Jack Hirsch's Blog » 2009 » June

Mortgage Market Overview – 06/30/09

Jack Hirsch — Tue, 30 Jun 2009 16:52:22 +0000

The Johnson Redbook chain store sales were down 4.3% yr/yr but fractionally better than -4.4% yr/yr last month. Consumers remain mostly sidelined on job losses and the fear of future jobs being lost.

At 9:00 the Case/Shiller Home Price Index was down 18.1% in April after declining 18.70% in March and better than -18.75% expected. Foreclosures continue to depress prices. The measure declined 19% in January, the most since the data began in 2001. The home-price index figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

At 9:45 the June Chicago purchasing mgrs index, expected at 40.0 frm 34.9, hit at 39.9. New orders component at 41.6 frm 37.3, prices pd at 36.6 frm 29.8 and employment at 28.9 frm 25.0. All components imp[roved but are still contracting—below 50.

At 10:00 eastern the final economic release today, June consumer confidence index; expected at 55.0 frm 54.9 was weaker at 49.3 and May was revised to 54.8. The present situation index fell from 29.7 in May to 24.8 in June. The report is opposite what we had with the U. of Michigan consumer sentiment index but we would put more credibility in the report today.

The Fed is scheduled to buy more treasuries today on the $300B announced bond purchase program announced in March.

Treasuries and mortgage prices continue to fall at 10:15 eastern. Trade is thin and selling today is more technical than substantive so far.

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx

With The Year Half-Over, How Accurately Did Economists Predict 2009

Jack Hirsch — Tue, 30 Jun 2009 16:51:24 +0000

At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.

And nobody predicted just how big the government’s stimulus package would be.

Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future. Economists can make educated guesses about the future, but they’re guesses nonetheless.

It’s like watching the Weather Channel. A meterologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood.

There’s another 6 months until 2010 and there’s no reason to expect the current volatility and uncertainty to change.

The world is unpredictable and so is the U.S. economy. Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman’s been wrong before.

In Another Good Sign For The Housing Market, Builders Are Clearing Out Their Inventory

Jack Hirsch — Fri, 26 Jun 2009 17:45:28 +0000

If you only saw the headlines this week, you may have missed another positive sign in the housing market.

According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.

Unfortunately, the New Homes Sales story wasn’t positioned as a positively by the press. Instead, the most common headline on the data read “New Home Sales Dip 0.6%” with many journalists referring to the figures as “weak” or “disappointing”.

Only, that’s not completely true.

See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.

And that’s exactly what happened in May.

New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error, The “headline data”, in other words, was just a guess.

The press reported it anyway.

Nonetheless, as it relates to the economy, falling home inventories are a positive. Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.

So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.

Mortgage Market Overview – 06/26/09

Jack Hirsch — Fri, 26 Jun 2009 17:44:06 +0000

Mortgage backed securities (MBS) prices are higher (rates lower) after yesterday’s volatile trading over the FOMC policy statement and before today’s Treasury auction of $27 billion in 7yr notes that completes the record $104 billion in borrowing. The Fed, encouraged by signs the recession is easing, doused speculation they will pump more money into the economy. Fed policy makers will maintain the size and pace of their program to buy Treasuries, agency debt and MBS. The statement indicated more time is needed to assess the prospects for a recovery before deciding to exit from their unprecedented credit programs and reinforced expectations that interest rates will remain low for some time. Also emphasized was continued monetary stimulus is needed but the risk of inflation is low, easing concern that higher prices will erode the value of the fixed payments from debt. The difference between 10yr note yields and Treasury Inflation Protected Securities (TIPS), which reflect the outlook among traders for consumer prices, narrowed to 183bps from 202bps two weeks ago. The final revision to 1st quarter Gross Domestic Product (GDP), the sum of all goods and services produced, came in at -5.5% reflecting declines in inventories, housing and business spending and capping the worst six month performance in almost sixty years. Residential construction dropped 39%, the most since 1980. Business investment shrank 37%, the biggest decline since 1947. Inventories fell $87 billion, the biggest drop ever. On a positive note, the trade deficit narrowed contributing 2.4% to growth, while core PCE rose only 1.6%. Personal Consumption Expenditure is the Fed’s preferred measure of inflation. Jobless claims unexpectedly rose for a second straight week, 15K to 627K from a revised 4K higher 612K indicating the labor market may take longer to stabilize. The data included unexpected claims from the educational services sector which often shows variability at the end of the school year. The 4 week moving average also increased to 617,250 from 616,750. The total number of people collecting unemployment insurence jumped 29K to 6.74 million. Fed Chairman Bernanke is testifying today before the House Committee on Oversight and Government Reform regarding his role in Bank of America’s purchase of Merrill Lynch.

