Mortgage backed securities (MBS) prices are higher (rates lower) as investors digest the economic reports released this morning; FNMA 4.0% coupon 100.23bps, +3bps. The Fed lowered its projections for U.S. economic growth as policy makers who saw signs of stabilization are not convinced those improvements will persist. They see significant downside risk for the economy with the global financial system vulnerable to further shocks and they may need to further increase their quantitative easing program. The U.K's credit rating was cut, the 5th European Union nation to lose its rating because of the economic slump, joing Ireland, Greece, Portugal and Spain. Former Fed Chief Greenspan warned banks will need to raise large amounts of money to fund capital requirements. A lack of capital at banks may inhibit lending to consumers and businesses, tempering any economic recovery. Banks are struggling with rising loan delinquincies with nearly 8% of residential real estate loans behind in the 1st quarter. This has diverted investors from stocks to the relative safety of fixed income assets, like MBS. The DOW is down almost 200 points at the open. The Fed will purchase Treasuries today, part of its effort to reduce lending rates and lift the economy out of recession. The Treasury will announce today the size of 2, 5 & 7yr note sales scheduled for next week, part of a record borrowing spree by the administration. Intial jobless claims fell 12K to 631K from a revised higher 643k last week and the total number of people collecting benefits rose 75K to 6.66 million. Job losses remain severe, signs the job market continues to weaken and companies are not hiring. Leading Economic Indicators (LEI) rose a resounding 1.0% in April as the big stock market rally and rising consumer expectations were positive factors while building permits was a continued source of weakness. The Philadelphia Fed Index was little changed at minus 22.6 indicating steady contraction with no improvement in new orders, however a strength going forward is growing optimism. Yields indicate efforts to revive trading that froze last year are working as the 3mo LIBOR declined 6bps to 0.66% today.

Just a note to recap this week's crazy market. Those that were in Africa in the bush this week and returned today would think it was just another week at the office. A little selling in treasuries and slightly more on mortgages, but nothing special. Wednesday however, was a watershed day and should not be dismissed because treasuries and mortgages found support yesterday and today. Nothing happens in the markets that can be thought of as a mistake. The blow-up in the treasury and mortgage markets was a clear signal that interest rates are increasingly more vulnerable to higher rates with Treasury borrowing $2T this year, about the same next year, and the Obama administration's desire to spend on every social program he can find. Congress? They are puppets of re-elections and hand outs; no fiscal discipline for years and none in the present outlook as far as can be seen. How to stop it? Can't take back what the Fed has promised, and likely Bernanke is going to buckle under the pressure at the FOMC meeting and toss more buying into MBSs and treasuries. A short term fix that if done the benefits of lower interest rates may be wasted in a very short time period. The next two weeks will lessen the pressure on rates a little, but in two weeks its back to the well with 3s, 10s and a 30s up for sale by Treasury. Bond investors watching the equity markets do their lemming thing, following the leaders into stocks; as long as the belief that the economy is about to turn up there is little rationale to the idea interest rates will stay low. That was one of the messages sent Wednesday, another one was that US politicians ignoring the deficits better get serious. No economic recovery ahead as long as mortgage rates increase as foreclosures mount. We may have a chance this summer or fall to see interest rates fall; once the equity markets wake up to reality. Not wanting to look a gift in the face, but the rebound in treasuries was the driver for mortgage market recovery. Treasuries are on a bearish technical pattern, have been for months; got very oversold on a near term basis so a bounce in the 10 yr from 3.75% on Wednesdays to 3.50% this afternoon. Looking for that elusive no points 4.50% mortgage is like betting on a winning lottery ticket. The Fed can try to help but its money printing is killing the dollar, adding to the concern that China and other central banks that fund our budget deficits may balk as the value of US investments in dollars falls. Interest rates have to remain on the path of higher rates to attract foreign demand. Mortgage delinquency rates are exploding, not flattening, even prime mortgages are seeing delinquency rates heretofore unimaginable. Foreclosures are going to ramp up significantly over the next six months, keeping home prices from bottoming as banks dump foreclosed properties at below bargain basement prices; no good comps, no price stability. Banks are choking on bad debts, not lending as they say they are, credit is out there for only the best, unemployment is increasing (yes, in the past it has been a lagging indicator, not so sure about that today), what's more half of the jobs lost won't return. Curious that markets and media pundits look at 623K new weekly filings for unemployment as a leveling off and a good thing; that's 2.4 mil a month still going on unemployment, how is that good? 6.78 mil on unemployment and climbing a 100K a week and we haven't gotten to the auto industry job losses yet. Most recent economic data has been soft, seeing many downward revisions from previous months. With all that, the equity markets are moving higher on hope and a prayer, and comments from the Fed chief. HUD issued guidance that opens the door for FHA-approved lenders to provide short-term loans — with restrictions — to borrowers who are eligible for the $8,000 first-time home buyer tax credit. Borrowers must still come up with the required minimum 3.5% down payment using their own funds. But after that, they can use the short-term liens to increase their down payments, cover their closing costs or buy-down their mortgage rate. Next week no supply to worry about, the May employment report on Friday would normally be critical but in these days when bad news is ignored it won't likely matter how many NFP jobs are lost or how high the unemployment rate goes. Stupid is as stupid was. Two reports from the ISM, manufacturing on Monday and service sector on Wednesday. On the week: the 10 yr note unch at 3.45%. Mortgage prices, 30 yr FNMA -28/32, 15s -16/32, FHA 30s -30/32. Crude up $4.70, gold up $18.50. $3.00 gas just around the corner; crude oil up again today to over $66.00, this month had the largest increase in oil since 1999. Gold up to about $980.00. All commodities on fire as hedge funds gang up on sellers. Going to be very volatile next week; hold only rate locks that have gains in them, lock those that were locked with clients on the final re-price today. Too volatile now to press the market. Hindsight is clear, the immediate future is not.

