Premier Mortgage Group

RATES IMPROVE SLIGHTLY DESPITE POSITIVE ECONOMIC DATA

STRAIGHT STATS

Mortgage interest rates improved slightly on the week despite generally positive economic data. Economic data better than expected included November Industrial Production and Capacity Utilization, November Building Permits, November Leading Economic Indicators, and the Philadelphia Fed Business Index. November Housing Starts were in line with expectations. On the inflation front, the November Consumer Price Index (CPI) was on target, up 0.4%. Core CPI, excluding the food and energy components, was unchanged on expectation that it would be up 0.1%. Inflation at the wholesale level, though, was up much more than expected. The November Producer Price Index (PPI) was up 1.8% on expectations that it would be up 0.8%. Core PPI, excluding food and energy, was up 0.5% on expectations that it would be up 0.2%. Economic data weaker than expected included the December Empire State Manufacturing Index and weekly jobless claims.

COMMENTARY

Some year-end holiday weeks have active markets, but these next two weeks figure to be quiet. We’ll get some hints about Christmas retail sales (weak helps rates, strong hurts, but the results will be distorted by discounts). Unlike last year, with a new Fed rescue program every other day, and its pending purchase of MBS, government now is trying to to withdraw. Also, there is a shortage of new crises. The only one that might break involves weaker Euro-zone economies that may be forced to leave the Germany-uber-strong euro currency; our rate improvement this week was directly traced to Greece’s difficulty.

All of the big stuff comes after the New Year. In order, payrolls for December, more measures of eceonomic recovery (or not), and new financial-system losses, especially in real estate. As early as January, the durability of recovery in China and emerging nations, and the state of Japan’s finances will all be in play (as always, panic helps rates, calm does not).

Last, the supply of credit or its absence will matter a lot for mortgages. If the Fed stops buying MBS in March, as planned, it’s hard to see a cheap supply from any other source, and hard to imagine housing improvement if rates rise to where they were before the Fed’s helping hand last December.

RATES FLAT DESPITE POSITIVE ECONOMIC DATA, DEBT AUCTIONS

STRAIGHT STATS

Mortgage interest rates increased this past week as today’s employment report for November was much better than anticipated. Non-farm payrolls were expected to fall by 120,000 but fell by only 11,000. The October and September reports were revised, reducing job losses by a combined total of 159,000. The unemployment rate was also better than expected at 10.0% on expectations that it would be 10.2%. Other economic data was mixed. The November Chicago Purchasing Manager’s Index, October Construction Spending, October Pending Home Sales, weekly jobless claims, and October Factory Orders were all better than expected. The November ISM Manufacturing Index, the November ADP Private Jobs estimate, continuing jobless claims, and the November ISM Services Sector Index were weaker than expected.

COMMENTARY

The rise in the 10-year yield this week through 3.50%, the post August high, is worrisome. The greatest threat to this extended recovery cycle has been and will remain: at some point the world may want much higher rates to finance US debt — especially long-term. 90-day T-bills pay 0.02%, as a super-cautious world is content to stay in cash; however, it is very bad business to finance our $8 trillion debt on 90-day terms. If long Treasurys come under pressure, so will mortgages, and nobody knows what will happen if the Fed stops buying MBS as planned in March next year.

Since nobody really knows, it’s an opinion free-for-all. I think the run above 3.50% is a blip more related to year-end oddities in markets. I further believe that housing is a long way from recovery (as is the economy), and mortgages with a “4″ in front are a prerequisite. Mortgage volume is very weak, and markets may be able to maintain a cheap supply without the Fed, but I bet it revisits its MBS closure and may buy all through 2010.

RATES INCREASE ON NOVEMBER EMPLOYMENT REPORT

STRAIGHT STATS

Mortgage interest rates increased this past week as today’s employment report for November was much better than anticipated. Non-farm payrolls were expected to fall by 120,000 but fell by only 11,000. The October and September reports were revised, reducing job losses by a combined total of 159,000. The unemployment rate was also better than expected at 10.0% on expectations that it would be 10.2%. Other economic data was mixed. The November Chicago Purchasing Manager’s Index, October Construction Spending, October Pending Home Sales, weekly jobless claims, and October Factory Orders were all better than expected. The November ISM Manufacturing Index, the November ADP Private Jobs estimate, continuing jobless claims, and the November ISM Services Sector Index were weaker than expected.

COMMENTARY

I think the data that produced today’s rate rise is misleading. The monthly survey of big business “non-farm payrolls” found an end to job losses, and got some confirmation from an abrupt drop in the last two weeks’ claims for unemployment insurance, but other fresh data from November did not confirm: the twin surveys by the purchasing managers’ association (ISM) came in below expectation and below October actual, the service-sector declining sharply.

The hunch here: the economy began to bifurcate in spring, big business and big finance stabilizing, even recovering (IT and international sectors). The weakness and pain shifted from Wall to Main, still deepening here on the sidewalk, false strength in economic aggregates in spring and summer now fading into an “L” — no matter how well the big boys are doing after ruthless cost and job cuts. Our next shot at going below 5.00% may be as early as late next week, after the big Treasury borrowing and new, weak data.

When the economy does turn, legitimate job recovery comes last. Today’s news is too easy.