How long will mortgage rates stay low?? Anyone? You know as well as I do that no one really has the answer, but if your believe the government they will stay low for the next 2 years, yea right. No one can predict where the economy, both US and World, inflation, rates, and really anything else. I am sure half the people are right sometimes. I am looking at an extended slump in the housing market something I am sure you all know. A slower the expected recovery and maybe even a double dip recession.
We need 3 things, more spendable dollars, jobs and a stimulated housing market. Refinance to save cash-flow. For example I have a client that bought a house 3 years ago in Florida for $425,000 and carried a mortgage of $340,000. He currently owes $319,000 on a house that is now worth only $310,000 (yes the numbers are right) his current rate was 5.25%, I was able to refinance him at 4.125%, 30 year fixed, saving him $331.46 a month. The total cost of the refinance was $2662, well worth it.
Should you or your client's refinance? Talk to me and let discuss what can be done.
Jon jstarr@westtownsb.com
Hope you had a great weekend and are ready for another stomach turning roller coaster of a week. We could have a great week for the economy or a wild up and down week lake we had last week. I looked for the experts to give me some direction over the weekend and after reading 6 different articles I got 12 different opinions. Rate are great still. I am closing FHA 30 year at 4%, conventional 30 year at 4.125% with no points.
Key Events This Week:
Monday:
8:30 - The Chicago Fed's National Activity Index doesn't often receive much attention, but with the possibility of a double-dip recession on every investor's mind, it will be worth watching this time. The index, according to BMO, incorporates 80 economic indicators to provide a monthly snapshot of overall economic growth.
The June figure, released last month, was a lower-than-expected -0.46 and included a downward revision to the prior month. This month's figure is not expected to improve, and deterioration could confirm double-dip fears.
"A negative number means the economy is growing below trend," added BMO, noting the recession signal is a figure below -0.7.
Treasury Auctions:
Tuesday:
10:00 - New Home Sales are anticipated to continue scraping along the bottom in July, with no reasons for optimism in the coming months. The annualized pace of sales was reported at 312k in June and 315k in May; the consensus prediction for July is 315k.
"The number of new homes for sale is now the lowest in the nearly 50 years for which the data have been collected," noted economists at Citigroup. "With demand remaining at such low levels, we expect that builders will allow inventories to fall further."
Economists at Nomura Global Economics added: "Not only did mortgage application volume remain soft in July, building permits also declined. According to the Census Bureau, only houses sold prior to being built or those that are built for sale are counted as a new home sale, so softness in building permits in July would indicate weak new home sales."
Treasury Auctions:
Wednesday:
8:30 - New Orders for Durable Goods are expected to surge in July, but the major jump is due almost solely to the transportation sector, specifically to civilian aircraft orders and a moderate rebound in motor vehicle sales. The median estimate is for a 2% increase, with some estimates as high 7.4%, following a 1.9% cut in the prior month.
"One hundred 737's - that was the American Airlines order from Boeing on July 27," said economists at IHS Global Insight. "It was worth about $7.7 billion at book prices. If the planes appear in the government's orders data in this report, headline durable goods orders will be strong."
Optimism ends there. Excluding the transportation sector, forecasters assume a 0.4% drop.
"If the aircraft orders don't hit the government's books until August, then July will be a damp squib," IHS Global Insight says. "The aircraft leverage is massive, because the rest of the picture looks gloomy, with orders for non-defense capital goods ex-aircraft likely to fall 2.2% as June's seasonal surge in turbines orders disappears."
Treasury Auctions:
Thursday:
8:30 - Initial Jobless Claims disappointed markets last week by rising 9k to 408k, but the four-week average continued to fall, coming in at 402,500 - the lowest since mid-April. So the report continues to provide optimism that the nonfarm payrolls report for August won't be terrible. This week economists expect to see 400k new claims, with estimates ranging from 390k to 420k.
"The continued improvement in jobless claims despite downbeat data elsewhere is encouraging and moderately constructive for employment ahead," economists at Citigroup said. "Separately, beneficiaries likely were little changed, keeping the insured rate at 2.9% a third week. The insured rate has been largely constant over the last six months despite the uptick in the national rate."
