Mar 10
22
What’s Ahead for Mortgage Rates March, 22nd 2010
Last Week; by the end of the week mortgage rates were unchanged from the previous Friday. The bellwether 10 yr note also essentially unchanged at 3.69% -1 BP. Short term rates however increased last week, somewhat preparing for the Fed withdrawing from the quantative easing programs initiated when the economic recession began; the only program still alive by the end of this month will be the TALF (treasury auction lending facility) to purchase commercial real-estate loans. At the end of March the Fed will have completed purchasing $1.25T of MBSs over the past year. Questions abound as to the potential impact on mortgage rates as a result of the Fed’s exit. So far mortgage interest rates haven’t experienced any unusual activity, holding a tight spread between the 10 yr note rate and 30 yr fixed mortgages.
The FOMC meeting last week; in the post-meeting stated that “Economic activity continued to strengthen…” would get a poor reception in your average Main Street saloon. Improve, yeah, in places; but, “strengthen”?… nah. If it were truly strengthening, how come exceptionally-low-rate-for-extended-period? The Fed also hit the end game of its housing-forecast. In November, “Activity in the housing sector has increased”; December, “Some signs of improvement”; January, no comment; this week, “Housing starts have been flat at a depressed level.” The equity markets continue to improve, betting heavily there will be no double dip; the DJIA index jumped 117 points but the broader averages were only fractionally better. Skeptics point to the very low volume in the stock market as evidence the market is softening, so far though no retreat.
This Week; starts with nothing in the way of economic data on Monday; the day will likely be dominated with the health care reform package that is expected to have passed on Sunday. If Democrats fail to get the votes (not likely) it will spell the end of this plan and Congress will have to start again. The week has Feb home sales reports on both existing and new homes; estimates are for a decline of 1.0% on existing sales and +1.9% for new home sales. The home buyers tax credit is about all that is driving sales recently. Treasury will have more borrowing with $44B of 2 yr notes on Tuesday, $42B of 5 yr notes on Wednesday, and $32B of 7 yr notes on Thursday.
So far, and for the past year, the demand for funding US budget deficits has been very strong and we expect that will continue this week. There are two interesting Fed officials speaking this week; SF Fed Pres Janet Yellen, likely the next vice chair of the Fed, and KC Pres Hoenig. Hoenig has been THE hawk at the Fed, pushing for the FOMC to point the markets to rate increases possibly sooner than that “extended period” for low rates to continue. The rate markets last week were soft at the lower end of the curve with longer term rates flat. Technically the long end including mortgages is sending bearish indicators on the key moving averages and momentum oscillators.
In Summary:
- The Existing Home Sales data for February is released Tuesday, along with the Home Price Index
- The New Home Sales data for February is released Wednesday
- Consumer Confidence data hits Friday
Don’t forget, we are now in the week after the FED confirmed that they are in fact ending their Mortgage buyback program March 31st, 2010. We also have to be on the lookout for Kansas Fed President Thomas Hoenig. He will be out speaking why rates should be higher and what the are doing to prepare for the rest of this year and beyond.
As always, I welcome your comments! Email me if need help putting a mortgage together for a home purchase or refinance.
