October ends on a down note
October 30, 2009 by admin
October extended its streak today as being one of the most challenging months for the market and economy. This month has been a wild roller coaster ride for mortgage rates and the stock market. Earlier in the month, fixed mortgage rates dropped to their lowest levels since January as the yield on the ten year Treasury bond closed in at the low three percent range. Following a spectacular run by the stock market and inflationary pressure from rising oil prices, long term rates rose fairly quickly through the midway point of the month. The strong gains in the stock market, reached a pinnacle when the DOW rose above ten thousand for the first time this year. These gains proved to be elusive as investors grew nervous about housing and the economy. The market managed to pair these gains, dropping over six hundred points in the process.
This week has followed the months lead, and proved to be another wild ride for the market. The stock market dropped sharply earlier in the week, following a poor performance in the new home sales market for the month of September , renewing concerns that housing would face a severe falloff if the governments tax rebate is not extended. Investors were quick to jump on a strong report for GDP (gross domestic product) a measure of economic growth, which turned positive for the first time in the past twelve months. Positive GDP growth sends a strong signal that the economy has recovered from the worst of its recession and brighter days are in the future.
Today, the market again turned aggressively bearish. Investors quickly pulled capital out of the equity markets, sending the DOW down by almost three hundred points. The pullback in equities has slowly influenced a retracement in the ten year Treasury bond and some needed relief for mortgage bonds and rates. Fixed rate mortgage loans are now hovering in the low five percent range for thirty year loan terms. Heading into the month of November mortgage rates are in great shape and this should continue to benefit the housing markets.
The next sixty days will prove a critical time to set a foundation for an economic recovery in 2010. The most critical area of the economy is the job market, which has shown little to no signs of improvement to date. Economists will point out that job growth is a lagging indicator for economic recovery, but this recession has hit main street extremely hard and could prove to be more challenging to turn the corner. Extending and enhancing the housing tax credit appears to be an administrative priority, and one that should further stabilize the economy and housing markets. Speculation that the tax credits will be extended beyond first time homebuyers is a significant step by the administration to fast track a meaningful solution to stabilize home prices and sales.
October 28, 2009
October 28, 2009 by admin
The stock market is losing ground fast trying to close out the month of October on a positive note. The equity markets have come under strain from a number of economic reports over the last week that show continued signs of weakness remain in the economy, despite the DOW rallying past the 10,000 level earlier this month. The consumer confidence report released on Tuesday was much lower than most were expecting, considering the positive news that is being trumpeted from the FOMC and Wall Street. Today, a report covering new home sales for the month of September sent a clear message to the market and government for the current state of the real estate market and the potential for a potential housing slump in the near future. Today’s report showed a decline in new home sales of almost four percent last month, much lower than experts were predicting. The report provides further evidence that the end to the real estate tax rebates could dramatically impact home sales into next year.
The market continues to come back full circle as it relates to the state of the economy. There is a growing divide between Main Street and Wall Street, as evidence continues to mount that the lack of job growth and creation are likely to be the economies Achilles heal. The October jobs report, due to be released next week could help to pull the market out of the downward spiral, or set the ground work for a large sell off.
The dismal news from the equity markets have provided a bit of relief for mortgage rates. Interest rates have been steadily moving up for the month, driven by inflationary pressure from higher oil prices and the equity market rally. Yields on the ten year Treasury bond have dropped nearly ten basis points this week. The ten year bond closed at 3.41% on Wednesday, moving rates on thirty year fixed rate loans closer to 5.125-5.25% with most national mortgage lenders. The recent upward movement with interest rates has begun to carry over to lenders, who have reported a sharp pullback with mortgage applications over the last two weeks. Expect the trend of refinance activity to lighten in the near term, with a strong possibility of a surge in home purchase applications over the next two weeks as borrowers race to close prior to the end of November. The immediate prospects for the mortgage rates remain relatively stable. There is not likely to be a significant move up or down until the jobs report for October is released, which could push rates above or below their thirty day moving averages.
Is more bank regulation on the horizon
October 27, 2009 by admin
Long awaited legislation aimed at reigning in finance and banking companies may finally become a reality. Following an eventful week on Wall Street, where news out of Europe that ING would be broken up and divisions would be sold off in the near future certainly put a renewed emphasis on reform. European regulators are following through with their plans to ensure financial companies are no longer in position to singlehandedly take down the financial markets.
