My Mind on Mortgages

Pricing on mortgage rates are modestly worse this morning.

Mortgage-backed bonds (MBS’s) are under selling pressure again this morning which is threatening to push rates higher.  In a possible pre-cursor to tomorrow’s all-important monthly jobs report the Labor Department reported earlier that weekly jobless claims declined by more than expected.  This is good news for the economy but bad news for rates.  Should tomorrow’s jobs report come in better than expected (expectations are for 110,000 job losses and 40,000 private payroll growth) I expect rates to move sharply higher.

In the long-run though the economic outlook is still weak which is a good for mortgage rates.  Should rates move higher tomorrow I expect them to remain higher for a couple weeks.  Eventually though the reality of our present situation will sink back into the markets and I think we’ll see rates test lows again.

Later today the US Treasury is set to announce the size of their 3-year, 10-year, and 30-year bond auctions for next week.  Analysts are expecting $67 billion to be announced.  Click HERE to understand how this could impact interest rates.

For loans closing in the next couple weeks I am going to recommend a locking position going into tomorrow’s jobs report.

Current outlook: locking near-term, floating long-term

NPR did a feature on the Canadian mortgage & real estate markets today which you can listen to HERE.  My uncle manages a real estate company in Vancouver, BC and I recall a conversation I had with him a few years ago during the sub-prime boom.  He asked me about the underwriting standards at that time and I remember he was blown away by the relaxed approach.  I also remember him telling me that the sub-prime craze had not imported into Canada.  Fast forward to today and overall the Canadian real estate market remains healthy.  I got to see my uncle last weekend and he said his business remains healthy.  Maybe we could learn a thing or two…

Mortgage rates are worse this morning.

Despite worse than expected employment and construction spending data stocks are trading sharply higher while bonds are trading lower, pushing yields up.

The renewed optimism in the stock market is stemming form positive news out of China and Australia.  Both countries reported stronger than expected economic activity.  Being that China is considered to be a driver of global economic health markets around the world are benefitting.

From a technical standpoint mortgage-backed bonds (MBS’s) still remain above strong support so we will continue to recommend a floating position.

Current outlook: long-term floating

Mortgage rates are better this morning.

The economic data is mostly mixed today.  The Conference Board reported that consumer confidence here in the US was higher than analysts had expected for the month of July.  However, the Institute for Supply Management said that business activity in the Chicago region was worse than expected.

In housing news the S & P Case-Shiller home-price index showed that housing prices in the 20-major real estate markets increased by 4.2% on a year over year basis for June.  The markets have mostly ignored the report since June’s data includes the impact of the first-time homebuyer credit.

Investors are very interested in housing data these days.  As Bloomberg Business pointed out in THIS ARTICLE the housing market has led the economy out of recession in 7 out of the 8 times.  Moving forward should housing data come in better than expected then it could pressure rates higher and vice versa.

The markets are trading on low volume.  I suspect investors are waiting on the sidelines until Friday’s monthly jobs report.

Current outlook: long-term floating

I happen to be a fan of Contrarian Investment Strategies after reading David Dreman’s book on the topic.  If you also like the idea of picking up out-of-favor stocks and holding them for the long-term until the prospects improve then you may like this article in the WSJ that was published over the weekend.  It names home builders, for profit educators, and staffing companies as good contrarian picks.  It also predicts that later on this fall may be a better time to buy.  Take it for what it’s worth…

Mortgage rates are worse this morning compared to Friday morning but most of that is due to losses in the bond market on Friday.

This morning the Commerce Department reported that consumer spending was in line with analysts’ expectations in July.  The report also showed that personal incomes grew by less than expected.  In addition, the Personal Consumption Expenditure Price Index, which is the Fed’s favorite gauge of inflation, continued to show that inflationary pressure remains tepid.  Overall, the report is interest rate friendly.

Central bankers in Japan made a surprise announcement overnight that they would offer another round of stimulus to help the economy their grow.  Over the past few months the Japanese Yen has strengthen against other currencies making their export-driven economy more expensive.

Current outlook: neutral

I’m not a Mark Cuban fan for the simple reason that I am a born and bred Blazer fan.  However, I came across a recent money-related post he put on his blog and I thought I would share it.  Simple is good.

I’m going to simplify what I consider to be the best investment advice I have ever been given and share it with you.  Here you go:

1. If you have any credit card or other type of consumer debt on which you pay 5pct or more interest, pay it off.  Compound interest is your enemy.  The chances of you earning more on your money than you are paying in consumer interest rates are slim. Pay it off.

2.  Cash is King. Now that Madoff is in jail, no investment can offer returns with zero risk. If you don’t fully understand the risks of an investment you are contemplating, it’s ok to do nothing. In times of massive uncertainty like we are facing today, doing nothing is a valid and IMHO preferable investment strategy. Just put your money in the bank.

3. Cash Creates Transactional Returns.   What does this mean ? It means that you should analyze what you spend money on over the course of a year. You will get a better return on your money by being a smart shopper and taking advantage of  cash, quantity or other types of discounts than you will in the stock market.  Saving 15pct on the $1k dollars worth of items you know you will absolutely spend money on is a better return on your money than making 15pct in a year on a $1k investment  because you don’t pay taxes on it.

If you have under 100k dollars in liquid assets,  your net worth will be higher in one year if you follow this advice  than if you follow ANY other investment advice any broker or banker will give you this year.

Mortgage rates are essentially unchanged this morning.

Mortgage rates are threatening to move higher this morning, at least temporarily, as stocks trade higher.  Stocks are getting a boost from comments made by Fed Chairman Ben Bernanke and better-than expected GDP data.

In prepared comments to the annual conference of the worlds central bankers Fed Chairman Ben Bernanke said that they are prepared to help the US economy in any way necessary.  He also mentioned that he does not think deflation is an immediate concern.  His comments helped boost stocks this morning which is pushing mortgage-backed bonds lower.

The Commerce Department reported today that 2^nd quarter GDP grew by only 1.6%.  Although this figure is less than previously reported it is higher than expectations which is also helping stocks and hurting mortgage rates.

Current outlook: neutral

If anyone has historical charts for the 1-year LIBOR index dating back farther than 2000 I would appreciate it if you’d leave a link in the comment section below.

Mortgage rates are essentially unchanged from yesterday.

This morning the weekly jobless claims figure came in better-than-expected.  For the past few weeks this report has repeatedly come in worse than analysts had expected.  However, the 4-week moving average managed to increase based on previous revisions higher.

Expectations are growing on Wall Street that the Fed will reenter the marketplace and engage in the purchase of US Treasuries & Mortgage-backed bonds (MBS’s) to keep rates low.  The Fed’s annual conference in Jackson Hole, Wyoming and Fed Chairmen Ben Bernanke is slated to talk speak tomorrow.

Current outlook: long-term floating