AM Mortgage & Real Estate Market update

Treasuries and mortgages are weaker this morning on a better December retail

sales report at 8:30. Mortgage prices were down 12 bps prior to the report and there was

no initial change after the data was reported. By 9:00 however the 10 yield had increased

to 2.86% +3 bp and MBS prices -18 bps from yesterday’s close.

Retail sales better in December but November was weaker than originally reported;
combine the two and sales were about what had been expected. Talk of better holiday sales
is working through the stock market with a better open at 9:30. For all of 2013, retail sales
rose 4.2% from the prior year, following a 5.4% gain in 2012. Hardly any reason to celebrate,

sales in 2013 weaker than 2012, but that is only half the story; internet sales were up 10.3%

for 2013.

Two Fed officials out later today; at 12:45 Plosser from Philly and at 1:20 Fisher from
Dallas. Yesterday Lockhart (Atl) didn’t directly address the Dec employment report but in his

text he alluded to it, saying ….”The trend in jobs growth improved throughout most of 2013,

notwithstanding the surprisingly soft initial reading for December…..” The key word in the line

is initial; suggesting he expects the data to be revised higher. Traders will be focused on any

remarks from Plosser and Fisher on the employment report.

The 10 yr treasury will find strong headwinds at 2.80%, I do not believe the rate will

decline below that. Nothing has changed other than the employment data that hardly anyone

believes. Markets continue to expect the Fed will taper through 2014 at each FOMC meeting,

almost every 2014 economic forecast out there is expecting increased economic growth this

year. Those are not building blocks for lower interest rates. After the 10 tried to break

above 3.00% on the tapering decision and couldn’t climb above it, traders were increasingly

nervous that a rebound may occur. The employment report was all it took; it is not likely rates

will fall much more. The decline in rates is a technical correction in a bear market, not a change

in sentiment. Expecting interest rates will fall much more may lead to missing an opportunity

especially to refinance for those that let the ship sale earlier this year.

I am suggesting to lock now that there is more reason for rates to increase than for them to decrease. Continue to follow my BLOG for all your mortgage and real estate news for Texas.