Check out the comment from Freddie Mac about mortgage rates:

After hitting an all-time low in early December, the average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, if not sooner, according to giant mortgage financier Freddie Mac.

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/25/AR2009122501652.html?wprss=rss_business

Washington Post

It is no wonder they are calling for higher mortgage rates.  The Treasury is issuing new debt as fast as it can auction it off.  Deficits are rising.  And the Fed has slowed down its purchase of mortgage backed securities.  Plus, as mortgage deliquencies rise, investors will continue to require higher premiums above Treasuries of equal maturity.  What this means for North Carolina and South Carolina mortgage rates is simple.  We need the Fed to continue to purchase MBS to keep rates and spreads low.  A rise to 6% mortgage rates will greater hinder any recovery in North and South Carolina real estate as well as nationwide.  So come on Big Ben.  We still need some help out here.

Monday’s auction of $44 billion of 2 year treasury notes was not great, and today’s auction of $42 billion of 5 year notes is not expected to meet with great demand. Part of this weakness can be attributed to the holiday week, but mostly the problem is too much debt. Five year note yields are currently trading at the highest level since just prior to the August auction.

Economic data today included the S & P/Case-Shiller home price index, which rose 0.4% in October, the fifth consecutive month prices have risen. The index is still down 7.3% compared to October 2008.

Economists and analysts are increasingly concerned higher interest rates are here to stay. The administration does not seem to understand the markets will only absorb a certain amount of U.S. debt before demanding higher interest rates. Commonly known as the bond vigilantes, former President Clinton remembers this well. Also, every dollar of government debt offered, crowds out private debt, such as corporate bond offerings from companies trying to raise money to fund existing and future operations. This is the source of real economic and job growth.

In an apparent move by the Obama administration, government-controlled Fannie Mae and Freddie Mac announced plans to suspend foreclosure evictions during the holidays. The moves follow a similar action by Citigroup Inc. — which the government has a big stake in.

JPMorgan Chase & Co. is adding two dozen locations where borrowers can come in and try to workout delinquent and potentially delinquent mortgages. More than 5,000 loan modification counselors are employed by the company.

For those of you waiting and hoping for a continuation of the bond rally, you will have to wait and hope a bit longer. Investors seem to have dismissed the concerns driving their decisions on Thursday, so today are back on the “take on risk” trade.

There was no economic data today, although oil prices have moved higher after a few Iranian troops moved onto Iraq and set up camp around an oil well. Gee, with the media focusing so much on fake global warming and the silliness in Copenhagen, I almost forgot the world still requires oil each and every day. And I am sure jet fuel prices rose a little the past two weeks as all those global warming folks flew their private jets to Europe.

After today we have only 6 more shopping days until Christmas. If you are like me, this weekend will be a scramble to get all those last minute details taken care of.

The bond market stabilized this morning on news from the Labor Department that core consumer prices were unchanged in November, and rose only 0.4% factoring in food and energy. Good news also came from the Commerce Department which reported housing starts increased 8.9% in November, in line with expectations.

Bonds not only stabilized but have improved slightly as we progress through the day. Remember, we still have the main event coming at approximately 11:15 AM, which is the announcement by the Federal Reserve on where they see the economy going in the next few months, as well as their take on inflation. Any surprise in the language could rattle the markets, so stay tuned.

When I wrote to you Monday afternoon the yield on the 10 year note was sitting at 3.55%, and my ending comment was, “it is not prudent to be sitting around waiting”.

The headline number for Producers Prices shocked the bond market this morning with an increase of 1.8% versus the forecast of 0.8%—keeping in mind this index rose 0.3% in October. The bulk of the increase came from fuel, tobacco and light truck prices, but the market has so far ignored the details. Tomorrow the Consumer Price Index is expected to reflect an increase of only 0.1%, so the markets will be on alert for any surprise. Bond yields are rising with the 10 year note now at 3.61% and mortgage bonds worse in price by .375%.

Following the PPI data, the Federal Reserve reported industrial production climbed 0.8% in November after no change in October. This report tells us activity in manufacturing, mining and utilities is picking up, although not enough to boost hiring.

The Federal Reserve begins a two day meeting today with mixed data to review. The housing and commercial real estate markets are clearly not out of the woods, employment growth is non-existent, yet there are parts of the U.S. economy that seem to be improving. And of course there is always the concern of inflation. The markets are pricing in a Fed rate hike by June of 2010.

The Department of Housing and Urban Development plans to lift the 1% cap on origination fees for Federal Housing Administration-insured loans. Look for an official announcement shortly.

The headline Retail Sales data hammered the bond market Friday, however, by the end of the day enough folks had sifted through the details to realize there was no underlying strength. As the bond market clawed its way back most lenders were able to improve their rate sheet prices by early afternoon.

The remainder of this week is jammed with important economic data with another Fed meeting mixed in to add drama. The markets will see information on inflation Tuesday and Wednesday in the form of the Producer Price Index and the Consumer Price Index, respectively. Both are forecast to show prices are increasing, but still at a benign level—assuming you want to call any inflation benign.

The past few weeks the majority of economic data has reflected economic conditions that are less bad than what we have seen since the recession began in 2007. The biggest factor remains the job market, as it will be impossible to generate lasting economic growth in an economy that is not creating jobs. And by the way, government spending does not create jobs.

This afternoon the yield on the 10 year note is hovering at 3.55%, with the market leaning towards higher rates. Indeed, the markets are pricing in Fed tightening by mid-year 2010, so it is not prudent to be sitting around waiting around.