May 17, 2012

All Time Record Rates & How To Interpret Headlines

May 17, 2012

All Time Record Rates & How To Interpret Headlines

My Cue Thursday’s Record Rate Headlines Now comments a few days ago played like I said it would. Today’s weekly Freddie Mac rate survey, that serves as source material for nearly all media, showed rates set a new low. This is the fifth straight weekly decline, as shown here:

Here are a few things you need to know when reading these headlines:

-The official source is Freddie Mac, which releases this data each Thursday.

-Rates from the past 3-4 business days.

-Rates are only for loans to $417k, single family homes only, owner-occupied only, and those loans have .7% to .8% in points (aka extra fees) on top of a full set of closing costs.

Rates change throughout each day as mortgage bonds trade, and a rate quote is based on your profile and your property profile, so it must come from a lender (rather than a news article) to be specific.

As for the current mortgage bond trade, lenders watch the Fannie Mae 3.5% coupon as a benchmark for rate pricing in the same way people watch the 10yr Note as a broader barometer of the rate complex.

The higher the bond price, the lower the rate, and look at this chart from MortgageNewsDaily MBSLive (used with permission) to see the incredibly high levels for the 3.5% coupon. This is why we’re at all time lows.

As for what’s driving this, it’s the same theme we’ve been discussing in daily Fundamentals, and my colleague Dick Lepre has some good takes on today’s data below.

Jobless Claims (week ended 5/12/2012)
– Initial Claims 370,000 which was the same as the previous week only after the previous week was revised upward to 370,000

– 4-week Moving Average was 375,000

– The good news is that the jobs market is not getting worse. The bad news is that it is not getting any better except for the thinnest of margins.

Leading Economic Indicators (April 2012)
– Month/Month -0.1%

Philadelphia Fed (May 2012)
– General Business Conditions Index -5.8
– Massive drop from 8.5 in April, and first negative in 8 months
– Zero is the dividing line between expansion and contraction
– This measures manufacturing activity in Eastern Pennsylvania, Southern New Jersey, Deleware
Full report

FOMC minutes suggest the possibility of additional monetary easing but the real story is that there is absolutely nothing monetary policy can do faced with massively irresponsibility fiscal policy which, at present, calls for decreasing spending and increasing taxes at the end of this year.

Despite this, Treasury yields are falling because things are worse in the EU.

$MBB, $TLT, $ZB_F, $ZN_F, $TNX, $TYX