Mortgage Bond Market Analysis - What's going on?

Happy Tuesday Morning - if you're not invested in Greece or China.  So there's very little economic data and what data there is surprised to the up (good) side yet the benchmark bond is continuing yesterday's rally.  So what gives? While we were sleeping, the global equity markets were getting rocked. The two main culprits were China and Greece and the China stock market was down 5%+ and Greece’s down 11%+ (would be the equivalent move of 900-1000 points on the Dow). Apparently the powers that be in China sensing their economy is in a bit of a downturn and concerns over defaulting loans banned investors from using low-grade corporate bonds as collateral for short-term financing (that took a little air out of the bubble). Then separately of course Greece’s government decided to bring forward a parliamentary vote for president. The vote will now take place, two months ahead of schedule. The bleeding has of course found its way to the US and the Dow is down 192 (1%) and bonds are getting the benefit. Not sure they deserve it on their own but they are the world’s safe investment vehicle.  Here's today's chart:

The lack of data continues tomorrow so the market will again depend on direction from other sources like economic news from different parts of the world.  For now the benchmark bond is up 10 basis points, 18 off the high for the morning.  It's 3 basis points below the 1st level of resistance and 18 below the 2nd resistance level.  It's a good time to lock but if you decide to float, watch the market carefully because you never know when a big sell-off will happen.

Loan limits announced (and more):  FHA announced that their floor (maximum loan amount for low cost counties) is 65% of the conforming loan limit ($417,000) or $271,050.  The actual loan limits for individual counties have not been released yet - Clark County, Nevada is currently $287,500 and Salt Lake County, UT is currently $300,150.  

On a related note, FNMA and FHLMC have decided to offer financing to qualified borrowers with just 3% down.  This program went away shortly after the melt down, came back for a little while, when away again, and now, surprise, it's back.  This is a great alternative to FHA financing for those who qualify.  Here are some differences to keep in mind:  1) rates on conventional loans are very credit score driven and there are also loan level pricing adjustments for loan amount and LTV so the rates for the 97% LTV program will likely be a fair amount higher than FHA (.5% - .75% in my estimation).  2)  There is no upfront mortgage insurance on conventional loans. 3) The mortgage insurance rate for conventional financing at 97% is probably about .5% lower than FHA's annual mortgage insurance rate - this will roughly offset the higher interest rate, and 5) mortgage insurance for conventional loans automatically cancels when the loan balance reaches 78% of the original purchase price - FHA's is life of the loan unless you put 10% down (then it's 11 years).

This is a lot to digest but all in all the news is good - there's another good option for people to finance their home purchase.  I'm available if you have any questions or need a mortgage approval to purchase a home - 702-812-1214.  Make it a great day and feel free to share your thoughts in the comments section and share this post with your friends and associates.

Mortgage Bond Market Analysis - Happy Monday Edition

I lied.  I said there was no data today.  There is a tiny bit of data - the Labor Market Conditions Index - and it came in at 2.9 vs. previous of 4.0.  This may be having a slight impact on the buying in the bond market but the benchmark bond has been trending up all day.  Some weak economic data out of Japan and China are providing the current stimulus to the bond market.  Here's the chart:

Here are Realtor.com’s top 5 housing predictions for 2015:

1.       Millennials to drive household formation. Households headed by Millennials are expected to see significant growth in 2015, particularly as the economy continues to make gains. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®'s report. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, are the two factors that realtor.com® points to in driving more first-time home buyers to the housing market.

2.       Existing-home sales on the rise. Existing-home sales are projected to rise 8 percent year-over-year in 2015, as more buyers enter the market. Distressed properties will make up a smaller share of that growth, unlike in 2012, when a similar increase in existing-home sales was mostly driven by distressed properties.

3.       Home prices will rise. Home prices are expected to continue to edge up in 2015, with realtor.com® forecasters predicting a 4.5 percent gain. "While first-time home buyers have many economic factors working in their favor, increasing home prices will make it more difficult to get into high-priced markets such as San Francisco and San Jose, Calif.," realtor.com® notes in its report. "As a result, first-time home buyer activity is expected to concentrate in markets with strong employment and affordability, such as Des Moines, Iowa; Atlanta; and Houston."

4.       Mortgage rates to inch up to 5 percent. In the middle of 2015, mortgage rates are expected to increase as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. That will likely bring the 30-year fixed-rate mortgage to an average of 5 percent by the end of 2015. (It's currently averaging 3.89 percent, according to Freddie Mac.) The 1-year adjustable-rate mortgage, on the other hand, is expected to rise more minimally. "Lower ARM interest rates will influence an uptick in buyer interest for adjustable and hybrid mortgages," realtor.com® notes. "While still at historic lows, rate increases will affect housing affordability for first-timers trying to break into the housing market and will be another factor pushing them to less-expensive locales."

5.       Housing affordability will decline. Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 to 10 percent in 2015. However, the decline in affordability likely will be offset by an increase in salaries next year for many households. "When considering historical norms, housing affordability will continue to remain strong next year," realtor.com® notes.

Best news of the day (although it is not a done deal yet):  The House of Representatives passed some retroactive tax extenders for one year (hey we will take it). The Senate is expected to vote later this week and the most notable parts of the bill are:

1.       Section 163 Deduction for Private Mortgage Insurance. Allows taxpayers, subject to an income cap, to deduct premiums paid for private mortgage insurance. The deduction for PMI is expected to save home owners $919 million for tax year 2014.

