Florida Mortgage Rate Forecast – July 14, 2010

by Florida's #1 Mortgage Planner on July 14, 2010

Locking Stance:  LOCKING    Mortgage Bonds:  +38bp

Sorry for the delay in today’s Florida Mortgage Rate Forecast, but I was called out to fly to Dallas and back.  Hopefully you caught my Tweet and are following my main Twitter account @FloridaCMPS. I don’t use it as much as I would like to, but I do get on there once in a while, especially when things like this happen.

Anyhow, let’s get you guys caught up just in case you have not been paying attention today, or yesterday afternoon.  Yesterday’s 4-week T-Bill auction went well, but the 10-year T-Note was certainly not stellar with buyside demand not as strong as recent auctions.  We were seeing dimishing strength in the longer-term Treasuries, and that placed today’s 30-year T-Bond auction into the spotlight, along with today’s data, which begins to heat up.  Sounds like a broken record, but the MBA Purchase Applications report showed another 3.1% drop in Purchase Applications.  However, this go around also showed a 2.9% drop in Refinance Applications, so the overall index was down, now at a 14 year low.  Clearly the major impacting report of the day was Retail Sales which came in at –0.5%, up from last report but below expectations of –0.2%.  Results were similar when autos are removed (-0.1% versus 0.0%).  Import and Export Prices showed Export Prices at –0.2% month/month and 4.3% year/year and Import Prices at –1.3% month/month and 4.5% year/year.  The underlying data in this report points towards a deflationary environment with wide declines outside of energy.  Business Inventories rose 0.1%, but the underlying issue is that they rose while sales dipped 0.9%.  Crude Inventories came in almost exactly inline with expectations at –5.1M barrels, a lot due to the Gulf’s heavy weather and cutbacks in offshore production.  The 30-year T-Bond auction saw solid results and buyside demand was inline with expectations.  And finally, the FOMC Minutes were released showing the Fed cutback its GDP forecast for 2011, as well as its inflation forecast.  Here is the highlights as they admit the economy is not recovering as much as they thought it would…

"In their discussion of the economic situation and outlook, meeting participants generally saw the incoming data and information received from business contacts as consistent with a continued, moderate recovery in economic activity. Participants noted that the labor market was improving gradually, household spending was increasing, and business spending on equipment and software had risen significantly. With private final demand having strengthened, inventory adjustments and fiscal stimulus were no longer the main factors supporting economic expansion. In light of stable inflation expectations and incoming data indicating low rates of inflation, policymakers continued to anticipate that both overall and core inflation would remain subdued through 2012. However, financial markets were generally seen as recently having become less supportive of economic growth, largely reflecting international spillovers from European fiscal strains. In part as a result of the change in financial conditions, most participants revised down slightly their outlook for economic growth, and about one-half of the participants judged the balance of risks to growth as having moved to the downside."

Looking at the charts, we still are skewed somewhat, though clearly today’s favorable data and 30-year T-Bond auction results are sending MBS prices higher, not to mention the Fed’s bleaker outlook.  However, we cannot rule out a trend reversal as the 10-day moving average is putting a cap on today’s rise.  Keep in mind that we have not closed below the 10-day moving average since June 16th, so this could be showing trouble down the road.  Stochastic indications are also currently negative, though they are finally out of the overbought spectrum.  We still need another day or two to finalize where mortgage rates are headed, but if data tomorrow comes in like today’s we will likely be in good shape.  However, any curveball’s thrown tomorrow will likely send MBS prices lower (mortgage rates higher) and that could be the breaking point.

What does this mean for Florida Mortgage Rates?  Mortgage rates are improving some today, but the risk/reward ratio is still not favorable enough for me to change stances.  Tomorrow will be a key day, and maybe even into Friday, so stay tuned in here as I will let you know if low mortgage rates will hold or if mortgage rates are headed higher.

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