Dave Woodland - Your Bend, OR Friendly, Knowledgable Mortgage Professional

What a raucous month in the bond markets (see the red bars in the chart below.) Treasury bonds and mortgage-backed securities had record bad days on Wednesday only to recover some on Friday and continue in a positive direction this morning. So 30-year fixed, conforming loan rates that bounced up to 5.00% on Wednesday are settling in this morning at 4.875% for the price of an origination and normal closing costs.

What drove the spike? One would expect very good economic news would cause inflation-fearing bond holders to drive prices down and interest rates up to keep up with inflation. But good news was hard to come by. The nominal Q4 GDP was revised upward slightly, but a look underneath the hood there indicates that the performance was very shallow and largely driven by inventory replacement and not sustainable. The housing numbers were poor; in fact the New Housing numbers were the worst they have been since these numbers started being tracked nearly 50 years ago. BTW- the speculation is that New Home buyers are afraid a purchase now would not be able to close by the June deadline of the federal tax credit, accounting for the drop off in buying this month. Overall the economic indicators were weak and one would expect bonds to do well in that environment, so what gives?

There are four connected reasons for the rise in interest rates this week:

•1- The Fed purchase of MBS are coming to an end this week Wednesday. We've known that and interesting that the biggest impact on bonds was not in MBS, but in Treasury buying. Treasury buyers have benefited by having the Fed in the bond buying world at the rate of $1.25T over the past 15 months. Think about it, that is about the same as the US deficit increased supply of Treasury securities in the same time period. Which leads to the next reason.

•2- Treasury auction results were weak. We'll see more of this as a large bond buyer leaves the market. When treasury buying is weak, MBS buying is usually weak too, as was the case this week.

•3- Global sovereign debt fears are growing. The Greece monetary crisis is just the first. While the EU stepped in, major concerns loom. Not just the US is increasing the issuance of government paper (sovereign debt); Japan, Europe, emerging market countries are all adding debt. But the biggest surprise of all:

•4- The Health Care Bill passage sent a shiver down bond traders' spines. This is not a political statement but a credit market, financial observation. The market estimate (not the Washington/CBO baked number) is that this will add $50-100 Billion per year to the federal deficit. Put that into perspective: recently everything out of Washington has been measured in Trillions so it is easy to forget how big $100 Billion is. Other than WWII timeframe we have really only had deficits to speak of in the past 40 years. Look at the chart just below. In those 40 years, other than the post 9/11-Bush and Obama years, we have rarely been over $200 Billion in total annual deficit and never over $300 B. Bond buyers know that deficits drive inflation and adding $50-100 Billion to the deficit pool will insure a difficult fiscal future.

So enough doom and gloom. This was a taste of the shock that we have been expecting with the end of Fed purchases of MBS and it didn't take us over the edge. Mortgage rates are still outstanding and qualified borrowers are getting great deals. We'll keep our eye out for activity that might affect real estate values and interest rates. Please let your friends and family know that you have a trusted resource in the lending world. Make it a great week!

Well, we are off to a post-healthcare-legislation start in the markets and stocks are off a bit with bonds up in a flight-to-quality move. But it is only very slight and appears to be more attributed to the fears of Greek financial support drifting away. The sovereign debt issue is going to dominate the next decade of financial market discussions. If you are interested in reading up on the global projections of sovereign debt, here is a link. The fear of financial impact of the healthcare legislation is still an unknown and we'll watch for the "other shoe" to drop as information becomes available.

The Fed's March FOMC Statement (click here) was nearly identical to the prior Statement. The only real surprise was one that we really want to watch. One of the committee members (Fed President Hoenig) registered a dissenting vote on the decision. He wasn't against maintaining the 0-0.25% rate, but he objected to the use of the term "for an extended period". This term has been generally interpreted as "at least 3 meetings out" (approx every 6 weeks, puts us into summer, at least.) Hoenig is saying we need to anticipate Fed rate increases by summer. His 9 colleagues disagree however and the fear of inflation, apparently continues to be kept tightly in its closet for now. The next few weeks will likely be more driven by the supply and demand of debt issues, both MBS and Treasury notes.

