Daily Commentary

Tuesday’s bond market has opened fairly flat after this morning’s economic data gave us mixed results. The stock markets are giving back some of yesterday’s gains with the Dow down 36 points and the Nasdaq down 12 points. The bond market is currently up 2/32, but we will likely see an improvement in this morning’s mortgage rates of approximately .250 of a discount point due to strength in bonds late yesterday.

This morning’s release of the 3rd Quarter Gross Domestic Product (GDP) revision revealed a downward revision, as expected. It revealed a 2.8% annual rate of growth during the third quarter that nearly matched forecasts. This means that the economy did not grow as much during the 3rd quarter than previously thought. That is good news for bonds and mortgage rates, but since the 2.8% increase was nearly what analysts had predicted, the impact on this morning’s trading and mortgage pricing has been minimal.

November’s Consumer Confidence Index (CCI) was posted late this morning, showing a reading of 49.5. This was higher than forecasts were calling for, indicating that consumers were more optimistic about their own financial situations than many had thought. That is considered negative news for bonds because rising confidence means consumers are more apt to make large purchases in the near future, effectively fueling economic growth.

We have two more events to watch for later today. The first are the results of the 5-year Note auction being held today. They will be posted at 1:00 PM ET. If there was a strong demand from investors, we could see bond prices rise and mortgage rates fall this afternoon. But a lackluster interest in the sale could lead to higher mortgage pricing.

The FOMC minutes may be a major mover of the markets or a non-factor, depending on what they say. The key will be concerns over inflation and the Fed’s next move. If the Fed members were concerned about inflationary pressures and overly optimistic about economic growth, we may see the bond market move lower and mortgage rates higher after they are released at 2:00 PM ET.

There are four reports scheduled for release tomorrow morning. October’s Durable Goods Orders is the first and will be posted early morning. This data helps us measure manufacturing strength by tracking orders for big-ticket items, but is known to be quite volatile from month-to-month. It is expected to show a 0.5% increase in new orders. A smaller than expected rise would be considered good news for the bond market and mortgage rates.

The second is October’s Personal Income and Outlays data. This data is thought to measure consumers’ ability to spend and their current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. It is expected to show that income rose 0.2% and that spending increases 0.5%. Smaller than expected readings would be good news for bonds and could lead to improvements in mortgage rates.

The revised November reading to the University of Michigan Index of Consumer Sentiment will be posted late tomorrow morning. Analysts are expecting to see an upward revision of 1.0 to the preliminary reading of 66.0. Unless we see a significant variance from the forecasted reading of 67.0, I don’t think this data will cause much movement in mortgage rates tomorrow.

October’s New Home Sales is the last report, but it is the least important. I don’t think this data will influence mortgage rates unless it varies greatly from forecasts and the rest of the day’s news matches forecasts. It is expected to show a slight increase in sales of newly constructed homes.

Source: Ken Mason, Mortgage California

Daily Mortgage Commentary

Monday’s bond market opened in positive territory despite early stock gains and mixed economic news. The stock markets are kicking the week off in positive ground with the Dow up 119 points and the Nasdaq up 27 points. The bond market is currently up 5/32, which with Friday’s late gains should improve this morning’s mortgage rates by approximately .250 of a discount point.

The Commerce Department reported this morning that October’s Retail Sales rose 1.4%, exceeding forecasts of a 0.9% increase. At first look, this headline number is bad news for bonds. However, two factors prevented the bond market from selling. The first was a sizable downward revision to September’s sales that indicated consumers were spending even less than previously thought. Last month’s estimate was a decline of 1.5% in sales, but it now believed that sales fell 2.3% that month. The second piece of positive news was the reading that excludes October’s more volatile auto sales. With those transactions excluded, sales rose only 0.2%, which was weaker than the 0.4% that was expected. So, today’s report can’t really be considered favorable or negative for bonds and mortgage rates. Its impact has been fairly neutral.

Fed Chairman Bernanke is making a lunchtime speech to the Economic Club of New York today. I don’t believe that we will see too much reaction to his speech, but the possibility always exists whenever he speaks. Therefore, we should not ignore it, but if we see the markets move noticeably between noon and 12:30 PM ET, it likely is a result of something he said.

There are two reports scheduled to be posted tomorrow morning. The first is October's Producer Price Index (PPI) that is one of the two key inflation readings this week. The PPI measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If it reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and should drive mortgage rates higher. If we see in-line or weaker than expected numbers, mortgage rates should fall tomorrow. Current forecasts are calling for an increase of 0.5% in the overall reading and a 0.1% increase in the core reading.

Tomorrow’s second report is October's Industrial Production data. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.4% increase in production. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this data is not as important as the PPI readings are.


Source: Ken Mason, California Mortgage
November 16, 2009

Senate Votes to Renew Tax Credit for First-Time Home Buyers

Senate Votes to Renew Tax Credit for First-Time Home Buyers --
Provision for $8,000 Refund Part of Bill to Extend Jobless Aid

Source: Washington Post, By Dina ElBoghdady
November 5, 2009

The Senate voted Wednesday to renew the government's $8,000 tax credit for first-time home buyers through the first six months of next year as part of a broader bill designed to extend unemployment benefits. For the first time, the tax credit program would also enable many homeowners who buy a new primary residence to receive a $6,500 refund. The bill, which passed 98 to 0, should reach the House floor by Thursday, House Majority Leader Steny H. Hoyer (D-Md.) said in a statement. His office said the legislation would then go to the White House for the president's signature.

Under the bill, first-time home buyers would receive the $8,000 tax credit if they sign a contract by April 30 and close on it by June 30. The plan would also make those who buy a new primary residence eligible for the $6,500 credit if they owned their current home for at least five consecutive years in the previous eight years. But the measure limits the purchase price of the home to $800,000. It also imposes income caps so that people who make more than $125,000 annually and couples who make more than $225,000 would not be eligible for the program, which is estimated to cost $10 billion.

