The Weekly Rap! Friday Apr 26th, 2013

The Dow last traded at 14,710 about 200 pts higher than last Friday.  The S&P 500 is trading at 1,580.  Gold is trading lower at $1,476 an ounce, while oil futures at $93.04 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.63/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.67%.  30-year Treasury Bond yields last traded at 2.86%.  Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and look to have established a higher range (lower rates).  The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 104.46 a tad better than where we were last Friday.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week; the reader’s digest version is that the economy looks to be slowing again.  GDP is higher but you have to read the details, Durable Goods orders were down, but the housing market continues to improve. Consumers are less optimistic about the ability of the economy to continue to expand without a renewed downturn sometime in the next five years.

According to the Chicago Fed’s national activity index, the economy ran below trend potential in March. The index weights 85 different economic indicators and is designed so that readings above zero indicate the economy is growing above average historical trends, and readings below zero indicate the economy is running below-average trend growth. When the three-month moving average moves below -0.70, there’s an increasing likelihood a recession has begun. In March, the index swung to -0.23 from +0.76 in February, and the three-month moving average fell to -0.01 from +0.12.

The National Association of Realtors said sales of existing homes declined in March falling 0.6% to an annual rate of 4.92 million possibly signaling a pause in the market as potential sellers were apparently reluctant to put their homes on the market.  Low inventories of existing homes for sale are constraining activity, according to NAR. The supply of existing homes available for sale has remained under 2 million since October, and has decreased 17% over the past year. Inventories are expected to see a large gain in April as the buying season heats up. Despite March’s decline, sales were up 10.3% over the last 12 months.

Median prices hit $184,300 in March, up 11.8% from the same period last year, the largest year-over-year price growth since November 2005.  Low inventories are supporting prices, and the median price has benefited from less distressed home activity, NAR said.  Distressed homes made up 21% of sales in March, the lowest share since data collection began in 2008, down from 29% during the same period last year.

Sales of new single-family homes rose in March following a substantial drop in February, signaling restarted momentum in the housing market.  With near-record-low interest rates continuing to support affordability, sales were 18.5% higher than during the same period last year, and the expectation is for the housing market to continue to gain momentum this year.  There’s room to grow: Despite last month’s gains, the sales rate remains far below a peak of almost 1.4 million in 2005, though that bubble level is far higher than economists say is healthy.

GDP or Gross domestic product expanded at a 2.5% annual rate in the first quarter, up from a paltry 0.4% at the end of 2012. Businesses restocked warehouses shelves at a faster clip and consumer spending posted the biggest gain in more than two years.  The acceleration in growth in the early stages of 2013 appears to stand in sharp contrast to the fourth quarter and may look like a positive sign, but the underlying strength of demand for U.S.-made goods and services was actually weaker in the first quarter.

So-called “real final sales”, which removes unsold goods, rose just 1.5% and matched the smallest increase in two years. It was down from 1.8% in the prior quarter.  The softness in demand suggests little change in the overall pace of growth once unusual factors are stripped out. The economy has been expanding at about a 2% clip for the past two years. Hardly anything to get excited about and in my opinion not good enough to justify record breaking stock market levels.

Durable goods (products designed to last at least three years) posted the biggest drop in March since last summer, mainly because of fewer jetliner bookings, but the generally soft report added to mounting evidence that the economy has slowed again.  Orders fell 5.7% last month to mark the biggest drop since last August.  These orders are critical component of economic growth since rising sales of autos, computers, furniture and so forth signal an improving economy.

What’s bad for the economy is good for interest rates though, sort of a balancing effect.  The modest pace of growth, combined with low inflation, indicates little end in sight for the Fed’s multibillion-dollar bond purchase program aimed at keeping interest rates low

As you would expect given the reports, consumer sentiment fell to a three-month low in April, led by lower expectations.  The University of Michigan-Thomson Reuters consumer-sentiment gauge fell to a final April reading of 76.4, the lowest result since January, from a final March reading of 78.6. This is clearly consistent with an economy that has no clear upside momentum. In April we faced negative news on jobs and federal spending, though we also saw stocks rise and gasoline prices decline. In addition, we’ve been hit by higher payroll taxes. The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the start of the most recent recession.

