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Mortgage Rate Forecast – April 27, 2011

Locking Stance:  LOCKING*      Mortgage Bonds:  -19bp

Mortgage backed securities are backing off a bit this morning after a decent runup to their next resistance layer (as I expected might happen).  They are now in need of a pullback, or correction, which seems underway.  The overall outlook, well, I will get into that in a moment.

The MBA Purchase Applications report showed Purchase Applications down 13.6% and Refinance Applications down 0.6%.  Certainly not good news for the housing market despite the recent increases in Housing Starts and Building Permits.  Of course, the rush to beat FHA insurance premium increases sort of set up the fall, so maybe it is not all that bad.  Yeah, right!  Durable Goods Orders came in at 2.5%, beating expectations of 1.9%, and that is up from -0.9% last report and brings the year/year to 10.5%.  Not good news for MBS prices, hence the fall this morning.  Ex-Transportation numbers show more of a mixed story, coming in at 1.3%, up from -0.6% and the year/year numbers dropped from 8.5% to 6.1%.  Crude Inventories will be released shortly, but don’t expect much market reaction.

Yesterday saw the 2-year T-Note Auction, the first of this week’s Treasury auctions.  The 2-year T-Note saw results went reasonably well with the bid/cover dropping only slightly despite more than a 10 basis point drop in the yield.  I would actually say it was fairly positive for mortgage rates remaining low.  Coming up shortly, at 12:30, is the FOMC Meeting Announcement, followed by the 5-year T-Note Auction and Ben Bernanke’s Chairman Press Conference.  Despite many Fed members turning against Bernanke’s “debase the dollar at all costs” philosophy, don’t expect much change today, though some wording may change in the Policy Statement.  Remember, we care more about the Policy Statement than what the Fed does with their Fed Funds Rate.  With the 5-year T-Note being just a half hour later, whatever direction the markets get going could become an exaggerated move and volatility may be quite wild later today.

What does this mean for Mortgage Rates? Mortgage rates may be ready to correct themselves, maybe even get considerably worse, from this point.  A lot will depend on today’s FOMC Announcement, which is not expected to change much this time around.  The safest course of action is to lock, though mortgage rates may yet improve down the road for those whom have the time before closing.  If you do decide to float, be ready to lock in an instant should things get ugly.

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Mortgage Rate Forecast – April 26, 2011

Locking Stance:  CAUTIOUSLY FLOATING*      Mortgage Bonds:  +9bp

Mortgage backed securities continue to improve, so I remain “cautiously optimistic” as I mentioned yesterday.  There are some serious concerns, but with MBS prices continuing to trade well above their 100-day moving average, things are looking reasonably good, at least for the moment.

The FOMC Meeting is underway and remember that the FOMC Meeting Announcement will be at 12:30p tomorrow instead of the typical 2:15p.  The reason is Ben Bernanke is doing the first of the quarterly Chairman Press Conferences at 2:15p.  Economic data did get flowing today with the S&P Case-Shiller HPI, which showed the unadjusted Composite 10 at -1.1%, down from last report’s -0.9%.  The seasonally adjusted Composite 10 came in at -0.2%, a little better than last report’s -0.3% (revised), and that brings the year/year to -2.6%, down from -2.0%.  Overall, the report is mixed, but shows house prices continue to fall.  Consumer Confidence moved higher, coming in at 65.4 versus the expected 65.0, and that is up from 63.4 last report.  Buying plans are up and inflation expectations have moderated indicating that the effects of the price shock in oil may be limited, but the overall report shows a no better than mixed assessment of future conditions.  The Richmond Fed Manufacturing Index (not a major player) dropped to 10 from 20.  The report did show lead times increasing slightly, likely due to Japanese-related supply disruptions, and some pricing pressures on inputs and wages.  The report leaves an uncertain signal for next week’s ISM Manufacturing Index (the real market player).  Lurking in the afternoon is the beginning of this week’s longer-term Treasury Auctions, today’s being the 2-year T-Note at 1:00p.  If this auction fairs well, mortgage rates could improve, but this could also very well be where MBS prices falter, so be ready just in case.

