Mortgage Market Update for the week of July 09, 2007

Here is the Mortgage Market Update for the week of July 09, 2007 brought to you by Larry Iest of Hemet Mortgage.

LAST WEEK

Last week, Independence day was not the only day with fireworks, we saw fireworks in the bond markets as well. Early in the week the Bank of England (like our Federal Reserve) announced a increase in their benchmark interest rate to 5.75%. This is their highest rate in six years and is .50% higher than our fed funds rate. Our US bonds complete on the global market for investment dollars which are seeking the highest rate of return. So if other countries are offering higher rates of return it can pull investment dollars out of our bonds. If we have less demand prices fall and causes home loan rates to rise.

The second BANG in the bond market was the jobs report on Friday. It showed we still have a HOT labor market with 132,000 new jobs added in June and our unemployment rate remained a low 4.5%. This report gives the Federal Reserve continued reason to be concerned over "wage-based inflation". Wage-based inflation has two sides, the first is employees that are paid higher wages have more to spend which can drive prices higher. Secondly, in a tight labor market employers have to pay their employees more which can result in price increases to maintain their profit margin. The Fed watches wage-based inflation closely and this report keeps the idea of a Fed rate cut on the back burner. Traders were concerned too and this drove bond prices lower and home loan rates slightly higher for the week..

THIS WEEK

This week we have very few economic releases to be concerned about. With very little news to determine the direction of the market the market is driven by technical factors. Also the market gets direction from the stock market. Today is the first day of corporate earning season. If earnings come in strong, the stock market can rally and take more money from the bond market. If the earnings are weak, the stock market may fall and money move into the bond market.

THURSDAY
May's Goods and Services Trade Balance report will be released early Thursday morning, which measures the size of the U.S. trade deficit. If it does vary greatly from analysts' forecasts of a $60 billion deficit, we may see some movement in bond prices and therefore possibly mortgage pricing. The worst case scenario for the bond market in a rising deficit which indicates a strengthen economy and possible inflation.

FRIDAY
There are two reports due Friday that are likely to affect mortgage rates. The Retail Sales report is the first key piece of data for the markets this week. The Commerce Department is expected to say that sales at retail establishments rose 0.3% last month. The retail sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. It is the most timely indicator of broad consumer spending patterns and is of high importance to the bond market.

The University Of Michigan Index Of Consumer Sentiment is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted late Friday morning and is expected to rise from June's final reading of 85.3. This survey measures the attitudes and expectations concerning both present and future economic conditions of 500 consumers. Just like Consumer Confidence, the level of consumer sentiment is directly related to the strength of consumer spending. With consumer spending making up two-thirds of our economy traders closely watch this report.