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Interest rates this morning starting a little lower in price; at 9:00 the 10 yr note -11/32 at 1.81% +4 bp and mortgage prices -5/32 (.15 bp). Prior to 8:30 stock indexes were lower and mortgage prices about unchanged. At 8:30 April housing starts were +2.6%, slightly less than +3.8% expected but March starts were revised to -2.6% frm -5.8% originally reported; single family starts in April increased 2.3%. April building permits expected -2.3% were -7.0%, March permits were revised frm +6.8% to +8.8%.
 
At 9:15 April industrial production expected up 0.6% increased by 1.1%, March however was revised from unch to -0.6%. April capacity utilization was expected at 79.0%, utilization increased to 79.2 the highest level of factory use since Arp 2008. The better data added a little more support to the equity markets but not much.
 
The DJIA opened +32 at 9:30, the 10 yr at 9:30 -11/32 at 1.81% +4 bp and MBS prices -4/32 (.12 bp). Prior to 9:30 mortgage prices traded down 5/32 (.15 bp).
 
Greece has set June 17th for another election after the political parties could not agree on a coalition government after last week’s elections didn’t get any consensus. The country is facing the decision whether or not to exit the EU as the Union has set severe austerity and job cuts as requirements for additional bailout money. Citizens are increasingly unwilling to endure the serious sacrifices demanded. Yesterday the new President of France Francois Hollande met with Angela Merkel; Merkel continues to say she wants Greece to stay in the EU, but she also isn’t in favor of additional bailout funds unless the Greeks are willing to live in almost depression conditions. Opinions and bets are equally divided on what will happen in Greece; some experts are saying Greece will exit while others are believing Greece will stay. In the meantime global markets will continue to be driven on daily news out of Europe.
 
Treasuries are lower in price as optimism about the economic outlook damped demand for the safety of U.S. debt and as Greece named an interim government before elections to end a political impasse. A Greek caretaker government will prepare elections, probably on June 17, said Greece’s Democratic Left leader amid concern the country will abandon the euro common currency. Germany’s Finance Minister Wolfgang Schaeuble said another Greek election would be a referendum on whether the country retains the euro. “If Greece -- and this is the will of the great majority - - wants to stay in the euro, then they have to accept the conditions,” Schaeuble told reporters yesterday in Brussels.“ Otherwise it isn’t possible.”
 
Mortgage applications increased 9.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 11, 2012. The Refinance Index increased 13.0% from the previous week. The seasonally adjusted Purchase Index decreased 2.4% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 1.77%. The four week moving average is up 1.57% for the seasonally adjusted Purchase Index, while this average is up 1.88% for the Refinance Index. The refinance share of mortgage activity increased to 74.9% of total applications from 72.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.4% from 5.7% of total applications from the previous week.
 
This afternoon at 2:00 the minutes from the 4/25 FOMC meeting. Markets want to focus on debate over whether the Fed will launch another QE. We continue to hold the Fed will not ease again; what would be the point? Interest rates are already low and there is little reason to expect they will increase much over the next few months. Unless the Fed can make a case that another easing will increase employment there isn’t much incentive to continue easing.

 
This Week; interest rates are likely to continue lower on increasing fears Europe is facing defaults from Greece and increasing likelihood Greece will depart the EU. If Greece were to exit the EU it may set up a domino effect with Ireland, Portugal and Spain; Europe’s attempt at severe austerity inn efforts to bring countries’’ fiscal spending under control has failed. In Germany over the weekend Angela Merkel’s party suffered another defeat in local elections, last weekend another local election went against her. Germany is the rock in Europe and voters are showing their resistance to any additional help from the country. In Greece over the weekend the attempt to form a coalition government has failed leading now to another general election; most Greeks are rebelling against the austerity pledge Greek officials agreed on a few months ago.
 
