RateWatch - Something Odd Going On

Market: We're flat, as in 0bps movement, so far today. We've been trading in a narrow range, with a push to the upside on bonds (down on rates) for a few days now. I find this exceedingly odd, and will attempt to explain why. Rates continue 5.25% or thereabouts on the 30-year, lower (and MUCH lower sometimes) on ARMs, which yes, are still out there and making good sense for many.

Analysis: This is a tough market to read. We are sitting right on the 100-day moving average (and the 200-day moving average). For weeks, every time we touched that line, we retreated strongly. Any news, even bad news, was interpreted in the most positive possible light, and bonds sold off. The stock market is strongly up since March, and though bonds have not fallen by the same amount, the general consensus (here, too) has been that rates were trying to rise and that it was only a matter of time before we saw 6% and higher again.

Well, now I'm not so sure. This is very odd behavior for the market. The last couple days there has been some decent economic news, home sales higher, Case-Schiller index higher in 95% of the measured markets, consumer confidence much higher than expected, durable goods orders higher (but with embedded weakness), and ordinarily this would mean a selloff in bonds, especially as we're right at the top of a trading range. And yet, and yet. We even had a huge 5-year treasury auction yesterday, but the bond market actually ROSE following that auction.

So here's my interpretation at the moment: I think there is a nagging suspicion in the market that there is some really, really negative news coming. I think there's a fear that this summer was irrationally exuberant in terms of calling an end to the recession. I think that means that we're going to hang out right here on interest rates until at least the $8000 first-time homebuyer credit goes away (loans must be CLOSED by November 30).

That's my read. I could be wrong. I'm holding out at least a 25% chance that there could be a big move down in rates before the end of the year. I also wouldn't be surprised to see a large move upward. But if I were betting, and hey, that's kind of what I do here every day, I'd bet on holding right here.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

P.S. For you duplex buyer mortgage shoppers, just wanted to say that you'll need to be in underwriting (for conventional financing) by Monday unless you want to put 20% down. 80% becomes the loan limit on all duplexes as of Tuesday Sept 1. Just a word to the wise.

RateWatch - Waitin' on the World to Change

Markets: Nothing much happening for the last few days. Up a bit, down a bit, with the general trend toward up. Rates still hanging out in the 5.25-5.375% range.

Analysis: It's the end of summer, and nobody is home. There is a lot of data coming out tomorrow, and there will be especial attention paid to existing home sales and initial claims. Mortgage shoppers, watch for that data to be better than expected, and for rates to move higher on very weak volume. Next week most traders will be back at their desks, but the real long haul of the final third of the year won't start until after Labor Day.

Only 126 shopping days left until Christmas. Just FYI.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

RateWatch - What Goes Down Must Come Up

Market: following last week's meltdown, we were due for move movement higher in the bond market, and we've been getting it all this week. Today we're up a modest 25bps, but that follows three out of four days of decent gains. We're not back to two weeks ago, but we're not far off it. Still at about 5.25% on the FHA, with conventional in that range as well, depending on, as you know by now, several dozen factors.

Analysis: markets are funny things. They'd be much more predictable if they weren't being operated by humans, who tend to overreact to everything. When economic data is less negative than expected, they buy things really fast, which leads to selling them equally fast when data is less positive than expected. Right now, it appears the economy is starting to bottom out, or at least the rate of descent is slowing. But it never slows in a gentle curve; there are bumps and bruises along the way. Those bumps are what we're seeing now. It's keeping rates generally down, and allowing us to lock on the dips.

Apropos of this, let me remind everyone that being able to lock your rate is a function of having a great deal of information about your loan already in the system when the opportunity presents itself. Don't be cavalier about this. Especially in the current regulatory climate, I need far more data about what we're doing with the loan than I once did. If I have it, I can lock very fast. If I don't, I can't lock at all. The best defense against losing your sought-for interest rate is to work with me to get you into a lock-ready position, then we can pull the trigger at the best time for you.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

P.S. I just inked a contract with Scotsman Guide, one of the industry's oldest magazines, to write some articles for them. When they come out, I'll post a link, but they've accepted two articles so far, so be watching.

RateWatch - Summer Hatin', Not Having a Blast

Market: We're down another 9bps today, over 100 from Monday's open. Today, if things hold, we'll see four straight days of red candles on the chart. As previously mentioned, there has not been a five-red streak on the bond market for more than three years. Records are made to be broken, but...

Analysis: Economic news has been less bad than expected for most of the week. The gummint is auctioning off $75 billion in treasuries next week. Traders are still vacationing coming into the fall session, and Congress is about to go on recess. Combine all this, and the markets are less jittery than they were, which pulls money from bonds and puts it into stocks, making interest rates rise. That's the explanation.

