Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:30 data this morning the stock indexes were trying to hold slight gains; after the data the DJIA futures rolled over and at 8:45 -40. Weekly jobless claims shot up 78K to 439K, due primarily on the impact of Sandy as several states in the path of the carnage reported large increases. We noted yesterday that the claims data today would likely be distorted and should not be taken at face value; nevertheless stock indexes, already in full retreat recently, did roll over. Other data at 8:30; Oct CPI increased 0.1% overall and with food and energy excluded increased 0.2%, a little higher than 0.1 expected for the core. The Nov NY Empire State manufacturing index was expected at -8.5 frm -6.2 ion Oct; the index actually improved to -5.2; still under zero and indicating contraction. Power outages and destruction in New Jersey and New York from Sandy placed a temporary burden on the region’s factories, which have been challenged by a recession in Europe and slower Asian economies. The Empire State covers NY, northern NJ and southern CT. It isn’t fresh news, but Europe has now officially fallen back into recession, the second in the last four years. GDP in the 17-nation bloc slipped 0.1% in the third quarter after a 0.2% decline in the previous three months, the European Union’s statistics office in Luxembourg said today. France and Germany did grow but not enough to out-weigh the weakness in the other 15 countries. Most recent data from Europe had implied that the EU would fall back into recession as defined; two consecutive quarters of declining growth. The annual inflation rate in the euro area dropped to 2.5% annual in October from 2.6% the month before, the statistics office said in a separate report today. MBS 30 yr price at 9:00 -10 bp frm yesterday’s close, the 10 yr note +2 bp to 1.61%, the S&P futures unch and the DJIA futures index -19. At 9:30 the DJIA opened -11, NASDAQ unch, S&P +1, the 10 yr note 1.61% +2 bp and 30 yr MBSs President Obama at his press conference yesterday reiterated his stance that Congress should pass an extension of the Bush tax cuts for incomes under $200K ($250K for couples) while letting the tax cuts expire for those earning more than that; there is nothing new in his desire. Also hanging over investors, the possibility of increased capital gains taxes next year. There still has been little said from either political camp about the expiring payroll tax cut, neither party wants to extend it according to reports from the WSJ a couple of weeks ago. The final data this morning; at 10:00 the Nov Philadelphia Fed business index, expected at 4.0 frm 5.7 in October, the index declined to -10.7. Last month the index was on the plus side, the first in five months, now back below and suggesting contraction. Sandy likely has added to the decline in the index. The initial reaction pushed stock indexes lower but not much; the 10 yr note reacted with the yield declining to 1.59%, unchanged on the day. MBS prices are slightly lower at 10:00 than at 9:30. So far this week there has been little change in interest rates; the 10 yr note confined in a 3 basis point yield range and up against solid resistance at the 1.60% level. Unable to break below it even as the equity markets have been it hard again this week. Safety moves out of stocks have not filtered into treasuries in any degree. Technically the 10 yr and MBSs are still holding bullish trends but both have stalled. The Fed is going to continue to support the long end of curve (mortgages) even after Operation Twist expires at the end of Dec; most likely the Fed will announce it will increase purchases of MBSs and treasuries without selling equivalent amounts of short dated maturities that has been Operation Twist.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries yesterday were slightly better while MBS prices crumbled. This morning treasuries are weaker in price and mortgage prices down again. At 8:30 Oct producer price index was expected to increase 0.2%, as reported overall PPI declined 0.2% and the core (ex food and energy) also down 0.2%, the first decline on the core since Nov 2010. Sept PPI was up 1.1%, the decline of the overall PPI was the first in five months. Inflation isn’t an issue these days and didn’t generate any attention in markets. Yr/yr PPI up 2.3% overall and +2.1% yr/yr on the core rate. The decline in the PPI led by declines in energy prices. Also at 8:30 Oct retail sales, expected -0.2%, declined 0.3%; ex auto sales retail was unchanged; also no initial reaction to the report. It was the first time in four months that sales declined. Sept sales were revised from +1.1% to +1.3%. At 9:00 this morning the 10 yr note yield was 1.62% +2 bp; 30 yr MBS price down 18 bp frm yesterday’s decline of 47 bp. Stock indexes at 9:00 had fallen back from +55 on the DJIA earlier to +23. At 9:30 the DJIA opened +35, NASDAQ +15, S&P +5; 10 yr note 1.63% +4 bp and 30 yr MBSs -15 bp. It didn’t take long however, to push the indexes down; at 9:45 the DJIA was already back to unchanged. Mortgage applications increased 12.6% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 9, 2012. The Refinance Index increased 13% from the previous week, ending a five-week decline. The seasonally adjusted Purchase Index increased 11% from one week earlier. The unadjusted Purchase Index increased 8% compared with the previous week and was 22% higher than the same week one year ago. The refinance share of mortgage activity increased to 81% of total applications from 80% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.52% from 3.61%, with points decreasing to 0.41 from 0.45 (including the origination fee) for 80% loans. This record low rate for 30 year fixed mortgages beats the previous survey low of 3.53% for the week ending September 28, 2012. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.83% from 3.88%, with points increasing to 0.41 from 0.36 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.34% from 3.37%, with points increasing to 0.78 from 0.75 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.88% from 2.95%, with points decreasing to 0.37 from 0.40 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.60% from 2.61%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans. Based on the MBA applications data for last week, 30 yr mortgage rates did hit an all-time low, something we didn’t expect as the bellwether 10 yr note is still 20 basis points higher in yield than its low back in July. The Fed buying $40B a month of MBSs having a positive impact on mortgage rates. President Obama is now asking for increased revenues of $1.6T over the next 10 yrs; double what he wanted in the summer of 2011. Today the President is meeting with business leaders for their input. Yesterday he met with union leaders and continued to pledge he will seek more taxes from the so-called wealthy. Republican leaders are willing to accept new tax revenues but not higher taxes. Increased capital gains rates and other loop holes that mostly affect wealthy investors are the likely outcome. At 10:00 Sept business inventories, expected +0.6%, were up 0.7%. No reaction to the better inventories; last Friday Sept wholesale inventories were also stronger than expected. Increased inventories should have a positive impact on Q3 GDP when the preliminary report is out on 11/29. Later this afternoon (2:00) the FOMC minutes frm the 10/24 FOMC meeting will be released. The overall tone of the FOMC members on further easing moves will be examined within the context of the minutes. The Fed isn’t likely to end easing as long as unemployment remains high; Bernanke is on record to keep rates low as long as the employment situation continues struggle. More easing on the way? Possibly but unlikely until next year and pending how the fiscal cliff is avoided. From the technical perspective everything continues to look bullish for interest rates; traders are focusing on 1.60% for the 10 yr note as a key pivot. So far the 10 has experienced resistance at that level, unable to sustain below 1.60%. A move that holds below 1.60% could drive the rate to its lows last July. That said, we continue to believe the 10 yr won’t likely decline to 1.40%. Nevertheless the rate markets are holding a very positive bias and fighting the tape is a mistake.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally quiet in the bond market early this morning; US stock indexes weaker on the continued concerns on how the fiscal cliff will be avoided. Yesterday the bond market was closed for Veteran’s day while the stock market did stay open, at the end of the day yesterday the key indexes ended unchanged. Congress is back today after the break for the elections; number one on the agenda is how to avoid the fiscal cliff, in the end it will be avoided because the consequences of going over it are too serious to let it happen. The issues to be settled are how much more taxes will increase for the wealthy and whether politicians have the stomach for cutting spending. As usual with Congress it will go down to the wire but in the final analysis whether it is pushed into next year or an actual plan emerges, we won’t fall to our economic death. Increasing the dividend tax is being talked about, and cutting some loop hole deductions is on the table. The word ‘tax’ will be avoided as much as possible, replaced with increased ‘revenues’. Greece has apparently gotten another reprieve from defaulting on its debt. In the latest compromise in three years of bailing, creditors including Germany have agreed to keep Greece in the EU by keeping the money flowing. But not all is well; the IMF is taking issue with the decision. There