Treasury Auctions:
Friday:
8:30 - Bad as the advance estimate of second-quarter Gross Domestic Product was, preliminary revisions are expected to be even lower. Economists anticipate April to May growth to come in at +1.1%, down from an original estimate of 1.3%. First quarter growth was even more dismal at +0.4%. With fears of a double-dip recession being the concern du jour, this report is sure to get a lot of play.
"We expect the big downward revisions to be to inventories and net trade," said economists at IHS Global Insight. "Nonresidential construction spending, state and local construction, and consumer spending should all be revised up. The figures will reinforce the picture of an economy barely maintaining forward momentum, and at risk of tipping back into recession."
"The mixture of revisions," added Nomura, "will likely include higher consumer spending and stronger construction of non-residential structures, which will be outweighed by a slower inventory buildup and a wider-than-expected trade gap."
Economists at Citigroup look for Q2 GDP at just 0.9%, owing to lower inventories and trade.
"Domestic demand actually should be adjusted higher because construction spending was marked up," they said. "Still, this report confirms that growth tailed off in the first half and that the weakness was not confined to temporary forces, such as bad weather, supply disruptions, and higher energy prices."
9:55 - Consumer Sentiment can't get much worse. At mid-month it fell from 63.7 to 54.9, the lowest of any point since May 1980. President Obama's approval ratings have dropped to new lows and markets have continued to be volatile, with the Dow Jones Industrial Average declining another 325 points, or 2.92%. Economists could hardly have been more wrong last time around; they now predict a slight uptick to 57, with forecasts ranging from 54.8 to 60.
"The second pass at August consumer sentiment will likely show no significant change," said forecasters at Citigroup. "The dramatic drop in early August came amid dramatic financial market turmoil. While the daily swings have moderated recently, the negative wealth shock to consumers remains large."
"Consumers face many headwinds such as poor job prospects, depressed home prices, high food prices, and volatile equity markets, while the European debt issue has reared its ugly head again," added IHS Global Insight. "Since the mid-August reading, the equity markets have been in a tizzy and fears of a global economic slowdown have increased. However, world oil prices have taken a major hit in the past couple of weeks and this will eventually offer some relief to household budgets at the gasoline pump."
10:00 - Federal Reserve chairman Ben Bernanke speaks to the Kansas City Fed conference in Jackson Hole. This is his first appearance since the Aug 9 FOMC meeting. His speech is titled "Near- and long-term Prospects for the US Economy."
"We do not anticipate that extreme measures, such as QE3, will be suggested in this year's meeting," said economists at Nomura, noting Bernanke used his speech last year to describe "additional stimulus" and then followed up by announcing QE2 a few months later.
"The deflation risks that were present at the time of last year's meeting are absent," they added. "We expect Chairman Bernanke to reiterate the Fed's tools for easing and seek to restore confidence in the central bank's ability to respond to shocks as they arise. He may also explain the role of the Fed's balance sheet - in terms of size and composition - in monetary policy."
OK folks I am now quoting a 30 year fixed at 4% with no points. I am doing refi at 4.25% with no closing cost. Holly cow the rates are so low and looks like it might go even lower.
Treasury prices are soaring and equity futures are tumbling and as a major equity sell-off in Europe has crossed the Atlantic, triggered by renewed concerns that major players in the global economy could dip back into recession.
The benchmark 10-year yield is eight basis points firmer at 2.09% and the 30-year yield is eight basis points lower at 3.48%. The two-year yield is just one basis point lower at 0.19%. The Fannie Mae 4.0 MBS coupon is +5/32 at 104-20 and the 3.5 coupon is +8/32 at 101-25.
Key Events Today
8:30 - July's Consumer Price Index isn't expected to produce major headlines. Economists forecast a 0.2% gain in the index, reversing a 0.2% fall the month before. With spending from consumers stagnant, inflation isn't much of a threat except for food and energy prices. Those are also anticipated to be tame this month, as gas prices declined roughly 0.5% in the month.
"Gasoline prices at the pump fell only slightly in July, while the seasonal factors expect a much bigger drop," said economists at IHS Global Insight. "That will translate into a seasonally-adjusted price increase for gasoline of around 5%. Food prices at the store should climb a bit faster, driven by rising prices for meat. Outside of food and energy, price increases should edge down to 0.2% from 0.3% in June, with a possible modest dip in clothing and accommodations after big increases last month."
