The Weekly Rap! Friday May 31st, 2013

The bond market’s month-long plunge has pushed long-term interest rates on mortgages and Treasurys to their highest levels in more than a year, sparking a debate: Is this a bursting bubble, the aftereffect of clumsy Federal Reserve communication or a welcome sign the economy is, at last, on the mend.  The Dow last traded at 15,232.  The S&P 500 is trading at 1,652.  Gold is trading higher at $1,393 an ounce, while oil futures at $92.87 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.80/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.18%.  30-year Treasury Bond yields last traded at 3.33%.  Rates on 30-year fixed-rate mortgages rose a hair above 4% this week. Six months ago, they were below 3.5%.  Since May 8th Fannie Mae MBS (Mortgage Backed Security) with 3% coupons has fallen nearly 4 points to their lowest levels in a year.  MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The 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 100.34, which is 1.25 pts worse than where we were just last week ago.  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 the housing market continues to improve and overshadow the slight improvements in the rest of the economy as well as consumer confidence at least for the moment is on the rise.  All eyes are on the Fed these days as many traders see the recent fall in bond prices, which move inversely to yields, as confirmation of a bond-market bubble fueled by the Fed and bound to end badly, retarding an economy whose growth is already painfully slow.

Home prices rose in March, marking the fastest annual growth rate in nearly seven years.  The S&P/Case-Shiller 20-city composite rose 1.4% in March, the largest monthly growth since July. The growth from the same period of last year was 10.9%, which marks the highest year-on-year growth rate since April 2006. All 20 cities tracked by the gauge saw year-over-year improvements for a third consecutive month.  Low inventory and interest rates, as well as pent-up demand, are supporting home prices. There are also fewer distressed sales.

Pending sales of homes ticked up 0.3% in April, with gains in the Northeast and Midwest, but decreases in the South and the West.  Despite April’s slight gain, the pending-sales gauge increased 10.3% from April 2012, hitting the highest level in three years.  While the housing market has seen large gains over the past year, low inventories, and high unemployment and credit standards are constraining growth.

Rising home prices encourage market activity as more owners are willing and able to place their homes on the market.  As home prices have increased, the number of owners who owed more on a home than the property was worth fell to about 13 million in the first quarter from 15.7 million during the same period last year. On a percentage basis, 25.4% of all homeowners with a mortgage had negative equity in the first quarter, down from 31.4% during the same period last year.  Owners with negative equity, (those with less than 20% equity) may be unable to afford a down payment for a new home, thereby preventing them from moving.  Rapidly rising prices and bidding wars are preventing first-time buyers from participating.  With fewer first-time buyers, it’s tougher for other owners to sell and move up from starter homes.  It’s a vicious circle.

The Economy grew a touch slower in the first three months of 2013 than previously believed, mainly because of a slower buildup in inventories and a somewhat steeper drop in government spending.  Gross Domestic Product (GDP) expanded at an annual rate of 2.4% in the first quarter, down from an initial estimate of 2.5%.  GDP is the broadest measure of an economy’s health, reflecting the value of all the goods and services a nation produces.  The gain in first-quarter growth follows a tepid increase of 0.4% in the fourth quarter last year.  A big driver of GDP is consumer spending.  The more products that are purchased the more products are produced thus increasing GDP.  Consumer confidence allows us to predict future GDP growth.

Earlier in the week we saw the Conference Board’s Consumer-Confidence Index climbed to a five-year high of 76.2 in May from 69.0 in April.  Apparently we have the most confidence in five years about the nation’s economic prospects.  Higher stock prices, rising home values and falling gasoline costs have made apparently made us more upbeat. A lack of drama in Washington has also allowed consumers to regain confidence after several political disputes had threatened to harm the economy. Still, consumer confidence remains well below the level expected in a normal economic recovery. Before the Great Recession, consumer confidence hovered in the 100-point range.