What does this mean for Mortgage Rates? Mortgage rates edged slightly lower this morning, but concerns remain as economic data begins flowing and Treasury Auctions are lurking in the near future, starting this afternoon.  Currently, things appear relatively good, but that outlook could change rapidly and at a moment’s notice, so stay alert and ready to lock if need be.

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Mortgage Rate Forecast – April 25, 2011

Locking Stance:  CAUTIOUSLY FLOATING      Mortgage Bonds:  +22bp

Mortgage backed securities had a good day today on the first day after the Easter weekend.  Low mortgage rates resurrected?  Time will tell, but today’s move looks promising.  However, not everything is positive as I hit on in today’s Mortgage Rate Forecast Weekly radio show.

New Home Sales came in at 300K, above the 280K expected and up from 250K from the prior report.  Headlines ran with the better-than-expected results, but prices were mixed and let’s not forget that just last month New Home Sales hit record lows.  In simpler terms, we are far from being on the road to a housing recovery.  The short-term Treasury Auctions were solid again this week, though they did back off from last week’s “panic attack”.  Hopefully you caught today’s radio show and got the technical analysis.  If not, may I suggest you listen to the replay.

What does this mean for Mortgage Rates? Mortgage rates edged lower and the outlook may be changing, though it remains too early to be certain.  If mortgage rates hold these levels, or improve, we may see steady or lower mortgage rates from here.  With a week loaded with data could easily send mortgage rates back on their climb, so stand ready to lock at a moment’s notice.

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Mortgage Rate Forecast – April 21, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  +12bp

After yesterday’s closing down on the day, even the Philadelphia Fed’s major miss today may prove unlikely to break the 100-day moving average in what appears to be yet another futile attempt to do so.

The mortgage backed securities market will be closing early, at 1400 ET, today and will be closed all day tomorrow in observance of Good Friday.  As such, volatility may very well creep into the markets, though things are quiet right now, even after the Philly Fed report.  And speaking of the Philly Fed, The Philadelphia Fed Survey was reported at 18.5, just over half of the expected 36.0, and a huge drop from the 43.4 last reported.  This is very mortgage bond friendly and has MBS prices on the rise, but the 100-day moving average is keeping them capped.  Jobless Claims were also favorable, coming in at 403K, higher than the 390K expected and that brings the 4-week moving average up to 399.0K.  The Treasury announced the upcoming 2-year, 5-year and 7-year T-Note auctions at $35.0B, $35.0B and $29.0B respectively.  The FHFA Housing Price Index came in at -1.6%, bringing its year/year to -5.7%, more favorable news for MBS prices.  In fact, the only negative, besides the auction announcement from the Treasury, was Leading Indicators coming in at 0.4% versus 0.3%, but this report is almost negligible in its impact.  With all of this favorable data coming in, one would expect a better reaction in MBS prices, especially after the Philly Fed, but that pesky 100-day moving average is holding firm and keeps the outlook favoring mortgage rates moving higher still.  We still have the 5-year TIPS Auction to go, but there may not be much reaction unless there is a huge surprise, one way or the other.

What does this mean for Mortgage Rates? Despite some very negative economic data on the economy, which is typically good news for mortgage rates moving lower, mortgage rates continue to hold steady, if not creep slightly higher.  With their inability to gain ground on today’s events, the outlook remains favoring mortgage rates moving higher at this point.

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Mortgage Rate Forecast – April 20, 2011

Locking Stance:  LOCKING       Mortgage Bonds:  -3bp

Many times visiting other countries brings its challenges and the internet here in Brazil can be quite frustrating.  Unfortunately, I can’t sit in front of a computer waiting for it to do what I ask as I have other things I need to get done as well.  So, this week’s Mortgage Market Weekly got cancelled as well and it appears that yesterday’s Mortgage Rate Forecast never got uploaded.  Oh well, life continues.