Economists at Citigroup added: "If energy prices follow the path of current futures, the 12-month inflation rate will drop from the current 3.5% to below 2% by early 2012."
8:30 - This week's Initial Jobless Claims report aligns with the survey week for the monthly study compiled by the Bureau of Labor Statistics. Economists must be praying the result is in line with the recent trend.
The last report showed new claims fall 7k to 395k, the lowest figure since early April. Not just a temporary blip either, as the four-week average fell to 405k, its lowest since mid-April.
"The downward trend in jobless claims and better-than-expected job creation in July is at odds with the Fed's 9 August FOMC statement when it characterized the labor market as deteriorating," said economists at Nomura Global Economics.
8:35 - The generally dovish Federal Reserve Bank of New York President William Dudley speaks on the regional and national economic outlook before local community and business leaders. Audience Q&A expected.
10:00 - The Philadelphia Fed Survey has outperformed New York counterpart recently. In July it came out of an ugly contraction to report a score of 4.7, indicating a much slower rate of growth than earlier in the year while suggesting that, at least, that deterioration was over.
"A data release in line with our expectation would show that industrial activity continues to grow in the region, but remains markedly slower than prior to the 11 March Japan earthquake," said economists at Nomura Global Economics.
10:00 - July's Leading Economic Indicators index, a composite measure designed to track turning points in the economy, is expected to rise 0.2% following a gain of 0.4%. Recent turmoil in the financial markets began on Aug. 1 and so shouldn't show up in this index. That might be comforting, yet it also limits the value of this report.
Economists at Citigroup look for a 0.4% uptick.
"The healthy gain reflects outsized contributions from real money supply growth and the yield curve, as well as strong readings from jobless claims and stock market components," they wrote. "The increase was capped by weakness among consumer and business confidence measures, and a drop in building permits. If our estimate is correct the leading index strengthened on a year-to-year basis."
However, they look for deterioration in August thanks to financial market turmoil, lowered expectations for growth, and deployment of additional policy stimulus measures to stem the tide.
10:00 - The final data point of the week, Existing Home Sales, is expected to have something positive to say about July. The index was plagued by a wave of cancellations in the previous month, which cut the annualized pace of home sales to 4.77 million from a prior 4.81 million.
"Buyers are somehow failing to make it to the settlement table, perhaps stymied by credit problems," said economists at Janney Capital Markets. "While access to mortgage lending is relatively easy for prime credits, the number of foreclosures that have occurred over the last four years have effectively knocked 5% of potential homebuyers out of the markets - and that doesn't even consider the suddenly marginal credits of individuals who may have missed a few credit card payments or who are presently unemployed."
Assuming cancellations return to normal levels, the median forecast for July is 4.85 million, as economists predict improvement based on an uptick in contracts that have signed but not finalized.
"If there is risk to the forecast it would be to the downside in the event contract cancellations run high, as was the case in the June data," said economists at Nomura.
Treasury Auctions:
Are we in for another wild ride this week? Is the volatility over? Only a fool would say yes for certain, but so far, markets are calm.
Treasury movements are relatively modest. The two-year yield is one basis point softer at 0.19%, the 10-year yield is two basis points firmer at 2.28%, and the 30-year yield is three basis points firmer at 3.75%. The Fannie Mae 4.0 MBS coupon is -1/32 at 104-07.
Equities are on the rise which, if sustained, would mark the third day of gains. S&P 500 futures are 5.75 points higher at 1,182.50and Dow futures are 34 points higher at 11,284.
"Some stability appears to be returning to markets," said economists at BMO Capital Markets. "But businesses remain wary that the U.S. government isn't doing enough to arrest its massive budget deficit and that European governments aren't doing enough to avert financial contagion from infecting the banking system."
Light crude oil fell 0.56% from Friday to $84.90 per barrel, while gold prices stumbled 0.28% to $1,737.30.
Key Events This Week:
Monday:
8:30 - Summer manufacturing has been weak in New York. The Empire State Manufacturing Index has contracted the last two months, with scores of -.3.8 in July and -7.8 in June, which are the only negative readings going back to November 2010. Whether this index digs out of contraction will set the tone of expectations for other regional reports to come this month. The median forecast just ahead of the release is zero; forecasts range from -10 to +5.
"The early-month timing exposes the August index to downside risks," said economists at Nomura Global Economics. "The July survey was conducted prior to the peak of anxiety over the debt ceiling impasse so those concerns could be reflected in the August survey."