The highly controversial rescue package to the banking and finance industry continues to be an item that evokes heated criticism government regulation and oversight. AIG went from being one of the most recognized brands, to being labeled as the poster child for the economic catastrophe that followed the collapse of the credit markets. When financial companies were forced to dip into taxpayer funds to restore their balance sheets and improve their capital ratios, there was a large list of reforms promised from politicians from coast to coast to ensure the country would never find itself in a position of funding private companies to the tune of nearly one trillion dollars. To date, all of the proposed reforms have struggled to move beyond the initial promises.
The political promises of banking reforms may be taking a step closer to becoming enacted. Senator Barney Frank is now pushing forward legislation aimed at the too big to fail model. The process of identifying companies that may be to big to fail would be handled by a group made up of members from the Federal Reserve, FDIC, and Treasury Department. This coalition would be given the authority to contract companies that have grown so large and carry financial exposure that could prove to be damaging to the entire economic system if their financial positions were to change. To date, AIG remains the only firm the government is actively forcing to break up and sell off profitable pieces to repay their TARP funds. Certainly companies such as Citigroup and Bank of America will face additional scrutiny with the new legislation. Both companies are saddled with massive mortgage portfolios that continue to lose value and strain their capital raito positions. Members of Congress are certainly going to press for radical changes in the current system, including the possibility of more employee compensation reforms for these companies. Over the last week, the TARP’s pay czar evoked broad compensation plan adjustments for executives that have received money and work for companies that accessed capital through the TARP program. The compensation practices remains one of the publics largest grievances with the financial industry, especially when news such as the story from Citigroup, where an employee will reportedly earn over one hundred million dollars for the second year in a row. The process of reforming the financial and banking industry should be less political than the proposed health care reforms and stand a good chance of passing this year.
October 25, 2009
October 25, 2009 by admin
Mortgage rates jumped up by .125% last week, following pressure from the stock market and rising oil prices. October has not been a friendly month to the mortgage industry, as interest rates have jumped over forty basis points this month. Yields on the ten year Treasury bond have closed in on 3.5%, closing at 3.49% on Friday. The bond market has been under pressure on two fronts over the past three weeks, sharp increases in oil prices and rising equities have worked in unison to drive interest rates on higher. To end the week, most national mortgage lenders were offering thirty year fixed rate mortgage loans at 5.375% or higher. Interest rate on fifteen year mortgage loans have also risen to the high four percent range, closing in on the key five percent level for the first time since June.
Last week, the stock market enjoyed a roller coaster ride as it surpassed the 10,000 point level and then lost this mark on Friday. Economic reports for the week have sent mixed messages to the market. Friday, a key housing report was released (existing home sales) which showed that for the month of September, existing home sales rose by nearly nine percent, the largest increase in the past twelve months. This report did little to move the equity markets, which dropped over 100 pts for the day. The market seemed to discount the news from the housing industry, believing this could be a last minute surge fueled by the end to the governments home buyers tax rebate at the end of November. The belief that the home buying tax rebate may not be extended, helped to push first time home buyers into the market to lock in their rebates and great interest rates. The housing market is likely to have another strong month in October and into early November, but their remains little optimism a rally can last beyond that point without additional government assistance. The equity markets may finally be acknowledging that the housing market is being propped up on multiple fronts by the government, through tax rebates and record mortgage rates, and the elimination of this assistance could spell a long road to recovery for this market during the current economic challenges that exist in the market.
Oil prices have started to influence the mortgage industry again. Oil remains one of the only elements that is adding inflationary pressure into the economy. Over the last three weeks, the price of a barrel of oil has jumped by over twenty percent and along the way oil, quickly passed its 2009 and jumped over $80 per barrel along the way. Oil is likely to be one of the key items the investors follow to gauge the equity and mortgage markets. Rising inflation, pushes investors to expect a higher rate of return on their investments, causing bond yields to move higher and long term rates to move up in the process. The month of October is likely to close as one of the best months in trading for the year. Homeowners who have been on the fence to refinance should consider locking in at current levels to ensure they don’t lose financial savings forced by a rising stock market.
