Market Update 1-2-13

Happy New Year to All-

I started to write this update last night. I wanted to hold off sending it out as to wait to see what our leaders passed and what avoiding the cliff really will do/did to our markets.

There are things that us as mortgage professionals need to be aware of. First, we did avoid the cliff even though we did go over it for one day. If we truly did go over the cliff, 800K civilian employees who work for the pentagon nation wide, would have lost there jobs and secondly 98% of Americans would have experienced tax increases. Congress voted and we passed a package that avoided the cliff. However, like any compromise, both sides are not happy. The deal that was passed by congress offers little to no cuts and a increase of taxes on the wealthy and investors. The new rates for the "wealthy" are at 39.6% for 400K (450K or more for couples), 45% for estate taxes up from 35%. Capital gains on dividends went up to 20% from 15%, and it extended unemployment benefits for another year. We have done nothing for entitlement spending and little to help our budget.

Stocks are rallying huge today and bonds are selling off. That means mortgage rates are higher today. But please understand this; nothing has changed with our market. We have done nothing to work our way out of the huge debt problem, nothing to stop the wasteful spending, and nothing to move to be fiscally responsible. So this little "pop" the market is feeling today and the increase we will see on our mortgage rates, I truly believe will be a short term event. If the deal was to cut entitlements, cut spending, and to raise taxes a bit, I think the market would have loved that much, much more and we would have seem a huge rally in stocks and a large sell off in bonds for the long term.

In February we have another huge fiscal issue coming up, the debt ceiling. What the debt ceiling is this: Every year our federal government is allowed to take on a certain amount of debt, if our debt becomes too much, we approach the "ceiling." When we approach the ceiling, we have two options, the government has to immediately stop spending, or the government has to vote to raise it. Obama is already stating that he is not negotiating with it and says that he is not cutting spending at this time (thus he is demanding that it be raised), and the republicans are saying they will not budge and only vote to raise it, if numerous cuts are made. So we will have our politicians battling this out over the next few weeks.

So what this means for us...as usual we need to be increasingly aware of what is happening. Rates will remain low over time; however, it is going to get pretty jittery as we approach all of these constant issues.

Be aware of your market, educate your clients and let's close some deals

Josh

Market Update 12-12-12

Good Morning Everyone-

We have 19 days left to the Fiscal Cliff and 10 days left to the end of the world (based on the Mayan calendar). Assuming we make it through the end of the world, then the Fiscal Cliff will have to be dealt with.

In the next few weeks, if a deal is struck, please expect our market to rally. Some experts feel we could see a 1000 point rally on the DOW, others feel if a deal is reached, we might see one or two days of a rally and then we will return to business as usual. No matter what happens though, when a deal is reached our mortgage rates will go up. So make sure you are watching the TV business channels everyday. A deal can happen at anytime as negotiations typically go through the night.

On Friday of last week we had the Non Farm Payrolls released. This number came in about 40K better than expected and the unemployment rate came down to 7.7% which caused our interest rates to open up higher on Friday. However, after the initial sell off in Mortgage Bonds we gained half of it back before the market even opened. The main reason is that the previous months jobs number was revised higher by 45K. So when we received the October jobs number in  November, it was adjusted higher by 45k (30%). That's why when data is released we see movement but it takes time for the market to "digest" everything as typically numbers are revised 3 to 4 times before they are finalized. The only reason why the unemployment rate fell is many Americans are falling out of the unemployment survey (by not getting unemployment benefits anymore), or taking early retirement.

Also what is going on is the FOMC (Federal Open Market Committee) meeting ends today. These meetings happen 8 times a year were short term interest rate policy and bond purchases are discussed. Ben Bernanke will be speaking around 11:30 our time. What is expected that he will say is another round of bond buying will be announced as the last round, called Operation Twist, will be ending. We might see a relative flat market until he makes his announcement. At this meeting here, they will also decide whether to raise prime. Prime is expected to stay put until late 2014.

One more item on the Cliff, if we do go over it, the average tax hike on the American household is said to be around $3500. So that is $3500 less of disposable income or income to pay bills and live on depending on the health of that household. The only positives that could possibly come with going over the cliff is lower rates and it is forcing our government to cut spending and get closer to balancing our budget.

So what to take from all of this, is that the market is going to get choppy. We will not see the stability in our rates until we have more certainty about the Fiscal Cliff.

