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Articles

Real Estate Drops But Second Home Market May See Increase
http://realtytimes.com/rtpages/20120203_2ndhomes.htm

Obama Mortgage Refinance Plan Accelerates Equity Rebuild
http://www.housingwire.com/article/obama-mortgage-refinance-plan-accelerates-equity-rebuild

Foreclosures Hit 4-year Low in Metro Area
http://www.azcentral.com/business/realestate/articles/2012/02/02/20120202foreclosures-hit-year-low-metro-area.html

Unemployment Rate Dips to 8.3% – Hiring Bursts Top Expectations
http://www.azcentral.com/business/articles/2012/02/03/20120203unemployment-rate-dips.html

  Market Update

Mortgage bond prices were only slightly higher this week, which kept mortgage interest rates in check.  There were rate improvements throughout the middle of the week tied to weaker than expected ADP employment figures.  Unfortunately, a lot of those gains were erased Friday morning with the release of the employment report.  Unemployment came in @ 8.3% which was better than the expected 8.5% mark.  Payrolls increased 243k, which was considerably stronger than the expected 155k increase.  Stocks rallied and MBS prices fell as a result.

Auctions

US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact.   Treasuries are used as a hedge for the interest rate risk associated with mortgage-backed security investing.  Mortgage-backed securities have the potential for prepayment that Treasuries do not.  Both Treasuries and mortgage bonds often track in the same direction but this is not always the case.  There are many times that Treasuries and mortgage bonds move inversely. Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets.  When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds.  This demand usually causes mortgage bond prices to rise and interest rates to fall.  This flight to quality buying is one of the factors helping mortgage interest rates remain historically low. The Fed recently noted that continued global economic turmoil will be a factor in the health of the US economy.  How that all plays out is still uncertain.

The Treasury auctions this coming week will be important in determining the current appetite of foreign investors for dollar denominated debt securities.  Demand has been generally good as of late but auctions of different durations often vary in their results.  Mortgage bond prices could fall pressuring mortgage interest rates higher if the auctions this next week are poorly bid.  The inverse is also true.

Have a safe weekend

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