10:00 - Keep your expectations for the Housing Market Index low, for it has provided no positive news for a couple of years. The index ticked up a decent two points in July, but the overall level is so low, at 15, that these moves can be safely be ignored until a true trend upwards is established.
According to Nomura, the index hit a record low of 8 in January 2009. So things have been worse. But only a score above 50 indicates that homebuilders are optimistic about the housing sector. We've got a long way to go.
1:25 - Dennis Lockhart, president of the Atlanta Fed, speaks on the U.S. economy.
Treasury Auctions:
Tuesday:
8:30 - It's tough to predict what will happen with July Housing Starts given that the June report was such a mystery. Housing starts somehow soared 14.6% June - beating forecasts by 12 percentage points - with single-family starts jumping 9.4% and multi-family starts rocketing 30.4%. The news was welcomed, yet the number of permits issued in the month, which tend to anticipate starts. rose only 0.2% and suggested the jump was only temporary.
Economists at Citigroup said this mismatch indicates a pullback in housing starts this month.
"The June figures for both single- and multi-family starts jumped surprisingly," they wrote. "However, fundamentals in housing have not improved materially and the recent weakness in the economy suggests that housing construction will remain soft."
Economists at IHS Global Insight added: "Our view is that the spike was probably a bad reading. For July, we are likely to see an offsetting drop."
The median forecast anticipates a drop in the annualized rate of starts to 600k, down from 629k a month before but still up from the 549k rate from two months previous.
9:15 - Warm weather, new manufacturing jobs, and auto assembly plants reopening should all help Industrial Production to climb 0.5% in July. The gain would follow a meagre 0.2% posting in June and a 0.1% cut in May. Second-quarter production had been disrupted by the earthquake-tsunami disaster in Japan, but motor vehicle output rebounded in July and suggests optimism for this index.
"We look for a huge rise in July industrial production, led by gains in motor vehicle assemblies," said economists at Citigroup, citing auto production and predicting a print of 0.8%. "Although plants were shut down for retooling for the new model year, production ramped up later in the month to a pace higher than before the Japan tragedy. The lift in auto sector output accounts for most of the expected gain in overall production."
Economists at Janney Capital Markets were a little more reserved, expressing much uncertainty about the report.
"The outlook for auto industry output, a major portion of the industrial production results, has gotten somewhat complicated by ongoing supply chain disruptions from the Japanese earthquake," they wrote. "Even U.S. auto manufacturers rely on parts produced in Japan, including many built in factories affected by the Sendai earthquake and aftermath. Adding to the complexity was an unusually hot July ... July was actually the fourth warmest month for the US ever recorded. We believe the auto and weather trends are mostly offsetting, however, and production will track relatively closely to its recent levels."
Treasury Auctions:
Wednesday:
8:30 - Expectations range widely for July's Producer Price Index. Following a 0.4% cut in July, the median forecast is +0.1%, and predictions go from -0.5% to +0.4%.
Economists at Nomura point out that energy prices increased in July but declined on a seasonally adjusted basis. Those at IHS Global Insight pointed out that "no big moves in energy or food items are anticipated this month."
So why the range of predictions? It may be due to the timing of the report.
"We think producer prices reversed last month's decline due to a pop in gasoline prices. Already, we see that the jump in energy prices will be short-lived," said economists at Citigroup. "But the PPI uses a mid-month to mid-month survey period, and during that time there was a notable price rise. Excluding food and energy, prices have consistently run in the 0.2% - 0.3% range, and that includes some recent, hefty increases in light vehicle prices related to shortages from the twin disasters in Japan."
1:20 - Richard Fisher, president of the Dallas Fed, speaks on Fed functions and monetary policy.
Thursday:
8:30 - July's Consumer Price Index isn't expected to produce major headlines. Economists forecast a 0.2% gain in the index, reversing a 0.2% fall the month before. With spending from consumers stagnant, inflation isn't much of a threat except for food and energy prices. Those are also anticipated to be tame this month, as gas prices declined roughly 0.5% in the month.