Be aware of your market, educate your clients and let's close some deals

Josh

Market Update 11-30-12

Good Afternoon All-

What a crazy month we had. Sandy, Obama, "Cliff", it never ends.

We have seen our rates, post Sandy, come down about .125%. Now the big debate we have going on is the Fiscal Cliff. Be aware of what the outcome will be when we have clear direction from our government. For example, if we go over the cliff, our interest rates will get much lower. There will be job loss, and panic which will cause money to flood the bond markets, raising prices of bonds, thus lowering interest rates. If we strike a deal, which most likely we will, rates will move higher, and the stock market will in turn rally. We have 31 days until this date so, as usual, plan on everything going down to the wire as we know our politicians will be going back and forth.

One item that it is very important that you need to be aware of is that Fannie Mae and Freddie Mac have just imposed some higher fees (guaranty fees)  for purchasing loans. This becomes effective December 1st. They have increased their fees 10 basis points. What this means is all companies who sell loans to Fannie and Freddie will be making 10 basis points less. After doing some research on this, it appears that many of the larger banks have already anticipated this and have preemptively planned for this. However, what we can gain from this is many of the brokers and correspondent lenders will suffer. We might see their rates increase a little bit to account for this which bodes well for us. As we know all increases in goods are passed off to the consumer. In a multi-trillion dollar mortgage industry, this increase will give fannie and freddie hundreds of billions of more revenue.

The economic data we have had released recently has been average at best. Inflation has been tame, jobless claims are in-line, retail sales are so-so, GDP is hovering around 2%. These are all signs of a sluggish and stagnant economy.

Our interest rates will probably remain at this level for the upcoming months however we will get a pop either way when a decision is made for the fiscal cliff.

 Be aware of your market, educate your clients and let's close some deals.

Josh

Market Update 11-9-2012

Good Morning Everyone-

And the winner is......Lower Mortgage Rates.

We have had a busy couple of weeks. My last update I sent on Halloween. As stated in that update, Sandy has bode well for our interest rates. Devastation is not something we seek out, but when it does happen it helps the bond market.  It is estimated that it has/will cost the US economy close to 20 billion. United Airlines alone reported that Sandy has cost the company close to 90 million with cancelled flights and lost revenue.

The other main event that we just had was our presidential election. Whether you agree with the outcome or not, the general rule of thumb was that if Romney won the stock market would have rallied which would have increased interest rates, and if Obama won the market would sell off and which would lower interest rates. Well we obviously know that Obama won and with him winning as well as Sandy, we have seen our rates decrease over the past week. Rule of thumb again is when stocks do well, rates move higher, when stocks sell off, rates become lower.

The one main event that the news will not stop talking about and that I touched on in the 10-31 update, is the Fiscal Cliff. Remember the "cliff" is a set of tax hikes and cuts that are set to take affect. The drop dead date for these changes is January 2nd. This will be running our market for the next few months. Basically if these tax hikes do take affect, it is perceived that business development, hiring, and job creation will be halted and we will be pushed into another recession. There is some truth to this belief. Also the "cliff" has layoffs for government workers, cutting of school spending and infrastructure built into the cuts/hikes.  The next few months our politicians will be battling. With a president that is adamant on raising taxes on the wealthy, and business, we know politicians will be vocal. Remember were politicians get most of there campaign money.

We had some huge news this morning with Q3 earnings from JC Penny which had a 93 cents a share loss with sales lower by 26% under expectations. They are one of the largest retailers and going into our Holiday season with retail sales lower, this is not a good sign. Retailers are expected to hire 100 to 150K of seasonal employees. So in order to keep the economy moving, we need good retail sales.

Jobs and extending the tax cuts will be the number one discussion and with this, we hope to avoid the cliff. Obama will even be speaking about this today. The economy is fragile and with the baby boomers retiring in masses, pulling pensions and social security, jobs need to be created to help pay for this and cliff needs to be avoided.

Mortgage Interest rates will open lower (better) today so please take advantage of the analysis and educate your clients.

I personally do not feel that rates can get much lower but we will see a little more improvement in rates until we hit a wall.

Be aware of your market, educate your clients and let's close some deals.

Josh

Market Update 10-31-2012

Good Afternoon All-
Happy Halloween!

