“The 12-month price growth of core personal expenditures remained at 1.4 percent in July, which kept overall inflation expectations well at bay,” said Amy Crews Cutts, deputy chief economist, Freddie Mac. “Fed chairman Bernanke reiterated this in his Aug. 27 speech in Wyoming, noting that with inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly. As a result, mortgage rates eased further this week to new historic lows.”

Thirty-year fixed-rate mortgages (FRMs) averaged 4.32 percent with an average 0.7 point for the week ending Sept. 2, 2010, down from last week when it averaged 4.36 percent. Last year at this time, the 30-year FRM averaged 5.08 percent. Fifteen-year FRMs this week averaged a record low of 3.83 percent with an average 0.6 point, down from last week when it averaged 3.86 percent. A year ago at this time, the 15-year FRM averaged 4.54
percent.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.54 percent this week, with an average 0.6 point, down from last week when it averaged 3.56 percent. A year ago, the five=year ARM averaged 4.59 percent. The one-year Treasury indexed ARM averaged 3.50 percent this week with an average 0.7 point, down from last week when it averaged 3.52 percent. At this time last year, the one-year ARM averaged 4.62 percent.

“House prices, however, appear to be firming. Home prices rose 2.3 percent between the first and second quarter of this year, reaching the highest level since the fourth quarter of 2008, according to the S&P/Case Shiller National Home Price Index,” said Cutts. “In addition, 15 metropolitan areas in the 20-City Composite Index experienced annual house price growth in June, compared to 13 in May and 11 in April.”

Thu, 2010-09-02 14:34 — NationalMortgag…

Reuters (09/01/10) Haviv, Julie

Risk Center (08/31/10)

ABC News (08/30/10)

Continued concerns about the economy, focused on jobs, manufacturing and bleak economic reports, kept dollars flowing into U.S. Treasuries most of last week.

Reports began Tuesday when existing home sales ignited a big bond rally.  Sales in July fell by a whopping 27.2% — the biggest one-month drop ever.  No one saw this coming in spite of the ongoing impact of the tax credit, the slow economy and a lack of jobs.

Sales plunged to an annual rate of 3.83 million units from 5.26 million in June, and inventories rose to 3.98 million units — a 12.5-month supply.

Also fueling the flight to safety was a steep decline in the European markets, which also have global economic concerns.  The 10-year note yield, which moves in the opposite direction of price, shed 10 basis points.

A 12.4% decline in July’s new home sales, released Wednesday, pulled more money into bonds, and the flow didn’t stop there.  Durable goods orders in July rose 0.3% — far short of an expected 3.0% gain.  When transportation was excluded, orders fell 3.8% when a 0.5% increase was forecast.  These reports sent the 10-year yield down to 2.45% — its lowest level in 20 months.  But that didn’t last.

Wall Street was looking at a fifth straight losing session, then bargain hunters moved in and saved the day.  Money left Treasuries, and yields climbed back 2.54%.

First-time jobless claims fell during the week ended Aug. 21 — the first decline in a month.  Claims were down 31,000 to 473,000.  The four-week average, which smoothes volatility, rose to 486,750.

Stocks fell again, with investors jittery over Friday’s revised 2^ndquarter GDP.  The Dow closed below 10,000 for the first time since July 6, while Treasuries benefitted.

The GDP revision wasn’t as bad as feared.  It was lowered to 1.6%, instead of the predicted 1.4%, from 2.4%.  This fired up Wall Street and ignited heavy selling in Treasuries.  The 10-year yield shot up 14 basis points to 2.64% by mid-day.

The University of Michigan’s final consumer sentiment survey for August was all but ignored.  It fell to 68.9 from 69.6.

The Mortgage Bankers Association said that during the week ended Aug. 10 the refinance index rose 5.7%, reaching its highest level since May 1, 2009.  For the second straight week, purchase apps climbed 0.6%.

This week we get typical month-end/month-beginning reports, climaxing with Friday’s August employment report.  Current thinking is that 120,000 jobs will be lost from nonfarm payrolls — less than July’s 136,000.  But private sector payrolls should increase by 44,000 jobs — also less than the 71,000 added in July.  The unemployment rate, however, is expected to rise to 9.6% from 9.5%.

Later that morning the ISM index on the service sector for August is expected to edge down to 53.0 from 54.3.  If these estimates are on target, the yield on the 10-year note should fall.

The week begins with Monday’s report on personal spending/income for July.  Both categories are expected to show 0.3% increases, while the PCE core — a key inflation indicator — should rise by a bond-friendly 0.1%.

Tuesday features two indexes: the Chicago PMI on August manufacturing conditions and the consumer confidence index for August.  Confidence should edge up to 51.3 from 50.  The PMI could be more worrisome.  It’s predicted to fall to 57.5 from 62.3 — another sign that manufacturing is struggling.

