I hope everyone had a wonderful Christmas and had plenty to be thankful for. Unfortunately, mortgage backed securities only received a lump of coal. Well, I would actually say a truckload of lumps of coal based on the week’s results.
Last week was a shortened week for the holiday and that usually brings volatility to the markets which I warned about last Monday. I also mentioned we could only hope that the 200-day moving average would hold and stop the “bleeding”, but MBS prices cut through that level like it was paper. Overall, despite their brief “pause”, MBS prices fell 103 basis points in those four days.
This week will likely see a retracement, or corrective move as needs to happen in any major move either direction. A solid 50% retracement would bring them back to their 10-day moving average, which is already below their 200-day MA, but more on that in a moment. How can MBS prices find strength? Here is this week’s currently scheduled list of events and data plays…
- Monday: 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), 2-year T-Note Auction (1:00), Money Supply (4:30)
- Tuesday: S&P Case-Shiller HPI (9:00), Consumer Confidence (10:00), 4-week T-Bill Auction (11:30), 5-year T-Note Auction (1:00)
- Wednesday: MBA Purchase Applications (7:00), Chicago PMI (9:45), Crude Inventories (10:30), 7-year T-Note Auction (1:00)
- Thursday: Jobless Claims (8:30), Money Supply (4:30)
- Friday: Markets Closed…HAPPY NEW YEAR!!!!
Yet another shortened trading week this week as we end 2009 and begin 2010, so expect the volatility to continue. The markets will be closed Friday for New Year’s Day. Will mortgage rates have a reason to celebrate the new year? I highly doubt it.
Looking at the charts, besides seeing almost nothing but red candlesticks over the last month (MBS prices down nearly 300 basis points since 11/30/2009!!), there is only the glimmer of hope that rests in the need for a retracement. Stochastic indications support this need as they are literal plastered against the bottom signaling they are majorly oversold. All moving averages are either falling or have flattened out and about to turn lower. As I stated earlier, the 10-day MA is now below the 200-day MA and currently marks the 50% retracement level. The 25-day appears to be setting up to cross below the 50day MA, maybe as the new year starts. The charts simply look ugly for mortgage rates.
The bottom line is this week will be the same as last, take it day-by-day and despite the potential for the retracement, mortgage rates are heading higher and will continue to do so in all likelihood.
Have a good week and a may 2010 be a prosperous one for all of you!!!
Thanks Robert. Looks like those fence sitters may have waited too long to pull the trigger. How much of chance is there that we retrace back to rates from two weeks ago?
Roy Paeth
Chicago First Time Home Buyer
Roy,
Well, apparently this week’s post got lost as well as my comment I made here on Monday. Lenderama was sold and I was not informed prior to Monday night and as such did not keep a backup copy of this week’s post. It sucks as it was a good one and I explained exactly why I believed this week would see a correction finally, followed by the next leg lower. I completely understand though.
Anyhow, since my prior comment and this week’s post are not showing, I wanted to again answer your question in case you did not see it before. I expect rates to drop to where they were on December 21, 2009, but two weeks ago (Dec. 18th timeframe) will not likely ever be seen again. That is unless the Fed gets back into the market and re-inflates the bubble.
As of yesterday, MBS prices are just below their 200-day MA, but have completed just over 50% retracement of their last fall (not counting pauses). That means they do not need to reach their 200-day MA before turning lower, so we may be heading towards lower MBS prices even today with the ADP Employment Report (for those reading and not in the know yet, this means mortgage rates headed higher).
I hope that answers your question fully and feel free to ask more. Thanks again for your inputs.
From what I have heard, the highest the rates will get to is about 6%. That is still lots better than it was in the past!
First two weeks of the year and it is obvious that the weather has truly affected the volume of new calls to discuss mortgage. Thank God it is going to begin a warm up this week.
Thanks for the article. As long as oversight continues to lack in the world of mortgage backed securities and credit default swaps the uncertainty of the overall market I feel will continue. As rates rise higher the slow down will set-in. Rising rates and a expiration of the tax credit… = a slow 2nd half of 2010.
Proff of a firming real estate market is needed to put the bid in the MBS prices. The foreclosure shadow market is weighting on expectation of real estate. In the pits out here, the market for property, have a lot of buyers chasing it, but pricing is not yet meaningful. The only market I am finding in our area in Bergen County New Jersey that is showing real life are lots for sale or knock downs. They are really getting interest, mostly by individual home buyers. This could be a leader for the future.
Let’s keep the rates down just a little longer! It’s one of the few things keeping the market still alive.
Until the job market or economy over all is in full recovery, I think they will keep the rates down, As soon as there is any life in the economy I fear the interest rate will rise and inflation will also rise.
I feel the rates will stay at a l0w level until our economy as a whole becomes stable. With inflation currently were it is I don’t see much fluctuation in the market as a whole. The holiday season wasn’t as bad as expected here in San Diego. The current housing trends are as stable as they have been for quite sometime. As long as weather keeps up here in San Diego I feel the housing turnaround will start to increase.
The Feds are schedule to stop purchasing Mortgage Backed Securites on March 31, 2010 but the housing industry is still very weak and the economic recovery still hasn’t gotten thing back on the right foot. I don’t think the Feds are going pull out in March and hopefully will hear more in the upcoming Fed Meeting.
Broker’s Best Contract Loan Processing
The Feds are schedule to stop purchasing Mortgage Backed Securites on March 31, 2010 but the housing industry is still very weak and the economic recovery still hasn’t gotten thing back on the right foot. I don’t think the Feds are going pull out in March and hopefully will hear more in the upcoming Fed Meeting.
Broker’s Best Contract Loan Processing.com
The Feds are schedule to stop purchasing Mortgage Backed Securites on March 31, 2010 but the housing industry is still very weak and the economic recovery still hasn’t gotten thing back on the right foot. I don’t think the Feds are going pull out in March and hopefully will hear more in the upcoming Fed Meeting.
Broker’s Best Contract Loan Processing