Let's start with the really good news.  Mortgage applications surged by the largest amount on record last week (according to the Mortgage Bankers Association) on news of a new Federal Reserve program that pushed interest rates down to their lowest level in more than three years.  It is true that the MBA's data is only for submitted applications, not closed loans, but a least the ball is rolling. 

The Mortgage Bankers said their seasonally adjusted index of mortgage applications, which includes requests for both purchase and refinance loans, soared a record 112.1% higher during the week ended November 28th.  Applications for purchase loans rose 38.0% while refinance applications rocketed 203.3% higher. 

There is a ton of dismal economic data already priced into the mortgage market.  News this morning from the Institute of Supply Management that its service index, a measure of activity in the non-manufacturing sector of the economy, fell to a reading of 37.3, it lowest level since records began in 1997, would have normally sparked at least a modest rally to lower interest rates in the mortgage market.  This time around the cheerless economic data drew nothing but a "yeah, I thought so" shoulder shrug from market participants.  Most investors are booking profits and moving to the sidelines as the heavily discounted economic fundamentals make it harder to justify pushing interest rates notably lower right now.

The overall mortgage market tone has improved a bit amid the news of planned Fed purchases of up to $500 billion of mortgage-backed securities - but the Fed has yet to buy anything - so most investors will likely remain cautious until the Fed actually puts their money in play. 

Friday's employment report is expected to show the economy shed 320,000 jobs in November, accelerating the labor market decline from the 240,000 jobs lost in October.  In my judgment a dismal nonfarm payroll report is already priced into the mortgage market.  As desensitized as mortgage investors have become to miserable macro-economic data it will likely take a November job loss figure greater than 350,000 and/or a national jobless rate higher than 6.9% to support a rally in the mortgage market.  Numbers that match the consensus estimates for the November nonfarm payroll data will likely have little, if any significant impact on the near-term direction of mortgage interest rates.

 

Today's conforming 30 year fixed rate is at 5.625%.