Mortgage Market Review - 11/9/09

Good morning. As you probably know, the tax credit for new home purchases has been extended and enhanced to other than 1st time homebuyers. This is of course, really good news. I have seen nothing that it will be retroactive, so the “go” date is Dec 1. People buying a home for the first time in three years would receive an $8,000 tax credit if they sign a contract by April 30 and close by June 30. Homeowners who are buying a new primary residence would be eligible for a $6,500 tax credit beginning Dec. 1 if they owned their home for five consecutive years in the previous eight. The income caps are $125k for individuals and $225 for couples. Anyone who collects the tax credit but sells the home within three years of buying it must return the refund.
Check out this site for more details: http://money.cnn.com/2009/11/06/real_estate/tax_credit_extended/?postversion=2009110615

This Morning…Monday, November 9, 2009:
The markets have started quietly this morning. At 8:30 mortgage rates are unchanged from Friday and the Dow is + 70. The dollar is getting hit hard again this morning; stocks are rallying, crude oil higher and gold up----all a function of the dollar's decline. All of this has been a good thing for the equities and rate markets. There won’t be much happening today so mortgage rates should take their lead from selling in the stock market.

Last Week:
Mortgage bond prices were near unchanged for the week amid very choppy trading conditions. Stronger than expected factory orders and ISM Index data were generally not bond friendly and attributed to higher rates in the middle of the week. Fortunately on Wednesday, the Fed indicated the continued desire to keep rates low for an extended period. In addition on Friday, higher than expected unemployment (10.2%!!) and more payroll losses than expected helped mortgage bonds rally Friday. For the week and after the dust settled, interest rates finished near unchanged.

This Week:
The record debt auctions Monday, Tuesday, and Thursday will once again take center stage as the Veterans holiday Wednesday splits the trading week in half. Strong foreign demand remains necessary for interest rates to stay relatively low. The dollar decline is the key that attracts foreign demand, as long as the dollar continues its slide traders won't worry too much about the auctions. On Thursday we have Jobless Claims (expected to be unchanged), and on Friday we have some Trade Balance figures along with some import and export price measures, and the preliminary University of Michigan Consumer Sentiment survey. The trade data Friday will be important.

EconomicIndicator
3-year Treasury Note Auction
Monday, Nov. 9,12:00 pm, et
None
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction
Tuesday, Nov. 10,12:00 pm, et
None
Important. $25 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Veterans Day
Wednesday, Nov. 11

Important. Shortened trading week may lead to mortgage interest rate volatility.
30-year Treasury Bond Auction
Thursday, Nov. 12,12:00 pm, et
None
Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data
Friday, Nov. 13,8:30 am, et
$31.9 billion
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
U of Michigan Consumer Sentiment
Friday, Nov. 13,10:00 am, et
71.8
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.


Market Forecast:
This week we have the Veteran’s Day holiday. Shortened trading weeks have the potential to compress a week’s worth of trading into fewer days and traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage-backed securities and hold cash positions, mortgage interest rates will rise. A cautious approach to interest rate exposure is prudent. Overall, we are still not expecting rates to decline much as long as investors continue to believe the economic outlook is positive; to push rates lower will require a major change in sentiment on the economic outlook.

Some Humor:
It was entertainment night at the Senior Center.
Claude the hypnotist exclaimed: "I'm here to put you into a trance; I intend to hypnotize each and every member of the audience."
The excitement was almost electric as Claude withdrew a beautiful antique pocket watch from his coat.
"I want you each to keep your eye on this antique watch - it's a very special watch. It's been in my family for six generations."
He began to swing the watch gently back and forth while quietly chanting, "Watch the watch, watch the watch, watch the watch..."
The crowd became mesmerized as the watch swayed back and forth, light gleaming off its polished surface Hundreds of pairs of eyes followed the swaying watch when suddenly it slipped from the hypnotist's fingers and fell to the floor, breaking into a hundred pieces.
"S---!" yelled the Hypnotist.
It took three days to clean up the Senior Center.

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