The real question is: is the recession over? Newsweek says so, for what that's worth, and there are some signs that we may have reached the bottom of the trough. Personally, I'm not so sure. If by "the end" you mean that things are not going to go on getting worse forever, and that we are seeing a slowdown - even a stop - in the decline, then perhaps this could be the end. If by "the end" you mean that the economy is going back on the offensive and a recovery has begun, then no, I think you're out to lunch. Most people think of the end of something as the point where that something stops and something new starts up. By that definition, not only is the recession not over, it hasn't really gotten started yet.

Lessons should be learned from the Great Depression, which this recession mimics in many ways. The decline was steep and sudden, but that's what we usually call a "crash". The thing that put the "Great" in "Depression" was the length of time before things came back to where normal would have been. That's what makes me more cautious here. I think it likely that we could be in this trough a very long time. It takes some years to undo the calamity we spent 30 years getting into.

Keep saving, keep paying off your debts, keep working even if you don't have anyone paying you. That's the way out, no matter what the broader economy is doing.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

P.S. Apropos of this, I've finally posted something that's been percolating for a few months. It's called The Most Important Post of My Life, and I'd be grateful if you'll take a second to read it.

RateWatch - We Control the Market

Market: We got hammered today because...well, because. We're down 59bps at the moment, and you can thank us here at the Chris Jones Branch of City 1st that it isn't worse. It was worse, but we fixed it. I will tell you how below. This translates to a rise in rates of .25% over the past two days.

Analysis: Employment numbers came in right in line this morning, followed by home sales numbers that are so anemic they'd be confined to bed in any other market. The stock market euphorically rose to over 9000 on this news. Whatever. Who can analyze this stuff?

But I know how to control it. This has been tested so many times now that it's as good as proved. We know here at the office that when we lock a loan, we reverse the market (this only works when the market is tanking). In the last two weeks we've done it several times. The market starts to fall, so we call up one of our loans and lock it. The second we do, the rally begins. Happens 100% of the time.

Why didn't we do something about the terrible crash of Black Wednesday two months ago? Funny you should ask. We TRIED. Lenders stopped accepting locks, so we couldn't get one down. We sent in the request, and it was eventually honored - at the open of the market the next day, which sparked the largest up day for bonds in several years. I'm telling you, it's a curse having this much responsibility.

But I promise you I will use it with discretion and wisdom. I also promise that your personal loan will not be the one we sacrifice on the altar of the gods of mortgage rates. We'll get someone else.

Cj

P.S. Thought I'd again thank all of you for following me, and let you know that it matters a great deal to me. Today I picked up a gig writing for the Scotsman Guide, somewhat because of RateWatch. You are all very important to me, and you do get service that's not available to just anyone. Thank you again, and welcome to our new signups. Hope you like it here.

RateWatch - Drifting, but Which Way?

Markets: Yesterday was a good day up, and today is down only slightly, so it appears we might hold our gains. We gained 65 bps yesterday and have lost back 16 so far today, which on net is pretty good. For the uninitiated, there is a strong correlation between mortgage-backed securities (mbs) and mortgage interest rates. When mbs rise, rates fall, but the correlation is not 1-to-1. A 50bp move in mbs corresponds to at least a .25% improvement in rate price, which means about .125% better rate (see detailed explanation here). Usually. Not always. Not for every program. Not for every lender. Professional mortgage guys get paid for their services, and there's a good reason for that.

Analysis: Markets liked Ben Bernanke's testimony yesterday. He's forecasting more unemployment, and the conomy hitting abottom here and starting to climb late this year or early next. But he's also telling us that he sees a slow climb, with no huge bounce, especially in real estate. This is what is called an "L" recession, where things fall and then plateau at the new, lower level. I think that's a good analysis. I expect the same, for a good while, until US households shed more debt and build more cash. Right now it is the cash dearth that is starving the economy. That dearth has been created by huge appetites for debt. Eventually, all debt payments come a'cropper, and that's what is happening now. It will pass, if we're smart, and if the government doesn't insist on a recovery according to some electoral timetable.

Which is why I'd get my own house in order as fast as possible. We're not all that smart, and the government always acts according to electoral timetables. The basics still work, though, people. Save some, pay off your debt, find someone to help and help them. That's the way through.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

RateWatch - What Goes Up, Must Come Down

Market: Bonds are taking a hammering the last couple days (off 65bps today), with economic news better than expected. Empire State manufacturing numbers were, well, not UP, but a lot less DOWN than expected, and core CPI doubled from .1 to .2, so the stock market moved up and bonds are coming down. This takes rates higher. We're in the low 5% range and moving toward 5.5%.