Mortgage backed securities (MBS) prices opened higher, but have since fallen in volatile trading; FNMA 4.0% coupon 99.64bps, -2bps. MBS markets will close early at 11am pt before the long weekend. A short session can produce sharp price movements. Yesterday investors sold MBS for a variety of reasons: Fed held steady its level of Treasury purchases, possible downgrade of U.S. credit rating, Treasury Department announced $101 billion in auctions next week, meaning additional supply for the market to absorb. Money fled offshore in a rare triple play; Stock markets down, Treasury yields up, and the dollar down. The decline in the dollar, down 0.8%, and with it the risk of inflation gave a boost to commodities, including oil & gold. Demand for commodities as an alternative investment increases as the dollar drops as an inflation hedge. Average 30yr fixed mortgage rate fell to 4.82% from 4.86% a week earlier as the Fed's program to buy as much as $1.25 trillion in MBS has pushed rates down, twice hitting 4.78% in April. The central bank's purchases from Fannie Mae & Freddie Mac have freed cash for the federally controlled companies to buy more loans from lenders, improving liquidity for homebuyers. No economic data will be released today. TGIF!

Mortgage backed securities (MBS) prices are higher (rates lower) in quiet range-bound trading as investors await todays Fed purchases of U.S. debt and the 11am pt release of the FOMC minutes from the monetary policy meeting in late April; FNMA 4.0% coupon 100.02bps, +7bps and the high of the session. Treasury Secretary Geithner is testifying this morning to the Senate Banking Committee on the progress of the Troubled Asset Relief Program (TARP) and the many other government rescue plans. The Treasury Department is scheduled to announce tomorrow the amount it will auction of 2, 5 & 7yr notes next week as the administration borrows record amounts to try to snap the deep recession and service record budget deficits. The FOMC minutes may address if policy makers will adjust the size of the central banks purchase program and help fill in details on quantitative easing. The minutes have become a market mover as analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by the Fed and whether any members voiced opposition; any surprises can cause a reaction in MBS prices. According to the Mortgage Bankers Association (MBA) weekly survey purchase applications are showing no strength at all, declining 4.4%. Falling home prices and low rates (4.69% avg 30yr fixed) are failing to stimulate significant buying. Refinancing activity continues to rise, up 4.5%, which will help limit future foreclosures. On the inflation front, oil rose above $61 a barrel for the first time in 6 months as U.S. crude supplies dropped. Oil is up 36% this year and could extend its rally if prices cross their 200 day moving average of $63.29 a barrel. The 200 day moving average is a key technical level for many momentum models and a break above would provide support.

