Mortgage bond prices rose last week pushing mortgage interest rates lower. Oil prices fell the first portion of the week, which helped bonds rally. Unfortunately, some pipeline shutdowns ignited inflation fears Thursday and Friday causing bond prices to fall and rates to rise, erasing a lot of the earlier improvements. Stocks remained volatile with some optimism despite data that showed the economy continued to struggle.
For the week, interest rates on government and conventional loans fell by about 3/8 of a discount point.
The Fed meeting Wednesday will be the most important event this week. Look for reactions to the data prior to the meeting to be heightened. The post-meeting data releases the later portion of the week may result in slightly diminished reactions but still have the potential to cause mortgage interest rate volatility.
Economic Indicator Release Date Time Consensus Estimate Analysis
Consumer Confidence Tuesday, April 29, 2008 62.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
ADP Employment Wednesday, April 30, 2008 Down 55k Moderately Important. A different survey of employment. Weakness may help rates improve.
Q1 Advance GDP Wednesday, April 30, 2008 Up 0.4% Very important. The aggregate measure of US economic production. Weakness may lead to lower rate
Q1 Employment Cost Index Wednesday, April 30, 2008 Up 0.8% Very important. A measure of wage inflation. Weakness may lead to lower rates.
Fed Meeting Adjourns Wednesday, April 30, 2008 25 basis point cut Important. Most expect the Fed to cut rates, but volatility may surround the adjournment of this meeting.
Personal Income and Outlays Thursday, May 1, 2008 Income up 0.4%, Outlays up 0.2% Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.
Employment Friday, May 2, 2008 Unemp. @ 5.2%, Payrolls -80k Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Factory Orders Friday, May 2, 2008 Up 0.4% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
The Fed has been walking a delicate line of trying to stimulate the economy without stoking inflation too much. Unfortunately the Fed is faced with continued signs of economic weakness amid rising price pressures. Most analysts believe the Fed's biggest worry is the stumbling economy and will therefore cut rates again this week by 25 basis points. People often hear that the Fed is cutting rates and believe that mortgage interest rates will follow suit. This is usually not the case in the short-term as recent history shows. Mortgage interest rates have spiked higher following most of the recent rate cuts.
Remember, the Fed cuts rates to spur the economy. This is usually seen as positive for stocks at the expense of bonds. While nothing is set in stone and reactions can vary, floating into the Fed meeting is risky. 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 is prudent heading into the Fed meeting this week.
*Information Courtesy Tonya Esquibel, WR Starkey Mortgage, Franklin, TN*
Vanessa Stalets - 615-957-6333
Brentwood TN Real Estate