"Gasoline prices at the pump fell only slightly in July, while the seasonal factors expect a much bigger drop," said economists at IHS Global Insight. "That will translate into a seasonally-adjusted price increase for gasoline of around 5%. Food prices at the store should climb a bit faster, driven by rising prices for meat. Outside of food and energy, price increases should edge down to 0.2% from 0.3% in June, with a possible modest dip in clothing and accommodations after big increases last month."
Economists at Citigroup added: "If energy prices follow the path of current futures, the 12-month inflation rate will drop from the current 3.5% to below 2% by early 2012."
8:30 - This week's Initial Jobless Claims report aligns with the survey week for the monthly study compiled by the Bureau of Labor Statistics. Economists must be praying the result is in line with the recent trend.
The last report showed new claims fall 7k to 395k, the lowest figure since early April. Not just a temporary blip either, as the four-week average fell to 405k, its lowest since mid-April.
"The downward trend in jobless claims and better-than-expected job creation in July is at odds with the Fed's 9 August FOMC statement when it characterized the labor market as deteriorating," said economists at Nomura Global Economics.
10:00 - The Philadelphia Fed Survey has outperformed New York counterpart recently. In July it came out of an ugly contraction to report a score of 4.7, indicating a much slower rate of growth than earlier in the year while suggesting that, at least, that deterioration was over.
"A data release in line with our expectation would show that industrial activity continues to grow in the region, but remains markedly slower than prior to the 11 March Japan earthquake," said economists at Nomura Global Economics.
10:00 - July's Leading Economic Indicators index, a composite measure designed to track turning points in the economy, is expected to rise 0.2% following a gain of 0.4%. Recent turmoil in the financial markets began on Aug. 1 and so shouldn't show up in this index. That might be comforting, yet it also limits the value of this report.
Economists at Citigroup look for a 0.4% uptick.
"The healthy gain reflects outsized contributions from real money supply growth and the yield curve, as well as strong readings from jobless claims and stock market components," they wrote. "The increase was capped by weakness among consumer and business confidence measures, and a drop in building permits. If our estimate is correct the leading index strengthened on a year-to-year basis."
However, they look for deterioration in August thanks to financial market turmoil, lowered expectations for growth, and deployment of additional policy stimulus measures to stem the tide.
10:00 - The final data point of the week, Existing Home Sales, is expected to have something positive to say about July. The index was plagued by a wave of cancellations in the previous month, which cut the annualized pace of home sales to 4.77 million from a prior 4.81 million.
"Buyers are somehow failing to make it to the settlement table, perhaps stymied by credit problems," said economists at Janney Capital Markets. "While access to mortgage lending is relatively easy for prime credits, the number of foreclosures that have occurred over the last four years have effectively knocked 5% of potential homebuyers out of the markets - and that doesn't even consider the suddenly marginal credits of individuals who may have missed a few credit card payments or who are presently unemployed."
Assuming cancellations return to normal levels, the median forecast for July is 4.85 million, as economists predict improvement based on an uptick in contracts that have signed but not finalized.
"If there is risk to the forecast it would be to the downside in the event contract cancellations run high, as was the case in the June data," said economists at Nomura.
11:00 - Treasury will announce the terms of 2-,5- and 7-year debt to be auctioned in the following week
Treasury Auctions:
Friday:
1:45 - Sandra Pianalto, president of the Cleveland Fed, speaks on "The Evolving Financial Services Industry and the Outlook for U.S. Economic Growth."
CURRENT MARKET*: The BestExecution 30-year fixed mortgage rate is between 4.000% and 4.250%. Several lenders are willing to offer 4.000%, 4.250% is widely available, and we've actually seen strong 3.875% quotes too. On FHA/VA 30 year fixed BestExecutionis 4.00%. Some lenders are willing to go as low as 3.75% without extra closing costs. 15 year fixed conventional loans are best priced at 3.625% but we're seeing aggressive quotes as low as 3.375%. Five year ARMs are still best priced at 3.25. ARMs seem to have bottomed out.
While many lenders have greatly improved their consumer rate quotes over the past few days, we must point out an increased amount of variation in what individual lenders are quoting as theirBestExecution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets. These costs are unavoidable. The best thing for mortgage rates right now is stability.
GUIDANCE: If you missed the boat on record low mortgage rates last November/October, the opportunity is once again out there for the taking. We think you should jump on it as soon as possible. The risks involved in floating have greatly expanded to include lenders taking it upon themselves to negatively adjust rate sheets (to slow loan production).
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