November 6, 2009
November 6, 2009 by admin
The month of November started on a great note for equity markets, jumping over three percent for the week and setting the stage for what promises to be an interesting end to the year. The market reacted favorably to most of the weeks economics reports, as investors gleaned to the idea of better earning potential for the market into 2010 and a belief that the worst of the economic news is in the rear view mirror.
Today, the October non farms payroll report was released. The national unemployment rate is now over ten percent, its highest level in the past ten years as over 190,000 jobs were lost last month. The total number of displaced workers is well over fifteen percent, as the non farms payroll report does not consider workers who have given up on looking for a job. The employment market continues to be the most challenging part of the economy as challenges in creating meaningful job growth are a large issue with the state of the economy.
Fannie Mae and Freddie Mac both announced their quarterly earnings today, and Fannie Mae sent up another warning signal regarding the health of the housing markets. The company notified the government that they would seek and additional fifteen billion dollars of capital. Both companies continue to post losses in the billions of dollars as the impact of home foreclosures on the market has not been remedied and their portfolios continue to come under pressure from a declining housing market. The companies struggling financial positions post a significant challenge to the government as the lenders are presently financing over fifty percent of the nations secondary mortgage marketplace. To date, there has been no improvement with outside investors moving back into the securitization markets, leaving Fannie Mae and Freddie Mac to assume the financing burden for billions of new mortgages. The companies have significantly tightened their underwriting guidelines for new borrowers and are working with the administration to speed up assistance to struggling homeowners through the Making Home Affordable Program.
The strong showing by the equity markets has trickled through to mortgage rates. Fixed mortgage rates have edged up in the month of November, as the yield on the ten year bond is now above the 3.5% level. Long term rates for thirty year loans are at 5.25% or higher with most national mortgage lenders and rates for fifteen year term loans are moving into the upper 4% range. Mortgage rates have proven resilient to broad changes in the equities markets to date, but the sensitivity level could increase moving forward as investors anticipate the FOMC’s exit strategy and the impact to long term mortgage rates. This week, the FOMC again pledged support in the near term for the mortgage market, but clearly have laid the groundwork for a desire to exit out of their present role. The long term prospect for mortgage rates remains concerning as the lack of demand from investors could drive up rates sharply when the FOMC winds down their support. This will be an area that the government as well as investors closely monitor in the future.