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Market Comment for Week of December 5, 2011…

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MARKET COMMENT Mortgage bond prices ended slightly higher last week, which pushed mortgage interest rates lower. Stocks were stronger as the DOW surged higher by 291 points Monday and 490 points Wednesday. The Fed stepped in to help the EU deal with their debt crisis through some liquidity moves along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The moves generally helped equities across the globe. Mortgage bonds traded in a choppy but tight pattern throughout the week despite the strength in equities. MBS were buoyed by remarks from German Chancellor Merkel which indicated there is no quick fix and the solution to the Euro debt crisis will take years. Mortgage bonds ended the week better by approximately 1/8 to 1/4 of a discount point.

LOOKING AHEAD

• Factory Orders; Dec. 5; Consensus Estimate Down 0.5%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Consumer Credit; Dec. 7; Consensus Estimate $7b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
• Weekly Jobless Claims; Dec. 8; Consensus Estimate 397k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Dec. 9; Consensus Estimate $44.3b0 deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• U of Michigan Consumer Sentiment; Dec. 9; Consensus Estimate 64; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

DISPARITY The 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBS) differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners.

Information related to Treasury bonds is relatively easy to come by. Almost every major news medium reports changes. On the other hand, accurate mortgage interest rate information is difficult and costly to obtain.

In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful in that the bond market generally trends in the same direction. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBS only see minor price changes and vice versa. Thus, differences between Treasuries and MBS sometimes lead to misleading price change differentials. Last Wednesday mortgage-backed securities closed down 2/32nds on the day while the 10-year Treasury fell 25/32nds and the 30-year Treasury fell 64/32nds. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market was worsening when in reality mortgage interest rates were near unchanged on the day. The data provides a valuable lesson into the differences between treasury bonds and mortgage-backed securities. This is just another example of why looking solely at treasuries can lead people to the wrong conclusions.

Keying in on the correct information can mean the difference between making and losing a tremendous amount of money when making float and lock decisions in the short term.

Source: F&M Mortgage, Todd Kabel; MMIS, Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

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Market Comment for Week of November 28, 2011…

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MARKET COMMENT Mortgage bond prices ended slightly lower last week, which pushed mortgage interest rates higher. Weak stocks and continued Euro debt concerns helped rates improve early in the week. The data generally helped rates as well. Q3 GDP disappointed with 2% increase compared to the expected 2.5% mark. The Treasury auctions had strong demand and also helped the overall bond market. The shortened and thin trading conditions fortunately did not result in any extreme whipsaw trading that is often common. Mortgage bonds ended the week worse by approximately 1/8 of a discount point.

Look for the employment report to gain the most attention this week.

LOOKING AHEAD

• New Home Sales; Nov. 28; Consensus Estimate 295k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
• Consumer Confidence; Nov. 29; Consensus Estimate 39; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• ADP Employment; Nov. 30; Consensus Estimate 105k; Important. An indication of employment. Weakness may bring lower rates.
• Revised Q3 Productivity; Nov. 30; Consensus Estimate Up 2.9%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
• Fed “Beige Book”; Nov. 30; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
• Weekly Jobless Claims; Dec. 1; Consensus Estimate 385k; Important. An indication of employment. Higher claims may result in lower rates.
• ISM Index; Dec. 1; Consensus Estimate 50.7; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
• Construction Spending; Dec. 1; Consensus Estimate Up 0.2%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
• Employment Friday; Dec. 2; Consensus Estimate 9%, Payrolls +101k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

WHY DATA IS IMPORTANT One of the easiest and most important things to do when making a decision whether to float or lock a loan is knowing what data is going to be released. Economic releases are important because they provide a snapshot of a portion of the economy. Data is even more important in that it is often the cause of market volatility. Upcoming data events are readily available and there is no excuse not knowing what data will be released in the week ahead.

While an in depth understanding of an economic event can help a person make informed decisions, it is more important to have a rudimentary understanding of when an important piece of data will be released and what basic effect that data can have on the market. Understanding the nuances of a release does very little for a person if they are blindsided by not knowing when the release will occur. Accurately predicting how each and every release will come in is impossible.

Floating into important economic data can be very risky and can expose a person to huge market swings. Keep that in mind this week, as there is an abundance of significant data heading our way.

Source: F&M Mortgage, Todd Kabel; MMIS, Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville,Tennessee

Market Comment for Week of November 14, 2011…

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MARKET COMMENT Mortgage bond prices ended lower last week, which pushed mortgage interest rates slightly higher. The early portion of the week was relatively tame compared to recent trading conditions. Most of the weakness came Thursday following stronger than expected weekly employment figures. Weekly jobless claims came in at 390k, better than the expected 400k mark and generally not bond friendly. Continuing claims came in at 3,615k, which also beat estimates. The reaction was negative and sent rates slightly higher ahead of the extended holiday weekend. Positive stocks also pressured rates at times throughout the week. Mortgage interest rates rose by approximately 1/4 of a discount point for the week.

