Friday, February 29, 2008
Rate Update Feb 29, 2008
Weakness in the stock market is helping the bond market right now. This may help 30 year rates dip by .125% this afternoon.
Watch today’s you tube video to find out what is influencing the markets.
We’ll need to be cautious. Technical signals suggest that mortgage bonds are trading against stiff resistance. We could see prices reverse and erode quickly against these levels.
Current Outlook: cautiously floating
Thursday, February 28, 2008
Rate Update Feb 28, 2008
You Tube link to see rate update video:
Mortgage-backed bonds are continuing to rally this morning. After touching the 200-day moving average on Tuesday mortgage-backed bonds have reversed higher by 170 basis points. This is an indication of how strong that level of support is.
We have to look ahead to tomorrow as the Fed’s favorite gauge of inflation is scheduled for release. The Personal Consumption Expenditure (PCE) is deemed to be the most current read on inflation. Watch today’s you tube video to find out what this report will mean for mortgage rates…….
Current Outlook: neutral ahead of tomorrow’s PCE report
Personal Consumption Expenditures and Core PCE
The Core PCE excludes the volatile food and energy components from a measure of price changes in consumer goods and services. It consists of the actual and imputed expenditures of households and includes data pertaining to durables, non-durables, and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. This report is the Fed's favorite gauge on inflation.
Mortgage-backed bonds are continuing to rally this morning. After touching the 200-day moving average on Tuesday mortgage-backed bonds have reversed higher by 170 basis points. This is an indication of how strong that level of support is.
We have to look ahead to tomorrow as the Fed’s favorite gauge of inflation is scheduled for release. The Personal Consumption Expenditure (PCE) is deemed to be the most current read on inflation. Watch today’s you tube video to find out what this report will mean for mortgage rates…….
Current Outlook: neutral ahead of tomorrow’s PCE report
Personal Consumption Expenditures and Core PCE
The Core PCE excludes the volatile food and energy components from a measure of price changes in consumer goods and services. It consists of the actual and imputed expenditures of households and includes data pertaining to durables, non-durables, and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. This report is the Fed's favorite gauge on inflation.
Wednesday, February 27, 2008
Rate Update Feb 27, 2008
You Tube link to see rate update video: http://www.youtube.com/watch?v=uhh_BCCeazg
After moving higher yesterday morning mortgage rates appear to have reversed course on technical trading patterns and testimony from Ben Bernanke.
Mortgage-backed bond prices touched the 200-day moving average yesterday morning and despite worse than expected inflation data that would ordinarily weigh on bond prices were able to reverse higher (see chart above).
Today, Fed Chairman Ben Bernanke is testifying in front of Congress on the outlook of the economy. Watch today’s you tube video to hear which comment is helping mortgage rates move lower.
Current Outlook: floating
Tuesday, February 26, 2008
Why Fed Rate Cuts do not lower mortgage rates by Evan Swanson, CMPS
The Fed is at it once again slashing short-term interest rates with the hopes of helping the economy avoid a steep recession. Many people, including so-called “experts” in the media, believe the recent Fed cuts are the reason why mortgage rates touched 4-year lows on January 22nd. However, if you look at history the results may surprise you.
Let’s first remember that the Federal Reserve can only control the Discount Rate and Fed Funds Rate. These are short-term rates used for overnight lending between banks and can change from day to day. This is very different than 30 year mortgage rates which remain fixed for a much longer period.
The last time the Fed went on a lengthy rate cutting cycle was back in 2001. In the span of 12 months (January- December) the Fed cut the Fed Funds Rate from 6.00% to 1.75%. To an uninformed consumer one would think that mortgage rates would have also decreased significantly over that timeframe. In fact, 30 year fixed rate mortgages actually increased from 6.95% in March to 7.07% in December (source: www.freddiemac.com).