We have seen a crazy few days. We have had one name that has been resonating in our ears.....SANDY. Hurricane Sandy has devastated many areas of the east coasts. For the first time since 1888 our stock market was closed for 2 consecutive days. The damage that Sandy has caused is estimated at over 20 billion and growing. Today the markets are open but they are running on a "skeleton crew" which means the volume is very light w.  Volatility will be rampant.

So how does this affect our mortgage world?

Understand that these catastrophic events, although they result in carnage and death, they pose to be very good for interest rates. Investors tend to move away from stocks and push money into bonds thus lowering rates. Remember what happened March 11th, 2011 when the Tsunami hit Japan? We saw a decrease in our rates of about .250% in a week. This disaster might very well have that effect as the days and weeks go on. Insurance funds will have to unload there equity positions to raise cash to pay for all of this damage. We should see stocks moving lower and bond prices pushing higher.

Due to the markets being closed all of our economic data has been delayed. So we have an interesting few days ahead.

We have consumer confidence reports, income reports, manufacturing surveys, etc . Then on Friday (the first friday of every month) we have the Non-Farm Payrolls and the Unemployment Rate. So tomorrow and Friday will be very choppy. None of these recent events will be taken into account for Friday's numbers. Based on the mediocre earnings we have been seeing the numbers shouldn't be anything to write home about but you never know.

Nov 6th will be a huge day (election day) and expect some major movement on Nov 7th following the results.

Remember volatility is the new normal in our lives. Expect nothing less.

Be aware of your market, educate your clients and let's close some deals.

Josh

Stock Markets Closed

Breaking News: Stock Markets will be closed today due to Hurricane Sandy. This is the first closure since 1987. This storm could cost up to 20 billion in damage according to CNBC . If any of the east coast oil refineries are hit, gas will go up.

Per last week's post, originators need to take advantage of the recent lowering of rates. Tomorrow should be lower as well with the hurricane going on.

Josh

Market Update 10-26-12

Good Morning All-

We have had a busy few weeks with our market. We had our rates at an all time low and now we have seen them creep up around .375% over the past 3 weeks. As I stated before (9-27 update), rates fundamentally could not get lower at that point. There was too much resistance. That proved to be correct.

We need to understand that the main entity purchasing Mortgage Backed Securities (the investments that mortgage rates are based off of) is the Fed. That's it. Many of the bond funds who used to buy MBS's, have unloaded their positions because they know they have a guaranteed buyer waiting in the wings. So it will be harder and harder to for rates to be pushed lower.

If you have those clients waiting around for lower rates, be sure to educate them on what is really happening in our market. Do not let them get caught in the media hype about "low rates" as greed can backfire.

I do truly feel that we will see rates come down a little bit (.125% or so) over the next week. The main reason is corporate earnings. Right now we are in the midst of Earnings Season. This is when all corporations release their 3rd quarter earnings. Many of them have been lack luster. With earnings there is an estimate that the street has (the market) and then based on were the actual numbers come in, we will see movement. Many companies have been missing earnings and the most recent and one of the most powerful.....Apple.

So with this plethora of missed earnings, it shows that our economy is weak, and still very fragile.

Plus we have something coming up which we need to consider.....the Fiscal Cliff. The fiscal cliff is rapidly approaching. Now what this is is a bunch of tax increases that are set to take affect at the end of 2012. Raising taxes in a fragile economy can have dire consequences. However, if we do hit this "cliff" expect rates to improve drastically. So be aware as we are only about 45 days away from the cliff. Expect there to be no real talk about this until Nov......7 one day after our presidential election. Then our government will get back to business dealing with the issues at hand.

Lastly, we just had some economic data that just hit the wires a few minutes ago. We had Q3 GDP (gross domestic product). The market estimated that we would have a 1.8% growth. The actual number came in at 2%. On the surface, that number looks good, however when the number is dissected, this is were issues arise. The Business growth portion of this number is actually negative and the personal consumption portion (what we buy and consume) was flat. Understand there will be 3 more readings of Q3 GDP. Above I talked about corporate earnings, however not all companies have released their earnings. So basically, the government estimates roughly a third of this Q3 GDP number. The final reading for Q3 GDP will not be in for another month. To really sustain growth and put an end to our recession, we need around 3% growth overall. We have a lot to go.

So what to take away from this is mortgage rates should open up better today. My feeling is that we should see an improvement in rates over the next week, but as we know volatility is the new normal.

Be aware of your market, educate your clients and let's close some deals.

Josh