For this week, the Treasury will once again set records with amount of notes being issued. This is driven by both the rollover of prior notes as well as the added thirst for debt attached to monthly deficit spending. Of course, on the Mortgage Backed Security front, this will be the last full week of Fed purchases. So far the bonds are still holding up and we will watch for the impact next week. Rates for Signet's 30-year fixed conforming loans are still at 4.75% for the price of an origination and normal closing costs. The end of the week brings jobless claims and GDP information - this will be much ballyhooed by the cheerleaders in Washington D.C.

On the commercial lending front, we continue to work with solid lenders interested in both owner user and investor funding. The jobs legislation passed last week included an extension of the fee waiver and 90% guarantees for SBA loans another 6 months. Some lender doors are closed, but not at Signet. We work with dozens of lenders looking for deals and borrowers to finance. Give us a call.

Wishing you a great week! For those who are able to enjoy a spring break, I hope you have opportunity to connect with the kids. Signet is ready to help you and your family and friends get the service they deserve in real estate financing. Make it a great week!

There was pressure on bonds during the week from two fronts, but even with a bit of an unfavorable slide in MBS, Signet's 30-year residential mortgage rates stayed at 4.750% for the price of an origination and normal closing costs. Pressures came from economic news threatening some inflation and from supply and demand of bonds being issued (primarily from the US Treasury.) Here are some touch points on economic activity:

• Retail sales drew attention from the cheerleaders, but a closer look says nearly flat for 3 months and over 6% off from where we were 2 years ago.
• Treasury bond issues have increased; Feb 2010 set a record for deficit spending: over $220 B in one short month. (Trillion dollar deficits are frightening, click here for a global study showing the US is not alone down this scary path.)

What to watch for in this and coming weeks:

• Tuesday- announcement from FOMC. Remember that the Fed raised the Discount rate to 0.75% last month while keeping the Fed Funds rate at 0-0.25%. Wording of the announcement at 11:15 pdt will be important. To date they have been hinting of keeping it near zero at least into June (click here for last month's announcement.)
• Thursday/Friday will be announcements of PPI and CPI inflation indicators.
• Only 16 more days of Fed purchases of MBS. Where will rates go? Here are some views.
• One month remains to get your tax returns in (sorry!)
• Only 46 days remain (April 30) to have a binding contract in force to qualify for the Homebuyer Tax Credit. FAQ here.

We'll keep our eye out for activity that might affect real estate values and interest rates. Check out the video presentation on getting out of debt faster below. Also see Saturday's Bulletin article about how to choose a mortgage lender and please let your friends and family know that you have a trusted resource in the lending world. Make it a great week!

[originally posted March 15, 2010- for real time email of blogposts, email me at dave@signetmortgage.com]

We said at the outset of the week that the story would be Jobs, Jobs, and Jobs. In fact, it was all of that. The surprise was that the information for February Non-Farm Payroll (NFP) and updates for January were all better than expected. And even with the improvement that WAS expected from census jobs, the less-bad news was surprising. Surprising enough to see a shock hit MBS on Friday, though it recovered well by the end of the day, as reality set in, once again, that this is not an economic recovery. Net, net, the 30-year fixed, residential conforming loans are at 4.750% for the price of an origination and normal closing costs.

Key dates coming up:

• This Friday - retail sales and consumer confidence will rule the news.
• March 31 - last day Fed buys MBS on the open market. Where will interest rates go? Click here for projections around 6.0%.
• April 30 - last day to sign a contract on home purchase and qualify for the FTHB tax credit.

