Treasury yields move up, mortgage rates follow
May 28, 2009 by admin
The yield on treasury bonds jumped sharply this week and long term mortgage rates have risen to their highest level in the past six months. The yield on the ten year bond, closely followed by economic insiders as a telling sign of the future of mortgage rates has been steadily increasing since early March. This week the ten year bond rose over twenty basis points and jumped up to 3.75% on Wednesday, shooting up almost 17 basis points on Wednesday alone. The move represents investors looking to rebalance their portfolios and possibly eyeing an exit out of the mortgage bond marketplace. The large jump in the yield, helped to drive up fixed rates on mortgage loans by almost .375% with most national mortgage lenders.
The current state of the economy makes it difficult to predict where mortgage rates are headed in both the near and long term. The majority of economic news that is being released reinforces the challenges with an economy that has many struggles ahead. The uptick in consumer confidence was a good sign for the market, but one that should have been anticipated following a record surge with the stock market. Thursday, brought on more news that indicates their will be additional challenges in correcting the market. New home sales are still struggling and home foreclosures are moving up with no slow down in sight. The good news of the day, was an increase with durable good sales, a brief indication that the manufacturing industry may be slowly trying to right itself.
Fixed mortgage rates will be a major focus for the government as they attempt to stabilize the housing market. The FOMC has moved in on two occasions over the past six months to help stabilize rates with commitments to purchase mortgage bonds on the secondary market. The challenge the FOMC will face moving forward, is the ever expanding surplus of government debt that needs to be financed. The amount of debt in the marketplace, challenges the opportunity to keep rates low as investors anticipate long term rates will need to move upward. Investors tend to move in an out of the bond market, as they balance investing into equity positions. If equity (stock) positions continue attracting more investor dollars, additional pressure is placed onto bonds as they work in a demand/supply economy. The synopsis is that if the economy continues to take baby steps toward improvement, and investors believe that equity positions offer more upside, long term rates will move up, regardless of the governments desire to keep rates low. It is hard to imagine fixed rate mortgage loans, retesting the lows (4.75% on thirty year loan terms) that were available in mid March, but rates under six percent are still very attractive and offer good historical value for consumers buying or refinancing their home mortgages.
May 26, 2009
May 26, 2009 by admin
The stock market surged following the Memorial Day holiday. Investors jumped back into equities following a surge in consumer confidence. The stock market rallied over 200 pts in afternoon trading as the gauge of consumer confidence marked one of its largest gains in the past thirty years.
The entire economy could get a jolt if confidence continues to improve. The country appears to be optimistic that the job markets will begin to change course, and this would be a critical move in helping to end the challenges of the past twelve months. Consumers appear more optimistic that the worst news is in the past and the stock market rally off of its low point in early March is more likely to hold moving forward.
One of the key ingredients in the countries confidence may be a sense that the real estate market could find a bottom in 2009. Historically low mortgage rates, combined with government rebates may be the catalyst to bringing buyers back into the marketplace. The addition of upbeat confidence could help to push a large percentage of buyers off of the fence. Nationally, home prices are continuing to erode. A report released today from Case Schiller indicate that home prices dipped over two percent in the month of March and are now off by close to twenty percent nationally. The decline in home prices closely follows the surge in home foreclosures and bank owned properties, which have been significantly impacted by job losses nationally. Improving confidence, may allow for the excess inventory to be purchased and a necessary step in stabilizing home values.
Mortgage rates continue their move upward. The yield on the ten year bond is now at 3.45%, up over fifty basis points since early April. Fixed mortgage rates have seen their rates increase by .25 to .375 basis points. As investors push more money into the stock market (equity positions) the bond market continues to see yields move lower, leading to higher prices with fixed bonds and mortgage rates. The market could begin to see a more significant upward movement with interest rates if the stock market begins to rally above the 9,000 point level and could come under additional pressure if oil prices continue to climb above $60 per barrel.
May 22, 2009
May 22, 2009 by admin
Memorial Day weekend signals a shortened trading day for the stock market. There is a good chance the market will finish the day in positive territory following a week of sell offs. The stock market has been light on volume this week and has not been influenced by major economic reports. Most investors are left with following stories on corporate earnings, further regulation of the financial sector as it relates to pay and government legislation such as the passage of the credit card reform bill this week.
The market has received a dose of good news from one of the nations largest retail stores. Sears holding today reported better than expected earnings, an early signal that consumers remain in the market, despite tough economic times. The market has been following the saga of General Motors as the company approaches a critical June 1 deadline to restructure. The company reached a new agreement with their union and the stock jumped in trading on Thursday. The company is likely to have a more difficult time negotiating new deals with its bond holders, similar to the challenges Daimler Chrysler ran into. Bond investors believe they will receive a better return in a bankruptcy than what GM has offered to date, and generally have a preferred position as they are considered to be secured lien holders, compared to unions and common stock holders. The companies plan to have a quick exit through bankruptcy or restructuring will face legal challenges from this group as well as angry dealers who have lost their franchises over the past few weeks.
