Happy 4^th of July - what a wonderful weekend we'll all have, eh?  Below are some various commentaries that speak to what mortgage rates are doing.  As always, please reach out to me when I can be of any assistance or answer any questions.  

One of the reasons we celebrate 4^th of July is Freedom (duh!).  Yesterday I got a taste of how special Freedom can be.  We all get complacent at times and kind of forget how fortunate we are to have freedom of religion.  I'm not going to push religion -  nor am I here to make any political statements or start any debates.  What I want to point out is how special and cool it was to receive a Blessing at Dollar Tree.  Yep, I shot over there yesterday afternoon rushing in to buy some supplies for our "mortgage day" at the Lloyd Center bank branch.  There was an older gentlemen at the front door greeting customers coming and going.  You know me and how I like to cut up.  When the greeter asked how I was doing I shot back "I woke up breathing today so I guess it's a good day".  That's all it took; he said yes it was a good day to be alive and started in on a mini sermon of sorts.  It was not offensive at all but uplifting in the way he presented it.  He walked over, grabbed my hand and said words of encouragement.  I can't recite word for word his dissertation except it was maybe one minute long and afterwards I felt lifted up and refreshed.  It could have been from any religion; no mention was made of any specific "Higher Power".    I am going to go back to Dollar Tree today and report that person to the Manager.  They have got to know what an important person they have on board! May we all have such an impact on others.  As the old saying goes: "Higher Power" may I minister to others, and when necessary use words."

From Freddie Mac:

Once Again All Rates But 1-Year ARM Hit Yet Another Record Low

 

For Immediate Release  July 1, 2010

McLean, VA - Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.58 percent for the week ending July 1, 2010, down from last week when it averaged 4.69 percent. Last year at this time, the 30-year FRM averaged 5.32 percent.

The 15-year FRM this week averaged 4.04 percent down from last week when it averaged 4.13 percent. A year ago at this time, the 15-year FRM averaged 4.77 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.79 percent this week, down from last week when it averaged 3.84 percent. A year ago, the 5-year ARM averaged 4.88 percent.

The 1-year Treasury-indexed ARM averaged 3.80 percent this week up from last week when it averaged 3.77 percent. At this time last year, the 1-year ARM averaged 4.94 percent.

 "Interest rates on fixed-rate mortgages and the 5-year hybrid ARM fell once again to all-time record lows this week in a period where the economy struggles to gain momentum and inflation remains very low," said Frank Nothaft, Freddie Mac vice president and chief economist. "Growth estimates for first quarter GDP were revised down by a half percentage point over the past two months to 2.7 percent, according to the Bureau of Economic Analysis. Annual inflation, as measured by the 12-month change in the core CPI, held at 0.9 percent in April and May, which is the slowest pace in over 44 years, as reported by the Bureau of Labor Statistics.

"Meanwhile, house prices are improving due in part to the homebuyer tax credit. The S&P/Case-Shiller® 20-city home price index grew 0.4 percent between March and April and was up 3.9 percent from April 2009, representing the largest annual gain since October 2006. Moreover, 17 of the metropolitan areas experienced monthly gains in April, compared to 10 in March and six in February."

 

From Think Big, Work Small

The headline this evening in the newspapers will be that the unemployment rate declined from 9.7% in May to 9.5% in June; the sub-text however isn't that cheery, the labor force decreased by 652K. Non-farm jobs declined 125K about what was expected, 225K jobs were cut from the census workers while private jobs increased less than estimates--up 83K against estimates of +112K. Revisions in May and June added an additional 25K non-farm jobs. Manufacturing jobs increased 9K but were expected up 25K; it has been all manufacturing that has driven earnings recently, now that sector is showing signs of weakening. Yesterday's June ISM manufacturing index declined to the lowest in months. The cuts in census workers still leaves 339K temps working on the census. Most of the increases in jobs came in education and health services, transportation and leisure and hospitality. June average hourly earnings declined 0.1%, the first decline in months implying continued weakness in the job sector. The report showed that 14.6 mil are unemployed.

 

"Since January, 2008, the seasonally adjusted average change in employment per firm has been negative in every month, with a seasonally adjusted loss of 0.3 workers per firm reported in June for the prior three month period.  Most firms did not change employment, 5% (down 3 points from May) increased average employment by 3.4 employees, but 15% (down 5 points) reduced their workforces by an average of 3.3.  "Job creation" still hasn't crossed the 0 line in the small business sector.  Government (including health care and education) and manufacturing (a large firm activity) has been providing what few jobs are created, weak given the magnitude of employment loss during the recession.  And now the elimination of temporary Census jobs will make the picture look more bleak, although more accurate.  A few more private sector jobs is not enough, we need 225,000 every month for 3 years to re-employ 8 million workers who lost their jobs and another 125,000 a month to keep up with population growth." frm National Federation of Independent Business June Survey

 

One hour after the release of the June employment data the markets were still trying to get their collective hands around it. The stock indexes and the treasury and mortgage markets were churning back and forth. The employment report overall was not good in terms of handicapping the economic recovery. Employment isn't likely to pick up to the pace necessary to expand the recovery in any significant way. The unemployment rate is not likely to decline, but to increase as the discouraged workers that left the job search to sit and collect unemployment will have to find some work with unemployment compensation ending for thousands every month.

 

How much of the weak employment report was already discounted in the decline in stocks and decline in interest rates? The initial reaction to the employment data rallied the bond and mortgage markets with index selling in equities; but by 9:30 when the stock market opened +10, the 10 yr note -6/32 at 2.97% +2 bp and mortgage prices -6/32 (.15 bp). The holiday weekend will influence markets today. As we have mentioned, the bond and mortgage markets are overbought technically and the stock market is oversold momentarily. The trends are well in tact but we expect a pause in both markets' direction. We call your attention that the FNMA 4.0 coupon has not closed below its 20 day moving average since April 15th; to test the average mortgage prices would have to decline .69 bp frm present levels.

 

At 10:00 May factory orders were down 1.4%; mkts were expecting -0.7% after being up 1.2% in April. More evidence that the recovery is slowing

  

  

From Dick Lepre, San Francisco

Thursday July 1, 2010

We have some weak fundamentals today:

Initial Jobless Claims: 472K, consensus 458K, previous 459K
Pending Home Sales:  -30.0%, consensus -10.5%, previous 6.0%
Construction Spending:  -0.2%, consensus -0.9%, previous 2.3%
ISM Index:  56.2, consensus 59.0, previous 59.7

The Home Sales dip is a consequence of the previous end to the first-time homebuyers tax credit.  The other data supports the belief that we are looking at a double-dip recession in 4thQ2010.