MBS News

The 8:15 release of the Dec ADP private jobs report was more losses than what was expected; private job losses were expected to be 75K but were down 84K. Markets didn't make much of it however; its the BLS report coming this Friday that overrides the ADP data. Historically ADP estimates have been more bearish than what the BLS data shows. Markets are still looking for job losses to be negligible in Dec with seasonal hirings boosting and distorting the data.

At 9:00 this morning the 10 yr note -3/32, mortgage prices +1/32 and the DJIA index -2 points. At 9:30 the DJIA opened -15, the 10 yr note -1/32 and mortgage prices unchanged.

At 10:00 the Dec ISM services sector data; expectations were for the overall index to increase from 48.7 to 50.5, it hit at at 50.1. New orders component 52.1 frm 55.1, prices pd at 58.7 frm 57.8 and the employment index increased to 44.0 frm 41.6. Any reading over 50 is expansion, under 50 contraction. The reaction generated slight selling in the mortgage markets and a bounce in the stock indexes.

Earlier this morning, the MBA mortgage applications; for the weeks ending December 25, 2009 and January 1, 2010. For the week ending December 25, 2009, the Market Composite Index, a measure of mortgage loan application volume, decreased 22.8% on a seasonally adjusted basis from the prior week. For the week ending January 1, 2010, this index increased 0.5% on a seasonally adjusted basis. Both weeks’ results include an adjustment to account for the Christmas and New Year’s Day holidays. For the week ending December 25, 2009, the Refinance Index decreased 30.5% from the previous week and the seasonally adjusted Purchase Index decreased 4.0% from one week earlier. The following week, the Refinance Index decreased 1.6% and the seasonally adjusted Purchase Index increased 3.6%. The refinance share of mortgage activity for the week ending January 1, 2010 is 68.2%, a decrease from 69.6% for the week ending December 25, 2009.

For the week ending December 25, 2009, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.08% from 4.92%, with points increasing to 1.48 from 1.23 (including the origination fee) for 80% LTV loans. For the week ending January 1, 2010, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.18% with points decreasing to 1.28. For the week ending December 25, 2009, the average contract interest rate for 15-year fixed-rate mortgages increased to 4.57% from 4.34%, with points decreasing to 0.91 from 1.03 (including the origination fee) for 80% LTV loans. For the week ending January 1, 2010, the average contract interest rate for 15-year fixed-rate mortgages increased to 4.62%, with points increasing to 0.98.

A double dip in 2010? The overwhelming consensus from the majority of analysts and economists----not to mention Wall Street brokers----is that the economy will continue to improve in 2010 and we won't experience a U or W bottom. According to the consensus view, the worst is behind us, jobs will begin to increase and the economy will grow. Well, for many years I used to write our annual forecast for the year about this time of the new year; no more, it is way too sketchy and uncertain to put out a forecast that has little value more than a month or two. With that, what bothers us, and we can't shake it, that the housing sector is not recovering and many are simply ignoring that fact. Foreclosures are not declining, they are increasing and it is now including so-called prime mortgagors. Home values are continuing to decline. Consumers are continuing to pull back on spending (except for Christmas); consumer credit has declined for the each of the past 10 months. As everyone knows, consumer spending accounts for 70% of GDP growth, unless there is a sea change in consumer spending and the housing sector decline, the economy isn't likely to grow as the present consensus implies.

48 hours until the employment report for Dec. Every employment report is critical, this one adds even more to the markets as estimates are for non-farm jobs to come in unchanged with no additional losses in jobs. Seasonal hirings according to analysts will overcome more long lasting job losses according to those that know this for sure. Knowing anything for sure when it comes to employment is a formula for disappointment, all one has to do is consider the market volatility when the data is released----always wild swings in equities and interest rates.

Source:TBWS