December 14th, 2009 Mortgage Market Week In Review - by Dana Bain

Newsletter-December 14th, 2009 http://www.bainmortgage.com/MortgageMarketWeekInReview Provided by Dana Bain Premiere Mortgage Services 11 Malvern Hill Road Sterling, MA 01564 Phone: (978) 422-2311 Fax: (978) 422-2313 E-Mail: dana@bainmortgage.com Market Comment Mortgage bond prices were near unchanged last week holding mortgage rates steady. Trade was extremely volatile with swings of 1/2% in discount points common. The Treasury auctions were not as well received by foreign accounts as traders were hoping. The US relies on foreign central banks such as China to fund our deficit spending. If China were to decrease or cease purchasing US bonds and notes, rates would rise. Interest rates finished the week near unchanged. The inflation data will be the most important releases this week. Inflation erodes the value of fixed income securities causing prices to fall and rates to rise. The Fed meeting will also take center stage. While no rates changes are expected the wording of the release will be very important. LOOKING AHEAD Economic Indicator Release Date & Time Consensus Estimate Analysis Producer Price Index Tuesday, Dec. 15, 8:30 am, et Up 0.9%, Core up 0.2% Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. Industrial Production Tuesday, Dec. 15, 9:15 am, et Up 0.6% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. Capacity Utilization Tuesday, Dec. 15, 9:15 am, et 71.1% Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates. Housing Starts Wednesday, Dec. 16, 8:30 am, et Up 8.6% Important. A measure of housing sector strength. Weakness may lead to lower rates. Consumer Price Index Wednesday, Dec. 16, 8:30 am, et Up 0.7%, Core up 0.1% Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. Fed Meeting Adjourns Wednesday, Dec. 16, 2:15 pm, et No rate change Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting. Leading Economic Indicators Thursday, Dec. 17, 10:00 am, et Up 0.7% Important. An indication of future economic activity. A smaller increase may lead to lower rates. Philadelphia Fed Survey Thursday, Dec. 17, 10:00 am, et 16.5 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. Trading Conditions As we all know, mortgage interest rates change on a daily and intra-day basis. With so much volatility, it is often difficult to make the right decision regarding floating or locking. What is important to remember is the fact that there is a difference between gambling and taking a calculated risk when making mortgage interest rate decisions. Floating into an economic release such as the employment report is usually a gamble, as was evident with the rate spike the beginning of this month. In addition, floating over a span of more than a few days is also a gamble. Unforeseen events can cause instability in the financial markets that results in mortgage interest rate volatility. On the contrary, floating on a day of positive market movement with no economic data the following day, while such action is still vulnerable to market movements, can be considered a calculated risk. It is possible for interest rates to push lower due to the uncertain future of the economy. Unfortunately the recent focus has been towards rate increases, which generally don’t bode well for lower mortgage interest rates. Taking advantage of rates at the current levels guarantees a historically favorable interest rate and protects against uncertainty surrounding future interest rate developments. MORTGAGE MARKET IN REVIEW Newsletter-December 14th, 2009