Housing reports send mixed market data on real estate recovery
October 22, 2009 by admin
The real estate market roller coaster has hit a flat line according to recent reports released in October. The housing market enjoyed several months of stellar gains in sales and pricing during the summer months, but has struggled to hold the momentum through the fall and into a pivotal fourth quarter for the markets. This past week, the housing market revealed two key reports which are heavily followed by analysts and investors as they gauge the markets recovery. Earlier in the week, the housing starts data was revealed which indicated that the overall market took a bit of a breather in September for building. Residential permits for the month were flat, while multi family permits edged down for the first time in the last four months. This data was taken in stride by the markets, contributing mildly too a downturn in the equity markets, but not raising too many dramatic concerns.
Today, according to a report released from the Federal Housing Finance Agency, prices edged lower in home sales data for the first time in the last three months. The information on home prices is gathered from relationships with Fannie Mae and Freddie Mac, the nation’s two largest agency loan companies as well as other key reports. This report is also likely to have minimal impact on the equity markets, but could be used as leverage by trade associations (National Association of Realtors, Mortgage Bankers Association) that are pushing for the government to extend the governments first time home buyer tax credits. The current tax credits are due to expire at the end of November are going to become larger political news items over the next few weeks as the deadline approaches. Trade groups believe that the existing tax credit has helped bring 300,000 new home buyers into the market this year, influencing fist time home buyers who may not have qualified previously or had a sense of urgency to buy their first homes. First time home buyers are a critical influence on the housing eco system as their purchase on the low to medium price points of the market help push price stability and appreciation up the channel.
The key reports that most experts put emphasis within the housing industry have yet to be released this month. The new home sale and existing home sale data are often the two most influential housing reports. They help to benchmark home sales on monthly basis and also represent projections on total housing sales for the year. The real estate market has enjoyed a slight rebound in 2009, helping to place a bottom for prices and sales in many markets throughout the country. The influence of the tax rebate and governments involvement with subsidizing the mortgage backed security market has been key factors in this rebound. The stabilization of the housing markets will continue to be closely monitored by government agencies, economists, investors and home owners.
October 20, 2009
October 20, 2009 by admin
The stock market is struggling to hold ground in early trading on Tuesday as investors react to key economic reports. The DOW has surged past the key 10,000 level as confidence has returned to the equity markets. Today’s economic reports are diminishing some better than expected earnings reports from Monday and overshadowing a strong third quarter by most corporations. The mortgage market has seen a slight pullback to long term fixed rates. The record surge in the DOW for the month of October pushed fixed rates higher by approximately .375%. Long term rates were hovering at or below the five percent level in early October, and moved sharply higher with the 700 point market rally. Recently, bond yields have started to drop, as witnessed in the ten year Treasury bond yield lowering from a high point of 3.46% this month down to 3.34% on Tuesday. This drop correlates to most national mortgage lenders offering rates of 5.25% or lower for thirty year loan terms and under 5% for fifteen year loan terms.
Apple reported another record quarter of earnings for the third quarter. The company’s profits continue to increase thanks in part to the I-Phone and Mac Computer. The technology giants great quarter is a catalyst that could help keep the NASDAQ from selling off and more importantly sheds some light into the mindset of the U.S. consumer.The market will continue to digest corporate earning reports this week from key companies such as DOW Chemical, Yahoo, Wells Fargo. These companies will play a pivotal role in setting the markets expectation for the fourth quarter and into 2010.
Today, the market sold off early as a result of a weaker than expected PPI report. The report, which measures wholesale inflation, is a strong gauge of the market for spending and growth. The lack of pricing inflation in the market will help consumers and business contain costs as the market works through the economic challenges, but also points to a weakness for lack of growth. This report comes at a time when most analysts are pointing towards earnings as a signal of cost containment versus revenue growth. The other key report released today was the New Housing Starts report. This is a key report covering the real estate market. Experts will continue to closely following housing news as a leading indicator for the health of the economy. Today’s housing report was flat for the month of September. Permits for single family homes came in higher than expected, multi family construction was off slightly. Most economists will place emphasis on the existing home sales report due out later this month as the true gauge of housing. Home sales should continue to benefit from historically low mortgage rates and the governments first time home buyer tax credit which runs through the end of the November.