LOOKING AHEAD

• Producer Price Index; Nov. 15; Consensus Estimate Up 0.4%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
• Retail Sales; Nov. 15; Consensus Estimate Up 1.4%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
• Business Inventories; Nov. 15; Consensus Estimate Up 0.2%; Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
• Consumer Price Index; Nov. 16; Consensus Estimate Up 0.3%, Core up 0.1%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
• Industrial Production; Nov. 16; Consensus Estimate Up 0.2%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
• Capacity Utilization; Nov. 16; Consensus Estimate 77.2%; Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
• Weekly Jobless Claims; Nov. 17; Consensus Estimate 387k; Important. An indication of employment. Higher claims may result in lower rates.
• Housing Starts; Nov. 17; Consensus Estimate 610k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
• Philadelphia Fed Survey; Nov. 17; Consensus Estimate 6.8; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
• Leading Economic Indicators; Nov. 18; Consensus Estimate Up 0.2%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.

BUSINESS INVENTORIES The report on business inventories basically gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, but it also provides additional evidence about the economy in the upcoming months. Changes in business inventories slow as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore the change in business inventories is a leading indicator of GDP. The data for this report, which are published by the Department of Commerce’s Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers’ shipments, in addition to the merchant wholesalers and retail trade surveys.

In this environment every piece of data has the potential to cause some volatility.

Source: F&M Mortgage, Todd Kabel; MMIS, Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of November 7, 2011…

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MARKET COMMENT Mortgage bond prices ended higher last week, which pushed mortgage interest rates lower. The financial markets remained extremely volatile. Most of the rate improvements came early in the week following Japan’s intervention to weaken the yen and Greek Prime Minister Papandreou’s indication that budget cuts would be put to a public vote. Unfortunately some of those rate improvements were erased when Papandreou retreated on the vote and the European Central Bank made a surprise rate cut. The employment report was mixed with the headline figure of 9% coming in lower than estimates while non-farm payrolls were weaker than expected. Despite the wild swings, mortgage interest rates fell by almost a full discount point for the week.

LOOKING AHEAD

• Consumer Credit; Nov. 7; Consensus Estimate $9.56b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
• 3-year Treasury Note Auction; Nov. 8; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• 10-year Treasury Note Auction; Nov. 9; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Nov. 10; Consensus Estimate 395k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Nov. 10; Consensus Estimate $45b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• 30-year Treasury Bond Auction; Nov. 10; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
• U of Michigan Consumer Sentiment; Nov. 11; Consensus Estimate 60.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

TRADE DATA In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.

Source: F&M Mortgage, Todd Kabel; Rate Link, MMIS; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of October 31, 2011…

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MARKET COMMENT Mortgage bond prices ended last week lower, which pushed mortgage interest rates considerably higher. Stock strength Thursday along with advancements in the Eurozone battle to shore the debt crisis resulted in a terrible week for mortgage interest rates. Stocks remained volatile with 100 plus point swings from day to day but a strong 340-point surge in the DOW Thursday resulted in rate increases of 3/4 of a discount point on that day alone. Mortgage interest rates rose by almost a full discount point for the week.

The Fed results Wednesday afternoon will be the most important event this week. The employment report Friday will be the most significant data release for the month.

LOOKING AHEAD

• ISM Index; Nov. 1; Consensus Estimate 51.4; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
• Construction Spending; Nov. 1; Consensus Estimate Up 0.8%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
• ADP Employment; Nov. 2; Consensus Estimate 85k; Important. An indication of employment. Weakness may bring lower rates.
• Fed Meeting Adjourns; Nov. 2; Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
• Weekly Jobless Claims; Nov. 3; Consensus Estimate 403k; Important. An indication of employment. Higher claims may result in lower rates.
• Preliminary Q3 Productivity; Nov. 3; Consensus Estimate Up 0.1%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
• Factory Orders; Nov. 3; Consensus Estimate Up 0.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Employment Friday; Nov. 4; Consensus Estimate 9.1%, Payrolls +95k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

STOCKS AND BONDS REMAIN VOLATILE Last week, mortgage interest rates rose sharply following the relatively poor bid 7-year Treasury note auction. As the US economy moves along, the demand for the lower yielding government-backed debt securities has whipsawed considerably. One day we see a flight to quality influx of investor funds, which drive prices up and rates down. The next day the inverse occurs.

The US stock market was on a roar the latter portion of the week at the expense of demand for mortgage-backed securities. As the stock market gained strength, investors sought higher returns by moving their money out of the bond market and into the higher yielding stock market. The whipsaw trading environment is likely to continue.

