Mortgage backed securities and Treasuries began the day by selling off, a move which would lead to slightly higher mortgage rates if the market holds at current levels (bonds have already started to recoup some of the morning’s losses, but trading thusfar has been volatile). The move appears to be fueled by a (possibly misplaced) feeling of optimism about fiscal cliff discussions as well as the hope that all-out war between Israel and Hamas can be averted in Gaza. Some of what we are seeing right now could well just be a case of profit-taking before the Thanksgiving holiday. In any case, today’s market movement doesn’t seem based on anything concrete, and I’m not inclined to believe that rates will break out of their current range and move higher any time soon.
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There’s a paucity of data this week, with today’s main report being on Existing Home Sales. The NAR reports that existing home sales increased by 2.1 percent (seasonally adjusted) in October, following a 2.9 percent decline in September. This is better than expectations, and may be putting a little upward pressure on rates today. Existing home sales are 10.9% above October 2011′s pace. Housing is slowly improving despite many headwinds, but I think it is far from being out of the woods.
As I said earlier, there seems to be some optimism that our elected officials will reach some sort of compromise on the fiscal cliff. I’m not entirely sure what this is premised from, other than the fact that Obama met with Republican and Democratic leaders on Friday and express confidence that “we can get our fiscal situation dealt with.” You’ll have to excuse me if I don’t find that statement particularly convincing. We shall see what happens, but I think we are going to see a lot of acrimony over what gets cut and who gets taxed, and that the negotiations are going to be long and drawn-out.
It’s also important to bear in mind that whatever the outcome of the negotiations, there is likely going to be a drag on growth (unless we opt to kick the can down the road, which is possible). Tax increases and spending cuts will by definition impact the GDP, and it’s only a question of how large the hit is going to be. I know it’s a pipe dream, but I still believe that rather than cutting spending, now would be an ideal time to borrow at record low interest rates and invest heavily in badly-needed infrastructure. This move would not be popular with deficit hawks (I’m not convinced that many of these people are serious about dealing with the debt anyway, given their hostility toward tax increases), but it would employ a lot of people and be a legitimately good investment in our country’s future.
Until we get more clarity on these matters, we’re going to see mortgage rates stay in their current range. I don’t think there is enough information to guess otherwise.
Bloomberg: Wall Street Kept Winning on Mortgages Upending Homeowners. This is what happens when incentives are not properly aligned.
Los Angeles Times: Most Aid From Mortgage Settlement in State Going to Short Sales.
NYT: As Coasts Rebuild and U.S. Pays, Repeatedly, the Critics Ask Why. People like to live by the water, and people don’t like to acknowledge climate change.
Reuters: Egypt PM Says Gaza Truce Deal May Be Close.
Oregon Live: Debate Over MERS, Foreclosure Mediation Needs to End Soon.
Mark Cuban: Facebook Needs to Accept That It’s Just a Time Waster.
Guardian: France Blows Up at Economist’s ‘Ticking Time-Bomb” Cover.
The Atlantic: When the Nerds Go Marching In. Unfortunate title aside, this is a really interesting article about the election.
Reuters: Florida’s West to Fight Defeat in U.S. House. This loon needs to go away.
Mental Floss: 5 Thanksgiving Dinner Disasters – And How to Avoid Them.
Bloomberg: Shadow Banking Grows to $67 Trillion Industry, Regulators Say.
ProPublica: Pipeline Safety Tracker.
Credit Slips: What’s Up With “Independent Foreclosure Review”: Boondoggle for Consultants and More Foot-Dragging by Servicers.
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