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

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS# 445991

The Weekly Rap! Friday May 24th, 2013

Stocks fell this morning on light pre-holiday volume, as concerns about Fed policy and recent volatility in global markets kept buyers on the sidelines.  The Dow last traded at 15,289.  The S&P 500 is trading at 1,647.  Gold is trading higher at $1,387 an ounce, while oil futures at $93.88 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.85/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.01%.  30-year Treasury Bond yields last traded at 3.17%.  Mortgage Bonds have traded much lower this week following Bernanke’s comments.  On Wednesday alone Fannie Mae MBS (Mortgage Backed Security) with 3% coupons fell nearly 1 point to their lowest levels in a year and about five times the magnitude of a typical trading day.  MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The 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 101.62, which is 2.00 pts worse than where we were just two weeks ago and 1.00 pt worse than 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 the economy looks to be picking up slightly, with the emphasis on slightly, and the Fed doesn’t know what it wants to do but is shaking up the Markets none the less.

The bond market got rocked again this week on rumblings from the Fed regarding their Bond and Mortgage purchases.  If you’ve been reading this then you know that I’ve been warning of this for some time.  Markets react to the slightest hint of change and it’s like rats deserting a sinking ship, everyone (traders) wants to be the first one out.  Now this could be overblown and we could recover from the panic but take it as a warning, when the Fed has to unwind this “stimulus” markets will unwind as well.

Head Fed Chief Ben Bernanke this week speaking before congress made a few statements that the markets took to mean that the economic stimulus (purchases of mortgages and bonds to the tune of 85 BILLION per month)  the Fed has been pumping into the market is about to come to an end.  The Fed could slow down its asset purchase program in the next few months he told congress.  “In the next few meetings, we could take a step down in our pace of purchase,” Bernanke said in a question-and-answer session with the Joint Economic Committee.  He noted that there has been “some improvement” in the job market, and the central bankers will focus on whether this continues, “and there is confidence that it is going to be sustained.”  But then to contract and confuse us all he stated “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,”

According to the minutes of the Fed’s April 30-May 1 meeting released this week, a “number” of the Fed Gods although there was no consensus, were willing to slow down asset purchases as soon at their next meeting in June. On the other hand, a “couple” of Fed officials said the Fed might have to ease more if inflation fell further. One Fed official wanted to stop the bond purchases immediately, while another wanted to increase the size of the program.  This really give me a comfort feeling (read sarcasm) that the Fed Gods have no real clue what to do and definitely are not acting as a cohesive group.

Existing-home sales rose in April to hit the highest rate since November 2009, pointing to an ongoing recovery supported by low interest rates and pent-up demand.  Existing-home sales rose 0.6% in April to an annual rate of 4.97 million, according to the National Association of Realtors. Sales of existing homes in April were 9.7% higher than during the same period last year.  Both first-time buyer and investor buying trends have remained steady over the past six months, suggesting that the recent rebound in home prices has not yet become an issue for buyers.  Inventories rose 11.9% in April to 2.16 million existing homes for sale. April tends to have the highest inventories of the year. The supply rose to 5.2 months in April from 4.7 months in March.  Distressed-property sales fell to 18% of all transactions in April, the lowest since data collection began in 2008. Sales of new homes edged up 2.3% in April to the second-highest post-recession level

Orders for durable goods climbed 3.3% last month after a revised 5.9% drop in March.  Higher demand for autos, airplanes and military wares boosted orders for long-lasting goods in April, but orders also rose in most other industries in a positive sign for U.S. manufacturers.  If the volatile transportation sector is excluded, orders rose a smaller 1.3% but demand was still broad based. Almost every key sector reported higher orders. This latest report offers a ray of hope for a segment of the economy that has shown softness over the past few months in an array of other indicators.

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

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS# 445991

The Weekly Rap! Friday May 10th, 2013

This Sunday is Mother’s day, but did you know the modern holiday of Mother’s Day was first celebrated in 1908, when Anna Jarvis held a memorial for her mother in Grafton, West Virginia. She then began a campaign to make “Mother’s Day” a recognized holiday in the United States.  I’m sure there was a lobbyist from Hallmark in there somewhere.  She succeeded in 1914 when Congress actually agreed on something and designated the second Sunday in May as Mother’s Day.  So Happy Mother’s day to all you fantastic Mothers out there!  We wouldn’t be here without you.

The economy continues to limp along fueled mostly by Fed intervention, but apparently that’s enough to boost stocks into record territory.  The Dow last traded at 15,060 breaking another record high this week.  The S&P 500 is trading at 1,627.  Gold is trading lower at $1,433 an ounce, while oil futures at $94.60 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.68/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.89%.  30-year Treasury Bond yields last traded at 3.09%.  Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and continue 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 104.125 a tad worse 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; it’s been a very light week of economic news so I get to rant a bit.  The reader’s digest version is the economy continues to drag its feet as slow as possible without going backwards.