is a meeting scheduled for Nov 20th to ratify the plan. Europe’s stock market declined this moring on the disagreement between the IMF and and euro finance ministers’ on how Greece will repay its debts. Euro fnance ministers gave Greece another two years to get their debt recuced to 2.0% of GDP, a feat impossible to meet, but the EU does not want to risk Greece leaving the Union. At 9:30 the DJIA opened -62, NASDAQ -25, S&P -7. The 10 yr at 9:30 +4/32 at 1.58% -2 bp; 30 yr MBS’s -12 bp. Trerasuries rallying on safety concerns ahead of the beginning of the fiscal cliff negotiations; Pres. Obama and Congressional leaders are scheduled to meet this week to get the ball rolling. Germany’s 10 yr bunds are unchanged at 1.34% after declining to 1.31% earlier. While the fiscal cliff discussions dominate, there are a number of key economic releases this week; Oct retail sales, PPI and CPI, Philly Fed business index and the FOMC minutes from the 10/24 meeting. Expect continued high volatility in the financial markets this week. The only data today; the Oct Treasury budget at 2:00 pm, expected -$113B. The outlook for interest rates remains good; most all of our models remain bullish. How low the rates can go however, is still an issue. Some saying rates will fall below the lows seen in late July (1.40% on the 10 yr note), while an equal number are holding that the lows for treasuries and mortgages will not be breached. Much depends on how Europe’s economy performs and the US fiscal cliff is resolved. Small busnesses are obviously opposed to increasing taxes for incomes over $200K to $250K and are concerned about hiring with Obama Care now more a reality after the elections. If the economy stabilizes interest rates will not likely fall much more, conversely more economic weakness will push rates lower. The question is; would you want lower rates or a growing economy and a little higher rates?

Mortgage Rates

Thank you for your service and happy Veterans Day! Mortgage Market Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com This Week; Monday is Veteran’s Day the bond and mortgage markets will be closed but the stock market will be open all day. Interest rates have fallen and likely to decline more as economic growth slows in Europe and China and the UIS struggles with that fiscal cliff that unless there is an agreed plan between the White House and the House would lead to big increases in taxes and sizeable spending cuts. The cliff will be avoided in the end, but it’s about the “concessions” both parties can agree on that will determine how the economy grows in 2013. The last week was one of increased volatility in financial markets; we expect it to continue this week. A number of key data releases are on tap this week. October retail sales, Oct inflation readings with PPI and CPI, Nov Philadelphia Fed business index, the Empire State manufacturing index, Oct industrial production and factory use and weekly claims. In Europe the Greek debt crisis and Spain’s continued reluctance to agree on austerity conditions in order to convince the ECB to buy its bonds keeping Spain’s interest rates manageable. US stock indexes saw heavy selling last week, concern over the possibility of increases in dividend taxes and health care costs keep investors fearful. The bond and mortgage markets will reap the benefits of uncertainty with lower interest rates an increasing possibility. That said, we continue to believe there isn’t much more left in the bond and mortgage markets.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com More selling of equities yesterday and early this morning; the DJIA futures at 9:00 -61 points, but by 10:00 the index was better on the day. The 10 yr note and mortgage rates continue to fall as investors are leaving the equity markets and parking money in treasuries, in turn improving mortgage rates. Markets facing a number of issues, non are good for the markets and it isn’t just in the US, markets in Europe are down again this morning. The fiscal cliff is the giant in the room but the situation in the EU with Greece about to run out of money pressuring markets, the ECB’s Mario Draghi saying the ECB is done with Greece in terms of buying its debt, saying it is now the responsibility of the EU nations to provide Greece with the needed cash to avoid default. Europe’s economic outlook has been revised lower by the European Commission, adding another reason to exit equities. Germany’s government bonds advanced, pushing 10-year yields to the lowest level in more than two months (1.32%), as reports showed industrial production slumped in France, Italy and Finland. In China there is a change in the leadership with a new President and Prime Minister, its economy has slowed and uncertainty heightened with the changes. Here in the US there is a growing belief in the markets that capital