Economic Comments

March 15, 2011

Kent Carter By : Kent Carter

Posted March 16, 2011 17:02 to Economic Comments

                Economic Commentary

         March 15, 2011

Following is a first analysis of the FOMC meeting today:

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March 9, 2011

Kent Carter By : Kent Carter

Posted March 16, 2011 16:56 to Economic Comments

Over the past week I have spoken at length with three local bankers.  Here is a synopsis of their evaluation of the local economy as it affects them:

  1. Companies have been saving their cash and are in a strong position for growth;
  2. They are starting to borrow working capital for the coming season;
  3. More companies are applying for commercial loans;
  4. Bank customers on the commercial side have better outlooks for their businesses than at any time in the past two years.
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Febrary 15, 2001

Kent Carter By : Kent Carter

Posted February 15, 2011 20:34 to Economic Comments

The bond market is in the midst of a good rally this week.  We definitely bounced off a significant bottom and interest rates are improving.  The trend is for better rates, but there could be corrections along the way.  The one item that could slow this rally is inflation.  The Consumer Price Index is released Thursday.  This will give us a good reading on the U.S. economy.  China is working with inflation of almost 5% as they take over the #2 world economy from Japan.  Great Britain has inflation at 4%.  If these leading developed countries cannot control prices, we will realize an impact.  GB could be in a period of stagflation.  That is one thing the Federal Reserve is closely watching.

 

Retail Sales for January were lower than anticipated.  Revisions down for both November and December were also announced today. Most analysts seem to be blaming the weather.  In other words, they are still trying to push the equities (stock market) in the face of disappointing news.

 

The home builders index is at the lowest in 50 years.  Leading Economic Indicators to be disclosed on Friday cannot be a good number.  Jobs and inflation will be the areas upon which we should focus.

 

During the retracement last week, national publications talked about mortgage rates topping 5% for the first time since May of last year.  Remember:  when your customers see an interest rate on the news (print or video), those rates almost always automatically carry a 1% Origination Fee which is standard in most of the country.  In central Oklahoma, our published rates will be about ¼% higher than those rates because we do not normally charge an Origination Fee.

 

If you have customers sitting on the fence, now is a good time to contact them.  We can show improved interest rates from last week and talk about the effects of 5% on their house payments.  Realtors, builders, and mortgage professionals should use this time to push for a decision.  Building costs are increasing, prime houses are being purchased, and interest rates will continue to rise over the next year (with some periods of lower rates like now).  Sell what you have.  It is a good product at the right time!

 

From: Daily Rate Lock Advisory [mailto:ratelock@alamode.com] 
Sent: Sunday, February 13, 2011 7:30 PM
To: Admin
Subject: Daily Rate Lock Recommendation - 02/13/2011 8:21:08 PM EST

 

 

 

 

 

 

 

 

 



There are six economic reports worth watching this week that are likely to affect mortgage rates in addition to the minutes from the last FOMC meeting and two speaking appearances from Fed Chairman Bernanke. This is a far cry from last week’s schedule, making it very likely that we will see plenty of movement in mortgage pricing this week.

There is no relevant economic data scheduled for tomorrow, so look for the stock markets to be the biggest influence on bond trading and mortgage rates. The week’s first release is one of the highly important ones when the Commerce Department posts January’s Retail Sales data. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched quite closely. If Tuesday's report reveals weaker than expected sales, the bond market should thrive and mortgage rates will fall since it would b e a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.5% increase that is expected could lead to higher mortgage rates. 

Wednesday brings us three economic releases in addition to the FOMC minutes. January's Housing Starts will be posted early Wednesday morning, giving us an indication of housing sector strength and mortgage credit demand. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in starts of new housing.





The Labor Department will post their Producer Price Index (PPI) for January early Wednesday morning also. It measures inflationary pressures at the producer level of the economy and is considered to be one the two key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to mark et participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.7% in the overall reading and a 0.2% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about inflation that make long-term securities less attractive to investors.

January's Industrial Production data will be released mid-morning Wednesday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.6% increase in production from December to January. A smaller than expected rise in output would be good news and should push bond prices higher, lowering mortgage rates Wednesday. That is assuming that the PPI doesn’t give us any negative surprises.





The minutes from last FOMC meeting will be r eleased Wednesday afternoon. Traders will be looking for any indication of the Fed's next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may indicate if there is a consensus amongst Fed members or if there is disagreement about their actions or inactions. This release may lead to afternoon volatility Wednesday, or it may be a non-factor. However, the minutes do carry the potential to influence mortgage rates so they should be watched.