Bill

The Weekly Rap! Friday Apr 19, 2013

The Dow last traded at 14,502 about 300 pts lower than last Friday.  The S&P 500 is trading at 1,550.  Gold is trading lower at $1,396 an ounce, while oil futures at $87.85 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.65/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.70%.  30-year Treasury Bond yields last traded at 2.88%.  Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and look to have established a higher range (lower rates).  The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 104.21 lower by about where we were last Friday.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week; the reader’s digest version is that the economy looks to be slowing again.  Manufacturing is slowing, inflation is tame, and builder confidence is slowing a bit.

Manufacturing activity nudged higher in the New York region in April, reinforcing other data showing the economy is entering a spring slowdown.  The New York Fed’s Empire State index fell to 3.1 points in April from 9.2 in March. Manufacturers in the Philadelphia region continued to expand their business in April, but just barely, and companies were less eager to hire new workers.  The Philadelphia Fed’s index of business conditions fell to 1.3 in April from 2.0 in March. Readings above zero indicate manufacturing is growing instead of shrinking. Manufacturers led the recovery after the last recession ended in mid-2009, but the sector began to lose momentum in 2011, and business has been lax ever since.

According to the Conference Board, the economy “has lost some steam” and will grow slowly in the near term as it reported that its leading economic index LEI, a weighted gauge of 10 indicators designed to signal business-cycle peaks and troughs, declined 0.1% last month following three months of gains. The largest negative contribution came from consumers’ expectations. Other negative contributions came from building permits, a manufacturing new-orders index, weekly manufacturing hours and weekly jobless claims.

On a more positive note; industrial production increased a tad in March capping off the best quarter in a year for output in which demand for cars and construction supplies grew.  The Fed said industrial production rose 0.4% in March, and February’s growth was revised higher to 1.1% from the initially reported 0.8% advance.

Construction on new homes in March hit the highest rate in almost five years, as starts for apartments jumped.  The report pointed to an ongoing rebound in housing activity: starts in March were up 47% from the same period a year ago, the largest year-over-year growth since 1992.  Housing starts rose 7% in March to an annual rate of 1.04 million, the highest rate since June 2008. Despite the construction gains, starts remain below a bubble peak of almost 2.3 million in 2006. Building permits, a sign of future demand, fell 3.9% in March.

On the inflation front; Consumer inflation pressures eased in March as gasoline prices dropped, which could add to fears of renewed deflationary pressure in the economy as hinted by the drop in gold prices.  The consumer price index CPI decreased 0.2% in March, led by lower energy and apparel costs.  In the past year, the CPI has risen just 1.5%, the slowest year-over-year growth since July.  The combination of tame inflation, tighter fiscal policy and a soft patch in the economic data should allow the Fed to maintain its bond-buying program at its current $85 billion pace.  The Fed Gods will meet again for two days on April 30-May 1.

A gauge of confidence among home builders decreased to 42 in April from 44 in March for a third month of declines, hitting the lowest level in six months, hurt by weaker views on present sales of single-family homes and prospective-buyer traffic.  Apparently according to the report; many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values.  The last time the index reached above a key reading of 50 was in 2006. Readings over 50 indicate that more builders see sales conditions as good than poor. Despite April’s decline, the sentiment level among builders is up 75% from a year earlier.

If you know anyone who can benefit from my services, please call me.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Please visit my website at: http://bill.bartok.stanfordloans.com/agents/Blog

Sincerely,

Bill Bartok

Mortgage Advisor NMLS #445991

The Weekly Rap! Friday Apr 12, 2013

The Dow last traded at 14,830 about 300 pts higher than last Friday.  The S&P 500 is trading at 1,584.  Gold is trading lower at $1,501 an ounce, while oil futures at $91.56 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.67/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.72%.  30-year Treasury Bond yields last traded at 2.92%.  Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and are trying to establish a higher range (lower rates).  The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 104.06 lower by about ½ point over last week (higher rates).  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week; the reader’s digest version is that the economy looks to be slowing again.  The Fed Gods are hinting at slowing their purchases of bonds, Retail sales is down, as well as inflation and consumer sentiment.

