January 10, 2010
January 10, 2010 by admin
January is starting where the market left of in 2009. The New Year is providing a clearer picture that investors are confident that economic conditions have stabilized, even in the wake of disappointing news from the labor markets as was received on Friday of last week. The first week of the new year saw the stock market finish higher, a sign that buyers are returning and pulling cash from the sidelines to reinvest into the market.
Mortgage interest rates continue to garner more national media attention. As we have been reporting for the past two months, rates continue to be under pressure to move upward, thanks in part to the exit strategy of the Federal Reserve and their role in supporting the secondary MBS market. Interest rates moved up sharply in December, as yields on Treasury bonds rose over fifty basis points. National averages with most banks and direct lenders indicate thirty year fixed rate mortgage loans are available around 5.25%. Fifteen year fixed rate home loans continue to hover in the high four percent range. Today, new reports from several leading experts, including a panel of Bankrate and Moody’s economist are reporting they believe long term rates will move up another half of a percent in the first half of 2010. This would be long term rates in a range of 5.75-6%, their highest levels in nearly 18months. Mortgage rates in this range, would still represent financing that is near historical low levels and provide ample opportunity for homebuyers to secure low monthly payments, but would certainly hurt the volume of mortgage lenders who have capitalized on refinance mortgage loans over the past year.
Moving forward in January, it will be interesting to follow the economic data ahead of key corporate earnings. The results of the non farm payroll report had minimal impact on the market last week, considering most experts were predicting that the economy would actually show net job growth for the first time in the past year. The markets limited selloff could be perceived as a signal of strength to start the new year and will need to be closely followed to better predict the impact on the bond market. Inflationary pressure is likely to continue moving up and the Fed will certainly address this in 2010, but it is more likely to be at the end of the year following all of the recent data. Pressure to raise the Fed Funds and Discount Rate will be lessened until the economy shows net job growth, despite what CPI and PPI reports show over the next sixty days. Without positive job growth the Fed will stand on the sidelines as they can’t risk derailing the economy ahead of its potential recovery.