MARKET COMMENT

Mortgage bond prices rose last week pushing mortgage interest rates lower. The Fed spent another $45 billion buying mortgage bonds between November 5th and the 11th. For all the criticism the Fed receives for the handling of the economy, they do deserve credit for keeping mortgage interest rates low throughout this year. How it all plays out in the long term is uncertain. The record Treasury auctions continued to be absorbed in trading without any major problems. For the week, interest rates improved by about 7/8ths of a discount point.

The consumer price index data Wednesday will be the most important release this week. Producer price index data along with retail sales data will set the tone for the start of the week. Inflation indications would likely hurt mortgage interest rates but signs of tame inflation could help rates improve.

LOOKING AHEAD

TAX CREDIT EXTENSION

The housing market received some good news when Congress recently acted on the pleas of housing sector professionals and extended the $8000 first time homebuyer tax credit. In addition, the program was expanded to include move-up buyers with a $6500 tax credit. The program now runs through April of next year. Prior to the extension the program was set to eclipse at the end of November.

Even with the positive measure there is still some criticism the program does nothing to address the foreclosure problems that continue to plague the housing market. Unfortunately the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the isle concerned.

The new and move-up buyer incentives coupled with historically low interest rates make now a great time to purchase a home. Low rates also make it favorable for many current homeowners to refinance.

MARKET COMMENT

Mortgage bond prices rose last week pushing mortgage interest rates lower. Rates spiked higher Monday morning as stocks surged and the Treasury auctions loomed. Fortunately, foreign demand for the notes was solid, helping to keep mortgage rates low. The stock markets remained volatile all week with the Dow Jones index swinging by triple digits both up and down.

For the week, interest rates improved by about 1/4 of a discount point.

The Fed meeting on Wednesday will be the most important event this week. Productivity and employment figures are likely to move the market.

LOOKING AHEAD

VOLATILITY LIKELY

The likeliness of mortgage interest rate volatility this week is very high considering the abundance of important economic releases.

Each piece of data has the ability to cause volatility in the financial markets. Floating ahead of the data exposes a person to a tremendous amount of risk. It is possible for interest rates to improve if the data shows weakness in the economy with few price pressures. However, any surprises will likely be bad for mortgage interest rates.

Governmental actions in addition to the economic data continue to weigh upon the financial markets. We are really in uncharted territory here with the wobbly underpinnings of the economy. Credit remains tight, as lending has become more stringent. However, there still remain funds available. Real estate transactions continue to take place despite perceptions to the contrary.

The important thing to remember is that even the Treasury officials trying to shore the economy do not know exactly what the future holds. With this in mind, be cautious during these times of economic uncertainty and be ready to lock in the event interest rates start to spike higher.

Market Comment

Mortgage bond prices ended the week nearly unchanged despite considerable market volatility. Trading was up and down all week. Rates improved the first portion of the week as stocks fell below key psychological levels. Unfortunately a reversal the middle portion of the week eroded the earlier improvements. Data was mixed with tame inflation readings but generally stronger than expected economic activity. For the week, interest rates were near unchanged.

The Treasury auctions will take center stage again this week. If there is strong foreign demand it will likely spill over to the mortgage bond market. Weak auctions will likely result in mortgage interest rate increases. Employment cost index data will also be carefully watched.

LOOKING AHEAD

Existing Home Sales

Last week's existing home sales data shocked the market with a stronger than expected increase. Sales rose 9.4%, considerably stronger than the expected 5.5% increase. Some analysts attribute the surge in sales to the $8000 tax credit that is currently set to expire at the end of November. Lower home prices and historically low mortgage interest rates also factored into the increase. From a national perspective this is a positive report. However, the fact that some major metropolitan areas of the country failed to see improvements is an example of the axiom that real estate is local. 

There is still uncertainty regarding the future state of the economy. Mortgage rates are great. Take advantage of them while that remains the case.

MARKET COMMENT

Mortgage bond prices rallied Friday pushing mortgage interest rates lower. Bond friendly Core PCE inflation data came in lower than expected. The Fed's most recent estimates call for an increase in this figure by the end of the year. The fact that the data showed lower inflation helped mortgage bonds rally. Consumer confidence came in at a weaker than expected 46.6 mark. Analysts were looking for a reading of 48.7. The Treasury auctions were mixed. The 2 and 5 year note auctions received poor foreign demand while the 7-year auction showed strong foreign demand. For the week interest rates fell by about 3/4 of a discount point. 

