Once again, we will try to cautiously float after another day of plunging Bond Prices. Mortgage Bonds continued their downward spiral today as sellers kept coming out of the woodwork screaming, “GET ME OUT!” The 3.5% coupon ended at 100.31 down a whopping 112bp. The drop in prices can be attributed towards the layout of tapering by Mr. Bernanke at Wednesday’s Fed meeting along with better than expected economic data this week. The yield on the 10-yr T Note rises to 2.54% for the biggest weekly selloff since 2003.
The blow off occurred after the Fed statement read that the downside risks to the labor market and the economy has improved since the fall. In addition, at his press conference, Fed Chair Bernanke said that if the Fed’s forecasts come in as expected, the committee sees likely reduction in Bond purchases this year.
Stocks were able to finish high on the Quadruple Witching Friday. The Dow gained 43.38 points to 14,801.70, the Nasdaq finished at 3,357.25 down 7.30 points while the closely watched S&P 500 settled at 1,592.52 up 4.33 points. Oil was last seen at $93.92/barrel down $1.22.
Below is a chart of the FNMA Bond. It’s easy to see the damage done to Bond Prices since May 13th.
Important to note is that Mortgage rates move higher when Bond Prices move lower. Hence the reason why mortgage rates moved up as much and as fast as the did.
Federal Reserve Chairman Ben Bernanke
The Federal Reserve will keep its version of the monetary printing press running a while longer, and provided few hints Wednesday that the days of extreme easing are coming to a close. In a decision watched with a surgeon’s precision on Wall Street, the central bank’s Open Markets Committee tiptoed around the vaunted “tapering” question, saying it will continue watching the economy for more gains.
The Fed more or less met market expectations for this meeting, though some traders thought it would lay out a groundwork that could lead to at least a modest tightening of its $85 billion a month bond-buying program by September.
What to do Now?
Many market analysts believe that the sell off in Bonds is extremely over done and due for a correction. Rates are still very low by historical standards and the recommendation is to watch for a correction that may move rates lower and then look to lock into a Mortgage rate. However, that does not mean delaying you Mortgage Application, as you want to be in a position to lock into a rate at a moments notice.
Housing News
For the first time in over seven years, the nation’s home builders are feeling solidly confident about the housing market. A monthly sentiment index from the National Association of Home Builders jumped eight points in June to a reading of 52. Anything above 50 means builders view sales conditions as good.
Housing starts rose 6.8 percent to a 914,000 annualized rate in May, versus 853,000 in April. Reuters estimated housing starts would grow to 950,000.
S&P expects Home Prices to Keep Rising
Surging home prices throughout the country have spurred talk of a housing bubble, as many markets are still recovering from the last bubble bursting in 2007.
But Standard & Poor’s Ratings Services states that, although double-digit gains are ultimately unsustainable, we may not have reached bubble status quite yet.
Home price appreciation can be attributed to a number of factors, including historically low rates, property purchases by investors who are renting homes out and a shortage in home inventory. In fact, recently the S&P/Case-Shiller home price index hit an 11% year-over-year increase, from 8%.
Economic News
Weekly claims for state unemployment benefits rose to 354,000. Economists polled by Reuters had forecast that claims would rise to 340,000, from the previous week’s 334,000 claims.