Tuesday, May 6, 2014 - Article by: Joe Shamie - First Choice Loan Services -
Tuesday - May 6, 2014, 10:55am ET
Current Trend Direction: Possibly topping out at 2014 highs
Float/Lock Bias: Short term locking, days to a few weeks
Current Price of FNMA 4.0% Bond: $105.06, +3bp
After hitting 2014 highs yesterday and the highs seen from last November, Mortgage Bonds closed below those levels and are near unchanged this morning.
There are no economic reports due for release today, but the Treasury will be selling $32B 3-Year Notes. While we don't expect a volatile Bond Market reaction to this short-term paper auction, with yields at yearly lows the buying appetite may be negatively affected. We will let you know if something weird happens.
Yesterday, legendary fund manager Jeffery Gundlach, whose $32B Total Return Fund (DBLTX), which specializes in mortgage bonds and has beaten 97% of similarly managed funds, has recommended to bet against exchange traded funds that tracks homebuilders because declining affordability will reduce housing demand. Homeownership has been declining - the share of Americans who own their homes fell to 64.8% in the first quarter of 2014, an almost 19-year low.
Mr. Gundlach went on to say that investment companies have supported the housing market as they scooped up rock bottom priced homes to rent, but supply can easily pick up when those companies look to liquidate their holdings. In addition, baby boomers selling their houses will also add to supply and over 50% of single family housing has been all cash buyers and investor pools, not indicative of real market growth. This is obviously one mans opinion and trade, but it is worth considering. You know our take on the overall economy. This is what we have been saying for quite some timewe have not experienced any real meaningful growth for the past several years and the Fed has underwritten it all. With the economy not showing real growth it will be quite interesting to see what happens as the Fed exits.
Technically, as mentioned, the 4% coupon hit the highs seen from last November and this year and backed off yesterday. Given that prices have retreated from those levels in a big way several times without a convincing break above, we are recommending short term locking, which is measured in a few days to a few weeks.
Joe Shamie NMLS # 241432
First Choice Loan Services NMLS # 210764
First Choice Bank NMLS# 177877
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