The employment report will be the most important release this week. With so many data releases expect the market to be very volatile.

LOOKING AHEAD

PERSONAL INCOME & OUTLAYS 

The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption.

The prior release showed wages and salaries decreased $12.4 billion. Future decreases may adversely affect consumer spending and the entire US economy. Decreased wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money. 

It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy. 

Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.

MARKET COMMENT

Mortgage bond prices rallied Friday pushing mortgage interest rates lower. Bond friendly Core PCE inflation data came in lower than expected. The Fed's most recent estimates call for an increase in this figure by the end of the year. The fact that the data showed lower inflation helped mortgage bonds rally. Consumer confidence came in at a weaker than expected 46.6 mark. Analysts were looking for a reading of 48.7. The Treasury auctions were mixed. The 2 and 5 year note auctions received poor foreign demand while the 7-year auction showed strong foreign demand. For the week interest rates fell by about 3/4 of a discount point.

The employment report will be the most important release this week. With so many data releases expect the market to be very volatile.

LOOKING AHEAD

The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption.

The prior release showed wages and salaries decreased $12.4 billion. Future decreases may adversely affect consumer spending and the entire US economy. Decreased wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money.

It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy.

Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.

MARKET COMMENT

Mortgage bond prices had another volatile week with rates rallying midweek as the additional Treasury debt was absorbed well. Foreign demand for the shorter-term auctions was surprisingly strong while the longer-term auction was average. The US Treasury auctioned $963 billion of debt the first half of this year and is expected to offer $1.1trillion in he second half.

Weekly jobless claims were not as bad as expected which didn't help mortgage bond prices. However, falling oil prices helped ease inflation fears and enabled mortgage bond prices to increase, which pushed rates lower. Oil was under $60/barrel last Thursday morning. For the week interest rates improved by about 1/2 of a discount point.

The consumer price index data Wednesday will be the most important data this week. Signs of inflationary pressures from any of the data releases will not bode well for mortgage interest rates.

LOOKING AHEAD

FED MINUTES

The Federal Open Market Committee decided in December of 2004 to reduce the lag time between the open market committee meeting and the release of the minutes from six to eight weeks to only three weeks. The minutes from the meeting have the ability to cause mortgage interest rate volatility because they provide more policy details than the standard post meeting release. Most importantly the minutes provide the Fed's complete economic analysis and the various opinions of individual Fed members. There is typically an overwhelming consensus among the members. However, there can also be dissension, which often causes uneasiness in the financial markets. The release often comes and goes without much uproar but keep in mind that if any of the text seems troubling to analysts you can see market volatility.

Remember that mortgage interest rates remaining historically favorable. Capitalizing on current levels is wise amid the recent economic instability across the globe. Inflation fears could be stoked with continued Middle East tension and hurricane season heading our way. Inflation, real or perceived, generally does not bode well for mortgage bonds and could cause rates to rise.

MARKET COMMENT

Mortgage bond prices had another volatile week with rates pushing higher the beginning of the week only to bounce back towards the end. Thursday's employment report was mixed. Non-farm payrolls fell 467,000 in June and the unemployment rate stood at 9.5%. Estimates were for jobs to decline 365,000 and the unemployment rate to stand at 9.6%. Fortunately the payrolls figure gained most of the attention along with falling oil prices and we recovered about 1/2 of a discount point Thursday morning. Oil was under $67/barrel Thursday morning, which helped alleviate inflation fears. The bond market was closed Friday for the holiday. For the week interest rates were near unchanged.

The additional debt supplied tied to the US Treasury auctions will be the most important data this week. The trade data may also move the financial markets.

LOOKING AHEAD

WEATHER

The mortgage interest rate markets are subject to an enormous number of factors. Most analysts agree that weather can have an effect on market activity. Although the effects are seldom long lasting, they can be quite significant.

The United States is the world's largest exporter of corn. Last year, relatively rainy weather across the Midwest portions of the United States delayed the planting of corn. This caused corn prices to escalate. This year corn farmers planted more acres of corn than analysts expected. Larger corn crops recently caused prices to fall. This is one bright spot amid heightened inflationary fears. Lower corn prices likely will result in lower food prices for some items.

The weather also has the potential to directly alter fuel prices. As we enter the hurricane season, many oil and gas fields in the Gulf along with refineries along coasts are susceptible to damage. If this were to occur, oil prices would almost surely rise sharply. Rising oil prices would do little to help mortgage bond prices already pressured by inflationary fears and competition for investor funds from record debt levels. The result would most likely be higher rates.