Analysis: A manufacturing reading of 0 means that the industry is stable, so today's reading of -.55 is not good news except in the context of last month's reading, which was -.9.45. So things are looking up. Sort of. The inflation number continued to be higher, boosted by a spike in oil prices, but stripping that out the core CPI was still higher than expected, the second such inflation reading to the high side this week. Mortgage-backed securities have dropped about 100 bps this week so far, a now three-day negative run. We've given back most of what we got last week.

The economy is still in a shambles, but just as nothing goes up in a straight line, nothing comes down in a straight line, either. There are inevitable plateaus, and every plateau looks like a potential bottom, especially to a population starved for good economic news. In the macro sense, I hate to say this, but in the mortgage rate sense, I'm happy to report, that the economy is still moving the wrong way and doing so with some rapidity. We are not at the bottom yet. Repeat. NOT at the bottom yet.

Look for rates to make a small rise here, then drift back to where we were last Thursday, or even a skoshe lower.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

RateWatch - It was the best of times, it was the worst of times...

Markets: Doing well again today. Yesterday broke the string of 5 straight days of rising bonds and falling rates (we have never had, in the years I have been following this, 6 green days in a row, so it was expected), and today we've continued the trend of the past week. Rates continue to improve. We're very close to some exciting things in mortgage rates. Stay tuned.

Analysis: Folks, the economy is in the soup. The things that got us here didn't happen in four months, and they're not going away in four months, either. This morning @agentopolis (I love Twitter) put me on to this article about unemployment, predicting that we'll see it hit roughly 14% in the coming months. I heard a very convincing analysis last night that put the CURRENT unemployment rate at 20% right now, if you count everyone, which the government numbers do not.

Do not worry about this. You cannot stop any of it. Work hard. Do your job. If you lose your job, it happens. Call me and tell me. I know people. We're doing things. We'll help you if we can.

Find someone worse off than yourself - this will not be hard - and help them. There's no better cure for recession than a lot of people working hard to help each other. No, let me amend that. There is no OTHER cure for recession than a lot of people working hard to help each other. Be part of the solution where you are, and let the markets do what they will.

Have a good weekend.

Cj

RateWatch - Hmmmmm. Interesting.

Market: We're up 19 bps so far today, picking up 3 bps every 45 minutes or so. Slow movement on heavy volume. That's pushing us back into the low 5% range on rates.

Analysis: This is really quite interesting. The government auctioned off $8 billion in 10-year notes this morning and the demand was very solid, both domestically and internationally. There was more money out there in that auction than there has been in years. That's a much different result than the auction of two weeks ago, let alone the one a month ago, which was disastrous. What it means is that there is a good deal of pressure in the market forcing bonds higher, and if you've been paying attention, and of course you have, you know that bonds moving up means rates moving down.

But it's more than that. Just the bond level is not entirely indicative of where rates are going to be. There's also the question of risk and liquidity on the bank side. The more liquid bank assets are, the lower they can set rates without exposing themselves to rate risk. As the credit markets froze up last year, banks had to raise rates to protect themselves, and had to chop programs until essentially only a-credit borrowers could qualify. It's too early to say that we've started the pendulum swinging back again, but today's auction was a thing that makes you go hmmmmmm.

We'll be keeping a close eye on the auctions later this week.

Cj

Chris Jones

City 1st Mortgage Services

801-310-3407

RateWatch Wednesday

Another bailout on the books, but nobody seems to know what it's going to consist of, except lots and lots of dough, though not as much as Detroit wants. The stock market therefore doesn't know what direction to go. That's good enough for bond traders, who are buying short maturities in quantities never before seen. Traders are willing to buy bonds that have ZERO interest, just to have some place to park their money. There's still a lot of progress that needs to be made in the credit markets, folks. Things are not back to normal. Not by a long chalk.

What does that mean to you? Well, bonds are still attractive, meaning that mortgage rates are low and still seeing downward pressure. This is probably a good place to address Secretary Hank Paulsen's comments about driving mortgage rates to 4.5%. Paulsen is not in charge of mortgage rates. He can direct the Treasury to buy billions of dollars' worth of mortgage-backed securities and drop the rates for those a ways, but banks will not then necessarily drop mortgage rates just because Hank says so. The international bond market is a whale of a lot larger than the Secretary's purchasing authority. Nobody I know is betting on rates being a great deal lower than they are right now.

That said, by virtue of being on this list, you can be added to our exclusive RateLocker program, where we watch for a specific rate for you, and when we get it, we lock it, so you don't have to be glued to CNBC all day (which, incidentally, wouldn't help much). It's a service we provide; it costs you nothing but a phone call.

For now: 30-year fixed, conventional, 20% equity, owner-occ, 720+ credit = 5.375% with FHA rates about the same (accomodates higher LTVs and worse credit scores and cash out).