In the most recent cycle, the Fed began cutting short-term interest rates on September 18th, 2007. From then until now the Fed has slashed short term interest rates from 8.25% down to 6.00%. Over that timeframe mortgage rates have come full circle starting at around 6.25%, falling as low as 5.00% in late January, and now back up to the 6.25% range in late February.
The truth is that fixed mortgage rates are wholly determined by the direction that mortgage-backed bonds trade. Mortgage-backed bonds are bonds which are sold to investors that are backed by the mortgages that you and I pay interest on. When the demand for these assets increase it drives up the price and lowers the yield. This is what causes mortgage rates to decrease and vice versa.
So, what is it that causes the prices of these assets to fluctuate? Like other asset classes such as stocks, there are many factors that we can identify. However, the primary factor is inflation expectations. If you think about it this makes sense. If you’re going to lend another person some money today and you expect the purchasing power of that money to be significantly less in the future, due to inflation, then you will charge them a higher rate of interest in order to borrow your money.
This is exactly the case for mortgage rates. When inflation expectations increase so do mortgage rates and vice versa. So when do inflation expectations rise or fall? Again, there are a myriad of factors that can influence inflation expectations including commodity prices, the economic outlook, and inflation data.
However, I would argue that mortgage rates recently touched 4-year lows not because of the Fed’s rate cut but because of the fear and concern that the Fed raised when they made their surprise .75% on the morning of January 22nd.
For now investors are beginning to realize that the implication of the “easy-money” monetary policy combined with the generous fiscal stimulus package is likely to be increased inflation.
Let’s first remember that the Federal Reserve can only control the Discount Rate and Fed Funds Rate. These are short-term rates used for overnight lending between banks and can change from day to day. This is very different than 30 year mortgage rates which remain fixed for a much longer period.
The last time the Fed went on a lengthy rate cutting cycle was back in 2001. In the span of 12 months (January- December) the Fed cut the Fed Funds Rate from 6.00% to 1.75%. To an uninformed consumer one would think that mortgage rates would have also decreased significantly over that timeframe. In fact, 30 year fixed rate mortgages actually increased from 6.95% in March to 7.07% in December (source: www.freddiemac.com).
In the most recent cycle, the Fed began cutting short-term interest rates on September 18th, 2007. From then until now the Fed has slashed short term interest rates from 8.25% down to 6.00%. Over that timeframe mortgage rates have come full circle starting at around 6.25%, falling as low as 5.00% in late January, and now back up to the 6.25% range in late February.
The truth is that fixed mortgage rates are wholly determined by the direction that mortgage-backed bonds trade. Mortgage-backed bonds are bonds which are sold to investors that are backed by the mortgages that you and I pay interest on. When the demand for these assets increase it drives up the price and lowers the yield. This is what causes mortgage rates to decrease and vice versa.
So, what is it that causes the prices of these assets to fluctuate? Like other asset classes such as stocks, there are many factors that we can identify. However, the primary factor is inflation expectations. If you think about it this makes sense. If you’re going to lend another person some money today and you expect the purchasing power of that money to be significantly less in the future, due to inflation, then you will charge them a higher rate of interest in order to borrow your money.
This is exactly the case for mortgage rates. When inflation expectations increase so do mortgage rates and vice versa. So when do inflation expectations rise or fall? Again, there are a myriad of factors that can influence inflation expectations including commodity prices, the economic outlook, and inflation data.
However, I would argue that mortgage rates recently touched 4-year lows not because of the Fed’s rate cut but because of the fear and concern that the Fed raised when they made their surprise .75% on the morning of January 22nd.
For now investors are beginning to realize that the implication of the “easy-money” monetary policy combined with the generous fiscal stimulus package is likely to be increased inflation.
Rate Update Feb 26, 2008
You Tube link to see rate update video: http://www.youtube.com/watch?v=rPx8IDngbYw
There’s a lot to cover today. First off, The Producer Price Index (PPI) which was reported this morning came in much hotter than expected. Both the Core and headline readings on inflation at the wholesale level of the economy came in double expectations.
