Greece and their creditors are at an impasse, with the Greek government scheduled to vote to determine whether to accept the creditor demands. The European Central Bank froze their Emergency Liquidity program at the same level as last week, making the Greek banks more or less insolvent. ATMs are out of money and the banks will be closed for the next five days. If they cannot get a deal with creditors, Greece will have to start printing money in order to keep the banks solvent, which would pave the way for their exit from the Euro.
Does it make a difference? Sure it does - especially for our bond market and interest rates. The Greek economy is only about 2% of the Eurozone but in order to support European banks which hold Greek sovereign debt, the ECB will probably announce further measures to support the banking system, and that means more Quantitative Easing. This will cause the Bund to rally, and relative value trading will pull the US 10 year along for the ride.
But as Janet Yellen will tell you, low interest rates are creating issues for retired savers as well as the Fed. How would you like to be managing the Teamster's pension fund, or your own retirement fund that you want 100% safe, and be earning less than 1%? As was pointed out to me last summer at a conference, the added risk pension funds and insurance companies are taking in order get the return they need to meet their actuarial obligations is becoming more and more obvious. Since these funds can't earn the mid / high single digit returns they need in government debt and investment grade corporate debt (or even MBS for that matter), they have two options: either fudge the assumptions regarding expected growth of their assets and liabilities or take more risk. They seem to be doing both.
So we saw the result yesterday. U.S. Treasuries soared after investors scrambled to safety following the breakdown of negotiation between Greece and its creditors over the weekend. A referendum on a bailout extension is to be voted upon on July 5th, but that will be after the June 30th deadline for Greece's 1.55 billion euro payment to the IMF. Prime Minister Alexis Tsipras decided to hold a referendum on July 5th to let Greeks decide if they want to stay in the eurozone at the expense of pension and cuts and no debt forgiveness. If Greece doesn't make its 1.55 bln euro payment to the IMF on June 30th (and they already said today that they wouldn't), IMF Managing Director Christine Lagarde has the option of not reporting the missed payment to the executive board for a month. She has indicated that she will not delay. Greek banks did not open on Monday and ATMs allowed only $60 of withdrawals per depositor per day. The banks are supposed to reopen on Thursday.
It has been a while since I last wrote a blog, it has been a very busy few months for me; I hope you have all been checking out the daily updates posted by Gary! So much has happened in the past 2 months for not only the real estate world, but the financial world. I won’t go too much into detail over what I like to call “clutter,” however it is my responsibility to break down issues that affect you & me, and the relationship we have in business.
Ok let’s discuss this mess..! We’ll go back a little bit, and talk about what the market is doing. The biggest item affecting the market is QE3 and whether the FED will continue to buy Bonds to the tune of $85 billion a month or to taper to a lesser number. Back in September the FED was leaning toward a tapering mode which caused concern in markets. The DOW went down as did the price of treasuries which caused mortgage interest rates to rise.
Since then, the FED realized the economy is much weaker than anticipated and has taken a non-taper stance. Many economists believe that this non- taper stance will continue through the first quarter of 2014 and because of that and the weak economy, many believe that mortgage rates will decrease by the years end.
For simplicity purposes we conclude that if the economy is strong, QE3 might be reduced and rates will go up. If the economy is weak, QE3 will continue and mortgage rates will fall.
So Friday, November 8, 2013, a jobs report was released and most of the economists in the country thought that job creation would be relatively weak @120,000, many economists were concerned we wouldn’t even see that number. When the department of labor released their reports showing new jobs at 204,000…GASP!!!!! Most economists were shocked. Because the number of 204,000 shows such strength in economic growth, we saw an increase in mortgage rates today.
I could give you a forecast and my opinion about where things are going, however, speculation in my business is a cause for media frenzy and outlandish market changes, right Mr. Bernanke? But really; if you have the ability to buy a home you should; buy more than one if you can, it is a positive financial investment. If you can refinance and save some money, then you should! Remember it isn’t about the interest rate, but about how much money you save per month. One thing we know is for sure, your investment in your home is one of stability and gain and in my book, that’s always a positive!!!!
The October jobs report came in today up 204,000 jobs. The market had been anticipating a number close to 120,000 jobs, so this was a huge surprise. Subsequently, mortgage bonds are much lower, which will cause mortgage interest rates to be worse today.
Stocks are slightly better in early trading this morning.
Big Stock day today. Twitter IPO is being released. Also in the news, the European Central Bank cut their discount rate by .25. Also, initial jobless claims were reported at 336,000.00 which is in line with expectations. Finally, third quarter GDP was 2.8%, which is stronger than market expectations of 2.0%. Tomorrow we have the initial jobless claims which as previously stated could be as low as 125,000.00. Such a low number makes it easy for the actual jobs number to beat expectations, but any number under 140,000 will still be considered weak.Mortgage bonds and Stocks have started the day higher, but the big news will be tomorrow’s jobs report.
Mortgage rates are flat to slightly better at some coupons.
Today is a slow news day. Later this week we have the initial jobless claims and GDP which comes out on Thursday, and the October jobs report, which comes out on Friday. There has been speculation that the October jobs number could be as low as 125,000.00. Such a low number makes it easy for the actual jobs number to beat expectations, but any number under 140,000 will still be considered weak. This weekend various Fed officials have been publically speaking regarding QE3 tapering. While the Fed appears not to want to continue with the QE bond buying program, it continues to do so until there is a strong improvement in the economy, which means stronger employment numbers.
