By Danny Riley
The last time I saw my mortgage rate nearing 3% was when my floating ARM went from a high of 6% down to 3%. After the ARM moved back up I locked into a fixed 30-year jumbo at 5.5%. I thought I had done a good job. All in all, I have done well with mortgage rates over the years, but I have yet to lock at the current lower rate. As of today most mortgage rates are 3.25% to 3.5% and are still going down. In normal times a loan on a house under 5% was considered a great rate, but that’s not where rates are today or where they are going.
Interest rates tend to get better in times of bad news. As investors sell stocks they move into bonds and rates begin to fall. When the stock market falls sharply and bonds go up it is called a “flight to quality,” or it used to be called that. When the credit crisis pounded the stock market in 2007 into 2010 and some of Wall Street’s big firms went out of business, the stock market seized. Most people’s retirement and stock investment accounts were down over 50% of their value. As uncertainty took over and the Eurozone continued to unravel, quantitative easing programs in the United States helped push interest rates down to zero. Bad times and uncertainty are good for mortgage rates.
As you recall, there was a lot of overinvestment in buying and selling homes in the ’90s. Everyone was rushing to buy pre-construction properties, condos and homes to flip them. Many people said openly that they thought it was getting hard to flip the properties, but they kept buying. Some people just owned a condo while some developers were stuck with hundreds of properties. We knew a guy in Florida who owned a subdivision with over 150 homes. He sold it for less than 40% of its original price, and today that would be considered a steal. Yesterday sales of new U.S. homes jumped near a two-year high. Record low borrowing costs are pushing buyers back into the housing market. After taking a beating over the last several years, homebuilders like Toll Bros. Inc. (TOL), Lennar Corp. (LEN) and KB Homes (KBH) have all seen a big pickup in new home orders. They say the homebuilding business is starting to get back to normal — a good thing for the housing market and the economic recovery.
So how low are rates? The average rate on a 30-year fixed mortgage dropped to 3.49% in the week ended Sept. 20, matching a reading two months ago as the lowest in records dating to 1972, according to Freddie Mac. The Fed has committed to purchasing $40 billion of mortgage debt a month to lower borrowing costs to help the housing market. After the central bank announced the debt-buying plans on Sept. 16, Bernanke said, “Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing.” Unlike the mad rush to buy and “flip” homes and condos in the late ’90s, a lot has changed. Despite existing home sales hitting a two-year high, it is going to take a lot longer to see a full recovery.
One of my best trades ever was when I bought my home 18 years ago in downtown Chicago. Yes, we avoided several economic downturns, but the timing of the purchase and the low interest rate made it not just a great place to live but also an investment. The current economic downturn has created record debt and changed the investment environment, but it has also made for some good investment opportunities. With rates at historic lows and some great investment property readily available, it’s hard to overlook the opportunity.
Anyone know about any good property in Boca?
MrTopStep Closing Print Video: http://www.youtube.com/watch?v=oa2Nw3yhmxg
Our view:
There are a lot of earnings and economic reports to get past this morning. We still maintain that the S&P is going higher. As we have pointed out, the current S&P price action is to sell off in the first part of the week and then rally Thursday into Friday. After a selloff and rally yesterday the SPZ sold off again late in day and it is up this morning on a possible China rate reduction. Our view is we are going to see big two-way flow over the next two days as the big investment firms mark up the winners and sell the losers as we head into the final two trading days of the third quarter. We also do not want to forget that the last trading day of September has been down 10 out of the last 14 occasions and Monday, the first trading day of October, has been down 4 out of the last 6 with a 2.1% loss in 2009. Our view is that you can play both sides but we lean to buying weakness. As always, keep an eye on the 10-handle rule and please use stops.
- It’s 6:00 a.m. and the ESZ is up 6.57 handles at 1433.75, crude is is up 28 cents at 90.32 and the EC is trading 1.2880, up 9 ticks.
- In Asia 9 out of 11 markets closed higher (Shanghai Comp. +2.60%, Hang Seng +1.14%)
- In Europe 9 out of 12 markets are trading higher (CAC +0.82%, DAX +0.55%)
- Today’s headline: “World Stocks Rise Amid China Easing Hopes.”
