Mortgage Market Review - 11/2/09

Good morning. Although there is widespread support in Congress for extending the life of a home-buyer tax credit scheduled to expire at the end of this month, there is still nothing to report. Hopefully the entire industry doesn’t hinge on the result, but an extension is expected soon as Congress still hasn't finished work on the legislation. As many who have survived because of it know, the credit amount is 10% of a home's purchase price, with a maximum of $8,000 for a single taxpayer and a married couple filing a joint return. Eligible taxpayers will get the credit even if they don't owe any tax, or if the credit is more than the tax they owe for 2008 or 2009. Please let me know if you have any questions about this. Thanks for taking the time to read this over. I hope you find it useful and informative.

This Morning…Monday, November 2, 2009:
Treasuries and mortgages opened a little softer this morning after the strong rally Friday. There were three economic readings this morning. The most significant, Oct manufacturing index was better than expected, Sept construction spending was up more than expected and Sept pending home sales jumped 6.1%, the eighth month in a row pending sales have increased. As a result, treasury and mortgage rates are slightly higher this morning.

Last Week:
It was a good week for the interest rate markets after a number of tough days. Treasury once again successfully sold $123B of notes in four auctions. Consumer confidence measured by The Conference Board declined more than expected, implying consumers may not be as convinced of a recovery as the equity markets. Personal spending in Sept declined, new home sales were expected to be up slightly in Sept but declined 3.6%. Finally the stock market ended the week on what looks like the beginning of the long over-due correction that even the most bullish have been expecting for the past month. The DJIA declined 259 points last week and the rate markets benefited.

This Week:
We have yet another full slate of economic news this week. We begin slowly with "second tier" numbers like Construction Spending and the ISM Index today and Factory Orders tomorrow. Thursday we have the ISM services number, along with the Employment Cost Index and Jobless Claims. The biggest economic event this week will either be the Fed meeting on Wednesday or the unemployment data on Friday. So although overnight rates, which don’t directly impact mortgage rates, should stay put, the Fed may indicate future changes in monetary policy. Nonfarm Payroll is expected to drop 165K jobs for October. ISM Services will be released on Wednesday. Productivity, Construction Spending, and Factory Orders will round out the busy schedule. The Treasury will announce the size of upcoming auctions on Wednesday as well. Stay tuned.

EconomicIndicator
ISM Index
Monday, Nov. 2,10:00 am, et
53.0
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Factory Orders
Tuesday, Nov. 3,10:00 am, et
Up 1.0%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
ADP Employment
Wednesday, Nov. 4,8:30 am, et
Down 190k
Important. An indication of unemployment. A larger decrease in payrolls may bring lower rates.
Fed Meeting Adjourns
Wednesday, Nov. 4,2:15 pm, et
No rate change
Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Preliminary Q3 Productivity
Thursday, Nov. 5,8:30 am, et
Up 5.8%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Employment
Friday, Nov. 6,8:30 am, et
Unemp. @ 9.9%,Payrolls -166k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.

Market Forecast:
The likeliness of mortgage interest rate volatility this week is very high considering the abundance of important economic releases. The Fed meeting on Wednesday will be the most important event this week. Productivity and employment figures are likely to move the market.
Each piece of data this week has the ability to cause volatility in the financial markets. It is possible for interest rates to improve if the data shows weakness in the economy with few price pressures. However, any surprises will likely be bad for mortgage interest rates. The important thing to remember is that even the Treasury officials trying to shore the economy do not know exactly what the future holds. With this in mind, be cautious during these times of economic uncertainty and be ready in the event interest rates start to spike higher.

Some Humor:
A small zoo in Arkansas obtained a very rare species of gorilla. Within a few weeks the gorilla, a female, became very difficult to handle. Upon examination, the veterinarian determined the problem. The gorilla was in heat. To make matters worse, there was no male gorilla available. Thinking about their problem, the Zoo Keeper thought of Billy Bob Burnett, a redneck part-time worker responsible for cleaning the turtle cages. Billy Bob, had little sense but possessed ample ability to satisfy a female of any species. The Zoo Keeper thought they might have a solution. Billy Bob was approached with a proposition. Would he be willing to mate with the gorilla for $500?
Billy Bob showed some interest, but said he would have to think the matter over carefully. The following day, he announced that he would accept their offer, but only under five conditions: "First", Billy Bob said, "I ain't gonna kiss her on the lips." The keeper quickly agreed to this condition.
"Second", he said, "She must wear a 'Dale Earnhardt Forever' T-Shirt." The keeper again readily agreed to this condition.
"Third", he said, "you can't never tell no one about this." The keeper again readily agreed to this condition.
"Fourth", Billy Bob said, "I want all the children raised Southern Baptist." Once again it was agreed.
"And last," Billy Bob said, "I'll need another week to come up with the $500.00."

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