The good thing is nothing truly has changed in the outlook with mortgage backed securities constantly attempting to break through their 100-day moving average and failing to do so with any genuineness.  As such, MBS prices battle in slight moves lower, holding right along the 100-day moving average.  Unfortunately, stochastic indications are now attempting to break into the overbought spectrum and are starting a turn toward the negative.  In simpler terms, it appears that the unsuccessful attacks on the 100-day moving average are wearing out the rally and ultimately, barring a significant event, MBS prices well tire and fall.

Housing data started yesterday with the Housing Starts report, showing Housing Starts jumped to 549K from 479K and beat expectations of just 525K.  Building Permits also jumped, rising from 517K to 594K, indicating a more optimistic outlook for the future.  The optimism continues this morning with the MBA Purchase Applications report showing Purchase Applications rose 10.0% and Refinance Applications rose 2.7%.  Even Existing Home Sales is on the rise, up 3.7% to 5.10M from 4.88M and beating estimates of 5.00M.  The only negative is that the year/year in Existing Home Sales fell to -6.3% from -2.8%, but that could reverse direction quickly.  Tomorrow will be more of a test for MBS prices and today’s chart shows they will not likely hold up well.

What does this mean for Mortgage Rates? Mortgage rates are holding fairly steady, but the outlook remains negative for mortgage rates remaining at these levels. Things can change, and do so quickly, so I will keep you advised if that outlook does change, but for now locking remains your best bet.

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Mortgage Rate Forecast – April 18, 2011

Locking Stance:  LOCKING       Mortgage Bonds:  +16bp

Mortgage backed securities are in an interesting position right now, one which may reshape the future, but I am not optimistic about that right now, hence the locking stance remains.

I was forced to cancel today’s scheduled Mortgage Rate Forecast Weekly show as the internet down here in Brazil is not reliable enough to ensure constant communication.  As a result, I am delaying this week’s Mortgage Market Weekly newsletter to allow more people to sign up that would normally listen to the radio show.  I will also go into a little more depth than normal within the newsletter.  Next week should be back to normal.

Today’s data was limited to the Housing Market Index, which dropped back to 16 from 17.  We also have some Feds speaking today with Fisher saying that the US still has inflation forces in place despite unemployment.  But the data and Fed speeches are overwhelmed by today’s news that the S&P may yet downgrade the US within the next 2 years despite holding its current AAA rating for now.  President Obama continues to face the reality that the government (most caused by his own actions and not limited to former President Bush) is overspending still, instead blaming the S&P downgrade on “politics”.  Obama has yet to accept responsibility for his own actions in this Presidency and continues to divert blame elsewhere, a true sign of a lack of leadership, something that is quickly becoming the new “American Way”.  We also have renewed fears of debt woes overseas.  Subsequently, stocks are in a nose dive, but money is not flowing freely into mortgage bonds and the 100-day moving average continues to hold the downtrend in place.

What does this mean for Mortgage Rates? Mortgage rates are improving slightly, but there is no indication thus far that the long-term trend will falter.  It is still possible, but movement on today’s news, which is a major player and should be able to break the trend, has failed to change the outlook, at least as of now.

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Mortgage Rate Forecast – April 15, 2011

Locking Stance:  LOCKING*      Mortgage Bonds:  +56bp

Mortgage backed securities are in a well deserved rally right now on the heels of news inflation remains tame at the consumer level.  Well, at least for now.  I have talked about this topic before, so I will not repeat it beyond using the word “yet”.

The Consumer Price Index, or CPI, got us started today by coming in at 0.5%, which was inline with expectations.  Where MBS prices are benefiting is the Core CPI came in at 0.1%, better than the 0.2% expected, albeit by a small amount.  That has MBS traders in rally mode as it shows producers continue to be unable to pass along their increased costs.  Overall CPI on a year/year basis has increased to 2.7% and the Core CPI (despite lower than expected results) increased to 1.2%.  That means that while today’s report is better than anticipated, inflation is still on the rise, which hopefully will get the Fed to finally increase rates.  Don’t count on it though, because Ben Bernanke and some of his “buddies” want to ensure that we don’t see deflation so bad that they prefer hyperinflation and will not likely stop until they get it.  The end result is likely the US Dollar becoming worthless, but who cares, right?