The mortgage market, which has been red hot over the last few months, thanks in large part to historically low interest rates, could begin to see some pullback. The yield on the ten year bond continues to move upward (3.44% on Friday) an early signal that more money is shifting out of bonds and into equity positions. As the yields move higher on bonds, offering a better rate of return in hopes of enticing borrowers, rates tend to follow. The average rate on a thirty year fixed rate mortgage loan is again above five percent and has moved up about .125% over the past week. Consumers shopping for a mortgage loan may want to explore rate lock options with their lender and pursue the opportunity of float down options (if available) should the market improve in the near future.
Consumers set for a win on credit card rates
May 21, 2009 by admin
The ongoing battle between consumers and the credit card industry is likely to see another subtle victory on the side of consumers. New legislation aimed at helping to protect consumers from unnecessary hikes to their interest rates is about to become law as Congress has signed off on the new bill and it will be heading to President Obama to become law.
Consumer groups have been clamoring for addition protection for credit card holders, as more Americans lose their jobs and struggle with their personal finances. The advocacy groups point to the billions that taxpayers are lending some of the worlds largest banks, who happen to be the same institutions that finance a majority of the credit card debt and working to leverage this with lawmakers at a time when more banking regulatory reform is clearly forthcoming. The new proposals to help regulate the credit card industry will help to protect consumers from unexpected rate increases with their credit cards and outrageous fees from the practice off paying down the lowest rates at the credit card issuers discretion. Key highlights of the pending law:
• Interest rates are fixed for the first year the card is issued
• Companies are prohibited from raising rates on existing loan balances unless a payment is over sixty days past due
• Payments received by 5pm must be credited to the account on the day received
• Consumers under the age of 21 must have a cosigner or prove their financial independence
• Credit card bills must indicate the length of time to pay off a balance if the minimum payments are made
• 45 days notice is required to implement a rate increase
• Elimination of most over the limit fees charged by credit card companies
The credit card reforms come at a time when consumer finances are under great strain. Last year the federal reserve moved to implement credit card reforms as consumer groups have been adament that the practice of card companies paying off a customers lowest balance first is extremely harmful to consumers. The national unemployment rates is closing in on ten percent, which is likely to indicate further charge off losses for credit card companies as more consumers are likely to find themselves filing for bankruptcy. The new laws will likely result in higher median interest rates for most consumers, as banks look to recoup the lost revenues in other areas. Consumers with good to excellent credit should discuss their rate and terms with their existing card companies prior to electing new credit cards, as often times your existing credit card company may be willing to negotiate more favorable rates and terms if you are a good customer, rather than risk losing your business to a different bank. The credit card reforms are a small step against a giant industry and will allow banks and credit card companies up to nine months to become compliant.
May 20, 2009
May 20, 2009 by admin
The stock market is looking to recover from Tuesday’ sell off. This is a week that is light on major economic news and investors are turning their attention to news from major corporations as they move in and out of equity positions. The stock market appears to be headed for positive territory on Wednesday thanks in large part to some positive news released from Bank of America.
Bank of America, which is one of the nations three largest banks, and second largest mortgage lender announced they have been successful with there common stock offering and have raised over thirteen billion dollars in capital over the past two weeks. The influx of capital was needed to help bring the companies balance sheet back to standards set forth by the recent government stress tests. The announcement of the capital raise is another dose of good news for the finance markets which are continuing to rally upward. The stock market has been under pressure over the past two weeks from banks and corporations that have tendered stock offerings to raise working capital. The additional funds will help to strengthen corporate balance sheets and may be a key ingredient to help restore lending and corporate hiring over the next twelve months.
The economy could begin to feel a pinch from the rise in oil prices. The price of oil is now above $60 per barrel and the average gallon of gasoline is well above $2 nationally. These numbers are considerably lower than they were one year ago at this time, but the incremental increases with prices are likely to begin pinching consumer budgets sooner rather than later. The lower energy prices are one of the key reasons the economy has been able to weather the economic storm over the past six months as the lower gas prices help consumers reallocate funds for savings and purchases.
Mortgage rates have trended upward this week. Fixed rate mortgage loans have risen by .125 to .25 %. The yield on the ten year bond is now at 3.24%. Fixed mortgage rates for most thirty year loans with national mortgage lenders will be at or above 5% unless the borrower is willing to pay points to buy down the rate. Mortgage rates have been holding within a steady range of 4.875% to 5.375% over the past six months and there is little reason to see a significant jump up or down in the near future.