Mortgage backed securities (MBS) prices are slightly higher in quiet trading as investors await Treasury's announcement on Thursday of the size of 2, 5 & 7yr auctions which resume on May 26 and results of the Fed's purchase of government securities tomorrow and May 21; FNMA 4.0% coupon 99.92bps, +1bps. Housing Starts unexpectedly fell sharply, down 13% to a record low annual rate of 458K, indicating further declines in property values are needed to spur any rebound in homebuilding, which has subtracted from economic growth for more than 3 years. A plunge in work on condominiums and apartments buildings overwhelmed the second straight gain in starts on single family properties. Multifamily starts declined 46%, while construction of single family homes rose 2.8%. Confidence among U.S. homebuilders in May increased to the highest level since September, from 14 to 16 based on NAHB Housing Index. However, any reading below 50 means most respondents view conditions as poor. Homebuilders clearly understand that any new construction will likely sit on the market for some time, having to compete with fire sale prices on foreclosures. Store sales were weak as cold weather hurt seasonal demand. According to ICSC-Goldman & Redbook, sales are down 0.3% year over year and fell 1.2% month to month. A third month decline in retail sales would seriously push back the economic outlook and dash optimism that the deepest part of the recession is over.

It will be a light week for economic data, with Thursday looming as the critical day. On Monday the National Association of Home Builders (NAHB) releases its Housing Market Index based on a survey which rates the general economy and housing market conditions. Builders pessimism is forecast to diminish slightly. Housing Starts will come out on Tuesday likely showing homebuilders keeping starts low as the supply of existing homes on the market is bloated with recent foreclosures. Wednesday brings data on mortgage applications from the Mortgage Bankers Association's (MBA) weekly survey, which gauges activity on purchases & refinances. The FOMC minutes from the April 29 Fed meeting will also be released on Wednesday, when the Fed refrained from increasing purchases of securities because the economy was showing signs of stability. These detailed notes often reveal additional insights into the Fed's action. Thursday's calendar is loaded; Intial jobless claims and continuing claims numbers are first, then Leading Economic Indicators (LEI) which is a measure of the economy's likely path over the next 3 to 6 months, next up a widely followed indicator of manufacturing sector trends, the Philadelphia Fed Index. Also on Thursday the Treasury announces the size of its next auctions of 2, 5 & 7yr notes which begin on May 26. Finally the Fed will be buying securities on May 20 & 21 as it seeks to lower borrowing costs and combat the steep recession. The fixed income markets will close early on Friday in advance of the Memorial Day weekend and there is no economic data due.

Retail Sales Decline After several weeks of improving economic forecasts, weaker than expected economic data this week tempered some of the optimism for a near-term recovery, which was favorable for mortgage markets. Tame inflation data and sustained Fed purchases of mortgage-backed securities (MBS) also helped. As a result, mortgage rates fell moderately during the week. With a full economic calendar, the biggest surprise this week was the unexpectedly weak Retail Sales report. Retail Sales account for about 70% of economic activity, and many investors were hopeful that the report would lend support to the idea that the economy is poised to turn higher. Instead, a moderate decline in the monthly data caused investors to question how quickly the economy will rebound. For mortgage markets, weaker economic activity is good news, since it generally means lower inflation. The monthly inflation reports released this week showed that inflation is not a concern in the short-term. The April Consumer Price Index (CPI) was unchanged from March, and Core CPI inflation rose at a moderate 1.9% annual rate. The Secretary of the Department of Housing and Urban Development (HUD) announced this week that home buyers will be allowed to use the $8,000 first-time homebuyer tax credit for down payments on purchases financed by FHA loans. FHA will allow approved lenders, nonprofits, and government agencies to advance the funds in the form of bridge loans that buyers would use for down payments. Buyers would repay the loans after they receive their tax refunds. The FHA will release more details on the program soon.