The S & P Case Shiller home price index was released today. Although much of the data was bleak for the 20 markets covered in the index Portland, Seattle, & Charlotte were the only three that DID NOT show losses. This is great news and one that should be shared with clients in these markets.
Lastly, consumer confidence came in well below expectations. This shouldn’t be a huge surprise given the amount of negative press on the economy and housing markets. Watch today’s you tube video to understand what all this information means for mortgage rates.
Current Outlook: cautiously floating
Producer Price Index (PPI)
The Producer Price Index (PPI) is a measure of price changes in the manufacturing sector of the average price level for a fixed basket of capital and consumer goods paid by producers. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output.
Core CPI takes out food and energy as a factor.
There’s a lot to cover today. First off, The Producer Price Index (PPI) which was reported this morning came in much hotter than expected. Both the Core and headline readings on inflation at the wholesale level of the economy came in double expectations.
The S & P Case Shiller home price index was released today. Although much of the data was bleak for the 20 markets covered in the index Portland, Seattle, & Charlotte were the only three that DID NOT show losses. This is great news and one that should be shared with clients in these markets.
Lastly, consumer confidence came in well below expectations. This shouldn’t be a huge surprise given the amount of negative press on the economy and housing markets. Watch today’s you tube video to understand what all this information means for mortgage rates.
Current Outlook: cautiously floating
Producer Price Index (PPI)
The Producer Price Index (PPI) is a measure of price changes in the manufacturing sector of the average price level for a fixed basket of capital and consumer goods paid by producers. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output.
Core CPI takes out food and energy as a factor.
Northwest Real Estate Markets buck national trend!
The S & P/ Case-Shiller Home Price Index is a monthly survey of home prices in 20 of the top metropolitan areas in the United States. Earlier today they released their data for the 2007 calendar year. Despite record losses for home prices in most of the areas the report follows Portland, Seattle, & Charlotte, NC were able to buck the national trend by showing modest year over year appreciation.
These were the only 3 markets of the 20 that the index follows which did not record losses to home prices in 2007. Here is a link to the press release for the report:
Year End Numbers Mark Widespread Declines According to the S&P/Case-Shiller® Home Price Indices
The S & P/ Case-Shiller Home Price Index Report is viewed by many to be the best gauge of home prices for major metropolitan markets because the methodology for calculating home prices changes includes the broadest range of data.
These were the only 3 markets of the 20 that the index follows which did not record losses to home prices in 2007. Here is a link to the press release for the report:
Year End Numbers Mark Widespread Declines According to the S&P/Case-Shiller® Home Price Indices
The S & P/ Case-Shiller Home Price Index Report is viewed by many to be the best gauge of home prices for major metropolitan markets because the methodology for calculating home prices changes includes the broadest range of data.
Monday, February 25, 2008
Rate Update Feb 25, 2008
Mortgage rates ticked up this morning as the mortgage-backed bond market followed through on Friday’s trading pattern with lower prices.
The National Association of Realtor reported better than expected existing home sales for the month of January. December’s figures were also revised higher.
We’ll be watching for tomorrow’s Producer Price Index (PPI) report for clues on inflation pressures.
Current Outlook: neutral
Producer Price Index (PPI)
The Producer Price Index (PPI) is a measure of price changes in the manufacturing sector of the average price level for a fixed basket of capital and consumer goods paid by producers. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. Core CPI takes out food and energy as a factor.
The National Association of Realtor reported better than expected existing home sales for the month of January. December’s figures were also revised higher.
We’ll be watching for tomorrow’s Producer Price Index (PPI) report for clues on inflation pressures.
Current Outlook: neutral
Producer Price Index (PPI)
The Producer Price Index (PPI) is a measure of price changes in the manufacturing sector of the average price level for a fixed basket of capital and consumer goods paid by producers. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. Core CPI takes out food and energy as a factor.
Subscribe to:
Posts (Atom)
