November 28, 2011

WeeklyBasis 11/28: Rates Even To Up. Unless QE3 MBS Rumors True.

November 28, 2011

WeeklyBasis 11/28: Rates Even To Up. Unless QE3 MBS Rumors True.

Rates were down .125% last week, but only for loans to 417k. The two other tiers—loans to 625k and loans to 2m—were even and held that line through today. Below I recap last week’s critical market data and preview what’s coming (late this week, it’s normally Saturdays).

And since loan limit confusion continues, READ THIS for current FHA, Conforming and Jumbo loan limits on 1-4 unit properties.

Washington Budget Debates Fail: A U.S. bipartisan Congressional ‘super committee’ had until November 23 to propose how to cut the U.S. budget by 1.2 trillion over 10 years. They failed one day early. This creates uncertainty that pushes investors towards bonds which helps rates.

Existing Home Sales Worse Than Interpreted: Sales of existing homes were up 1.4% September to October and up 13.5% since October 2010. This was seen as OK for housing but cancelled deals continue to spike: 18% of contracts didn’t close in September (same as August), up from 9% in Sept 2010, then this number jumped to 33% for October. I explained last week why I think this stat is true from where I sit.

GDP Weaker: The second of three 3Q2011 GDP reports showed weaker economic growth than originally stated last month. It dropped from 2.5% to 2%. The 2Q figure was +1.3% and 1Q was 0.4%.

Jobs Better: Claims for unemployment insurance rise slightly to 393,000 last week, just off the seven-month low set last week and the fourth week below the 400k threshold considered to signal an improving jobs picture. The 4-week average dropped to 394,250, also a seven-month low and the start of an improving trend, which bodes better for stocks and worse for rates if the trend continues.

Here are next week’s economic calendar highlights with rate impacts:

New Home Sales Up But: Sales were up 1.3% for October and up 8.9% since October 2010. Median prices were down to 212,300, and average sale price was 242,300. This chart shows a slog on the bottom for national sales. Local analysis is critical for buyer and seller decision making.

Case Shiller Home Prices: Tomorrow’s September Case Shiller report is likely to show a similar flat trend. August showed prices across 20 major U.S. metro areas were up 0.2% since July, the fifth straight monthly ’20-City’ gain but barely a gain. Prices were down 3.8% since August 2010, a slightly lower year-over-year loss from last month. Home prices are still at 2003 levels following the 2006 highs.

Critical Jobs Report: The economy added 80k non-farm payrolls in October, and Friday economists expect 110-133k for Friday’s November report. Jobless claims have dropped but maybe not enough for it to reflect in November data. Also holiday shopping hiring is dubious due to lots of short-term hires.

Technical Trading Factors: Looking at stocks, the S&P 500 closed last week at at 1170, down 3.66%, breaking below support at the 50 day moving average of 1206. We got a bounce up to 1192 today on holiday shopping and EU crisis aversion optimism but jitters abound. As for mortgage bonds—namely the 3.5% Fannie Mae coupon most lenders use to price consumer rate sheets—they’ve been resilient at the 25 and 50 day moving averages. Each time these MBS prices drop below (pushing rates up), they rally again (pushing rates down). This resilient theme continued today, with a big selloff this morning and ending the day up 23 basis points.

Bottom Line For Rates: My prediction last week of “rates even to slightly down, recapturing record lows at miscellaneous trading intervals during the week” is what happened. As I say often, rates come and go quickly, so you have to target your rate and give your lender a standing order to lock when it’s there. Here’s how. As for this week, technical and fundamental factors suggest rates even to slightly up, mostly because of holiday shopping optimism and a potential upside surprise jobs report. But we’re still at lows to begin the week because trader rumors persist about the Fed buying 545b in mortgage bonds with a QE3 round to be announced in 1Q2011. This and EU troubles will cap any spikes near-term.