “their money”, chances are they will find a way to do it. Plan on higher rates this week based on the charts, but don’t be surprised if news, or speeches, manage to enter the picture in an attempt to push bond prices higher.
It certainly does seem that Paulson cannot control the market as directly as he would hope or suggests. However as you astutely said he is playing with house money, he will find a way to get his magical 4.5%. In the end that rate will be meaningless unless consumers learn how to save so they can come up with the larger down payments so many banks want now.
Thanks for the information. The mortgage market is hard to follow sometimes.
Passing the 4.5% loan for homeowners will be crucial to the housing market. FYI, my family is from Santa Cruz, Bolivia. Been there several times. Beautiful area of the country
Problem is that Paulson is as much of a lame duck as President Bush. Nobody really wants any major decisions until after Jan 20. Best Paulson can hope for is that he doesn’t screw up any more for the next month and a half.
I was just thinking about Mortgage Market Update and you’ve really helped out. Thanks!
The rates are not the problem! Wether it’s 6.5% or 4.5% people still need to refi and people are still buying homes. The problem is the lack of programs that are available.
In the UK there are similar problems. Banks are not willing to lend and government is not doing much about it. Bank of England Base rate is the lowest in its history, but it doesn’t seem to work. Property prices are falling, but that is not surprising as not many people can obtain a mortgage. There are hardly any buy to let mortgage deals and those which are available go to a maximum of 75% LTV.