This week after a week with little domestic economic data, there are a number of key data points on Tuesday, Wednesday and Thursday. April reports for the most part; retail sales, CPI, housing starts and permits, industrial production and factory use, the Philly Fed May index. The minutes from the 4/25 FOMC meeting will get a lot of focus, looking for clues about another possible QE; we still hold the Fed will not initiate another QE but there are many analysts and economists thinking the Fed will ease one more time. If the Fed were to ease again it would likely have to happen at the next FOMC meeting in June, after that the Fed will likely refrain with elections coming in November.

Buying a home won't get much cheaper

Several housing experts are predicting that this year will be the last chance for homebuyers to cash in on the weak housing market.

NEW YORK (CNNMoney) -- Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.

With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable -- but it won't stay this way for much longer.

Stuart Hoffman, chief economist for PNC Financial Services (PNC,Fortune 500), said he expects home prices to flatten out by the third quarter and start climbing by next year.

A number of factors will help bolster the housing market, he said, including a decline in the number of foreclosures and continued job growth. In addition, homebuyers will have better access to mortgages as they get their finances in order and improve their credit scores.

Some economists, like Trulia's Jed Kolko, expect home prices to pick up even more quickly. Trulia's data shows that the national average for asking prices already increased 1.4% in the first quarter of 2012, compared with the last three months of 2011.

Mortgage payments at lowest level in decades

"This is a strong indicator that we will start seeing home price indexes, like the S&P/Case-Shiller, start to report home price increases this summer," he said.

Prospective homebuyers who've been sitting on the fence shouldn't worry if they aren't quite ready to make the leap. Analysts are predicting that the initial price gains will be modest, at least, in most markets.

Hoffman, for example, is forecasting a 2% increase in 2013 compared with 2012. Meanwhile David Stiff, chief economist for Fiserv, predicts that prices will turn in the last quarter of 2012 and will rise 4.2% for the 12 months through September 2013.

Foreclosures start to fade. One major factor that will drive the trend is the cooling of the foreclosure crisis. Stan Humphries, chief economist for Zillow, said that the percentage of mortgage loans 90 days or more late, a good predictor of future foreclosures, is "falling fast."

That percentage dropped 15% year-over-year to 3.1% through the end of 2011, according to the Mortgage Bankers Association. And the decline is accelerating: More than 70% of the decline came in the last three months of the year.

Before things slow down, however, buyers should brace themselves for a temporary spike in the number of foreclosures as banks start expediting the processing of hundreds of thousands foreclosures that were stuck in the system following the robo-signing scandal. That backlog should move more quickly now that new guidelines for processing foreclosures have been outlined in the $26 billion foreclosure settlement.

Many of the bank-owned properties currently coming out of the foreclosure pipeline are being snapped up by investors who are fixing them up and renting them out -- often to those who were displaced by the foreclosure of their own home. That has helped to lift prices on foreclosed properties, according to Alex Villacorte, the director of analytics for Clear Capital, which specializes in housing market valuations.

Home buying much cheaper than renting

"That could have a significant impact on the market overall in terms of providing a rising floor to home values," he said.

In some markets hit hard by foreclosures, the turnaround in prices is already underway. Phoenix recorded an 8.4% jump in home prices during the three months ended April 30, compared with the three months ended January 31, according to Clear Capital.

"It's crazy," said Tanya Marchiol, founder of Team Investments, a Phoenix real estate investing firm. "Stuff I was selling six months ago for $60,000 to $80,000 is now $90,000 to $110,000."

Miami saw a 4.6% increase quarter-over-quarter through April, andTampa, Fla., was up 4.4%, according to Clear Capital.

Goodbye 3.8% mortgage. In addition to home prices, mortgages could also move higher.

Mortgage rates have been at or near historic lows for much of the past six months. The average interest rate for a 30-year, fixed-rate mortgage has not topped 4.5% since July 2011 and this week, it hit 3.84%, a new low.

But rates aren't expected to remain at these record-low levels much longer. As the economy continues to recover, rates will move higher, said Doug Lebda, CEO of LendingTree, the online lending site. Although, he said, they will "stay very reasonable."