	Average 30 yr fixed rate: Last week: +0.05% This week: -0.15%
	Stocks (weekly): Dow: 8,300 -200 NASDAQ: 1,680 -40

Week Ahead It will be a light week for economic data. The FOMC minutes from the April 29 Fed meeting will be released on Wednesday. These detailed notes on the discussion at the meeting often reveal additional insight into the Fed's actions. Housing Starts will come out on Tuesday. The only other reports will be Leading Indicators and the Philly Fed index on Thursday. Mortgage markets will close early on Friday for Memorial Day weekend.

To learn more about news impacting interest rates and mortgage markets, go to www.mbsquoteline.com To learn more about the newsletter, please call 800-627-1077 All material Copyright © Ress No. 1, LTD and may not be reproduced without permission.

Mortgage backed securities (MBS) prices fell (rates rose) for the first time in four days as reports show manufacturing contracted less than expected, easing speculation the economic recovery was weakening; FNMA 4.0% coupon 100.14bps, -17bps. The Fed bought debt three times this week, part of an effort to lower borrowing costs, amid a two-week hiatus in the Treasury's auction schedule which resumes May 26th. International demand for long-term U.S. financial assets rose in March as China added to its portfolio, indicating foreign confidence in the U.S. markets is on the increase. Investors worldwide have sought a haven from global market turmoil by buying U.S. Treasury securities. On the downside, foreigners were heavy sellers of agency debt (FNMA, FHLMC, GNMA). Industrial Production contracted again in April but at a slower pace, down 0.5% after falling a revised 1.7% in March. Motor vehicle and parts production climbed 1.4% in April, but those increases are unlikely to be sustained in coming months as sales fall and companies shut plants to reduce inventories. Overall capacity utilization in April continued its downward trend, slipping to 69.1%, an historical low. Consumer price index was unchanged in April and on an annual basis is down 0.7%, biggest decline since 1955. Core rate, excluding food & fuel, climbed 0.3% in April, but half the jump reflected an increase in tobacoo excise taxes. Core prices rose 1.9% over the past year. Wages increased 0.1% and were up 2.6% over the last 12 months. Empire State index improved to minus 4.6 in May vs -14.7 in April, but with mixed results. General business conditions did improve, with shipments and inventories positive, however new orders show a deepening rate of contraction. Consumer Sentiment rose in May to 67.9 from 65.1, due to the expectations component jumping 6 points, but the assessment of current conditions remains very weak.

Mortgage backed securities (MBS) prices are lower (rates higher) as the Fed prepares to purchase debt today, part of an effort to lower consumer borrowing costs and amid a two-week hiatus in the government's auction schedule; FNMA 4.0% coupon 100.16bps, -4bps. Intial jobless claims jumped 32K to a much higher than expected 637K as a reacceleration in job losses is fed by auto shutdowns. The 4 week moving average, a less volatile measure, rose to 630K from 624K and the total number of people collecting benefits surged 202K to a record 6.56 million, indicating companies are still not hiring. Prices paid to factories, farmers and other producers rose 0.3% in April, more than forecast, as food costs increased 1.5%, the biggest gain in more than a year. Egg prices spiked 44% due to seasonal adjustments around Easter. The "core" rate, excluding fuel & food, climbed 0.1% as anticipated. On an annual basis, producer prices were down 3.7%, the biggest drop since 1950. Treasury yields have climbed recently, 65bps since March 18, more as a reflection of a better economic outlook than a signal to step up purchases of government debt by the Fed. The goal is not to target rates but to stimulate private lending & efforts to revive lending are working; 3mo LIBOR declined to a record low 0.85%.