Ok, so I had to dig for this one.  What can I say; you’d be amazed at the indices and indicators that are out there for us and the economites to analyze. The March “small-business optimism” index of the National Federation of Independent Business fell 1.3 points to 89.5.  The biggest fall in the index came from a 5-point slide in “expect real sales higher,” followed by 4-point slides in both “plans to increase employment” and “plans to increase inventories.” The report is based on the responses of 759 randomly sampled small businesses in NFIB’s membership.  Not how’s that for an index?

So we all know by now that the Fed Gods have been buying bonds (treasuries and Mortgage-backed-securities) for quite a while now.  The question begs though; how does the Fed stop buying and effectively pumping cash into the market without totally throwing chaos into the markets and causing all hell to break loose?  Answer:  you leak the information slowly in the form of rumors, or in the case this week you release the minutes of the last Fed meeting with “hints” or vague adjectives like “few,” “some” and “several” of the Fed Gods were in favor of slowing the purchases.

The minutes of the March 19-20 meeting showed a wealth of opinion, from one member who wanted to slow bond purchases immediately to a few who suggest more bond purchases may have to be made should the economy strengthen.  A “few” favored slowing the purchases at midyear, with the program ending later in 2013.  Several others thought that if labor conditions improve as expected, the Fed could slow purchases “later in the year and stop them by year-end.”  But the Fed meeting came before the release of the weak March nonfarm payroll data and other signs that the economy was slowing, which would push back the time for any tapering

Consumers spent less on gas and most other stores in March, as retail sales posted the biggest decline in nine months.  The decline in sales, the biggest since last June, might be a sign that higher taxes and slower job creation are taking a bite out of the economy.  Retail sales in the U.S. fell 0.4% last month after a slightly revised 1.0% gain in February.  Sales for January were also revised to show a 0.1% drop instead of a 0.2% increase, suggesting that first-quarter growth might not be as strong as originally forecast. The U.S. has been estimated to have grown 3.0% in the first quarter.

Sales fell the sharpest at gasoline stations, down 2.2% in the month, as the price at the pump declined.  The average cost of regular gas fell from $3.72 a gallon to around $3.57 in March.  Lower gas prices are a good thing because it gives us more to spend on other items aside from basic necessities. Yet consumers also trimmed purchases at many other stores.  Sales fell 0.6% at auto dealers, 1.6% at electronics and appliance stores, 1.2% at general-merchandise outlets and 1.1% at department stores. Retail sales account for about one-third of consumer spending, the main engine of the economy.  They are a good proxy for how fast the U.S. is growing, though the data is prone to sharp revisions like what occurred in January.

Inflation at the wholesale level (Producer prices) fell 0.6% in March as energy costs retreated after a sharp gain in the prior month.  This is the biggest one-month drop in wholesale prices since last May. Energy prices fell 3.4% in March after a 3% gain in February. This offset a 0.8% rise in food prices. Excluding food and energy, core PPI rose 0.2% for the third-straight month. About a quarter of the increase came from prices for non-government aircraft.  Taken over 12 months, producer prices are up 1.1% in March, down from a 1.7% increase in February. This is the smallest year-over-year advance since last July.

A gauge of consumer sentiment (the University of Michigan-Thomson Reuters consumer-sentiment gauge), dropped to 72.3, the lowest result since July, in early April to the lowest level in nine months, led by gloomier expectations and views on current economic conditions. The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the start of the most recent recession. We watch sentiment data to get a feel for the direction of consumer spending.

Please visit my website at: http://bill.bartok.stanfordloans.com/agents/Blog

Sincerely,

Bill Bartok

Mortgage Advisor  NMLS# 445991