FHA mortgage loans offer zero down option for first time home buyers
May 18, 2009 by admin
Economic principles carry through to all facets of the economy. The U.S. housing market is a great example of abundant supply, weak demand forcing down home prices. The government has attempted many methods to try and prop up home buying in the wake of the foreclosures and economic crisis that has grown over the past twenty four months. They have recently added another piece to the puzzle, allowing the government first time home buyer tax credit to be used as the down payment for the property, provided they are financing with an FHA mortgage loan.
FHA mortgage loans have been a great tool for homebuyers to purchase properties as they allow for a minimal down payment and flexible credit guidelines. Earlier this year the government moved forward with a tax credit of up to $8,000 for first time home buyers in hopes of incentivizing these individuals to enter the real estate market. The early results have been positive, but not spectacular. As the numbers of homes in the U.S. continue to go into foreclosure increases, further pressuring down home prices, the government is trying to add buyers into marketplace. The tax credits, combined with record low mortgage rates and improving consumer confidence have all been positive ingredients in helping to bring more home buyers into the market.
The challenge that a number of home buyers, especially first time home buyers have, is finding the money for the down payment. FHA loans have traditionally been used by home buyers as the down payment requirements are less than five percent (3.5%). Conventional loan financing, loans underwritten to standards set by Fannie Mae and Freddie Mac, require a minimum of five percent. The major problem with conventional financing for most first time home buyers is that these loans require mortgage insurance, through private companies, who have significantly changed their underwriting policies, making these loans much harder to obtain and with significantly higher payments.
The governments move, announced by Shaun Donovan, the director of Housing and Urban Development (HUD) which oversees the FHA mortgage program is being applauded by real estate agents and financial experts from coast to coast. The key to helping bring the U.S. real estate market back up is economics 101, supply versus demand, the more buyers that are in the market will help eliminate the excess inventory and stabilize home prices. Stabalizing home prices will be a critical element to fixing the U.S. economy and slowing down home foreclosures. This move is certainly going to be another piece to fixing this challenging puzzle.
May 15, 2009
May 15, 2009 by admin
Consumer confidence perked up in the month of April, a welcome report to a struggling economy. The upbeat news on consumer confidence helped to move the stock market higher in early trading on Friday as investors are looking to secure long term equity positions in hope of an economic rebound in the next twelve months. The market has now moved up over thirty percent from the March 9 lows and is beginning to stabalize into a more traditional pattern of trading and volume.
The PPI & CPI reports over the past two days have shown a slight uptick with inflation, which is also a good sign for improved economic times. CPI core inflation for the month of April was up slightly for the month, numbers which exclude energy prices that have also begun to move back up. The CPI report indicated wage growth has been relatively flat and the largest increase in core prices was with tobacco related products. Another major report released today was the manufacturing index report that is indicating manufacturing levels are still down, but orders are now at their highest levels since last August.
The news of the day is not all that great for the auto industry, yesterday Daimler-Chrysler announced they would be closing around 700 of their dealerships and today GM is expected to announce they would be closing over 1000 of their dealers nationally. The two auto companies which have been dominant figures in the news continue to lose market share as they struggle to adjust their business models. The large dealership closures are certain to add to the upcoming unemployment figures and will have a large impact on the economic lives of thousands of Americans.
Mortgage rates are flat today, following a slight pull back this week. The yield on the ten year bond opened at 3.15% on Friday. Fixed rate thirty year home loans have move back closer to the five percent range this week. The market continues to struggle with home foreclosures and banks are having a tough time handling the volume of customers who would like to pursue loan modifications or refinance with government backed programs. This has prompted more action from the Federal Government which announced on Thursday additional incentives to help lenders streamline the loan modification process and help home owners lock into lower rates and house payments. This move is certain to gain momentum if property foreclosures continue to escalate in the near future.
May 13, 2009
May 13, 2009 by admin
The stock market dropped sharply in trading on Wednesday as the two major economic reports of the day provided investors with renewed concerns that the economic recovery may not be in the near term. The news from the retail industry this morning provided a glimpse into the lives of consumers who are still reluctant to spend in a tough market. The retail sales report for the month of April indicates that sales were off by almost 9% compared to April of 2008. This marks the eighth month out of the last ten that retail sales have been lowered than expected. The retail market is trying to recover and is pinning its hopes to improved consumer confidence and a recovery in the job market, both of which are likely to be many months away.
The housing industry is continuing to see record home foreclosures. According to a report released today by RealtyTrac, the month of April saw a record number of properties go into foreclosure. The rapid increase in home foreclosures will certainly draw the attention of the government that is trying without avail to slow down property foreclosures. The pressure could again mount to try yet another approach with banks, lenders and investors to try a more proactive measure to try and get in front of the home foreclosure crisis.
