What an interesting week we had last week, with mortgage backed securities closing the week at their highest level in five years, something I have been saying was coming all week on Florida Mortgage Daily, despite the hiccups that caused rate lock alerts. So, what does the future hold for mortgage rates?
Before we answer that question, let’s look at what got us here last week. The week started off with no real data to get the markets moving, but the news of the Big 3 auto deal was able to shake the markets a bit. There was some hints of a strengthening housing market, with California and Florida’s Pending Home Sales actually rising. The treasury auctions went fairly well, with a very bizarre auction on Tuesday that saw traders bidding a net loss for the 4-week T-bills and fairly good foreign participation for the remainder of the week.
As the real data flowed, it continued to favor mortgage bonds and mortgage rates. Initial Jobless Claims hit a 26-year high and Retail Sales dropped more than expected, especially after Black Friday’s report. PPI also was favorable overall, indicating inflation has not cost price increase at the producer level, at least not yet. Surprisingly, Consumer Sentiment beat expectations. Not so surprisingly, the Fed is seeking permission to issue their own bonds, something that is prohibited by the Federal Reserve Act. Overall, mortgage rates dropped .25% this week and look good to drop further.
As this week gets started, we will see more data than last week and some heavy hitters are coming up, including the next rate decision by the Feds, which extended their meeting to two days instead of the normal one in December. Traders had been expecting a 50 to 75 basis point cut, but rumors that the Fed may surprise the market are running rampant now. Inflation will be seen as measured by the CPI and we will see the Philadelphia Fed Index as the week draws to a close. Here is the breakdown…
- Monday: Empire State Index (8:30), G.17 Statistical Release (Industrial Production and Capacity Utilization) (9:15)
- Tuesday: Consumer Price Index (CPI – 8:30), Housing Starts (8:30), Building Permits (8:30), FOMC Meeting (2:15)
- Wednesday: Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30), Philadelphia Fed Index (10:00), Index of Leading Economic Indicators (LEI – 10:00)
As you can see, there are some opportunities for mortgage bonds to break through even more resistance levels, or even get pushed back some. There will certainly need to be some pullback periods as bonds keep pushing higher and higher, not mention the need to draw from the oxygen bottle as they reach new heights.
As for technical indications, the breakthrough that happened last week virtually gives mortgage bonds free reign to drive mortgage rates down, just how low is all that remains to be seen. 2003? 4.5%? Only time will tell for sure, but it will likely be a while before we see rates like those, if we even get there. Stochastic indications are reaching back into the overbought spectrum indicating the need for a pullback eventually, but the overall trend continues to be higher mortgage bond prices and lower mortgage rates for the predictable future.
I’m afraid the Big 3 Auto bailout just got a little bit more complicated today. Right leaning media are accusing the UAW of deliberately undermining the deal, knowing that President Bush would step in with funds from TARP. But because its now out in the media, the White House is under pressure not to agree to divert funds. Basically means that there won’t be a bailout before Feb 09. You think Detroit can survive a couple of months without going bellyup?
Rob, did you see what the new girl Jana is up to here?
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Hopefully rates will continue to go down!
Thanks for the update. There have been a lot of changes lately. It’s grea tto have access to an article that can keep me updated.
Great article, thanks. The rates are down to about as low as they can go but I think we still have a tough year ahead of us.
That’s great, I never thought about Mortgage Market Update like that before.
Paying mortgage interest to banks, and investing retirement savings in mutual funds are two realities that we just seem to accept without question, because that’s the way it has always been. But who says it has to be that way? These are not laws of nature or biblical declarations carved in stone. They are simply rules, regulations and business practices we developed in other economic eras. There is no reason why they should not be reconsidered and changed if change is determined to be for the common good. Considering we are in the midst of worst financial and economic crisis since the great depression, we should be questioning whether the fundamentals that we blindly accept are still appropriate. (The 401(k) Mortgage concept does not suggest a 401(k) be used to pay off a mortgage…it suggests that a 401(k) be used to BUY a mortgage. There is a big difference). In other economic times, suggesting something as radical and revolutionary as the 401(k) Mortgage would quickly be vetoed by the influential banking lobby. It is unlikely that they would cooperate in promoting or implementing changes that in effect require them to give up a large portion of a traditional mainstay of profitability…namely the low-risk residential mortgage. Today as the financial community struggles for survival, their bargaining position has weakened significantly. By considering bold, yet logical alternatives to tradition, massive amounts of needed liquidity would be injected into the banking system as America’s mortgages are bought, or partially bought with wealth that already exists, while addressing the root cause of the crisis at the “Main Street” level. The price that banks would have to pay for that liquidity is forever handing over a large part of the retail mortgage sector to the honest hard working people of America.
As our leaders explore options to restore stability, promises to help Main Street are vague and unfulfilled, while trillions have already been given or promised to Wall Street. Is printing more money and pouring it into hastily conceived, loosely controlled, untested programs the only way out of the crisis? Recent reports to the House Committee on Financial Services would seem to suggest that these programs are not well defined or controlled, and may not be having the intended effect. While these programs may eventually help solve the crisis, the staggering sums of new money involved may also turn out be a breeding ground for corporate greed and an every-man-for-himself mentality. Conversely the 401(k) Mortgage is an easily understood concept that would directly benefit Main Street and Wall Street without increasing America’s debt. This completely new form of financial instrument would forever change the way Americans pay for their homes, and save for retirement; activities that our banks and mutual fund managers have monopolized and profited from for years. If the government can pass legislation within a matter of days to authorize a $700 Billion rescue package, surely it is possible to change existing rules that define eligible investments for the 401(k) as well as any other rule changes necessary to enable the 401(k) Mortgage.
The time for a radical, revolutionary change is now.
For a detailed explanation go to http://www.the401kmortgage.com
Thank you for this update, informative as usual. Hopefully this government program will be approved shortly.
loans in the US tend to be ‘non-recourse’ meaning that the only collateral that a lender would have on a mortgage is the house itself. In Canada, mortgages tend to be ‘full-recourse’, with many banks demanding personal guarantees. This difference has resulted in people walking away from their homes in the US at a much higher rate than in Canada.
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Back in the early Nineties, fidelity 401k when my friend Rich and I were unemployed Ivy League grads getting our first taste of corporate cutbacks and hiring freezes, we used to drive around the nicer precincts of Pasadena listening to Uncle Tupelo and finding solace in Jay Farrar and Jeff Tweedy’s twang-punk anthems of Rust Belt drift and despair. I can only hope that we had a sense of how ridiculous we looked.
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