A cautious approach is necessary to protect against extreme short-term market volatility resulting in increased interest rates considering the improbability of accurately determining how the market will react on a short-term day-to-day trading basis. Taking advantage of the historically favorable interest rates at their current levels makes sense in this environment. We have seen in the last few weeks alone that lower rates are not a given.

Source: F&M Mortgage, Todd Kabel; Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of October 17, 2011…

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MARKET COMMENT  Mortgage bond prices fell last week, which pushed mortgage interest rates higher. The roller coaster ride of investor funds entering and exiting the stock and bond markets continues as economic uncertainty dominates trading. The losses continued as foreign demand for US debt instruments waned. Stocks were volatile but generally saw improvements on the week. Retail sales rose a stronger than expected 1.1%.

Mortgage bonds ended the week worse by about 1/4 of a discount point.

The inflation data on the producer and consumer sides will be extremely important this week. There is also a 30Y TIPS auctions Thursday. The recent auctions have shown weak foreign demand, which generally does not bode well for lower rates so caution will be key.

LOOKING AHEAD

• Industrial Production; Oct. 17; Consensus Estimate Up 0.3%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Capacity Utilization; Oct. 17; Consensus Estimate 77.2%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
• Producer Price Index; Oct. 18; Consensus Estimate Unchanged, Core up 0.1%; Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
• Consumer Price Index; Oct. 19; Consensus Estimate Up 0.3%, Core up 0.2%; Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
• Housing Starts; Oct. 19; Consensus Estimate 565k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
• Fed “Beige Book”; Oct. 19; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
• Weekly Jobless Claims; Oct. 20; Consensus Estimate 400k; Important. An indication of employment. Higher claims may result in lower rates.
• Philadelphia Fed Survey; Oct. 20; Consensus Estimate 10.4; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
• Leading Economic Indicators; Oct. 20; Consensus Estimate Up 0.2%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.

SIGNIFICANT DATA  Recent economic reports have carried mixed weight in driving the financial markets in light of stock market swings. While stocks have set the tone for trading in mortgage-backed securities recently, an abundance of significant data this week may begin to weigh upon the market as well.

It is possible for mortgage interest rates to trend lower again. However, the potential for increases is also very real, as we have seen the past few weeks. Signs from the data this week that the economy is recovering could lead to stock strength.

Stocks are likely to continue to dictate trade. A weaker stock market may help to maintain current mortgage interest rate levels. However, signs of recovery in the stock market can pressure mortgage bond prices lower and rates higher.

Source: F&M Mortgage, Todd Kabel; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of October 10, 2011…

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MARKET COMMENT Mortgage bond prices fell last week, which pushed mortgage interest rates considerably higher. There was a strong sell-off following the stronger than expected ADP employment figures. The losses continued as the weekly jobs data Thursday and the payrolls component of the employment report Friday both came in stronger than expected. Stocks were volatile but generally saw improvements on the week. Mortgage bonds ended the week worse by over a full discount point.

The bond market is closed Monday for Columbus Day. The financial markets may be volatile Tuesday when trading resumes following the extended holiday weekend. Analysts will watch the Treasury auctions carefully for foreign demand. The weekly jobs report and retail sales data will receive a lot of attention.

LOOKING AHEAD

• Columbus Day; Oct. 10; Important. No trading Monday. Shortened trading week may lead to volatility when trading resumes Tuesday.
• 3Y Treasury Note Auction; Oct. 11; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Fed Minutes; Oct. 11; Important. Details of the last Fed meeting will be thoroughly analyzed.
• 10Y Treasury Note Auction; Oct. 12; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Oct. 13; Consensus Estimate 425k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Oct. 13; Consensus Estimate $44.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• 30Y Treasury Bond Auction; Oct. 13; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
• Retail Sales; Oct. 14; Consensus Estimate Up 0.1%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
• U of Michigan Consumer Sentiment; Oct. 14; Consensus Estimate 59.2; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

FED MINUTES The Federal Open Market Committee decided in December of 2004 to reduce the lag time between the open market committee meeting and the release of the minutes from six to eight weeks to only three weeks. The minutes from the meeting have the ability to cause mortgage interest rate volatility because they provide more policy details than the standard post meeting release. Most importantly the minutes provide the Fed’s complete economic analysis and the various opinions of individual Fed members. There is typically an overwhelming consensus among the members. However, there can also be dissension, which often causes uneasiness in the financial markets. The release often comes and goes without much uproar but keep in mind that if any of the text seems troubling to analysts you can see market volatility. Remember that mortgage interest rates remain historically favorable. Capitalizing on current levels is wise amid the continued economic instability across the globe.

Source: F&M Mortgage, Todd Kabel; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

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