How the value of the U.S. dollar can effect rates
October 18, 2009 by admin
The value of the U.S. dollar is one of the most closely followed currencies in the world and has a tremendous impact on the day to day economy as well as impacting future inflation changes. The recent rally in the U.S. stock market has garnered a tremendous amount of attention in the media, as the DOW rallied past 10,000 for the first time this year last week. During the recent rally on Wall Street, the stock market has gained over 600 pts, our roughly 7% in the month of October alone. This move up in equities has been steadily losing value. The dollar index closed at $75.83 on Friday last week, marking its lowest closing price of 2009 and lowest level that it has closed at in the past twelve months.
The continued deterioration of the dollar has significant impact on a number of areas in the economy. The price of a barrel of oil, which is priced of the U.S. dollar continues to move higher, following the inverse action of the currency instrument. The latest slide with the dollar comes at a time when oil prices have surged to their highest levels of he year, surpassing $77 per barrel in the past week. Oil prices remain one of the few areas of the economy that carries inflationary risk. The rapid increase in oil, has industry experts suggesting oil could once again reach triple digits in the next twelve months. The fallout from higher oil prices leads to inflation pricing changes on bonds. This effect moves investors to request a higher upfront premium for purchasing these financial instruments, which directly increases the rates to consumers. Rising interest rates are almost inevitable as the economy begins to recover and the Fed transitions their support of the mortgage backed security market to private investors. What the Fed and the balance of the economy should be concerned about is the external factors that could escalate the challenge of keeping rates near their current levels during this transition. The fallout from the decline in the dollar could have a ripple effect that challenges the economy to recover due to higher rates.
One area of the market that has not been dragged down by the market move is the perception that the U.S. is accumulating too much debt to attract foreign investors into bonds. This theory sent interest rates to their highest levels back in June when investors began to worry that the one trillion dollar deficit may be a cause of concern that would prevent foreign entities from purchasing Treasury securities. To date, the demand for securities continues to increase, a movement that has positively impacted long term interest rates. Bond yields are one of the key factors behind the pricing of mortgage backed loan securities. As bond yields move higher, mortgage rates tend to move up as investors purchasing Treasuries tend to follow similar trading cycles for mortgage backed bonds. Lower yields help to bring lower rates, as the market witnessed in early October, as the stock market dropped for a brief period of time.
October 16, 2009
October 16, 2009 by admin
A drop in the stock market could be seen as inevitable following a six hundred point surge over the past three weeks that can be credited with pushing the DOW above 10,000 for the first time this year. The further the market advances, the higher expectations will become for investors. Today, the market began to digest the continued spike with home foreclosures as well as the additional release of major conglomerate bank earnings.
The nations three largest banks reported earnings this week, all offering different views on the state of the economy and more importantly the psyche of the consumer. JP Morgan Chase was the lone bright spot of the top three lenders, posting profits that far exceeded expectations. The company was successful in limiting their loan portfolios with a small percentage of sub prime loans and did not participate in the derivatives marketplace. Citigroup and Bank of America, continued to show losses. Both companies are highly leveraged in underperforming mortgage assets and the continued decline in the housing markets and rise with unemployment have been very detrimental to both firms.
Consumers, who are at the heart of keeping the economy afloat, appear to be the group that remains most under financial stress. A report that measures consumer sentiment was released today which showed that month over month, sentiment for the economy declined in the month of September. This drop in sentiment, comes during a time when the stock market continues to improve, but job losses are showing no signs of declining. The market certainly has benefited by corporations downsizing and controlling costs, but the long term effect on the marketplace could set the stage for a prolonged economic recession.
Home foreclosures continue to increase, despite increased activity from banks and lenders for loan modifications and government sponsored home refinance programs. The addition of two to three hundred thousand job losses each month this year has been catastrophic to the real estate markets. The report from RealtyTrac this week showed home foreclosures rose by five percent from the second quarter of this year and over twenty percent from 2008. These numbers seem to contradict a recent report from the government on the success of their making home affordable loan modifications success over the past three months.
The spike in the stock market over the past three weeks has pushed long term mortgage rates to move higher. From the beginning of the month through today, interest rates on thirty year loan terms have moved higher by .375%. Most national mortgage lenders are offering thirty year loans with rates at 5.25% or higher. Interest rates for fifteen year mortgages are still at or below five percent. Bond yields have risen from 3.1% on the Ten Year Treasury to over 3.4% this week. Today’s drop in the stock market could help to bring rates lower, but the recent trend is that rates are moving higher.