To date, all of the government’s methods for dealing with foreclosed properties have been reactionary and non effective. The recent push to try and help home owners refinance who are under water in their property and push for loan modifications is not likely to have much impact without a meaningful change in the employment sector. More and more home owners are simply choosing the option of sending their keys back to the mortgage company an opting to walk away from their homes and become renters. According to a report from CBS Marketwatch today, there are presently over 3.4 million homes for sale in the country and a growing number of these are bank owned or foreclosed properties, which have a likelihood of selling for 20% below comparable home values in the area, further driving down home prices and spiking foreclosures.
On the mortgage front, the downward spiral in the stock market is bringing some need relief to the recent upward movement with mortgage rates. The uncertain times in the equity market have pushed more investors into bonds, the yield on the ten year bond had dropped to 3.1 on Wednesday, down almost twenty basis points from last week. This downward push should help bring long term fixed rate mortgage loans closer to five percent for thirty year loan terms and under five on fifteen year loan terms. Lower fixed rate loans will help the housing market, but are only a small variable in helping to bring home buyers back into the mix.
Home Prices Plunge Nationally
May 12, 2009 by admin
The National Association of Realtors confirmed today what is on most home owners minds, home values are continuing there decline. Home values nationally dropped by over 13% in the first quarter of 2009, from the first quarter of 2008. The dramatic drop in home prices reflects the effect of a dire period for the economy combined with a huge spike with foreclosed properties.
The rapid drop in home prices is a significant challenge in helping to restore consumer confidence and the economy. The government’s slow response to the rising problems in the housing markets in 2007 and early 2008 helped fuel the crisis in the banking industry. As more Americans lost their jobs and property values continued falling the market turned completely upside down in 2008 as the idea of building wealth through home ownership completely disappeared overnight with the drop in home values. The long term effect of the decline in home values is billions of dollars in lost wealth for homeowners across the country. The government has committed resources to attempting to fix the hem ridging from getting worse by helping to incentivize home buyers with a tax credit up to $8,000 this year and a program from the FOMC to try to keep mortgage rates low. The challenge the government faces moving forward is that most of their programs simply have not worked in the areas needed most, helping to reduce payments and loan balances for home owners who are dramatically underwater thanks to the rapid decline in home values. The hope for homeowners program and the FHA secure mortgage program have both had little to no impact on keeping homeowners from going into foreclosure. The government rolled out another program earlier this year to try and help home owners under water refinance and spur more loan modifications, but with the uptick in job losses it is hard to imagine home foreclosures will be slowing down in the near term.
Declining home values also have inspired many home owners to simply walk away from their properties as they believe they are simply too upside down in value for and making payments based on a mortgage that is potentially hundreds of thousands of dollars more than a home is currently worth is not financially smart in the long run, even with the damage done to ones credit. Real estate is traditionally a regional driven marketplace. Home values may begin to slow down their decline in areas such as Washington DC or Seattle, but the Midwest fueled by the continuing fall out from the auto industry will not likely see a bottom reached until 2010.
Economists paint the glass half full
May 8, 2009 by admin
The national unemployment rate is now at 8.9% according to figures released this morning from the department of labor. For the month of April, there were over 500,000 jobs lost, bringing the total to well above five million since the economic downturn has begun. The staggering job losses are being received well by both economists and investors who are taking the glass is half full view of the recent numbers.
The total job losses are expected to eclipse the six million figure in the next few months with the full unemployment range expected to top out between 9.5 & 10.5%. The current rate of unemployment is at the highest level in the past twenty years. The reason surrounding the optimism is that the rate of job losses appears to be slowing down. The economy lost over 500k jobs for the month of April, but this is less than the 600k jobs lost in each of the previous two months, and leads many economists to believe that companies have slowed down with their job reductions. This optimism is being guided by other recent economic reports that are also indicating the beginning of an economic recovery.
The first stage of an economic recovery is setting a bottom of the decline. Most investors now believe that the March 9 lows for the stock market will be the clear bottom point. The stock market has rallied over 25% from this level. Retail sales for the month of April were up slightly and there is some optimism that the 2nd quarter GDP figure will show a large improvement over the last two quarters. The housing market is also beginning to show signs of an improvement. Inspired by record low mortgage rates this year and a large tax credit from the government, the pending home sales report, according to the national association of Realtors moved up over three percent last month.
The glass is half full view of the economic recovery could help to boost confidence with consumers and give a jolt to employers to begin hiring again. The economic challenges are likely to linger for the next 6-12 months as the market works to correct one of the worst recessions in history. The idea that it could have been worse is a principal that is fueling optimism and perhaps the beginning of a true economic recovery will be on the horizon. It will take some time for the economy to report positive GDP and employment growth, but the government remains committed through tax relief, the FOMC, job creation and economic stimulus to help guide the country out of the recession.
