Mortgage Market Review - 3/15/10

Good morning. I found a pretty funny graph online. It is the water consumption in Edmonton during the US/Canada hockey game. You’ll notice that most everyone waited to go to the bathroom while the game was being played. There’s a HUGE jump in the water usage right after the medal ceremony. Check it out at http://www.patspapers.com/blog/item/what_if_everybody_flushed_at_once_Edmonton_water_gold_medal_hockey_game/

As I mentioned in the Daily Updates last week (email me to subscribe!), foreclosure filings increased in February at “only” a 6% year-over-year rate, the slowest in four years, and actually declined from January’s number. Nevada was still #1” for the 38th month in a row: 1 in every 102 Nevada homes received a filing, more than four times the national rate. It’s a sad situation. I hope you have a great day today. Thanks for taking the time to read this over. I hope you find it useful and informative. Please let me know if you have any questions.

Fred

This Morning…Monday, March 15, 2010:
Somewhat of a quiet start this morning; At 9:30 the stock market opened fractionally better, after trading lower all morning the DJIA opened a little better but the NASDAQ and S&P were slightly weaker. Not much in the news today, February industrial production, expected unchanged, was up 0.1%. There was no reaction to the report in stocks or bonds.

Last Week:
There wasn’t too much to report last week. Mortgage bond prices fell, applying slight upward pressure on home loan rates. The market remained very volatile within a narrow range. With the lack of data the first portion of the week, oil prices factored into trading. Oil remained above $80 a barrel, which reignited inflation concerns. The retail sales report released Friday was much stronger than expected, indicating the US economy may be getting stronger. This had a slightly negative impact on rates.

This Week:
As opposed to last week, this week is full of scheduled economic news to move the equity and bond markets, the most important being the inflation twins, PPI and CPI. Today we have the Empire State Manufacturing Survey, along with Industrial Production and Capacity Utilization. Tomorrow we have some Import & Export numbers, and New Residential Construction. Wednesday is the Producer Price Index; Thursday is Initial Claims, the Consumer Price Index, and the Philly Fed. The Fed meeting Tuesday afternoon will be the most important event this week. The inflation data from both the consumer and producer sides will also take center stage. Signs of inflation are generally not received well by the mortgage bond market. If inflation remains in check, mortgage bonds could benefit.

EconomicIndicator
Industrial Production
Monday, March 15,9:15 am, et
Up 0.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization
Monday, March 15,9:15 am, et
72.3%
Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates.
Housing Starts
Tuesday, March 16,8:30 am, et
Down 0.6%
Important. A measure of housing sector strength. A larger than expected decrease may lead to lower rates.
Fed Meeting Adjourns
Tuesday, March 16,2:15 pm, et
No change
Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting.
Producer Price Index
Wednesday, March 17,8:30 am, et
Unchanged,Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.
Consumer Price Index
Thursday, March 18,8:30 am, et
Unchanged,Core up 0.1%
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Leading Economic Indicators
Thursday, March 18,10:00 am, et
Up 0.2%
Important. An indication of future economic activity. A smaller increase may lead to lower rates.
Philadelphia Fed Survey
Thursday, March 18,10:00 am, et
17.5
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Market Forecast:
Overall, look for Thursday to be the most important day of the week due to the CPI release, but Tuesday’s FOMC meeting can also heavily influence the markets. Wednesday may also be an active day for rates with the PPI on tap. Friday will probably be the calmest day for mortgage rates, but it appears there is a good possibility of seeing plenty of movement in rates the next several days.

The clock is ticking on the end of the MBS buying by the Fed, and the expiration of the homebuyers tax credit at the end of April. With the government exiting direct assistance to the mortgage and housing markets there are many worried it will curtail any additional improvement in the sector as mortgage interest rates will increase and with no additional incentives would-be borrowers will back away. It all depends on the employment sector; if new jobs begin to appear that would offset the loss of the homeowners tax credit. We are already hearing some interesting forecasts for the employment estimates, one economist at Morgan Stanley is forecasting 300K new jobs created in March. If he is correct markets will take it and run, interest rates will increase and equity markets will rally. Jobs are the key to the housing sector's rebound; until the employment markets stabilize the economic outlook will remain clouded.

Some Humor (slightly off color):
A farmer stopped by the local mechanic shop to have his truck fixed. They couldn't do it while he waited, so he said he didn't live far and would just walk home.
On the way he stopped at the hardware store and bought a bucket and a gallon of paint. He then stopped by the feed store and picked up a couple of chickens and a goose. However, struggling outside the store he now had a problem - how to carry his entire purchases home.
While he was scratching his head he was approached by a little old lady who told him she was lost. She asked, "Can you tell me how to get to 1603 Mockingbird Lane?"
The farmer said, "Well, as a matter of fact, my farm is very close to that house. I would walk you there, but I can't carry all of this."
The old lady suggested, "Why don't you put the can of paint in the bucket. Carry the bucket in one hand, put a chicken under each arm and carry the goose in your other hand?"
"Why, thank you very much,” he said, and proceeded to walk the old girl home.
On the way he says, "Let's take a short cut and go down this alley. We'll be there in no time." The little old lady looked him over cautiously, and then said, "I am a lonely widow without a husband to defend me. How do I know that when we get in the alley you won't hold me up against the wall and have your way with me?"
The farmer said, "Holy smokes lady! I'm carrying a bucket, a gallon of paint, two chickens and a goose. How in the world could I possibly hold you up against the wall and do that?"
The old lady replied, "Set the goose down, cover him with the bucket, put the paint on top of the bucket, and I'll hold the chickens.”

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