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx

Mortgage Market Overview – 06/23/09

Jack Hirsch — Wed, 24 Jun 2009 00:36:19 +0000

Mortgage backed securities (MBS) prices opened lower this morning after yesterday’s gains which were fueled by stock market losses (DOW -200pts & S&P 500 -3.1%) boosting demand for fixed income assets, like MBS. MBS prices have since rebounded. Today the Treasury will auction $40 billion of 2yr notes, first of this week’s three sales totalling a record $104 billion. The last auction drew the most demand since November 2006 from foreign central banks, helping ease concern that international investors will begin to shy away from Treasuries as U.S. borrowing surges to fund bank bailouts, fiscal stimulus spending and a record budget deficit. The budget deficit is projected to increase to $1.85 trillion this year, equivalent to 13% of the nation’s economy. The Fed starts a two day meeting today to consider any changes to its pledge to buy Treasuries, agency debt and MBS to lower consumer borrowing costs, and whether to keep its benchmark interest rate near zero. Fed policy makers will continue to explore how and when to wean the economy off stimulative medicine to avoid fanning inflation. The FOMC statement is due at 1115am pt tomorrow. Fed funds futures show a 40% chance the Fed will raise interest rates by at least .25bps by December. The Fed purchased $7.5 billion of U.S. debt yesterday as part of its effort to stop rates from rising. Chain store sales continue to be very weak, according to ICSC-Goldman & Redbook, due to recessionary conditions and wet weather. Crude oil prices increased after falling three days in a row as a weaker dollar boosted the appeal of commodities as an alternative investment. The dollar declined on speculation that the Fed will temper expectations for an interest rate increase. Existing Home Sales were up 2.4% in May to an annual rate of 4.77 million, but below expectations of 4.85 million. Supply is coming down slowing, at 9.6 months from 10.1 months in April. Prices firmed up 3.8% to a median sales price of $173,000, but are down 16.8% on an annual basis. There was a steep drop in the proportion of distressed sales, to about one third from nearly half in prior months. More importantly, unrealistically low appraisals are scuttling sales and slowing the housing recovery. Can you say HVCC!

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx

Mortgage Market Overview – 06/19/09

Jack Hirsch — Fri, 19 Jun 2009 20:43:17 +0000

Mortgage backed securities (MBS) prices are lower (rates higher) in quiet sideways trading, typical for a Friday in June, as stock markets are higher and there are no economic reports due out today. MBS prices opened higher only to fall back into negative territory. Market participants are concerned over the looming supply of Treasuries ($104 billion), driving investors out of fixed income assets, like MBS, into more riskier investments seeking higher yields. Traders will begin to focus on the upcoming FOMC meeting June 23-24, with emphasis on the policy statement, hoping to gleen whether The Fed intends to raise interest rates soon because the recession is coming to an end. Coinciding with the FOMC meeting on June 23 will be the Treasury’s auction of $40 billion in 2yr notes, $37 billion of 5yr debt and $27 billion of 7yr securities from June 23-25. The demand from foreign investors will be closely watched, as they are crucial for continuing the administration’s record budget deficits. Gold prices have declined amid signs of recovery, after investors bought the metal to protect against plunging equities and a deepening recession, and are buying other assets such as real estate, reversing flight to quality trades. Crude oil prices rose for the third day on speculation that fuel consumption will climb as the global economic downturn subsides. Today is quadruple witching day and a Friday, so volatility is probable this afternoon.

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx

Adjusting For Cost Of Living Differences When You’re Moving To A New City

Jack Hirsch — Thu, 18 Jun 2009 16:17:16 +0000

Moving to a new metropolitan area requires adjustments. There’s new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.

There’s also new costs.

Just like home values vary by area, so does the Cost of Living. To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines.

Cost of Living adjustments can’t be ignored between two cities because it changes a household’s budget.

And while it’s a challenge to know exactly how far your dollar can stretch in a new town, Bankrate.com hosts a helpful Cost of Living Comparison Calculator to make the math a little easier. With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.

The calculator also shows the equivalent household income between any two metropolitan areas.

