30yr Fixed Single Family Home Rates Up To 4.75%, Condos Higher
Are the best and brightest bond trading and investor minds out there just now realizing that the true Fed policy goal of QE2 is inflation? And that inflation is not a good thing for fixed-income securities, including MBS? One can criticize the program all one wants, but (a) betting against the Fed in the long run is likely to fail, and (b) the Fed’s securities purchases coupled with the gradual pick-up we’re seeing in economic data is certainly pushing rates higher. Mortgage originators need to be careful what they wish for: low rates (which we’ve had), or a strengthening economy which in theory should help borrowers and housing values.
MBS prices ended Wednesday down a whopping 100-128 basis points, and about half my e-mails were from investors hiking rates as a result. MBS trading volume also picked up, as one would expect given (a) hedging existing locks, and (b) selling/hedging desperation locks. Fannie 4% MBS’s, containing 4.25-4.625% mortgages, are now around par (100). Once investors add some servicing released premiums, but then take off some profit margin… well, suddenly rate sheets are up in the 4.75% area instead of the 4.375%. And that means production is now going into 4.5% securities. And anyone who thinks that they might not be able to fill those 4% security trades (not to mention those 3.5’s – remember those?) should be careful – of failing.
The ADP numbers started us off yesterday. The 3-month moving average of this number on private sector hiring of +136k as “good but not great”-the favorable change in hiring momentum could have positive economic consequences as rising employment income spurs a faster pace of consumption, and hence further acceleration in the pace of hiring. If employment picks up, income picks up, spending picks up, and so forth. A strong Construction Spending and ISM number kept “the economy is picking up a little” vein of thought going, and even the Fed’s Beige Book noted further improvement in economy (in 10 out of 12 districts but not in housing). Up went equities while the yield on the 10-yr hit its highest level since early August. Mortgage banker selling also weighed with supply reportedly in the $3 billion area. Overall, volume was above normal with much better selling.
Today for news we’ve already had weekly Jobless Claims. Expected to rise from last week’s 407k, they did indeed rise 26k to 436k, continuing claims rose, although the 4-week moving average number is down slightly. Tomorrow we have the monthly employment data – perhaps we’ll see a little spring-back from yesterday’s move. So far this morning we find the 10-yr yield around 3.00%, and mortgage prices worse by about .125-.250.