Mortgage Market Review - 10/12/09

So, as the song goes, “in 1492 Columbus sailed the ocean blue.” Christopher Columbus seems to be one of those heroes we learned about when we were young (like Custer), that upon closer investigation was not all they were cracked up to be. That’s why this holiday seems curious to me. However, I am happy for those that get a paid day off of work. Oh well, onto news. This weekend a slew of professionals tied to the housing sector made eager pleas to Congress requesting the $8000 first time homebuyer tax credit be extended. The benefit was part of the stimulus plan and is set to expire the end of November. The White House indicated the program "helped the economy" and led to "quite a bit of success" and noted consideration of extending the program. There are additional proposals in the Senate to not only extend the program but also to increase the tax credit and remove the first time homebuyer qualification. Unfortunately the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the isle concerned. I’ll keep you posted on this. In the meantime, thanks for looking this over. I hope you find it useful and informative.

Fred

This Morning…Monday, October 12, 2009:
Nothing to report today; the bond and mortgage markets are closed for the Columbus Day holiday. Most markets are closed, but the stock market is not.

Last Week:
Mortgage bond prices fell last week pushing mortgage interest rates higher. The Treasury auctions were mixed with the 3 and 10-year auctions showing decent foreign demand. Unfortunately the 30-year auction was a huge disappointment and caused mortgage interest rates to worsen Thursday. The fear of future rate hikes sent mortgage bonds lower Friday pushing mortgage interest rates higher.
Friday’s price action was a sign that markets can move quickly, and not always in expected ways. Why did rates shoot up Friday? As I’ve been mentioning, rates have been staying low for awhile and when markets move one way or the other to a large degree, or for an extended period of time, they are likely to rebound the other way – just like a rubber band. Plain and simple.

This Week:
After the big jump in interest rates last Thursday and Friday we expect to see increased market volatility in the bond and mortgage markets this week. Tomorrow we have a private consumer confidence survey, on Wednesday we have Retail Sales, Thursday Consumer Price Index and Jobless Claims, and then on Friday Industrial Production and Capacity Utilization, and the University of Michigan Consumer Confidence number. The most significant economic data next week will be the CPI monthly inflation report. The minutes from the September 23 Fed meeting will come out on Wednesday.

EconomicIndicator
Retail Sales
Wednesday, Oct. 14,8:30 am, et
Down 2.0%
Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
Business Inventories
Wednesday, Oct. 14,10:00 am, et
Down 0.8%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
Fed Minutes
Wednesday, Oct. 14,2:00 pm, et
None
Important. Details of the last Fed meeting will be thoroughly analyzed.
Consumer Price Index
Thursday, Oct. 15,8:30 am, et
Up 0.2%,Core up 0.1%
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
Philadelphia Fed Survey
Thursday, Oct. 15,10:00 am, et
None
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Industrial Production
Friday, Oct. 16,9:15 am, et
Up 0.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization
Friday, Oct. 16,9:15 am, et
69.7%
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment
Friday, Oct. 16,10:00 am, et
73.5
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Market Forecast:
The consumer price index will be the most important release this week. Any signs of inflation will generally not bode well for mortgage bonds. Retail sales and the Fed minutes are also likely to factor into trading this week. Any surprises may lead to mortgage interest rate volatility.

Some Humor:
An 80-year-old man goes for a physical. All of his tests come back with normal results. The doctor says, “Bert, everything looks great. How are you doing mentally and emotionally? Are you at peace with God?”Bert replies, “God and I are tight. He knows I have poor eyesight, so he's fixed it for when I get up in the middle of the night to go to the bathroom. Poof! The light goes on. When I'm done, poof, the light goes off.”
“Wow, that's incredible,” the doctor says.
A little later in the day, the doctor calls Bert's wife.
“Ethel,” he says, “Bert is doing fine but I had to call you because I'm in awe of his relationship with God. Is it true that he gets up during the night and poof, the light goes on in the bathroom, and when he's done, poof the light goes off?”
“OH MY GAWD!” Ethel exclaims. “He's piddling in the refrigerator again!”

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