Home prices rose 1.9% in March, marking the 13th straight monthly rise and a 10.5% year-on-year gain, CoreLogic reported. Excluding distressed sales, the monthly gain was 2.4%. Strong gains here in the western region, including a 22.2% year-on-year gain in Nevada and a 17.2% gain in California, lead the advance.  Only four states saw year-on-year drop: Delaware, Alabama, Illinois and Virginia. CoreLogic’s pending home price indicator points to a 1.3% monthly and 9.6% year-on-year gain for April.

The Fed reported that consumers increased their debt in March by $8.0 billion, While this may seem like a large increase, it’s the smallest increase since last July.  The increase is well below February’s $18.6 billion pace and was smaller than the $16 billion increase expected by Wall Street.  Monthly debt rose at a 3.4% annual rate in March, less than half the 8.0% pace in the prior month.  This is the biggest percentage decline since last July. The fear is that consumer spending may not hold up in the face of payroll tax increases.

In the latest Fed survey (the April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices), only a few American banks reported that they eased standards on prime residential mortgages over the past three months. This summary is based on responses from 68 domestic banks and 21 U.S. branches and agencies of foreign banks.

Fear of “putback risk,” the risk that the insurers (Fannie Mae and HUD etc) and mortgage buyers would force them to buy back bad loans, is an important factor.  A number of smaller banks indicated that they were even less likely now to approve a mortgage loan with a FICO score of 620, depending on the down payment.  Some more banks were likely to approve a mortgage application with excellent credit (a FICO score of 720) and a 20% down payment.  Surprise surprise.  About a third of banks indicated that they were less likely to approve mortgages insured by the Federal Housing Administration with FICO scores of 580 or 620.

I really don’t have a problem with this thinking.  You need to have at least decent credit or we end up right where we were a few years ago.  Last fall, Bernanke said that mortgage lending standards appeared to be “overly tight.”  That is, by the way, a “vague” term.  It depends on HIS meaning of overly tight.  While I agree that we have gone to the other end of the spectrum from a few years ago when if you could fog a mirror you got 100% financing to purchase a home, this is what happens.  The banking system is trying to eliminate all risk in a risk based industry.

I really don’t think it’s difficult to get a loan these days.  It is though difficult to document a loan.  Some of the paper trails underwriters are demanding border on the ridiculous.  I have a purchase where the buyer had a CD mature and transferred the funds from the investment account into their bank account for the down payment.  No problem right?  We have the statement showing the funds being transferred out and the other statement with the funds being transferred in.  Should be good right?  Oh no, the Underwriter wants a copy of the front and back of the check.  Really???   Have we really gotten this anal that we need to document trivial things?  The borrowers in this case have 790 credit scores great income and plenty of reserves, what a loan should be based on, or as the newly anointed by congress Consumer Finance Protection Bureau CFPB says, “the ability to repay the debt”.  If an address shows up on a credit report that is not listed as owned on the application we have to provide a detailed explanation on when and why the client lived at the address even if it was 15 years ago.  What does this have to do with the borrowers’ ability to repay the debt?  And don’t get me started on the credit scoring system.

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 May 3rd, 2013

The job gains reported this morning don’t reflect a rapidly growing economy, but they provided enough relief to markets to boost stocks into record territory.  The Dow last traded at 14,986 about 276 pts higher than last Friday.  The S&P 500 is trading at 1,615.  Gold is trading lower at $1,464 an ounce, while oil futures at $95.57 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.59/Gal.  There’s a great “App” called “Gas Buddy” that will allow you to find the cheapest gas prices where ever you are and map you to the station.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.75%.  30-year Treasury Bond yields last traded at 2.95%.  Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and continue 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 104.125 a tad worse 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; get your popcorn ready, it’s been a full week of economic news.  the reader’s digest version is The economy is faltering early in the new year, the Fed Gods had a meeting housing seems to have reached a bottom and is at least in recovery mode and job growth seems to have rebounded a bit.