- Economic calendar: Today: Durable goods orders, GDP, jobless claims, pending home sales, 7-yr note auction, farm prices; earnings from Discover Financial, Nike, Accenture, Research in Motion, Micron. FRIDAY: Personal income & outlays, Chicago PMI, consumer sentiment; earnings from Walgreens
- VOLUME: 1.77mil ESZ and 10.8k SPZ traded
- SPREADS: 60 SPU/Z spreads traded
- FAIR VALUE: S&P +6.00, NASDAQ +10.00
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The week, quarter and time for the Eurozone to implement the austerity measures are running neck in neck and time is of the essence. Following Tuesday’s selloff, largest index retracement in almost 3 months the overseas markets held their composure nicely as evidenced by the tight 7 handle Globex range last night. As the bears jumped in, traders showed their eagerness to lock in profits and ask questions later. The headlines were minimal today as opposed to Tuesday’s over coverage as little has changed and that is the problem. Eurozone and sovereign austerity measures, quarter end rebalance, earnings, warnings, downgrades and we can throw in a bit of TA. Technical analysis has caught up to the running of the bulls over the last few months. Time will tell if this move is working off an overbought condition and consolidating or is there something else in store before the next set of scheduled events?
Earnings:
9/27 – before the open (DFS, MKC); earnings after the close (ACN, GPN, MU, NKE, RIMM); analyst meeting (GE, URBN, UTX)
9/28 – before the open (AM, FINL, WAG)
Economic data:
9/27 – US Q2 GDP revision, Aug durable goods (8:30am ET) and pending home sales (9am CT)
Fri Sept 28 – US personal income/spending and PCE deflator (7:30am CT) and Michigan Confidence (8:55amCT)
9/28 – Eurozone CPI estimate (4am CT)
9/28 – ECB’s Asmussen speaks in Berlin (6:30am CT)
9/28 – Spanish bank stress tests due on either 9/27 or 9/28.
9/28 – France to publish ’13 budget
9/28 – China HSBC manufacturing PMI (Fri night)
Sun 9/30 – China manufacturing PMI (Sun night)
10/1 – Eurozone PMI manufacturing (4am ET) and unemployment rate (4am CT)
10/1 – US manufacturing ISM and construction spending (9am CT)
Big European dates:
9/27 – Eurozone M3 for Aug (3am CT) and Eurozone confidence (4am CT)
Note: Full Spanish bank audit due, details of Spanish “bad bank.” Spanish cabinet due to approve 2013 budget; Spanish budget due to be presented to parliament. Spanish bank stress tests due on either 9/27 or 9/28. Spain may publish a new economic reform package too… Also, chatter Spain ratings change from Moody’s? From JPM’s P Wadhwa: “we expect Moody’s to resolve its negative watch on Spain by mid- September (it first put Spain on negative watch on 13 June). Historically speaking there is a high probability of follow-through after a negative watch listing, in the vicinity of 70-80%. Impact would be material, as Moody’s currently has Spain at Baa3. Greek, Irish and Portuguese 10Y yields rose an average of nearly 300bp after their first downgrade to sub-IG.”
Wednesday started with 285k ESZ and 1.3k SPZ traded on Globex, ESZ trading range 1439.75 – 1432.50 / Tuesday’s RTH’s, pit range was 1456.70 – 1435.00, settled at 1437.20 down 14.2 handles. Today’s RTH’s gapped 2 handles lower to 1434.50 – 1435.50 marking the early high before trading 1431.50 8:42, testing 50% FIB 1468-1349.25 at 1431.25 and then cash 20 day sma as the SPY breached it. After trading 1430.50 the spoos tested 1432.50 area, but pulled back and double bottomed following the new homes data and the bulls stood pat. The bears took control as the buyers did not defend the 1431/32 area and sell programs ran the sell stops down the 1424.50 by 9:31CT wiping out much of the September gains. Stanton_Analytics (10:38:38): By David Marino Sept. 26 (Bloomberg) — An explosion was reported at Irving Oil Corp.’s Saint John refinery in New Brunswick. The reason rbob is up another 10 cents today / that is up 30 cents this week / Can you say fill ‘er up? So much for imminent relief at the pump…During the midday the volume dropped off as the spoos stepped quietly high to 1433.50 at 12:27. After some sideways trade, the bid dried up mid-afternoon and retested 1428 area before bouncing back to 1430 area by 2:27. After the lille bump up the SPZ sold back off down to 1426.50 just after the 2:45 imbalance showed 18 of the DOW 30 (small) and the broader market MOC showed SELL 400mil. On the 3:00 cash close the SPZ traded 1427.73 before settling at 1427.00 down 10 handles on the day.
MTS Chart: “I GOTTA CASE OF THE BOLLINGERS! ESZ 1425 / CL $89 / BONDS ZB $144!” http://www.mrtopstep.com/?p=29328
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CONTRIBUTORS’ CORNER
SPX CHARTS
Bill Blount, Tepid2 ~ Elliott Wave
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DISCLAIMER: The information and data in the following report(s) were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. MrTopStep, its officers, directors and its contributors may. in the normal course of business, have position(s) which may or may not agree with the opinions expressed in this report.