The economic effects of various weather occurrences may cause only temporary changes in economic activity. However, those times of change can have a lasting impact on people obtaining mortgages. Despite the rate volatility seen recently, mortgage interest rates remain historically favorable for borrowers. Now is a great time to take advantage of rates at these levels.

Market Comment

Mortgage bond prices fell last week applying upward pressure on mortgage interest rates. Trading remained extremely volatile with daily swings of 3/8's in discount points a common occurrence. The economic data released was mixed with no clear indication of the direction of the US economy. The Federal Reserve met last week and the governing body indicated the pace of economic deterioration is slowing. For the week, interest rates rose by about 5/8's in discount points.

The employment report to be released Friday will be the most significant data this week. Productivity data will be important also. Additional debt supply hits the market this week with the Fed auctioning $71 billion of 3, 10, and 30 year Treasuries. It will be interesting to see if the market can continue to absorb the additional debt.

LOOKING AHEAD

Employment

The employment report provides an abundance of information for almost every sector of the economy. Not only does the employment report give basic employment payroll statistics for the major working sectors, it also provides the average hourly earnings and the average workweek. Using this information provided by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor, economists estimate many other economic indicators such as industrial production, personal income, housing starts, and GDP monthly revisions. Since there is little data for economists to base their estimates on, the margin of error for the estimates tends to be high. As a result, the employment report can cause substantial market movements. The BLS compiles data from two unrelated surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month. This week's employment data will provide valuable insight into the state of the economy.

Market Comment

Mortgage bond prices remained near unchanged holding mortgage interest rates relatively steady for the week. There was very little data the first portion of the week and rates improved slightly as the DOW was down 183 points at one point Monday morning. Unfortunately the durable goods orders and new home sales data were not as weak as expected which helped stocks rally at the expense of bonds the latter portion of the week. For the week, interest rates on government and conventional loans were unchanged.

The Treasury auctions will factor heavily in trading this week. It will be interesting to see how the additional debt supply is absorbed. The gross domestic product and employment cost index data will be the most important releases. No surprises are expected from the Fed but the meeting may still result in some mortgage interest rate volatility.

LOOKING AHEAD

Relevant Data

This week brings significant data. However, the results of some of the releases may be muted a bit considering they take place after the Fed meeting adjourns Wednesday. Nonetheless, the inflation release still has the potential to result in market swings so caution is the key. Remember that market direction can turn very quickly as has been evident of late. It is a safe bet that nobody wants to get caught behind the market if it does make a huge correction following a release.

MARKET COMMENT

Mortgage bond prices rose last week helping mortgage interest rates improve. The mixed economic data released during the week provided no clear indication to the direction of the US economy. One bright spot was the consumer and producer price index data, which showed no signs of rising inflation. Inflation erodes the value of money received in the future, therefore, when inflation is on the rise so are interest rates to compensate for the reduced purchasing power.

For the week, interest rates on government and conventional loans fell by about 1/8th of a discount point.

The leading economic indicators release Monday will set the tone for trading this week. Durable goods orders data will be the most important data release.

LOOKING AHEAD

LEADING ECONOMIC INDICATORS 

The index of leading economic indicators (LEI) is a weighted average of eleven economic variables that "lead" the business cycle. It is constructed for forecasting future aggregate economic activity. The eleven variables that make up the LEI measure workers' hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply and consumer expectations.

Each of the variables that comprise the index has a tendency to predict (or lead) economic activity. For example, new orders for manufactured goods, new orders for plant and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy. 

Analysts monitor the LEI in an effort to predict future economic growth. When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build. Thus, when the LEI report is rising, interest rates tend to rise as well.

The LEI report is a valuable forecasting device that correctly predicts most economic turning points. The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months. The LEI tends to turn down before peaks in the business cycle. Continuous declines are generally accepted as evidence that a recession continues.

Nine of the eleven components that make up this index are known before the release of the report, so the index is easy for economists to predict. Thus, although this is important predictive data for market participants, market volatility does not usually surround the release of this data. However, considering there are few data releases this week mortgage interest rates may have a stronger than normal reaction to any disparity between the consensus estimate and the actual result of the release.

Take advantage of the current low interest rate environment. It is possible for rates to improve. However, if rates move higher, they are likely to spike fast and furiously.