What ultimately drives the economy is spending.  Without primarily consumer spending we have no economic growth..  Well… consumers were more cautious spenders in March and income growth also slowed, reinforcing a mass of reports that indicate the economy slowed as the spring began.  Consumer spending rose just 0.2% last month, down from 0.7% in February. It was the smallest gain in three months. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire workers. Less spending results in slower economic growth.  Americans spent more in March on services such as eating out, but they also paid higher utility bills because of an unusually cold March. That accounted for a big chunk of the spending. Utility bills are expected to decline in the next month or two, letting consumers save the extra cash or spend it on other things.  We’ll see.

While we spent less money we apparently grew more confident in April despite mounting evidence the economy may have slipped into another spring lull.  The consumer confidence index rose to 68.1 this month from 61.9 in March, according to the nonprofit Conference Board, publisher of the report.  Consumer confidence took a fall in March partly because of the “sequester,” the law requiring billions in federal spending cuts that dominated headlines last month. Yet the controversy over the sequester has largely died down, or fell out of media favor, while rising stock prices and falling gasoline costs may have eased concerns, at least for the moment.  Before the 2007-2009 recession, the consumer confidence index hovered around the 100 mark. The index is a good long-term indicator of where the economy is headed, but it can be very choppy on a month-to-month basis.

U.S. manufacturers barely expanded in April as the industry’s rate of growth slowed to the lowest pace since December, fell to 50.7% from 51.3% in March according to the closely followed ISM or Institute for Supply Management index. Reading over 50 indicate more manufacturers are expanding instead of contracting.

Pending home sales rose nationally 1.5% in March, reversing February’s decline, the National Association of Realtors reported. The pending-home-sales index increased to 105.7 in March from 104.1 in February, and was up 7% from March 2012. Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply.  The S&P/Case-Shiller 20-city composite index rose 9.3% in February from the same period last year, the largest annual growth since May 2006.  All 20 cities saw year-over-year gains in February, with accelerating growth in 16 cities.

I’m sure you’ve heard the scuttle “is this a bubble” that housing prices could be rising so quickly.  This is very much like an over correction in the stock market. On Oct 12 2007 the Dow was at 14,093,  On March 6 2009 (just two years later) it had dropped to 6,626.  That’s a drop of 53%.  But by June 12, 2009 (just 3 months later) the Dow was at 8,799, a 32% increase from the low hit just months earlier.  I just think we’ve seen the bottom and the market is reacting to having overcorrected.  The housing market could go up by 100% from the bottom and we would still be half way to where we were at the top and I’m not even factoring in inflation.

The Fed Gods met this week and stated in their policy statement, that they were flexible, saying the Fed was prepared to “increase or reduce the pace of its purchases,” commonly known as quantitative easing, depending on labor market or inflation changes.  Big Chief Bernanke had previously said the Fed was flexible, but this is the first time it was included in the statement.  If you’ve been reading this commentary you are aware that after starting the year brightly, the economy has started to look sluggish in recent weeks. At the same time, inflation has been softening and remains well below the Fed’s 2% target.

The new flexible language matters because most of the market discussion has centered on the question on when the asset purchases will be reduced.  The Fed Gods have to be careful with this because they are artificially suppressing long term interest rates on treasuries and mortgages by purchasing these securities and creating more demand with less supply (remember your econ 101).  With inflation low though, the Fed wants to make clear that excessive deflation could require more aggressive easing.  The minutes of this two-day meeting will be released on May 22. It’s expected that there will be an active discussion of the factors behind the weaker inflation.

On the jobs front: The U.S. created a net 165,000 jobs in April and the hiring was stronger in March and February than the Labor Department initially reported. The increase in jobs exceeded the 135,000 forecast which is causing the stock market to rally. The acceleration in hiring also nudged the unemployment rate down to 7.5% from 7.6% in March. That’s the lowest level since December 2008, the month before President Obama took office.  Yet despite an improved labor market in April, companies are not hiring as many workers as they were just a few months ago and most economites think job growth will remain soft. Among the reasons: cuts in federal spending will accelerate and consumers are expected to feel a sharper bite from higher tax rates imposed in January.

The unemployment rate, for its part, won’t shrink rapidly unless companies hire at a much faster clip. The U.S. needs to average around 250,000 jobs a month for an extended period to tug the jobless rate back down to pre-recession levels of under 6%. The pace of hiring in April is far too slow to accomplish that task.

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