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Wednesday December 10, 2008 - 16:52:22 GMT
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Forex News: US Mortgage data and the US Yield curve tell the problem with housing

Credit crunch in the housing sector is alive and well. Today, the Mortgage Bankers Association announced their weekly results of their mortgage survey. The report showed a decline in mortgage applications (-7.1%).  This was on the back of the record 112% increase last week. 

Also with the report is the average mortgage rate for the current week.  Last week the average rate for 30 year mortgages declined to 5.45% from 5.47% the week before.  Meanwhile the 30 year US treasury yield declined to 3.12% from 3.44%.  As a result, the spread between 30 year bond yields and 30 year mortgages rose to 233 basis points.  This is near the all time high. 

As a guide the spread was between 160 and 200 basis points from June 2008 to September 2008. 

What does this say?  If the spread was more normal, say 180 basis points, the mortgage rates should be 53 basis points lower (somewhere around 5%). 

However, because of the reluctance of banks to extend funds for mortgages, the mortgage rates remain high. As a result, the stimulus from the lower yields on treasuries are not flowing through to the housing market. 

 

Why?  The banks are probably looking at the supply of homes on the market which stand at 10.2 month supply, twice the supply in 2000/2001  (see chart above).  They are looking at the current demand for housing which is now below 2000-2001 levels (see chart below). 

 

Finally, they are looking at the median sale price of homes and see that the price is at $183,000 while the Median Sale Price in 2000-2001 was $145,000. 

With supply higher, demand lower and prices still higher, something has to give.  The banks are saying prices are likely to come down.   Therefore, they remain reluctant to lend.   

 

Meanwhile, the Fed and Treasury are trying to attack the problem by lowering mortgage rates.  Unfortunately, they have little control at the moment.  If rates could come down, housing would be more affordable, those who can refinance will have an economic benefit and hopefullly the combination would stimulate the economy and make house supply less (and demand higher).  

So far, they have not been able to do it.   If they fail, home prices will do the talking and this in turn will increase foreclosures. and continue to put pressure on banks capital.  The downward cycle would continue.  

The economy remains on a knifes edge.  Demand for housing needs to increase and sop up some of the supply.  Mortgage rates need to make another sharp move down, one way or another.  How that happens is currently not known.  However, you can be sure, the powers that be, would rather see rates come down, then home prices. 

Trading forex is risky and should only be done with risk capital that will not change your lifestyle. Traders could lose all of their risk capital trading forex. FXDD does not guarantee any recommendation made within this commentary. Traders should make market assessments and take trading positions based on their own personal market analysis, risk tolerance and financial condition. In addition, care should be made to only use leverage which is congruent with your personal risk tolerance. Although care was taken in creating this report, FXDD does not guarantee the accuracy of the information

 

 

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Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

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Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

Forex Trading Outlook


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  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

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