Mortgage Blog

Wow, mortgage backed securities finally headed in the right direction direction, even if just for a short time. I hope you all were paying close attention and were able to help your clients cash in on the correction. After the sub-prime collapse Congress and the Fed severly overcompensated for lending program credit requirements, but now recent changes have once again breathed a little oxygen into the lungs of the shallow mortgage industry. Just how long is it going to last though?

The recent changes come from MSNBC reports that U.S. consumer confidence fell to an unexpectedly near 10 year low, sinking to the fifth-lowest level ever in history.The report Tuesday also said the group’s reading of consumers’ expectations hit an all-time low as home prices tumbled while gasoline and food prices rose. A separate index of home prices saw the largest drop since its inception in 2000.

Last week did not have a lot of data coming in so it relied a lot on technical factors and the direction of stocks mostly.  In the previous weeks, bonds have done very little besides fall down a steep slope, so a move higher was needed just to bring reality back into the mix.  The move higher is likely unsustainable, but more on that later.

Looking at the past week, oil prices continued to climb, even when Saudi Arabia announced that they would increase production.  Combine the recent strikes in Israel with talks from Israel about preemptive strikes on Iran’s nuclear plants and you can see why oil is dropping.  Since oil prices are part of the inflationary battle, bonds did not like the news.

However, things were not all bad for bonds as they did climb, fueled by more fears of a slow economy.  The manufacturing sector showed weakness, the Philadelphia Fed Index missed expectations, and more write downs from CItigroup all aided in giving bonds a much needed boost.  By the end of the week, mortgage rates were down a little, about .125%

Technically speaking, bonds are still leaning toward the oversold side of the spectrum, but they remain in their downward trend.  Without any catalyst to break the trend, the recent move higher will be a needed correction and the downward trend will resume shortly.  I would start the week off cautiously floating if bonds open higher, but be ready to lock as the trend lower resumes.

However, don’t let your guard down just yet as the future does not look bright for bonds.  For starters, the move higher is likely just a correction as bonds failed to break resistance on Friday and remain below their downward trend line. 

Technical analysis is pointing toward the oversold side of the spectrum, but they remain in their downward trend.  Without any catalyst to break the trend, the recent move higher will be a needed correction and the downward trend will resume shortly.  I would start the week off cautiously floating if bonds open higher, but be ready to lock as the trend lower resumes.

Stop by Loanbark soon as I will continue this blog with expansion on how these factors will effect the mortgage market and what we can expect in the next 3-6 months.

New home sales plunged in 2007 by the largest amount on record while home prices tumbled sharply in December. Analysts forecast a continues snide in 2008 as the housing market braces for anticipated recession.

National reports per msn.com reported Monday that “sales of new homes dropped by 26.4 percent last year to 774,000. That marked the biggest decline on record, surpassing the old mark of a 23.1 percent plunge in 1980.”

The government is currently reporting that the average price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.

While sellers are taking it on the chin right now, it is a buyers market thus keeping the mortgage industry in busy times. With refinance, mortgage cash outs and investment property being a hot commodity the mortgage industry is prepared to report record numbers in 2008.

The prolonged slump in housing is raising concerns that the weakness could be severe enough to push the country into a full-blown recession. In an effort to guard against that threat, the Federal Reserve cut a key interest rate last week by the largest amount in more than two decades with a further rate cut expected on Wednesday when the Fed completes a two-day meeting.
President Bush and House leaders reached agreement on a $150 billion economic stimulus package last week which included items to boost housing by increasing the size of the mortgages that Fannie Mae and Freddie Mac and the Federal Housing Administration can handle. But critics said the continued plunge in housing showed that more dramatic action is needed.

Following the market over the next few weeks could provide for quiet a roller coaster ride and the stimulus bill will probably not have the effect that most legislators are hyping.