The Mortgage Bankers Association is forecasting that the 30-year fixed will hit 4.5% by the end of the year.

Greater demand for loans will help fuel the increase, according to Lebda.

6 Ways to get a great mortgage deal

Even though mortgage rates have been cheap, borrowing for home purchases has been sluggish. The Mortgage Bankers Association estimates that homebuyers will take out mortgage loans totaling about $415 billion this year, an increase of less than 3% compared with 2011. Next year, however, it forecasts that amount will almost double to $706 billion.

As housing markets stabilize and prices stop falling, homebuyers will be even more confident about buying, said Humphries.

"People can now see the light at the end of the tunnel," he said. "And that can be enough to get them off the fence." 

Find homes for sale

First Published: May 3, 2012: 5:25 AM ET

Treasuries and mortgages are fractionally better this morning but not much. Friday the 10 yr note pushed through 1.90%, a key technical resistance level. Stock indexes in pre-market opening were trading weaker supporting the bond market. In Europe over the weekend Greece and France voted out the leadership that drove the massive austerity plans that have crippled Europe. France elected Francois Hollande and ousted Sarkozy; Sarkozy and Germany’s Angela Merkel were the architects of the severe cuts in spending in the debt riddled countries of Greece, Portugal, Ireland, Italy and Spain that has routed what was left of the economies and driven unemployment to depressionary levels. The results of the elections in the two countries came after a tumultuous few weeks that saw the Dutch government fell as Britain’s conservative led coalition took a whipping in local elections. Most analysts believe voters in Europe are in favor of balanced budgets and good fiscal governance but the spending cuts are too severe and too quick. Germany and France, especially Germany, have forced unemployment higher and dealt the euro economy into a very deep recession.
 
Here in the US the stock market had a bad week last week and we expect additional selling this week as investors are increasingly concerned valuations in many of the “hot” issues have become too expensive.  Europe’s recession is slowing China and investors see recent US data as evidence the US will slow. That the US will slow growth flies in the face of the most recent Fed forecasts; last week the Fed raised its outlook for GDP growth this year and next compared to their outlook in January. Uncertainty is the word of the moment.
 
At 9:30 the DJIA opened -46, NASDAQ -13, S&P -4; 10 yr note +2/32 at 1.87% -0.5% while mortgage prices up 2/32 (.06 bp).
 
This week Treasury will auction $72B of notes and bonds; $32B of 3 yr notes tomorrow, $24B of 10 yr notes on Wednesday and $16B of 30 yr bonds on Thursday. There isn’t much in the way of key economic releases this week. This afternoon at 3:00 March consumer credit; it is one our favorite reports each month although there isn’t a lot reaction when it hits. Credit is expected to have increased $11.0B after +$8.7B in Feb; our focus is on revolving credit (credit card usage) not so much on the headline. Consumer credit has been surging the last six months driven by non-revolving credit, credit in large part that's used to fund vehicle purchases. Revolving credit, which also turned higher late last year, has however been lagging and contracted slightly for a second month in a row.

 
Last Friday crude oil plunged $4.00, this morning down again now trading well under $100.00 (see below). Oil fell to the lowest level in more than four months after European election results fed speculation that austerity efforts will be derailed and weaker-than-expected jobs data underscored concern the U.S. economy may falter. Crude for June delivery plunged as much as $3.15 to $95.34 a barrel in electronic trading on the New York Mercantile Exchange early this morning. The contract tumbled $4.05 to $98.49 Friday, the lowest close since Feb. 7. Prices slumped 6.1% last week, the biggest weekly drop since September. Over the last three weeks crude as fallen from $104.00.
 
The remainder of the day will likely be directed by the stock market; the indexes are already off their opening levels. Like a broken record, the 10 yr has never traded below 1.90% for more than three days; the point being that the present levels of long term US rates should be monitored closely. We are not forecasting rates will increase, what we see though is that in the past the 10 yr and mortgages have run into solid resistance under 1.90% on the note.