Dow passes 10,000 level as FOMC releases policy minutes
October 14, 2009 by admin
The climb back to the 10,000 point mark has been eagerly anticipated by market observers, investors, analysts and everyone who follows the stock market. Today, for the first time in 2009 the DOW passed the 10,000 point mark renewing confidence that the worst of the economic recession is officially over. The stock market has gained over 53% from its lows in early March and has steadily climbed month over month to its current levels.
The sharp move up with the market today was fueled by a much better than expected retail sales report. The improved figures for the month of September were a shot in the arm to the confidence of investors who are betting on a V-shaped economic recovery emerging. The figures for the month of September were twenty basis points higher than anticipated, an indication that spending could begin to improve and helping to set the stage for an optimistic holiday season.
The market was also encouraged by an earnings report from JP Morgan Chase, which topped even the most optimist analyst’s expectations. As one of the nations largest banks, reviewing the companies earnings and forecast help provide clear analysis on the state of both consumer and commercial business environment. JP Morgan Chase was very conservative with its business practices over the past decade, which has helped the company survive the demise of the housing crisis. The company stayed clear of the derivative markets and was amongst the first companies that was able to repay TARP money this year. JP Morgan Chase’s earnings were heavily influenced by investment income and record income from their home mortgage division which benefited from historically low mortgage rates and government incentives for most of the year.
The rally in the market could have been thrown off course with this afternoons FOMC minutes release. The market was comforted with a report from last month’s policy meeting that for the most part was reassuring that better times are in the future. The minutes indicated an improved sentiment for the labor markets, despite the lack of job growth and a consensus that inflationary risk remains quite low. One of the more important announcements with today’s minutes was another assurance that the Fed would support the MBS markets (mortgage backed securities) and would cautiously look to shift this burden to the private marketplace when the time was right and with confidence that their would be sufficient resources in place.
October is likely to be one for the record books. October mortgage rates were at the lowest levels since January to begin the month, a move that is continuing to assist home sales. The market has consistently been a month that has posted difficulty for equities, but this month the market is on pace to shatter that myth and provide a new benchmark for confidence for the balance of the year.
October 12, 2009
October 12, 2009 by admin
Stocks jumped in trading on Monday as investors again set their eyes on surpassing the 10,000 point level for the DOW. The market, has posted 3 days of rapid gains in the process of regaining almost 500 pts over the last two weeks. The perception that the month of October is a challenging month for stocks could be shattered over the next three weeks if confidence continues to grow. The jump in the equity markets is carrying over to the bond markets, yields on the ten year Treasury bond have surged in the past few days, moving up almost 25 basis points. This movement in the bond market is directly influencing a push to move long term fixed rate mortgage loans higher. The news media, has been touting a drop with interest rates to below five percent, unfortunately this weeks headlines, did not take into consideration the rapid changes in the broad based markets. Most national mortgage lenders are again offering thirty year fixed rate home loans above the five percent level for thirty year terms. Borrowers who desire interest rates below five percent will have to consider a fifteen year loan term or the possibility of paying points to buy down their mortgage rate.
The optimism in the market has pushed oil prices to their highest levels of the year. Oil, has nearly $74 per barrel for the first time in 2009 a move up reflecting confidence in the global economy. The upward movement in oil prices carries the only inflationary risk in the economy today. Energy prices have been relatively stable for most of the year, helping to keep discretionary income available during the toughest times of the recession. The drop in natural gas prices will help home owners and businesses this winter to save money for other expenses or investments.
The economic news will begin to pick up this week as investors begin to gauge key reports from leading corporations that could shed light into the balance of 2009 and the future of 2010. To date, many analysts believe corporate profits have been driven by cost cutting measures, as witnessed by the growing number of unemployed. The market will need to show signs of growing into 2010, despite the challenges that are in place for further advances in the equity markets. Today, one of the major news stories was from James Ballard, a member of the board of the Federal Reserve. Mr. Ballard echoed concerns shared by a growing number of economists who have predicted unemployment to continue escalating and job creation to take up to 24 months to work its way through the economy. The overall negative sentiment for job growth is clearly one of the largest issues facing the economy and markets. Speculation that the government could look into a third round of policy stimulus has begun to resurface and could grow in sentiment if the October jobs report is as disappointing as the September report was. The optimism in today’s market faces a number of uphill challenges, but for the interim, interest rates are moving up.