An even larger sign is due Wednesday when the ISM index on nationwide manufacturing is released.  It, too, is expected to fall to 53.3 from 55.5.  Any number over 50 indicates expansion, but the margin between flat and expanding is shrinking.

Thursday begins with initial jobless claims for the week ended Aug. 28.  Will there be a repeat of last week?

Revised data on 2^ndquarter productivity and costs could contain hints of inflation, if predictions are correct.  Productivity could be downwardly revised to 1.5% from 0.9%, while costs might be revised upward to 1.0% from 0.2%.  When costs grow faster than productivity, that’s a bad sign.

The final report, July factory orders, should show a 0.5% increase, up from a 1.2% decline in June.  This is generally not a market-mover, but numbers like that might get noticed.

The 30-year bond and 10- and 5-year note yields, which move in the opposite of price, fell to their lowest levels in 16 months — or more.  And the yield on the 2-year note hit a record low.

Almost every day last week traders found reasons to put their money in the safe haven of government debt.

Monday began with the homebuilders’ index, a measure of confidence, falling to 13 — a 17-month low.  A reading of 50 or more indicates that at least half the builders view conditions as good.  In addition, the NY Empire State index of manufacturing conditions for August rose to a less-than-expected 7.1 from 5.08.

Housing starts and building permits, released Tuesday, were mixed.  Starts rose 1.7% to an annual rate of 546,000 units, while permits fell 3.1% to an annual rate of 565,000 — the fewest since May 2009.

Separately, the producer price index, which monitors wholesale inflation, rose 0.2% in July, while the core rate, which eliminates volatile food and energy prices, rose 0.3% — in line with expectations.

Industrial production was up 1.0% in July from -0.1% in June and capacity utilization increased to 74.8% from 74.1%.  These reports left Treasuries idling in neutral, but a statement by the president of the Minneapolis Federal Reserve ignited a Wall Street rally and a big sell-off in bonds.

Alluding to the previous week’s posting-meeting Fed statement, which instigated a huge bond rally, he said it (the statement) made investors believe “things were worse off than they had imagined” and that the reaction was “unwarranted.”

With no news to guide them on Wednesday, both stocks and bonds closed nearly unchanged.  On Thursday Treasuries roared back.

Initial jobless claims for the week ended Aug. 14 hit 500,000 for the first time since November, and the four-week average rose to 482,000 — up by 8,000.  This report ignited buying in Treasuries, and the Philly Fed index of August manufacturing conditions added fuel.  It fell to -7.7 from 5.10 (almost a 13-point drop), when +7.15 was expected.  Any number below 0 indicates business is slowing.

The index of leading economic indicators for July rose by a less-than-expected 0.1% from -0.3%, but buying in bonds continued.  The 10-year closed at 2.57% — its lowest level since March 2009.

No reports were released Friday, leaving bonds mostly unchanged, while Wall Street indexes headed for negative territory in the opening hours of trading.

Applications to purchase and refinance rose during the week ended Aug. 13, according to the Mortgage Bankers Association.  The refi index was up17.1%, the highest since May 2009, while the purchase index climbed 3.4%.  It’s 38.6% lower than it was a year ago.

This week has data on home sales and the second revision of 2^ndquarter GDP, which could touch off strong buying in Treasuries, if analysts are on target.  It doesn’t come out until Friday, but economic growth is expected to be revised downward to 1.4% from 2.4%.  This would be a clear signal that the economy is not stagnating, it’s contracting.

Existing home sales for July are due Tuesday and another decline is expected.  Economists predict sales will fall to an annual rate of 5.14 million units from 5.37 million in June.  On Wednesday, however, a report on new home sales for July should show an increase to an annual rate of 338,000 from the previous 330,000.

That same day we also get durable goods orders for July.  They are expected to rise 3.4% versus a 1.2% decline in the previous month.  But when transportation is excluded, orders should fall 0.7%.

Thursday first-time jobless claims for the week ended Aug. 21 will be released.  If they rise above 500,000, expect to see strong buying in Treasuries.

Friday’s last report, the University of Michigan’s final consumer sentiment survey for August, is expected to edge up to 70 from 69.6.  This small increase would be totally ignored by bond traders if the revised 2^ndquarter GDP declines by a full percentage point.  They would probably be too busy buying.

The Market Composite Index, driven by refinancings, increased by 13.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased by 12.4 percent compared to the previous week. The four-week moving average rose by 2.6 percent. 

The seasonally adjusted Refinance Index increased by 17.1 percent from the previous week; this represented its highest level since the week ending May 15, 2009. The four-week moving average rose by 3.2 percent. The refinance share of mortgage activity increased to 81.4 percent of total applications from 78.1 percent the previous week, the highest share observed since January 2009.

The seasonally adjusted Purchase Index fell by 3.4 percent from one week earlier. The unadjusted Purchase Index decreased by 4.6 percent compared to  the previous week and was 38.6 percent lower than the same week one year ago. The four-week moving average rose by 0.1 percent.