2.       Bonus Depreciation. Extends the 50% bonus depreciation.

3.       Section 179 Expensing. Increases the maximum expensing amount to $500,000 for qualified property on up to $2 million in property placed in service.

4.       Short-sale mortgage debt forgiveness. The provision would extend through 2014 the exclusion from gross income of a discharge of qualified principal residence indebtedness due to a short sale.

Thanks for reading and please feel free to share your thoughts in the comments section and share this post with your friends / associates.  Don't hesitate to call me if I can help with anything mortgage related (whether I'm handling the loan or not).  Most of all, make today great. 

Mortgage Bond Market Analysis - Great Employment Report Edition

Good morning and TGIF.   Anytime an economic report is coming out that might adversely impact the benchmark mortgage bond, I always recommend locking in advance of the release.  Typically the data points that have the biggest impact on bond prices / rates are employment-oriented reports like the weekly jobless claims numbers that are released every Thursday and the monthly employment reports that are released on the first Friday of every month.  Well today is the first Friday and the non-farm payrolls came in at 321K vs. expectations of 232K and previous of 243K.  This is a huge beatdown and in a normal month, the sell-off in the bond market would likely be much worse.

December's not a normal month.  Bond traders understand that these numbers aren't real and probably won't be until February's employment report because there are a whole lot of seasonal workers that are figured into these numbers and most of them will probably not keep their jobs beyond the holiday season.  Additionally, an hour and a half after the employment data was released, we got the factory orders which came in much lower than expected at -.7 vs. expectations of +.1 and previous of +.5.  In reality, we have a mixed bag of data and a sell-off that equates to the benchmark bond now down 28 basis points.  Here's the chart:

Should I lock?  That's always the million dollar question and no one has a crystal ball but from the charts we can see a couple of things:  1) the trend for today looks to be down (top right - "Daily Chart") and 2) the low for the day approached the first level of support and bounced off so it's very possible that we finish the day somewhere between where we are now and 103.61 which is the support level.  If the traders decide to sell with a little more enthusiasm, the 2nd level of support at 103.52 could be tested.  I think the weak data on factory orders will temper the selling.  Additionally, there is no real data until next Thursday.  There is a bond auction on Wednesday that could impact pricing / rates but it could be quiet until then so you may be o.k. to float.  That said, rates are still fantastic and locking now wouldn't be a bad thing.

As always, please feel free to share your thoughts in the comments section and subscribe to my blog so you don't miss any of the reports.  Don't hesitate to call me if I can help you with anything mortgage-related even if I'm not handling the loan - 702-812-1214.  I hope you have some fun stuff planned for your weekend.  Make it a great one.

Mortgage Bond Market Analysis - Hump day edition

Happy Hump day (Geico Hump Day commercial).  December is a month that is about joy for Christians and Jews alike as we both celebrate important holidays but as far as the benchmark mortgage bond is concerned, there hasn't been any joy so far in December.  With no economic news on Monday, we saw a 29 basis point sell-off which was probably due to profit taking.  Yesterday we had one piece of economic data (construction spending) which came in higher than expected and the selling continued with a 24 basis point decline.

Hump day brought us ADP Private payrolls which came in below expectations at 208 vs. 221 expected and 233 previous but then we had the ISM Service Sector index coming in at a robust 59.3 vs. expectations of 57.5 and previous of 57.1  and we are seeing a bit more selling.  The market has rebounded off its lows for the morning and the benchmark bond is currently down only 1 basis point.  Here's the chart:

As you can see, the benchmark bond is now below the 1st level of resistance.  The RSI is also no longer overbought.  Tomorrow will bring us the jobless claims numbers and then on Friday we will get the all important non-farms employment report.  If you aren't a risk-taker, you may want to lock ahead of these reports - after all, rates are GREAT.

On a side note, for you college basketball fans, there are a couple of great games on tonight.  #2 Wisconsin plays #4 Duke and #8 Wichita State plays my alma mater, #25 Utah.  This is such a great time of year with the holidays coming up which means the kids will be off of school, lots of great college basketball and all of the college football bowl games.  Don't even get me started about all of the great food.  Please call me if I can help with anything mortgage-related.  Make it a great day.

Mortgage Bond Market Analysis - December 1st Edition

Happy December 1st - it's the start of the last month of the year.  I hope you had a great Thanksgiving.  It's hard to believe that this year is almost over.  There's only one piece of data this morning - The ISM Manufacturing index came in at 58.7 vs. expectations of 58 and previous of 59.  This is not going to have much of an impact on the benchmark bond.  Black Friday had no economic data points but investors / traders were in the mood to shop as they were buying bonds and pushing the price up 43 basis points to close at 104.36.

The only data point this morning is the ISM Manufacturing index and it came in at 58.7 vs. expectations of 58 and previous of 59.  The Relative Strength Indicator (RSI) is overbought so there is a possibility that traders may decide to take some profits off the table and sell - they need $$$ to fund their gift purchase.  As of this writing, the FNMA benchmark bond is up 1 basis point and is just below the 2nd level of resistance.  There is a plethora of economic data this week including ADP Private Payrolls on Wednesday, Continuing and Initial Jobless claims on Thursday and the employment report on Friday - the latter two usually have the biggest impact for bond traders.  There's other data releases as well but these are the biggest ones.  Here's today's chart:

A final check of the benchmark bond before I sign off shows it even on the day.  Please feel free to contact me if I can help you with anything mortgage-related - 702-812-1214.  Thanks and make today great.