Texas Real Estate and Mortgage Market Shake-up

Interest rates started weaker in price this morning as the 10 yr remains married to a very narrow range that has now lasted two months. The recent day-to-day trading has been a day of improved prices then a day with soft prices, with no direction. Yesterday Janet Yellen revised her comments from her press conference after the recent FOMC meeting that shook markets when she said the Fed would likely begin increasing rates six months after the end of Q3 (monthly bond and MBS purchases). In her speech in Chicago yesterday Yellen emphasized that the employment situation isn’t as strong as the headline data would suggest, and that the Fed will need to continue supporting markets. "While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health,"…. "The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics."

Yellen’s remarks sent the stock indexes higher while the rate markets also improved a little. The Fed is still actively supporting the stock market with very low interest rates (Fed Funds Rate); hard to remember the last time the Fed chair said the economy feels like a recession that stocks rallied on the comment. It is all about low short term rates; driving investors into equity markets. Ever since the sub-prime mess, markets have reacted much differently than before the stupid lending and buying by Wall Street firms.

The lack of inflation continues to bother central banks. Last week ECB Pres. Mario Draghi said he was concerned that the EU may be in too much danger of deflation and like our Fed wants inflation to increase to at least 2.0%, the level most central bankers believe is needed for normal economic growth. This morning the OECD (Organization for Economic Development) said the annual rate of inflation in its 34 members fell to 1.4% from 1.7% in January, while in the Group of 20 leading industrial and developing nations it fell for a third straight month, to 2.3% from 2.6%. The G-20 accounts for 90% of global economic activity. The OECD said six of its members experienced a decline in prices over the 12 months to February—all being in Europe. In the U.S., the annual rate of inflation fell to 1.1% in February from 1.6%, while in Canada it dropped to 1.1% from 1.5%. The annual rate of inflation fell to 2.0% from 2.5% in China, and to 6.7% from 7.2% in India. The lack of inflation will keep central banks accommodative for longer than what many are now expecting.

Looking ahead a day; tomorrow ADP kicks off the March employment trade; the current consensus is ADP will report private job growth of 193K new jobs. Once ADP reports, pending what it reports, markets will begin re-assessing the BLS data due out on Friday.

Since Jan 23rd 70% of all trading of the 10 yr note has been between 2.70% and 2.80%, MBSs about the same tight range. There have been three occasions when the 10 fell to 2.60% creating a very significant technical triple bottom; as long as the 10 holds 2.80% it isn’t a serious problem but if the 10 breaches 2.80% the likelihood of a quick increase in rates is extremely high and would set a target of 3.00%. 

There is still more pressure for rate to increase than decrease so I am continuing to suggest that my clients lock in there interest rates. For all Real estate and Mortgage related updates please follow my Blog.