Existing-home sales eased in March 2009, but first-time buyers are responding to low mortgage interest rates and tax credits, according to the National Association of Realtors®.

Existing-home sales -- including single-family, townhomes, condominiums and co-ops -- declined 3.0% to a seasonally adjusted annual rate of 4.57 million units in March from a downwardly revised level of 4.71 million in February, and were 7.1% lower than the 4.92 million-unit pace in March 2008.

Lawrence Yun, NAR chief economist, said the market appears to be stabilizing with modest monthly ups and downs, and that first-time buyers are driving the market.  "The share of lower priced home sales has trended up, indicating a return of many first-time buyers, which we also see in a parallel member survey," he said.  "Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans."

Although prices rose from February to March, the national median existing-home price for all housing types was $175,200, down 12.4% from March 2008.  The price increase from February to March was 4.2%, which is much higher than the typical 1.8% seasonal increase between those two months.  Distressed properties, which accounted for just over half of all transactions in March, typically are selling for 20% less than traditional homes.

An NAR practitioner survey in March showed first-time buyers accounted for 53% of transactions, based largely on contracts offered before the $8,000 first-time home buyer tax credit became available.  "Buyer traffic has been rising, and real estate offices are getting phone inquires about the tax credit," Yun said.  "By early summer we should be seeing a positive impact on home sales from record-low mortgage interest rates in addition to the stimulus provisions."

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said first-time buyers are crucial at this stage of a housing recovery.  "The housing market always heals from the bottom up, and with large numbers of first-time buyers entering the market it will become a little easier for sellers to trade up or down, according to their needs," he said.  "Although homeownership builds wealth over the long term, buyers need to evaluate their options.  In this market, buyers and sellers who use a Realtor® to represent them are making a smart move," McMillan said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 5.00% in March from 5.13% in February; the rate was 5.97% in March 2008; data collection began in 1971.

"Record-high housing affordability conditions are helping markets recover, with home sales higher than a year ago in Minneapolis, Northern Virginia, Las Vegas, Phoenix and most areas of California and Florida."

Total housing inventory at the end of March fell 1.6% to 3.74 million existing homes available for sale, which represents a 9.8-month supply t the current sales pace, compared with a 9.7-month supply in February.

Single-family home sales slipped 2.8% to a seasonally adjusted annual rate of 4.10 million in March from a pace of 4.22 million in February, and are 5.7% below the 4.35 million-unit pace in March 2008.  The median existing single-family home price was $174,900 in March, which is 11.5% lower than a year ago.

Existing condominium and co-op sales fell 4.1% to a seasonally adjusted annual rate of 470,000 units in March from 490,000 in February, and are 17.8% below the 572,000-unit pace a year ago.  The median existing condo price was $177,600 in March, down 18.7% from March 2008.

Northeast

Regionally, existing-home sales in the Northeast fell 8.0% to an annual pace of 690,000 in March, and are 22.5% below a year ago.  The median price in the Northeast was $231,700, down 18.4% from March 2008.

Midwest

Existing-home sales in the Midwest were unchanged in March at a pace of 1.04 million but are 11.1% lower than March 2008.  The median price in the Midwest was $141,300, which is 6.1% below a year ago.

South

In the South, existing-home sales slipped 1.7% to an annual pace of 1.71 million in March and are 10.9% below a year ago.  The median price in the South was $146,900, down 12.2% from March 2008.

West

Existing-home sales in the West declined 4.2% to an annual rate of 1.13 million in March but are 18.9% higher than a year earlier.  The median price in the West was $252,400, which is 11.1% blow March 2008.

 

By: www.rismedia.com