gains taxes will be increased next year and increased taxes on gifts and inheritance taxes are likely. All of those issues are driving global equity markets down, markets are presently expecting the worst outcomes. This afternoon at 1:00 President Obama will address the nation, the first since the election; how he phrases his remarks will be key. Will he offer up an olive branch or stick to his ridged insistence that taxes be increased on the rich and showing little interest in cutting spending? If he appears more conciliatory and willing to negotiate with Republicans the present mood of fear will ease somewhat. Prior to his address, at 11:15 House majority leader John Boehner will speak; he too must demonstrate an increased willingness to cooperate to avoid the fiscal cliff. It is way past time for the two parties to sit down and do the peoples work instead of the gridlock that has dominated the last two years-----we’ll see. October import prices were unch from Sept; yr/yr +1.4%. Export prices +0.5%; yr/yr +0.4%. At 9:30 the DJIA opened -66, NASDAQ -5, S&P -4. The 10 yr note unchanged at 1.61% after being lower earlier to 1.57%; 30 yr MBS prices also slipped a little from early on, at 9:30 -9 bp. At 9:55 the mid-month U. of Michigan consumer sentiment index, expected at 83.0, it increased to 84.9, best since July 2007. At 10:00 Sept wholesale inventories expected +0.4% increased 1.1%; August inventories revised from +0.5% to +0.8%. The stock market has improved frm the early levels; the sentiment index better and wholesale inventories better took some of the bearish away for the moment. The addresses frm John Boehner and President Obama will be closely monitored for any indication of compromise between the two leaders.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries headed for the biggest advance in 11 weeks after President Barack Obama won re- election. U.S. equity-index futures declined, erasing earlier gains and gold climbed for a third day. At 8:30 the DJIA futures traded at -123, yesterday the DJIA closed +133. Treasuries and MBSs are rallying strongly this morning on the results of the election based on the view that the Fed will continue easing whereas if Romney had won he was thought to be ready to end the monetary stimulus, at least at the magnitude is now. He said he would not re-appoint Ben Bernanke when his term ends early 2014. In that regard Bernanke will not likely seek another term even with President Obama winning the election. Nevertheless this morning traders and investors are betting on weaker growth and more Fed stimulus. So far the Fed has helped keep the U.S. economy growing by purchasing $2.3 trillion of Treasuries and mortgage-related bonds and instituting a plan to buy $40 billion of home-loan securities a month. Romney talked about increasing taxes, that didn’t go down well, while Obama must deal with the “cliff” coming he is seen as less cuts and less tax increases than Romney. President Obama got 303 electoral votes compared to 206 for Romney (Florida still hasn’t yet been decided), but Republicans held the House while Democrats remained in control of the Senate. In that respect nothing is different now than prior to the election. According to Bloomberg data, since Lyndon Johnson defeated Barry Goldwater back in 1964, when a Democrat has won the White House the 10 yr note yield has fallen 40 basis points in the following month, while when a Republican wins the note yield increased by 19 basis points. If that holds this time the 10 yr note would test the low yield set back in July at 1.40%. Whether or not that will occur again is questionable but the decline in the 10 yr note rate this morning is adding additional bullish technical bias. The impact on markets from the election results are not likely to be well defined for a few days or more. Nothing has changed in terms of the make-up of the White House, the House or the Senate. Looking beyond the election Europe is climbing back into focus. The European Commission today cut its growth forecast for the euro zone. The 17-nation euro economy will expand 0.1% in 2013, down from a May forecast of 1.0%. It cut the forecast for Germany, Europe’s largest economy, to 0.8% from 1.7%. Europe’s economies are declining leading to slower growth in the US. Retail sales decreased more than economists estimated, a report showed today. Sales fell 0.2% from August, when they rose 0.2%, the European Union’s statistics office in Luxembourg said. Economists had forecast a decline of 0.1%. German stocks fell, erasing yesterday’s gains, as the European Commission cut its growth forecast. Greek lawmakers vote today on an austerity bill that contains austerity measures demanded by the so-called troika that oversees euro-area bailouts insists. A 31.5 billion-euro ($40B) aid payment has been frozen since June. At 9:30 the