Stocks are opening flat and Mortgage bonds are starting the day higher. Mortgage rates are flat as compared to Friday November 01, 2013.
This week is going to be a big news week including housing and jobs reports, and the ADP Employment report on Wednesday. The Fed’s 2 –day meeting starts today, with the results of the meeting scheduled for Wednesday.
The Case-Shiller Home Price Index which shows closing prices for homes settled in August (which may include Home Sale contracts for June and July), was up 1.3% The Producer Price Index (PPI) was up .01% and Retail sales were down .01%. Both the PPI and retail sales reports were considered non-events.
Stocks are opening higher and Mortgage bonds are starting the day relatively flat. Mortgage rates are flat as compared to yesterday.
This week is going to be a big news week including housing and jobs reports, and the ADP Employment report on Wednesday. The Fed’s 2 –day meeting starts tomorrow, with the results of the meeting scheduled for Wednesday. There isn’t much concern regarding QE-3 tapering for the remainder of this year. The experts seem to agree that the earliest that QE-3 tapering would be considered is March 2014.
Pending home sales for September and were reported down by 5.6%
Both Stocks and Mortgage bonds are starting the day relatively flat. Mortgage rates are flat as compared to Friday.
Not that much market moving data being reported today. Bonds are slightly higher, which leaves mortgage rates unchanged for the day. Stocks are starting the day higher.
The Federal Housing Finance Agency, (the conservator for FNMA and FHLMC), announced yesterday they would NOT CHANGE the FNMA and FHLMC loan limits. They will review the loan limits again in mid 2014.
Mortgage rates are starting the day Flat.
At BMIC follow a mortgage news service called MBS Highway, which is run by Barry Habib. Mr. Habib was recently asked his opinions regarding the mortgage market, by Mr. Art Cashin, Director of Floor Operations at UBS.
Below are excerpts of the interview:
Of Mortgages And Mavens – With several banks pairing back the size of their mortgage processing units, I turned to my friend and mortgage maven, Barry Habib. Here's the brief review he sent me:
As you know, since September we have been very bullish on the Bond Market. Specifically, we believe Mortgage Backed Securities will continue to improve for both fundamental and technical reasons.
The Fed has stated that they are purchasing $40 Billion per month in Mortgage Backed Securities and $45 Billion in Treasuries. But they are really purchasing a lot more in Mortgage Backed Securities because they are reinvesting payoff proceeds and principal payments. This amounts to an additional $20 Billion per month currently, bringing the total to $60 Billion per month in MBS purchases.
Tapering appears to be off the table for some time, and even if tapering begins, Fed members have already suggested skewing it more toward Treasuries and leaving MBS purchases alone. Additionally, the reinvestment portion of MBS purchases will not be part of any tapering, according to comments by Ben Bernanke. The reinvestments will be reevaluated when the Fed starts actually increasing rates – perhaps a 2015 event. This means that the Fed will continue to buy MBS hand over fist. Meanwhile, the supply of MBS coming to the market is greatly reduced. Mortgage lenders are seeing huge slowdowns in closed loan volume beginning September. August closings were still relatively strong, as they reflect June originations. But, those September closings, and forward looking closing levels, are significantly smaller. Once a loan closes, it takes time for the post-closing documentation process and eventual sale into the secondary markets. The time for those reduced pools of MBS to come to market from September is about now. The basic laws of supply and demand tell us that the Fed’s actions should be highly stimulative to the MBS market. I see prices continuing higher, driving yields lower.
On the technical side, MBS prices just broke above the 200-day Moving Average. This is a very significant event, and can represent a sea change. For example, MBS prices have been beneath their 200-day Moving Average for the past 10 months. And before that, they were above their 200-day Moving Average for 18 months. So, these moves can be quite meaningful and long lasting. And the 10-year Treasury Note Yield also broke some significant technical barriers today. The 10-year Note Yield dove beneath its 100-day Moving Average, and appears headed towards its 200-day Moving Average, near 2.25%. We continue to feel that mortgage rates will improve in a meaningful way. I don’t think they will reach the low levels we have seen earlier this year, but they should drop low enough to drive some refinance activity and support the housing market.
And while we still feel the housing market looks favorable, there is legislation on the horizon that could become a significant drag. The new “Qualified Mortgage Rule” goes into effect January 10th, 2014. This will make it much more difficult for buyers on margin to get a loan. And once we start taking potential buyers out of the housing market, we could see things soften a bit. I still see positive price appreciation, but, nowhere near the current heated pace.
Not that much market moving data being reported today. Bonds are flat to slightly lower, which leaves mortgage rates unchanged for the day. Stocks are starting the day higher.
Initial jobless claims reported today came in at 350,000, versus the expectation of 335,000.00. The initial jobless claims number has had less and less significance lately as various states have has difficulty reporting their numbers. This week the reporting problems come from California.
Mortgage loan rates are starting the day flat to slightly higher.
Not that much market moving data being reported today. Bonds are slightly higher, which could hopefully lead to slightly lower mortgage interest rates. Stocks are starting the day lower, based in part on reports that China may tighten its’ monetary policy due to signs of rising inflation.
The Mortgage Bankers Association released their Mortgage Purchase Application numbers today for the week ending October 18, 2013 which showed Purchase Applications increasing 1% over last week. The Federal housing finance Agency house Price Index showed that home values for single family houses increased by .03 in August.
Mortgage loan rates are starting the day flat to slightly lower.