What will happen with the lapse of the tax credit? Will we see less demand at the starter home level? Does that mean less competition and lower prices, but fewer sales at the low end? See this blog-post for one buyer's consideration "When should I buy?" (Thanks to Dani Grigg, real estate reporter at IBR.) If demand does slow, could the fewer low-end sales lead to rising median prices? Interesting, isn't it how median prices are deceptive (they are confusing, at best.) Because of the two components that drive it: Actual Price changes and Mix Shift of volume from high to low and vice versa of what is selling, we could see the low end dropping in price and at the same time, see median prices overall moving up because a higher percentage of an overall decreasing volume is above the old median.

Our own local housing statistics for February were interesting. Click here for a summary by Cheri Smith. The difference between distressed property medians and traditional sale medians is consistent with other markets. Different perhaps is that BOP are only 7% of actives yet 39% of closings. Is Central OR matching other markets on this trend? Similar info from Taft-Dire in January is found by clicking here. Zillow's chief economist produced a white paper concluding that there really are two distinct markets and medians for distressed vs. traditional home sales - click here.

One thing holds true through all of these questions: These days, more than ever, experience counts! Relax and know that you are in good hands with the professionals at Signet Mortgage. We'll help you and your friends make decisions that work now and for their overall financial position into the future. Give us a call and make it a great week! - Dave

While last week was full of economic news with a big impact on the financial markets, this week is looking to be even bigger. The theme for the past 5 days was weak economic recovery. This was particularly seen in housing numbers and consumer confidence, both much lower than expected. Even the GDP adjusted number, which came in for Q4 2009 at its highest measure in years, was universally received as a negative because the consumer spending number was non-existent and only a restocking of the shelves accounted for business spending and "growth". The result was a quick downturn in the stock market and a "flight to quality", found in Treasuries and MBS; enough of a flight to buoy up the Treasury auctions. That led to Commercial lending rate indices like the 5-year Swaps and 10-yr treasury yield dropping 16 basis points to 3.62% and residential, conventional conforming 30-year fixed rates dropping again to 4.750% for the price of an origination and normal closing costs. If you are a fan of Ben Bernanke and the Fed, you may want to read his prepared remarks before congress by clicking here.

So why is this week's economic news important?

• Jobs. On Wednesday we'll get the first hint of February jobs results with the ADP report on private sector with expected -35k.
• Jobs. Thursday's initial jobless claims report is expected to be 475,000, in line with the 4-week average.
• Jobs. The gov't reports are out on Friday and expect the Cheerleader in Chief to be celebrating a <10% number. But if the number isn't much worse than January it will be recognized as a temporary blip up for Census jobs. On the other hand, weather on the east coast is likely to have tanked the numbers by at least 50k, so a surprise for the worse and possibly even 10% unemployment again is about 50/50.
• Inflation. The Fed's most-watched gauge of inflation is the PCE due out this morning.
• Construction. The freefall is expected to continue in January numbers due out this morning, making it the 9^th consecutive drop.
• Homes. Thursday will bring the pending home sales index. Last week's New- and Existing-Home Sales numbers were awful falling 11 and 7.7% from a weak December number. But today is the first of March...

- 60 days left to get into a firm contract on a home purchase and qualify for the First-Time Homebuyers Tax Credit! Of course you know that even "move-up" buyers can qualify for the credit. Please feel free to give us a call if you have any questions about the qualifications and the nitty gritty of squeezing into the deadline, or by clicking here.

- 30 days left for the Fed buying MBS on the open market. This will cap the $1.25 Trillion investment program which today sits already at $1.206 T. Only $44 Billion to go (when does $44 Billion have an "ONLY" in front of it?) Sorry! While we don't expect a huge ceremony, we do know this flame will be doused. Because of the contract timing on mortgage purchases, we expect to start seeing a slight impact to residential mortgage rates by the middle of March as this portion of MBS demand is seen going away.

In the meantime, rates are as good as they have been in all of 2010 right now. We locked in fantastic rates available at the end of the week. These days, more than ever, experience counts. Let us help you, your friends and family understand the markets and take advantage of the opportunities. Make it a great week!