The Bond markets started the week lower due to a jump in Retail Sales in September along with a strong earnings report from Citigroup. While most beleive that Mortgage rates aren’t moving higher anytime soon, I have a different take on rates.
The Fed’s implimentation of QE3 (buying $40B in Bonds per month) is to get the economy going. Unfortunately, if successful, will spur on inflation. Infaltion is the the arch enemy of Bonds and Mortgage rates. Inflation is already near the top of the Fed’s normal confort level. If inflation moves higher it will be impossible for Mortgage rates to move lower. It is equally important to understand that investors will not buy Bonds with the 10-year Note yielding only 1.70%, which is below the current and long-term inflation rate. Therefore, either prices need to contract and deflation continues, or the Fed succeeds in creating inflation which in turn hurts Bond prices and increases Mortgage rates. So, waiting and hoping that mortgage rates will move lower from hear is risky, especially if you stand to save by refinancing at these current levels. I do not recommend gambling with some of the lowest Mortgage rates in history and recommend locking into rates at this time.
Bonds recoverd a bit today, Friday as Bonds were helped by a plunge in the Stock markets. The Stock market sell-off was caused by weak earnings reports from big companies like Microsoft, GE and Google along with a poor report for Existing Home Sales. The 3% coupon rose 34bp to end the session at 104.53. The Dow fell 205.43 points to end at 13,343.50, the S&P 500 lost 24.15 points to 1,443.19 points while the Nasdaq dropped 67.25 points to end the week at 3,005.62.
Housing News
Existing home sales fall 1.7% in September from August to 4.75M units but up 11.3% from September of 2011.
Freddie Mac reports that the rate on the average 30-yr fixed home loan rate is at 3.37%. To obtain that rate, a borrower would have to pay a 0.7 point.
US home construction jumped 15 percent in September to a four-year high of 872,000, while permits rose as well, according to economic data released Wednesday. The Commerce Department said on Wednesday housing starts increased 15 percent last month to a seasonally adjusted annual rate of 872,000 units. That was the quickest pace since July 2008, though data on housing starts is volatile and subject to substantial revisions. August’s starts were revised to show a 758,000-unit pace instead of the previously reported 750,000. Economists polled by Reuters had forecast residential construction rising to a 770,000-unit rate. The housing starts rate is now about 40 percent of its peak in January 2006.
Economic News
Weekly Jobless Claims Drop Proves to Be Short Lived
Weekly applications for U.S. unemployment benefits jumped 46,000 last week to a seasonally adjusted 388,000, the highest in four months. The increase represents a rebound from the previous week’s sharp drop. Both swings were largely due to technical factors.
Many economists believe a reading below 400,000 points to an improving labor market. The four-week moving average of new claims, which smoothes out volatility and is considered a better measure of labor market trends, rose just 750 last week to 365,500.
Today marks the 25th anniversary of the worst Stock market crash in history. The Dow fell 22.61%, 508 points, for the largest one-day percentage loss, which still stands to this day.
The Consumer Price Index (CPI) was reported and both the headline and more closely watched Core CPI were reported at 2%, above expectations.
Sources: CNBC,MMG,Housingwire