DJIA opened -143, NASDAQ-39, S&P -15. The 10 yr note yield 1.64% -11 bp; 30 yr MBS price +79 bp frm yesterday’s close. This afternoon at 1:00 Treasury will auction $24B of 10 yr notes; yesterday’s 3 yr auction was on the weak side in terms of demand. At 3:00 Sept consumer credit is expected +$10.0B. Let’s give this a few days for markets to settle down. Today and yesterday have been quite volatile, the implications of volatility is uncertainty; look for more of it today and over the next week or so. That said, the election and the renewed interest in the EU debt mess are combining to drive interest rates down. Some are now outwardly calling for the 10 yr note to fall to 1.40%, the low last July, and possibly below it. We still don’t agree with that, but we have to respect the action and this morning it looks quite bullish at the moment. The 10 yr this morning is 25 bp frm the July low, not an insurmountable task but to get there the economic outlook has to weaken for the US and Europe, and the Fed has to add more stimulus---both possible but at this point we don’t agree.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the stock indexes were trading about unchanged while the Treasury and mortgage markets were better. At 9:00 the 10 yr note yield at 1.69% -3 bp, 30 yr MBSs +18 bp. Friday the bond and mortgage markets traded weaker in the morning then improved in the afternoon with many lenders re-pricing better; this morning the mortgage market better than Friday’s closes. Obviously the markets (and the world) are focused totally on the election tomorrow. The polls continue to be close and regardless of which poll one looks at all are within the margin of error. Most of the talk today is centered on the what if debate; what if Romney wins, what if Obama is re-elected? What is the outlook for the coming fiscal cliff that will increase all taxes if not extended? How will the make-up of the next Congress effect the necessary spending cuts and higher taxes be resolved, or will the gridlock continue? The unanswered questions are many; who will be the next Fed chairman, Bernanke’s term ends in 2014? In the meantime, until the election results are in the markets should trade quietly. At 9:30 the DJIA opened -23, NASADAQ -3, S&P -3. 10 yr note 1.69% -3 bp. 30 yr MBSs +23 bp frm Friday’s close. The only data point today; at 10:00 Oct ISM services index was expected at 54.9 frm 55.1 in Sept. As released the index fell to 54.2; still above 50 indicating expansion but like most of the other economic measurements not indicating a lot of improvement. The data added to selling in the stock markets. Europe still lurks in the background these days and Greece is returning to the front trying to get its budget in line with requirements in order to get another bail-out from the EU. The region has been quiet over the last couple of weeks; no real changes and nothing concrete coming out. Spain and Italy are the giants in the room in terms of getting assistance to keep their banks from defaulting. Spain remains reluctant to ask for aid from the ECB to buy its bonds to keep rates from increasing. Looking for the best deal the country can negotiate with the ECB keeps global markets focused. German 10-year bunds rose for a fourth day, pushing the yield to 1.43%, the lowest in more than a month, as investors sought Europe’s safest government securities. Spain’s 10-year yield climbed 10 basis points to 5.76%, the highest since Oct. 17, and adding to last week’s increase of seven basis points. NY, New Jersey and the rest of the region that suffered the brunt of last week’s storm are continuing to be without power in much of the area and gasoline is now being rationed in New Jersey. Now the weather is turning colder and there is another storm coming according to forecasters. A nor’easter may bring gusty winds, heavy rain and even snow this week across much of the U.S. East Coast that was hit by Hurricane Sandy last week. Winds of 45 to 55 miles (72 to 89 kilometers) per hour are expected to accompany coastal flooding and precipitation in New Jersey as the storm moves up the coast from Nov. 7 to 9, The economic and financial impact yet to be fully assessed. Tomorrow the election, according to some reports there are some precincts that are not likely to be up and running, then there is the difficulty of getting to the polls. Another one of the uncertainties that hang over the markets this week. The bond and mortgage markets continue their positive biases. Technically the 10 yr yield is trading under its 20, 40 and 200 day averages, trading has been choppy however with traders keeping the rates in narrow ranges for the past few weeks. So far any selling has not seen any follow-through, nor have rallies seen much movement. The US bond markets are improving today on minor safe haven moves ahead of the toss-up election.