Mortgage Market Overview – 06/18/09

Jack Hirsch — Thu, 18 Jun 2009 16:05:38 +0000

Mortgage backed securities (MBS) prices opened sharply lower amid concern the administration’s record borrowing will overwhelm demand as the recession shows signs of easing. MBS prices rebounded only to fall back after release of today’s economic reports. Investors await Treasury’s announcement later today the amount of 2yr, 5yr & 7yr notes it will auction next week. The administration projects a record $1.85 trillion budget deficit this year and pushed the marketable debt to an unprecedented $6.45 trillion, while relying on foreign central banks to finance the massive debt. Treasury Secretary Geithner is testifying today before the Senate Banking Committee on financial industry regulatory reform. Market participants will be listening intently. Intial jobless claims rose 3K to 608K from a revised higher 605K the prior week, while the 4-week moving average fell 7K to 615,750 and the lowest level since February. The total number receiving unemployment benefits plunged 148K to 6.687 million, ending a long streak of increases. The data indicates the economy is stabilizing, though companies are likely slow to hire new employees. Leading Economic Indicators jumped 1.2% in May, pointing to economic leveling followed by a mild recovery. May’s gains were led by a slowing in delivery times, though tighter delivery conditions may not be from rising demand for goods as much as capacity cutbacks. The second biggest positive for the index is the steepening yield curve, reflecting the risk of Fed rate hikes. The Philadelphia Fed’s business activity index showed improvement from prior levels with a reading of -2.2, from -22.6 and below a consensus of -15.0, pointing to steady conditions in the near future. Contraction in new orders slowed substantially, but the good news is the general business conditions index rose more than 10pts. Employment is certain to lag as manufacturers hold off on new hirings until six months down the road. All in all, this mornings data will increase talk that government stimulus, whether fiscal or monetary, may have to be withdrawn sooner than later.

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx

Mortgage Market Overview – 06/17/09

Jack Hirsch — Wed, 17 Jun 2009 18:03:07 +0000

Mortgage backed securities (MBS) prices continue to climb higher (rates lower), extending the rally for a fifth day, after a Labor Department report showed consumer prices rose less than forecast, easing concern inflation will accelerate. Consumer Price Index (CPI), the broadest monthly price gauge because it includes goods and services, increased 0.1% in May despite higher energy costs. The boost in energy costs was due to a 3.1% gain in gasoline prices, though partly offset by declines in natural gas. Higher energy prices restrain discretionary spending, preventing companies from passing increased costs on to customers. The “core” rate, excluding food and fuel, climbed 0.1%. The core index benefited from subdued rental prices, 40% of the total, and falling prices for public transportation, apparel and tobacco. The outlook among traders for consumer prices is 1.78% and down from a 2.23% 5yr average, reflected by the difference between the 10yr note and Treasury Inflation Protected Securities (TIPS). Mortgage applications fell to the lowest level since November, reflecting the dampening effect of rising interest rates and limited credit availability. Purchase applications fell a disappointing 3.5% last week, combined with indications of limited buying interest point to dismal home sales data at months end. The refinance index fell sharply, down 23%, with mortgage rates up about 75bps from a month ago. The jump in borrowing costs discourage homeowners from refinancing and may deepen the housing slump. The Fed is scheduled to purchase 7-10yr securities today, part of its $300 billion buyback program, after buying $6.45 billion of 3yr notes yesterday.

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx

Mortgage Market Overview – 06/16/09

Jack Hirsch — Tue, 16 Jun 2009 17:55:28 +0000

Mortgage backed securities (MBS) prices opened lower (rates higher) as Russia, India and China consider buying each other’s bonds, swapping currencies to lessen dependence on the dollar and shifting reserves out of Treasuries. After release of a wide range of economic data, MBS prices have rebounded to trade near unchanged. The three month LIBOR fell to a record low 0.61% yesterday. Speculation that the Fed will raise interest rates this year, if the economy is recovering, is fading as quickly as it surged the past two weeks. The yield spread, difference between 2yr & 10yr debt, has narrowed as investors become less concerned inflation will increase. U.S. Producer Prices rose 0.2% in May, sharply falling short of expectations, as food expenses dropped. A 2.9% increase in fuel led to the jump in wholesale prices and these costs may rise further in June. Core prices, excluding food and fuel, unexpectedly fell 0.1% in May, the first decrease since October 2006. Overall PPI fell 4.7% on a year over year basis, the biggest decrease since 1949, reflecting the drop in fuel prices late last year that has since partially reversed. The bottom line is that inflation currently is moderate. Energy prices are still a looming problem, but just not today. U.S. Housing Starts soared up 17.2% in May, showing surprising strength, to an annual rate of 532K units that followed a 454K pace the prior month. The May rebound was led by the multi-family component which posted a 61.7% gain after falling 49.4% in April. Good news is the sizeable rise in the single-family component, up 7.5% after a 3.3% rise the month before. Building permits, an indicator of future construction, rose 4% to a 518K pace from a 498K rate the previous month. However, building permits are down 47% from a year earler. Industrial Production fell 1.1% in May, reflecting declines in consumer goods and business equipment that signals the manufacturing slump remains broad based. A large source of weakness was in motor vehicles and parts which plunged 7.9%. Factory production, 80% of total production, was down 15% in the last year, the biggest 12-month drop since 1946. Manufacturing is still contracting, maintaining a moderate decline. Overall capacity utilization fell to a record low 68.3% in May from 69.0% in April. As orders have tumbled, companies have slashed production to lower inventories. The excess capacity will help control inflation as raw material costs keep rising. According to ICSC-Goldman and Redbook, weekly chain store sales show extreme weakness and that June is shaping up to be a big disappointment for non-gasoline retailers.

Information provided from http://www.tbwsratealert.com/MarketCommentary.aspx