Market Update – March 29, 2010

Last week was not the best week for interest rates (including mortgage rates). Overall a combination of the increasing US Government budget deficit, continued problems with Greece and European debt were the primary culprits, along with some signs that our economy is picking up a little steam (stocks are hitting 18-month highs). Two out of the three auctions did not go well, and gee, what will the Fed do with the $1+ trillion of agency Fannie/Freddie product it has purchased? This week brings the end of the Fed’s buying program – and who is going to buy mortgages? Smart money is betting that the same institutions that invested in mortgages prior to the Fed will take up the slack: pension funds, insurance companies, hedge funds, money managers, and banks. Besides, origination is supposed to drop, right? And if rates go up too high, our housing market will get smacked – something that the Federal Government doesn’t want to see happen.

Unfortunately departments within the Treasury Department (OCC and OTS) said the percentage of current and performing mortgages fell to 86.4% at the end of the fourth quarter of 2009, falling for the seventh consecutive period. This means that serious delinquencies rose: a 21.1% increase in mortgages 90 or more days past due to 4.7% of all mortgages in the portfolio at the end of 2009. The increase in seriously delinquent mortgages was most pronounced among prime borrowers, which account for 68% of all mortgages. To continue the “good news”, home sales are slumping, with New Home Sales falling to an all-time low and Existing Home Sales dropping for the third consecutive month, and homebuilder sentiment has dropped.

What do we have to look forward to this week? Besides Easter coming up next Sunday, today we have Personal Income & Consumption and the PCE Price Index, Tuesday the S&P/Case-Shiller Home Price Index & Consumer Confidence, Wednesday the Chicago Purchasing Managers Index, Thursday we have Initial Jobless Claims, Construction Spending, and the ISM Manufacturing data, and then on Friday we’ll see the employment data – expected to show a pickup in jobs.

Personal Income was expected +.2% but came out as unchanged for February. Personal consumption expenditures were expected to rise, and did, coming out at +.3%. After the data, bonds and stocks didn’t do much. The 10-yr seems happy for the moment around 3.87%, and mortgage prices are about unchanged from Friday’s closing levels.