Mortgage Market Review 6/29/09

This Morning…Monday, June 29, 2009:
Mortgage backed securities (MBS) prices continue to trade higher (rates lower) as signs emerged that foreign buyers are scooping up record amounts of U.S. debt speculating the economy's recovery may be slow. The U.S. relies on foreign central banks to finance the huge federal deficit, with over 50% held outside the U.S. Crude oil advanced to $70.41 a barrel and is poised for a 42% quarterly gain. While the economic slump tempers global demand growth, it may also cause supply to shrink as lower exploration and production spending delays projects and reduces spare capacity. There are no economic reports due out today.

Last Week:
Last week the auctions went pretty well, which is a good thing for the bond market and interest rates in general as mortgage rates found support from investors around the world. The Treasury sold bonds totaling 104B that were well received by foreign central banks. The indirect bidder participation, an indication of foreign demand, was near all-time highs. The 7-yr note on Thursday came at 3.33%, capping off $104 billion of supply last week. There are no scheduled auctions for a few weeks, which, if one adheres to a strict supply/demand model, is a good thing. The Michigan Consumer Sentiment Survey on Friday hit its highest level since February of 2008, and Personal Income and Consumption were up, which help our savings rate.

This Week:
It is a short news week. The Chicago PMI and ISM national manufacturing indices will come out on tomorrow and Wednesday respectively along with Pending Home Sales, a leading indicator for the housing market. Consumer Confidence, Construction Spending, and Factory Orders are later in the week. The employment report Thursday will be the most important release this week. The ADP employment report will give an earlier glimpse into the employment situation though the two reports are derived from different data so there could be some divergence. Strength in the other economic data will do little to help mortgage interest rates improve.

EconomicIndicator
Analysis
Consumer Confidence
Tuesday, June 30,10:00 am, et
55.1
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
ADP Employment
Wednesday, July 1,8:30 am, et
-363k
Important. An indication of employment. A large decrease in payrolls may bring lower rates.
ISM Index
Wednesday, July 1,10:00 am, et
44.00
Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates.
Employment
Thursday, July 2,8:30 am, et
9.6%-370k jobs
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Factory Orders
Thursday, July 2,10:00 am, et
Up 0.2%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Market Holiday
Friday, July 3
None
Important. Bond market closed in honor of Independence Day.

Market Forecast:
Mortgage rates have risen, potentially delaying a rebound in the housing market as central bankers have indicated they accept the rising yields as long as they reflect expectations for an economic recovery. However, further increases may put such an outcome in jeopardy. Home sales, the engine that has powered every U.S. recovery since 1960, have stalled due to stricter qualifying rules and rising rates. The $8,000 first time homebuyer’s tax credit and a government program to subsidize some mortgage payments have had little effect. Mortgage lending is at a 13 year low and the 3.8 million homes for sale (2.1 million unoccupied) does not help the situation. At the current pace it would take 9.6 months to unload them all, while the 5yr historical average is 3.6 months.

Some Humor:
Last weekend I was driving when a traffic camera flashed. I thought my picture was taken for exceeding the speed limit, even though I knew I was not speeding.
Just to be sure, I went around the block and passed the same spot, driving even more slowly, but again the camera flashed. I thought this was quite funny, so I slowed down even further as I drove past the area, but the traffic camera flashed yet again.
I tried a fourth time with the same result. The fifth time I was laughing when the camera flashed as I rolled past at a snail's pace.Two weeks later, I got five traffic fine letters in the mail for driving without a seat belt.