Other economic data today was not as rosy for mortgage bonds, with the Empire State Manufacturing Survey coming in at 21.7, up from the 17.5 reported last time, which was also what was expected this report.  Industrial Production came in at 0.8%, more than the 0.6% expected.  Capacity Utilization also beat expectations, coming in at 77.4% versus the 77.3% anticipated.  And even Consumer Sentiment beat expectations, though slightly, coming in at 69.6 versus 69.0, which is up from 67.5 last report.  The report remains near six-month lows and shows inflation expectations in the one year outlook remain elevated (4.6%), though the five year outlook dropped slightly (2.9%).  So, despite all of these reports being unfavorable and the news overseas that China’s inflation is at 5.4% (higher than anticipated), the fact our government says inflation is tame is getting traders “stoked”.  Oh, it could also be that B of A reported profits falling to just over $2B.  Yeah, I feel bad for them.

What does this mean for Mortgage Rates? Mortgage rates moved lower this morning and are now up against more resistance to stay there.  While inflation remains tame according to the government’s data, other data remains against low mortgage rates, putting us at a crossroad.  If mortgage rates can improve and hold from here, the outlook may be considerably better.  However, the long-term outlook remains favoring mortgage rates going higher still.  The question will be which road do they travel, but the easier path is clearly the one leading mortgage rates higher.

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Mortgage Rate Forecast – April 14, 2011

Locking Stance:  LOCKING       Mortgage Bonds:  +12bp

Mortgage backed securities are doing a surprise rally at the moment, though not entirely a surprise when you look at what is happening.  Inflation is lower than expected at the Producer level and job loss is more.  And yesterday’s Fed’s Beige Book was actually favorable as well.

Yesterday saw the 10-year T-Note auction go “soft”.  The bid/cover ratio was down a bit and the high yield was essentially unchanged, though higher than the 1:00 bid.  Continued softening in Treasury Auctions may continue into this afternoon’s 30-year T-Bond auction, so we must take that into consideration.  The Fed’s Beige Book offered some more benefits to MBS prices as it stated wage pressures were weak or subdued and that bodes well for calming inflation fears.  The Beige Book did talk about the economy improving across all 12 districts and there was news from the Labor Department that employers are advertising 3.1M jobs, the highest since late 2008, but we also must look at what types of jobs are being offered since flipping burgers does not pay as well as working on Wall Street, and certainly not as well as CEOs and politicians.

And speaking of jobs, today started with the Jobless Claims report, which came in much higher than expected at 412K versus 380K and that brought the 4-week moving average up to 395.75K.  The Labor Department did not cite supply disruptions from Japan as a factor, focusing more on the “beginning of quarter” aspect.  Then we had the Producer Price Index, which overall came in lower than expected at 0.7% versus 1.0%.  While this is good, when you remove food and energy and look at Core PPI, it was higher than expected at 0.3% versus 0.2%.  Chances are that when the news is digested that mortgage bond traders will stop the rally.  We’ll see if Kocherlakota and Charles Plosser can calm the markets for the 30-year T-Bond Auction.  We will also see the Treasury announce the upcoming 5-year TIPS Auction.

A quick look at the charts shows stochastics coming out of the oversold spectrum and MBS prices hitting the 50-day moving average (remember, I said this was a possibility).  While MBS prices are no longer doing exactly what I expected, they are within my weekly forecast still.  Tomorrow holds the CPI data and there are some more economic data reports that could add to the problems for MBS prices (or help them), such as Consumer Sentiment.  Looking ahead from here, I still see no indications that floating would prove beneficial, at least until later this afternoon and only if we get something to provide a solid enough boost in MBS prices.

What does this mean for Mortgage Rates? Mortgage rates have improved slightly from yesterday, but not enough to worry about.  The long-term trend is still in place for mortgage rates to move higher and that may be starting as early as today.