In the Senate's measure, taxpayers would be able to claim the credit on their 2009 income tax return for purchases made in 2010.

Extension of Current Loan Limits

WASHINGTON, D.C. (October 29, 2009)

The Mortgage Bankers Association (MBA) today applauded passage of legislation that will maintain the existing loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) through December 31, 2010. An extension of the current loan limits (which had been due to expire December 31, 2009) was included in the continuing resolution (H.R. 2996) that passed the House and Senate today.

MBA's Chairman, Robert E. Story, Jr., issued the following statement.

"Given the lack of a private secondary mortgage market, FHA, Fannie Mae and Freddie Mac are pretty much the only game in town. Extending the current loan limits through 2010 will allow more loans to qualify for these important programs and will help keep mortgage credit more accessible and affordable for qualified borrowers.

"As we try to maintain the momentum of the housing recovery, providing affordable financing for qualified borrowers is critical. Extending the loan limits, along with other initiatives such as extending and expanding the homebuyer tax credit, will help restore stability to the housing and mortgage markets."

All of my girls --

All my girls together last evening!

Topics To Move Fence Sitters

Topics To Move Fence Sitters:

High Balance Conforming of $729,750 ends 12/30/2009. Reverts back to $625,500. Simultaneous Closing, 1st and 2nd 80% CLTV to $1,250,000 (San Mateo County)

First Time Homebuyers Tax Credit ends 11/30/2009.

Economic News:

Leading economic indicators for September were up 1% and up 11.8% for the last 6 months. Strongest showing since 1983.

New home sales were up for the fifth consecutive month in August. Inventory of new homes are down to their lowest levels since 1990.

The report on Real GDP to be released this week is expected to show an increase of 3.7% annual pace for the 3rd Quarter. By comparisson, first quarter Real GDP was (-6%) Another sign that the economy may have hit bottom and is on a recovery path.

NIMBY Won’t Stop California High-Speed Rail

Source: WIRED: Zach Rosenberg

Democracy, it has been said, is two wolves and a sheep voting on what to eat for dinner. We’re seeing that in California, where resistance to a planned high-speed rail line is mounting in three affluent cities. A vocal, and influential, grassroots movement has sprung up to reroute the line around the San Francisco Bay Area communities or have it run underground.

There is tremendous support — not to mention a concrete plan and $10 billion to get the project started — for a high-speed line linking San Francisco and Los Angeles. But disgruntled residents of Menlo Park, Atherton and Palo Alto could make things very difficult. The cities are home to some of the Bay Area’s wealthiest residents, and they’re suing. Their NIMBY opposition could turn the project into a mind-bogglingly expensive and impractical boondoggle.

This issue goes beyond the Bay Area and California, because other proposed high-speed lines almost certainly will face similar opposition. The plaintiffs simply do not want the trains running through their neighborhoods, and such views are not unique to California. The Obama Administration set aside $8 billion in stimulus funds for high-speed rail and our next transportation spending bill could include as much as $50 billion for it.

As high-speed rail becomes a national reality, planners of potential lines can expect fierce resistance in the courts and intense local political pressure.

The California resistance comes from communities that voted heavily in favor of Prop. 1A, the 2008 ballot initiative that allowed the state to issue bonds worth about $10 billion, or roughly one-quarter the total cost of the project. The measure passed with 52 percent of the vote. Gov. Schwarzenegger has sought another $4.7 billion of the $8 billion set aside in the stimulus package. Forty states are pitching projects — some 272 applications in all — totaling $105 billion.

California’s project is well into the planning process, and the cities of Atherton and Menlo Park have joined some environmental groups in suing the California High-Speed Rail Authority and Caltrain. They’re the two major bureaucratic forces behind the project. The suit alleges two things: first, an improper environmental assessment; second, infringing on Union Pacific’s track ownership.

The first issue is relatively straightforward — the plaintiffs argue studies of the environmental impact the project would have on their communities weren’t handled correctly and therefore underestimate the noise, vibration, displacement and other problems the line would create. Much of this was settled in an earlier lawsuit, but the judge sided with Atherton on a few minor issues, allowing for further suits.

The second point requires a little history: Southern Pacific once owned the tracks California hopes to retrofit for high-speed trains. In 1991, Southern Pacific, which became part of Union Pacific in 1996, sold the tracks to Caltrain for use as commuter tracks, but it retained the exclusive right to use them for freight and to hire an operator for intercity trains. The latest suit claims Caltrain lacks the authority to allow intercity high-speed trains on the tracks because Caltrain is dealing with the High-Speed Rail Authority, not Union Pacific. Union Pacific, which has been happy to allow high speed rail as long as it can still haul freight on the lines, seems puzzled by the lawsuit.

Assuming the plaintiffs aren’t actually outraged at the creek displacement or wholly overlooked violation of California contract law, this appears to be, at its heart, a case of NIMBYism. The plaintiffs worry about the noise, vibration, increased traffic and loss of privacy — and decreased property values — high-speed rail might bring. They also argue that no one involved in the project adequately or honestly studied alternatives, which, in fairness, is true. These are legitimate issues.

So the proposed solutions are to reroute the rail line or run it through underground tunnels (or both). The proposed reroute might require passengers to stop at an Amtrak station and transfer to Amtrak. Burying the line would be extremely expensive, while rerouting and burying it makes it more expensive and impractical.

Huge projects like this always inflame passions and incite litigation. It is a usual and occasionally necessary part of the process. But California’s high-speed rail line, which is currently the country’s best shot at a credible and useful high-speed intercity train, will be built one way or another.