Mortgage bond prices fell last week pushing mortgage interest rates higher. Trading was volatile following the unexpected Fed rate cut. Bonds were positive the beginning portion of the week buoyed by a struggling stock market. In a surprise move, the Fed lowered the federal funds rate 75 basis points to 3.5 percent to help the struggling economy. This came ahead of the scheduled Fed meeting January 30th. Stocks reversed the negative trend posting gains following the Fed move. Unfortunately this caused mortgage bonds to suffer and pushed rates higher. For the week, interest rates on government and conventional loans rose by about 1/2 of a discount point.
The Fed meeting Wednesday will be the most important event this week. The gross domestic product, employment cost index, and employment report also have the real potential to cause mortgage interest rate volatility.
| Economic Factors | |||
| Economic Indicator | Release Date Time | Consensus Estimate | Analysis |
| New Home Sales | Monday, Jan. 28, 2008 | Up 0.4% | Important. An indication of economic strength and credit demand. A decrease may lead to lower rates. |
| Durable Goods Orders | Tuesday, Jan. 29, 2008 | Up 1.5% | Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates. |
| Consumer Confidence | Tuesday, Jan. 29, 2008 | 87.0 | Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. |
| Q4 Advance GDP | Wednesday, Jan. 30, 2008 | Up 1.2% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Fed Meeting Adjourns | Wednesday, Jan. 30, 2008 | 50 basis point rate cut | Important. Most expect the Fed to lower rates. Volatility may surround the adjournment of this meeting. |
| Q4 Employment Cost Index | Thursday, Jan. 31, 2008 | Up 0.8% | Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| Personal Income and Outlays | Thursday, Jan. 31, 2008 | Income up 0.4%, Outlays up 0.1% | Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates. |
| Employment | Friday, Feb. 1, 2008 | Unemp. @ 5%, Payrolls +50k | Very important. An increase in unemployment or a weakness in payrolls may bring lower rates. |
Fed Meeting
All eyes will be focused on the Federal Open Market Committee meeting Tuesday. A rate decrease is expected. However, the magnitude of the change remains uncertain.
Keep in mind that a Fed rate cut does not automatically mean mortgage interest rates will improve, as was evident the latter portion of last week. The Federal Reserve has direct control over the level of short-term interest rates. The Fed's influence over longer-term interest rates is less certain.
A cautious approach to float/lock decisions is prudent heading into the Fed meeting this week. Be prepared for potential market volatility.
*Information courtesy Tonya Esquibel, WR Starkey Mortgage, Franklin TN*
Vanessa Stalets
RE/MAX Elite
615-661-4400
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