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Mortgage Rate Forecast – April 13, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  -16bp

Every now and then, not to “toot our own horn”, we like to bring up the fact our Mortgage Rate Forecasts are the most accurate, or at least among them, even beating out those so-called “gurus” and mortgage rate alert services.  All you have to do is check our history compared to theirs and you will see the facts.  These last few days alone have proven it as we started the week “cautiously floating” and stated it would likely be another “short-lived” move.  Mortgage backed securities have followed our prediction exactly thus far.  MBS prices rose to their 10-day moving average and pulled back yesterday, today they are testing support, which could very well fail this afternoon.

Yesterday’s 3-year T-Note auction went well, probably better than most expected, but that is a “3-year” term and not a “30-year” term and does not always make moves in the mortgage bond market.  It does, however, make things interesting as we approach today’s 10-year T-Note auction as we could see stronger-than-expected results, which could allow for support to hold and maybe keep mortgage rates fairly steady a little longer.  Economic data is generally not favoring mortgage rates as Retail Sales came in mixed as overall numbers were worse than expected at 0.4% versus 0.5%, but ex-autos was better than expected at 0.8% versus 0.7%.  That means the economy is doing a little better than expected and that does not bode well for MBS prices.  And on the housing front, the MBA Purchase Applications report showed a drop of 4.7% in Purchase Applications, keeping optimism for the housing market on the low side.  Refinance Applications dropped another 7.7% this week as mortgage rates have been edging higher.  Other minor data is being released, including Crude Inventories shortly, but eyes will be on this afternoon’s 10-year T-Note Auction, followed by the Beige Book.

What does this mean for Mortgage Rates? Mortgage rates have halted their rally as we stated and have edged higher.  The overall trend remains solid for mortgage rates to continue higher and that will remain solid unless today’s 10-year T-Note Treasury Auction goes well, which could change things a bit.

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Mortgage Rate Forecast – April 12, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  +56bp

For those of you who listened to this week’s Mortgage Rate Forecast Weekly radio show, you heard me say I was once again “cautiously optimistic”, which turned out to be the correct path to take, again.  In the show, I also mentioned that I expected mortgage backed securities prices to rebound to about their 10-day moving average, maybe even a little higher, before starting their next leg lower.  Well, with yesterday’s monthly mortgage bond rollover of -31bp, we had a little extra “room” before hitting these levels due to the subsequently skewed charts, but it appears we hit those targets and with MBS prices pulling back, it now is time to start locking again as the “short-lived” move is likely over.

MBS prices rallied out of the starting gates today on the heels of news that Japan’s Fukushima Nuclear Power Plant’s threat level is now equal to Chernobyl and the “evacuation zone” has increased.  Back home, economic data started coming in, with the National Federation of Independent Business (NFIB) Small Business Optimism Index dropping to 91.9 from 94.5.  A mixed bag of news in the details as the report shows weaker sales and a weaker outlook for business conditions.  The report also cites a “marked deterioration” in profit trends.  But there is a bright spot as small businesses are hiring and expect to continue to hire.  The International Trade report showed the Trade Balance Level rose slightly from a revised $-47.0B to $-45.8B.  Food imports and imports of consumer goods both rose and are at record levels.  Another note is that this report is for February, which is “ancient news” and with increased oil prices, things are likely worse now.  That can be seen somewhat in today’s Import and Export Prices report (March data), which showed Import Prices rose 2.7% (year/year at 9.7%) and Export Prices only rose 1.5% (year/year at 9.5%).  In regards to inflation, the report shows inflation is definitely hot but it’s confined to energy and food, pointing to high non-core readings for Thursday’s producer price report and possibly Friday’s report on consumer prices as well.  With inflation fears not going away and the looming 3-year T-Note auction this afternoon, it is likely the best bet to lock in here as MBS prices will likely follow my forecast of starting the next leg lower (sending mortgage rates higher).

What does this mean for Mortgage Rates? Mortgage rates followed my predictions, edging lower this morning in another “short-lived” move that is likely already coming to an end.  The overall trend remains in place for mortgage rates to move higher from here and that move may begin as early as this afternoon.

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