Consumer Sentiment Moves Off Of Highs:

Americans turned less optimistic about the economy in early February on worries about falling income even as their outlook on the jobs market rose to a record high, a survey released on Friday showed.

The Thomson Reuters/University of Michigan Index of Consumer Sentiment fell back in February with a preliminary score of 72.5 that is 2.5 pts lower than January’s score of 75.

Current conditions, and more precisely a negative tone towards current finances, was the heaviest drag. Even though optimism towards the job market kept up, the CSI was unable to hang on to sentiment expressed last month. Market expectations averaged to 74.5.

The optimism in their job outlook is encouraging though and is certainly reflective of the steady string of better than expected Initial Weekly Jobless Claims and the recent decline in the national Unemployment Rate.  As these trends in lower Unemployment continue, look for the Consumer Sentiment to regain some ground.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) lost -26 basis points from last Friday to the prior Friday which moved mortgage rates higher on a week-over-week basis.  That also marked a -68 basis point drop in MBS pricing from our all time high on 02/02/12.

Mortgage backed securities (and therefore mortgage rates) moved sideways during the week with only minor movements in reaction to the 10 year and 30 year U.S. Treasury auctions.  But MBS did sell off on Friday on news that Greece would come through with another austerity package that would qualify them for additional bailout funds.

The Greek story has been an important one for mortgage rates.  Mortgage rates are artificially too low due to increased demand for U.S. bonds as a pure “safety play” against a European financial collapse.  A default by Greece would start a “domino effect” of other countries defaults too.  So, any positive news that a default is postponed will cause our rates to increase.

Today? 

Fed Releases Orders Related to Banks in Mortgage Settlement

The Federal Reserve Board released today the orders related to the previously announced monetary sanctions against five banking organizations for unsafe and unsound processes and practices in residential mortgage loan servicing and processing. The Board reached an agreement in principle with these organizations for monetary sanctions totaling $766.5 million on February 9, 2012.

ABA: Statement on Proposed Bank Tax

“The banking industry strongly opposes the $61 billion bank tax included in President Obama’s budget proposal. Despite claims to the contrary, the facts on TARP are very clear: Taxpayers have profited $13 billion from their investments in banks through the program and Treasury predicts they will see a lifetime positive return of more than $20 billion. Given that non-bank programs are responsible for all of TARP’s losses, this would simply be an arbitrary tax with no regard to where losses actually occurred.

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Jobs Data Points The Way To Stronger Housing:

Real Estate used to be about location, location, location. Now it is most certainly about jobs, jobs, jobs.

We received some welcome news on the jobs front last week:

The private sector added a seasonally adjusted 325,000 jobs during the month, up from 204,000 in November, payroll-processing firm ADP said:

It marked the biggest monthly gain since December 2010, and was stronger than expected. Economists surveyed by Briefing.com were forecasting a gain of 180,000 jobs for the month.  And the great news is that half of the gains were made by small business (companies with fewer than 50 employees).

Headline National Unemployment Rate Drops to 8.5%:

Growth in manufacturing jobs helped offset a loss in government positions, while wages edged higher and the length of the work week also lengthened a bit. Job gains came from a variety of quarters: Transportation and warehousing surged by 50,000, the couriers and message industry rose 42,000, and retail added 28,000. Manufacturing grew by 23,000 and the hospitality industry continued its brisk pace, adding 24,000 jobs in December and 230,000 over the past year at food and drinking establishments.

What Happened to Rates Last Week:

Growth in manufacturing jobs helped offset a loss in government positions, while wages edged higher and the length of the work week also lengthened a bit. Job gains came from a variety of quarters: Transportation and warehousing surged by 50,000, the couriers and message industry rose 42,000, and retail added 28,000. Manufacturing grew by 23,000 and the hospitality industry continued its brisk pace, adding 24,000 jobs in December and 230,000 over the past year at food and drinking establishments.

Private Sector Sees Job Growth:

levels last week. The ADP Private Payroll report continued to show gains in hiring in the private sector. Their monthly gauge came in at 110K which was much better than market expectations of 101K.

In a separate report, the national Unemployment Rate fell from 9.1% to 9.0%.  The total non-farm payroll gains were 80K which was below market expectations. However, the prior period was revised upward significantly.

Bright spots: Professional and business services up 562K in 2011. Hotel and restaurants up 344K this year. Health Care up 313K for the year. Retail Trade up 156K this year. And mining jobs are up 152K during the year.

What’s not doing well? Construction, government, financial services, insurance and real estate. Alas, new homes rose in September after four straight monthly declines.

Obviously, housing demand is very closely tied to employment levels. While employment levels still have a long way to go, there is some improvement which is a positive for housing.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +12 basis points from last Friday to the prior Friday which moved mortgage rates lower. This reversed the recent trend of week after week of higher rates.
We had some decent economic data such as better than expected unemployment levels which would normally drive mortgage rates upward.  But fears and concerns over Greece and the European Union caused investors to pour money into bonds which temporarily pushed mortgage rates downward.
Previously, Germany and France had worked out a package deal with the rest of the EU members to bailout Greece.  But last week, the Prime Minister of Greece stated that he wanted the Greek citizens to have a vote on if they should accept the bailout.  If that did happen, there is no way that the citizens would vote for approval and essentially sink the deal.  
Now, we understand that the Prime Minister of Greece has stated that he will step down and that the new government will approve the deal without a public vote. It is amazing how one little country can impact rates so much.

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Mortgage Delinquency Rates Decline:

You would think by the barrage of negative news reports that just about every other home was going into foreclosure.  Certainly this is not the case. In fact, the housing market has stabilized in the past six months.  The latest report from the Mortgage Bankers Association shows that the percentage of homeowners that were behind at least one monthly payment fell from 9.1% in the third quarter to 8.2% in the fourth quarter.  Also, the 2010 delinquency rate fell from over 10% in the beginning of the year to 8.2% at the end of the year.

The 2% drop in mortgage delinquencies follows the recent drop in the Unemployment Rate and the steady increase in Existing Home Sales and Consumer Confidence.  These are significant signs that the housing market is closing in on a true market equilibrium.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +39 basis points last week which caused 30 year fixed rates to move lower after reaching their highest levels of 2011 in the prior week. The economic data such as PPI and CPI showed inflationary pressures that consumers pay  – which is usually bad for mortgage rates. But the geo-political concerns over continued tensions in the Middle East, specifically the news stories of the Iranian War Ships requesting access to the Suez Canal, caused traders to move their funds into the safety of bonds which temporarily helped mortgage rates.