The sister report to Wednesday’s PPI will be posted early Thursday morning when the Labor Department releases January's Consumer Price Index (CPI). The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on th e financial markets, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.3% increase in the overall index and a 0.1% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall.





Also Thursday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.5% increase, meaning that economic activity may rise in the near future. A smaller than expected rise would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have to match estimates.

Fed Chairman Bernanke will speak before the Senate Ba nking Committee Thursday morning and overseas Friday morning. Neither engagement is expected to bring any new theories or give an indication of the Fed’s next move to boost or limit economic activity. The markets always watch his words, but I would be surprised if either of these lead to changes in mortgage rates.





Overall, the most important day of the week will likely be Thursday with the CPI being released, but Tuesday and Wednesday will also be active days for mortgage rates due to the importance of the Retail Sales data and the number of events scheduled Wednesday. There is nothing of concern scheduled for tomorrow or Friday, so we can label them the best candidates for the calmest day. In other words, be prepared for an active week in the markets and mortgage rates, particularly the middle part of the week.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days. .. Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2011

 

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February 7, 2011

Kent Carter By : Kent Carter

Posted February 07, 2011 14:49 to Economic Comments

As you can read below, this is a light week for economic news. That means we will have our bond markets traded on technical terms (how many bonds are being bought versus how many are sold to invest in stocks).  The stock market rally continues to gain steam.  We could have a little more room for slightly higher rates before it appears that we will recover some of the ground we have lost over the past couple of weeks.  I don’t see interest rates retracing all the way back down.

Unemployment had new applications fall to 415,000 last week. New jobs created were only 136,000 which mean the weather is impacting the applications or more people have stopped looking for jobs.  Either way, the economy cannot recover at these levels.

The global economy continues to concern me.  Please read the following quote I copied for you to consider:

“Egypt imports 60% of the wheat it consumes. In all, it imports about 40% of its total food needs and, where that was paid for in the past largely by the income from the oil it produced (that is, for oil the country didn’t itself need), geologists are now talking about “peak oil” in Egypt, a term indicating that the country’s oil consumption just surpassed its oil production. Egypt is now a net importer of oil, too. And it no longer has oil money to cover the difference in the cost of the food it must import to feed its hungry population.”

This could be a harbinger of things to come.  All the leaders of our public agencies continue to say we have inflation under control other than food and energy.  Those are significant areas in all economies.  With the strife in Egypt, I am personally concerned about the above quote.  That leaves no income to fund food for a nation that is used to paying for whatever their citizens have needed.  If that changes, so do the dynamics of compromise and confrontation.

 If I were a radical, I might consider other arguments on the basis of ideology or even religious purposes.  If my children are kneeling beside me crying from hunger and my shelves are empty of food, I will do whatever promises to feed my family.  This is the most fearful part of recruiting bombers and others willing to die for “causes” which are generally based on poverty, hunger, and hopelessness.  The American economy will surely be affected by those in desperate circumstances.

Bonds will prosper with more unrest, but our housing industry will continue to languish.  Don’t play games with your customers.  Uncertainty elsewhere, breeds uncertainty in Oklahoma.  Sell what we have to offer.  I am not negative for 2011, but I am cautious for the near term. 

 

From: Daily Rate Lock Advisory [mailto:ratelock@alamode.com]
Sent: Sunday, February 06, 2011 8:00 PM
To: Admin
Subject: Daily Rate Lock Recommendation - 02/06/2011 8:51:32 PM EST



There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on this week. There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week, but no important economic data.

Nothing of concern is due tomorrow, Tuesday or Wednesday morning, leaving bond trading to be driven by the stock markets the first half of the week. If the major stock indexes move higher, we will probably see more funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing rates lower.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us an indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 413,000 new claims for unemployment benefits were filed last week, falling slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricin g.

The first monthly report comes early Friday morning when December's Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $40.7 billion trade deficit.

February's preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 75.5, up from January's final reading of 74.2. That would indicate consumers were more optimistic about their own financial situations than last month and are more likely to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, this would be considered bad news for bonds and mortgage pricing.

Overall, despite being an extremely light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note break above 3.50% and close at 3.65% last week. This should be of concern for mortgage shoppers as the 10-year was trading in a well-defined range until late last week. Since mortgage rates follow yields, we need to see some stabilization very soon or yields (and rates) may be moving higher. I suspect it will be tough to fall below 3.5% unless we get some unexpected major news or a significant stock sell-off. Therefore, please be careful if still floating an interest rate this week as I believe we are set for a noticeable move in the very near future. However, the question is if it wil l be rates moving higher or lower from current levels.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2011 
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