Real Estate Market Review
Mortgage bond prices ended higher last week, which pushed mortgage interest rates lower. The financial markets remained extremely volatile. Most of the rate improvements came early in the week following Japan’s intervention to weaken the yen and Greek Prime Minister Papandreou’s indication that budget cuts would be put to a public vote. Unfortunately some of those rate improvements were erased when Papandreou retreated on the vote and the European Central Bank made a surprise rate cut. The employment report was mixed with the headline figure of 9% coming in lower than estimates while non-farm payrolls were weaker than expected. Despite the wild swings, mortgage interest rates fell by almost a full discount point for the week.
LOOKING AHEAD
Economic
Indicator Release
Date and Time Consensus
Estimate Analysis
Consumer Credit Monday,
Nov. 7,
3:00 pm, et $9.56b Low importance. A significantly large increase may lead to lower mortgage interest rates.
3-year Treasury Note Auction Tuesday,
Nov. 8,
1:15 pm, et None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction Wednesday,
Nov. 9,
1:15 pm, et None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday,
Nov. 10,
8:30 am, et 395k Important. An indication of employment. Higher claims may result in lower rates.
Trade Data Thursday,
Nov. 10,
8:30 am, et $45b deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
30-year Treasury Bond Auction Thursday,
Nov. 10,
1:15 pm, et None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Friday,
Nov. 11,
10:00 am, et 60.5 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
TRADE DATA
In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.
Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.
Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.
Foreclosure Activity Shows Signs of Ramping Up!
Foreclosure activity shows signs of ramping up in Q3 (CHARTS)
RealtyTrac: Default notices rise 14% from second quarter
By Inman News
Inman News™
In the third quarter, a downward trend in nationwide foreclosure activity showed signs of reversing, according to the latest report from foreclosure data site RealtyTrac. At the same time, foreclosure processing and sales timelines hit record highs, the report said.
After three straight quarters of declines, foreclosure activity in the third quarter remained essentially flat compared to the second quarter, rising a slight 0.35 percent to filings on 610,337 properties. That’s still a 34.4 percent decrease compared to third-quarter 2010.
One in every 213 housing units received a filing — a default notice, scheduled auction, or bank repossession — in the third quarter.
In September, the last month of the third quarter, 214,855 properties received a foreclosure filing, a decrease of 6 percent month to month and 38 percent year over year. September marks a full 12 months in which foreclosure filings have been dropping on a yearly basis, the report said.
“U.S. foreclosure activity has been mired down since October of last year, when the robo-signing controversy sparked a flurry of investigations into lender foreclosure procedures and paperwork,” said James Saccacio, RealtyTrac’s CEO, in a statement.
“While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up.”
Saccacio attributed the third quarter’s marginal increase in foreclosure activity to a jump in new default notices, “indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months … trying to clear the chimney of sloppily filed foreclosures,” he said.
Default notices in the third quarter rose 14 percent from the second quarter, to 195,878, but remained down 27 percent compared to third-quarter 2010. States to see especially big jumps in default notices quarter to quarter were Massachusetts (65 percent), New Jersey (29 percent), Florida (24 percent), Ohio (21 percent), and California (21 percent).
Foreclosure auctions fell 6 percent quarter to quarter and 41 percent year over year in the third quarter, to 217,929.
Bank repossessions (REOs) fell 4 percent quarter to quarter and 32 percent year over year, to 196,530. Nevertheless, some states did post high quarter-to-quarter jumps in REOs: Massachusetts (up 62 percent), Oregon (47 percent), Georgia (42 percent), and Illinois (27 percent).
Market Review
Mortgage bond prices fell last week, which pushed mortgage interest rates higher. The roller coaster ride of investor funds entering and exiting the stock and bond markets continues as economic uncertainty dominates trading. The losses continued as foreign demand for US debt instruments waned. Stocks were volatile but generally saw improvements on the week. Retail sales rose a stronger than expected 1.1%
Mortgage bonds ended the week worse by about 1/4 of a discount point.
The inflation data on the producer and consumer sides will be extremely important this week. There is also a 30Y TIPS auctions Thursday. The recent auctions have shown weak foreign demand, which generally does not bode well for lower rates so caution will be key.
LOOKING AHEAD
Economic
Indicator Release
Date and Time Consensus
Estimate Analysis
Industrial Production Monday,
Oct. 17,
9:15 am, et Up 0.3% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization Monday,
Oct. 17,
9:15 am, et 77.2% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Producer Price Index Tuesday,
Oct. 18,
8:30 am, et Unchanged,
Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Consumer Price Index Wednesday,
Oct. 19,
8:30 am, et Up 0.3%,
Core up 0.2% Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Housing Starts Wednesday,
Oct. 19,
8:30 am, et 565k Important. A measure of housing sector strength. Weakness may lead to lower rates.
Fed “Beige Book” Wednesday,
Oct. 19,
2:00 pm, et None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Weekly Jobless Claims Thursday,
Oct. 20,
8:30 am, et 400k Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday,
Oct. 20,
10:00 am, et -10.4 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic Indicators Thursday,
Oct. 20,
10:00 am, et Up 0.2% Important. An indication of future economic activity. A smaller increase may lead to lower rates.
SIGNIFICANT DATA
Recent economic reports have carried mixed weight in driving the financial markets in light of stock market swings. While stocks have set the tone for trading in mortgage-backed securities recently, an abundance of significant data this week may begin to weigh upon the market as well.
It is possible for mortgage interest rates to trend lower again. However, the potential for increases is also very real, as we have seen the past few weeks. Signs from the data this week that the economy is recovering could lead to stock strength.
Stocks are likely to continue to dictate trade. A weaker stock market may help to maintain current mortgage interest rate levels. However, signs of recovery in the stock market can pressure mortgage bond prices lower and rates higher.
Weekly Market Update
MARKET COMMENT
Mortgage bond prices fell last week, which pushed mortgage interest rates higher. There was a strong sell-off throughout the beginning of the week following the prior week’s run up in prices. European authorities efforts to construct a new rescue framework dominated the news and resulted in a reversal of the flight to quality buying of US debt instruments. Stocks were extremely volatile throughout the week but surged higher at times, which didn’t help mortgage bonds. The revised Q2 GDP data was slightly higher than expected. There was a rebound Thursday afternoon and Friday morning following the depressed prices, however mortgage bonds still ended the week worse 3/8’s in discount points.
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