Key interest rates moderated. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.60 percent from 4.57 percent, with points increasing to 0.92 from 0.89 (including the origination fee) for 80 percent loan-to-value ratio loans.  The effective rate also increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 3.99 percent from 3.95 percent, with points decreasing to 1.05 from 1.08 (including the origination fee) for 80 percent LTV loans. The effective rate also increased from last week.

The average contract interest rate for one-year adjustable-rate mortgages decreased to 6.90 percent from 7.00 percent, with points decreasing to 0.21 from 0.22 (including the origination fee) for 80 percent LTV loans. The ARM share of activity decreased to 5.7 percent from 5.9 percent of total applications from the previous week.

The survey covers more than 50 percent of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

Key, Melissa

 Ginnie Mae has raised the net worth requirements for those who issue their mortgage backed securities. “It was only a matter of time,” says Greg Frost, President of Frost Mortgage Banking Group.  “Securities dealers and mortgage purchasors want to do business, going forward, exclusively with those companies who can write the check, in the event of a buy back request.  You just can’t enforce your buy back agreements if the company selling or securitizing the loan doesn’t have the liquid net worth”.  This action will serve to shorten, the already shrinking list, of mortgage companies who may participate in this program.

The Fed admitted that the economy is “losing steam” and that the “pace of recovery had slowed in recent months” and is more “modest in the near term than was anticipated.”  This alone would have ignited buying in Treasuries, but the Committee also said that in order to keep money on its books it will reinvest the interest earned on mortgage-backed securities in 2-year and 10-year Treasury notes.

In addition, it again pledged to keep interest rates low for an extended period to facilitate recovery.

The benchmark 10-year note yield, which moves inversely to price, fell to 2.78% from 2.84% in the 40 minutes or so before the market closed.  But Wednesday it closed at 2.68% after hitting 2.61% during the session.  In addition, three bond auctions were heavily bid, adding to demand.

The economic releases, such as they were, had minor influence on Treasuries.  On Tuesday 2^ndquarter data showed productivity fell 0.9% — the first decline in 18 months.  Costs were down 0.2%.  Some analysts blame worker burnout for the decline — fewer people doing more work.  Separately, wholesale inventories fell 0.7% in June, after rising 0.5% in May.

On Thursday Treasury prices rose early after first-time jobless claims for the week ended Aug. 7 rose by 2,000 to 484,000 — the highest level since February 20.  But then they fell as stocks rebounded from huge losses on Wednesday.  Bargain hunters pulled money from bonds and headed to Wall Street to scoop up deals.

Friday was a mixed morning for Treasuries.  The consumer price index rose by a stronger-than-expected 0.3% in July, while the more important core rate edged up 0.1%.  But retail sales in July were much improved, putting pressure on bonds.  They rose 0.4% after falling 0.3% in June.  Excluding autos, sales rose 0.2%.  The University of Michigan preliminary consumer confidence survey for August increased 69.6 from 67.8, giving stocks a lift but leaving the 10-year yield at a mid-morning low of 2.71%.

Both applications to purchase and refinance rose during the week ended Aug. 6, but the results were somewhat disappointing in light of record low mortgage rates.  Purchase apps edged up 0.3% and refis rose only 0.2%.

This week is heavy on manufacturing reports, with a little housing and some inflation data thrown in for good measure.

Monday features the NY Empire State index on August manufacturing conditions, and it’s expected to climb to 8.8 from 5.1.  Now that’s not much, but the previous month it dove 14.49 points, so this would be good news; but it’s unlikely to cause a sell-off in Treasuries.  Likewise, the homebuilders’ index, which measures confidence, should edge up to 15 from 14.  It hit a 16-month low last month, but this increase should not affect the markets.

The producer price index, which tracks inflation at the wholesale level, should support Treasuries if estimates are correct.  The index is expected to rise 0.2%, while the core rate, which excludes food and energy prices, is expected to edge up 0.1%.

Housing starts for July could rise to an annual rate of 560,000 units from 549,000.  If they’re much above that, slight selling pressure on bonds could occur.  But an expected drop in building permits would probably counteract that.  They’re forecast to fall to an annual rate of 575,000 from 586,000.

Nothing is due on Wednesday or Friday, so Thursday becomes the last day of the week for economic indicators, starting with first-time jobless claims for the week ended Aug. 14.  With increases in claims for the past two weeks, it may be time for a decline, which would cool buying in Treasuries.  But who knows?

The Philly Fed index on August manufacturing conditions is expected to rise to 7.0 from 5.1; that is not likely to excite the markets.

Lastly, the index of leading economic indicators for July, which looks at the economy six to nine months ahead, should rise 0.2% from -0.2 in June.  That’s a fairly large upside move, but this indicator is generally not a powerful one.