The day started with stock indexes better and interest rates
unchanged from yesterday’s selling. All global stock markets are
better today with the belief that the US will avoid going over the Cliff in 12
days. Negations are still rather fragile, at least based on the rhetoric coming
from both sides; nevertheless based on how markets are reacting here and around
the world there will be a deal before the end of the year. At 9:00 the 10 yr
note traded unchanged while mortgage prices were slightly better than the close
yesterday. In late trading yesterday MBS prices did improve from levels we
marked at 4:00. So far today there isn’t anything out of Washington on the
Cliff negotiations. 
Nov housing starts at 8:30 were down 3.0%, building permits +3.6%
both about in line with forecasts. Starts fell to 861K annual units
frm revised  888K in Oct, originally 894K. The average rate of housing
starts from September through November was the strongest since the three months
ended August 2008. Permits increased to 899K units. Construction of
single-family houses fell 4.1% to a 565,000 rate. Yesterday the Dec NAHB
housing index increased for the 8th straight month. 
Mortgage applications decreased 12.3% from one week earlier,
according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage
Applications Survey for the week ending December 14, 2012. The Refinance Index
decreased 14% from the previous week to the lowest level since week ending
November 2, 2012.  The seasonally adjusted Purchase Index decreased 5%
from one week earlier. The refinance share of mortgage activity decreased to
83% of total applications from 84% the previous week. The HARP share of
refinance applications fell to 25%. The adjustable-rate mortgage (ARM) share of
activity increased to 3% of total applications. The average contract interest
rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500
or less) increased to 3.50% from 3.47%, with points increasing to 0.44
from  0.36 (including the origination fee) for 80% loans. The average
contract interest rate for 30-year fixed-rate mortgages with jumbo loan
balances (greater than $417,500) decreased to 3.73%, the lowest rate in the
history of the survey, from 3.77%, with points decreasing to 0.29 from 0.35
(including the origination fee) for 80% loans. The average contract interest
rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.34% from
3.32%, with points increasing to 0.54 from 0.51 (including the origination fee)
for 80% loans.  The average contract interest rate for 15-year fixed-rate
mortgages decreased to 2.83%, the lowest rate in the history of the survey,
from 2.85%, with points remaining unchanged at  0.26 (including the
origination fee) for 80% loans. 
Investors continue to move into more risky investments and away
from safety of treasuries. The same can be seen in Europe; today’s
stronger than expected German Ifo Business Climate survey (102.4 actual v.
101.9 expected) is the latest spark for the ongoing flight into risk assets,
causing investors to shed safer ones. 
This afternoon at  1:00 Treasury will auction
$21B of 7 yr notes; yesterday’s 5 yr and Mondays 2 yr auctions didn’t see
strong bidding.
At 9:30 the DJIA opened -2, NASDAQ +5, S&P +1. The 10 yr note +4/32
at 1.81% -1 bp; 30 yr MBSs +15 bp, FHAs -17 bp. 
Yesterday the 10 yr note increased to 1.85% where there is very
solid support. The 10 yr note has traded over 1.85% for one day since last May
(9/14/12). Although the 10 yr yield is presently over its 200 day average at
1.76%, 1.85% has successfully held on five occasions. The momentum oscillators
on the note are signaling an oversold market. We expect some improvement at
these levels but we do not expect interest rates will decline in an substantial
way. Take advantage of price improvements in the mortgage markets. 

 


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