The Mortgage Market Watch for the Week of November 2, 2009
Events Affecting the Mortgage Market This Week:
The Federal Open Market Committee (FOMC) meets for two days that begins on Tuesday and adjourns early Wednesday afternoon. The FOMC is the policy-making arm of the Federal Reserve, and determines what the short-term interest rate (or federal funds rate) should be. The Fed announces whether it will change the fed funds target rate at the end of each FOMC meeting.
It's expected the Feds will leave interest rates unchanged. However, traders will be looking at the post-meeting statement for any indication of when the Fed may make a move. The meeting will adjourn at 2:15 PM ET Wednesday, so look for any market reaction to the statement to come during afternoon hours.
There is an expectation that the Fed may alter its policy statement to take away any perception that the Fed will keep interest rates low for a "considerable" period by removing the word "considerable." That will allow the Fed to have more flexibility in determining short-term interest rates the future. That could have a negative impact on the mortgage market and may lead to higher mortgage interest rates.
Economic Reports to be Released This Week:
There are four economic reports scheduled for release this week. In addition, the Federal Open Market Committee (FOMC) will be meeting this week.
Monday, November 2nd:
- Institute for Supply Management - this index measures manufacturer sentiment, on employment, production, new orders, supplier deliveries, and inventories. A reading above 50.0 indicates an expanding factory sector. The ISM index is expected show a reading of 53.0. This indicates that more manufacturers are reporting they are expanding rather than contracting. A smaller than expected reading most likely will lead to lower mortgage interest rates.
Tuesday, November 3rd:
- Factory Orders Report for September - this report is similar to the Durable Goods Orders released last week, except it includes orders for both durable and non-durable goods. It is expected to show 1.0% increase in new. A smaller than expected reading most likely will lead to lower mortgage interest rates while a larger than expected reading could lead to higher mortgage interest rates.
Wednesday, November 4th:
- There are no economic reports scheduled for release today.
Thursday, November 5th:
- 3rd Quarter Productivity Reading - productivity measures the growth of labor efficiency in producing non-farm goods and services. Unit labor costs reflect the labor costs of producing each unit of output. The productivity index is expected to show a 6.3% increase while unit labor costs is expected to show a 3.9% decline. A larger increase in productivity without an increase in labor costs would be good news for the mortgage market because higher levels of productivity without an increase in labor costs allows the economy to expand without concerns of inflation.
- Jobless Claims - New claims for unemployment are tabulated each week to show the number of individuals who filed for unemployment insurance for the first time. Analysts are predicting that 523,000 new claims for unemployment will have been filed last week. With a decreasing trend in the filing of new claims for unemployment, this suggests that the labor market is improving. However, this data is usually not considered to be very important to the mortgage market.
- Fed's MBS Purchase Program - The results of this week's purchases of mortgage backed securities by the Feds will be released in the afternoon. As of last Thursday, the Feds have purchased over $977 billion in mortgage backed securities this year. The Feds plan on purchasing up to $1.25 trillion in mortgage backed securities through March 31st.
Friday, November 6th:
- Employment Situation Report - posted by the Labor Department, this report provides the unemployment rate, the number of jobs added or lost during the month, and average hourly earnings. While job losses are expected to be less than in the past year, analysts are expecting to see a loss of approximately 175,000 jobs, a 0.1% rise in unemployment rate to 9.9%, and a 0.1% increase in average hourly earnings. Weaker than expected readings would be good news for the mortgage market and lower mortgage interest rates.
How do Economic Data Releases Affect Mortgage Interest Rates?
One of the most important things for you to know when deciding when to lock in the interest rate on your mortgage is knowing what economic data is going to be released - and when - and how it may impact the mortgage market and mortgage interest rates.
While an in depth review of an economic event can help you make an informed decision, understanding the nuances of a release can't help you if you don't know when it's happening. Economic data releases are important because they provide a snapshot of what's happening in the economy. They also provide a foreshadowing of any upcoming market volatility. It's just as important to know when these data releases are happening as knowing what effect these releases can have on the mortgage market.
The chart below shows the price trend of the FNMA 30-Year 4.5% coupon over the past 30 days:
Recent Activity in Mortgage Backed Securities:
Remember - as the prices of mortgage backed securities goes up, the yields come down - and mortgage interest rates come down with it. Conversely, as the prices of mortgage backed securities goes down, the yields go up - and so do mortgage interest rates.
Mortgage Interest Rate Outlook:
Moderate to High Volatility. Overall, the single most important day is Friday with the release of the Employment Situation Report. In addition to the economic reports and the FOMC meeting, I believe activity in the stock markets will be volatile which in will have an impact on trading of mortgage backed securities. If you have not yet locked in your mortgage interest rate, please proceed with caution and maintain contact with your mortgage professional.
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Lewis -
Great post. There are many sources of info out there about the economic-report-week-ahead. But none of them address how the mortage market is affected. Thanks.