Mortgage Market Review - 12/21/09

This Morning…Monday, December 21, 2009:
There is no economic data today and as a result the market opened soft this morning. Mortgage rates have worsened as the DOW is currently up over 100 points.

Last Week:
Mortgage bond prices rose last week pushing mortgage interest rates lower. Rates initially spiked higher following higher than expected producer price index figures. Fortunately the consumer price index showed tame inflation on the consumer level and mortgage bonds were able to recover. The Fed kept rates unchanged, indicated they would try to keep rates low for some time, but also warned that long term security purchases would cease at the end of the 1st quarter of 2010. Overall for the week, interest rates fell by about 1/8% from the prior week.

This Week:
Today is quiet, tomorrow we have Existing Home Sales and the final GDP numbers for the third quarter. Wednesday is Personal Income and Consumption, New Home Sales, Consumer Sentiment, and Building Permits – along with the announcement of the size of next week’s Treasury auction. The morning of Christmas Eve we have Durable Goods and Jobless Claims that come out at 8:30AM EST, about 10 minutes before everyone on Wall Street heads home.
The inflation data will be the most important release this week. The recent inflation reports were mixed. The PCE price index will be carefully watched for any signs of inflationary pressures. The shortened trading week may result in some market volatility coupled with thin trading conditions likely.

EconomicIndicator
Q3 GDP
Tuesday, Dec. 22,8:30 am, et
Up 2.7%
Important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Existing Home Sales
Tuesday, Dec. 22,10:00 am, et

Up 3.3%
Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.
Personal Income and Outlays
Wednesday, Dec. 23,8:30 am, et
Up 0.5%,Up 0.7%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
PCE Price Index
Wednesday, Dec. 23,8:30 am, et
Up 0.5%,Core up 0.1%
Important. A measure of inflation. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment
Wednesday, Dec. 23,10:00 am, et

73.9
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
New Home Sales
Wednesday, Dec. 23,10:00 am, et
Up 2.3%
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Durable Goods Orders
Thursday, Dec. 24, 8:30 am, et
Up 0.4%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.

Market Forecast:
The Federal Reserve left interest rates unchanged last week as expected. The remarks were mixed and caused some mortgage market uncertainty. The Fed statement indicated, "subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of their purchases of mortgage-backed securities and agency debt. It anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

The Fed’s challenge will be stepping out of the mortgage market without causing mortgage interest rates to spike uncontrollably higher. The housing sector is a vital component of the economy. The last thing the Fed needs is for mortgage interest rates to escalate causing the housing sector to suffer. While the most recent data shows positive housing trends across most of the nation, analysts attribute the positive movements to artificially low mortgage interest rates tied to the Fed buying of mortgage bonds. How this will all play out is still very uncertain. Now is a great time to take advantage of rates at these historically favorable levels.

Some Humor:
It is near the Christmas break of the school year. The students have turned in all their work and there is really nothing more to do. All the children are restless and the teacher decides to have an early dismissal.
Teacher: "Whoever answers the questions I ask, first and correctly, can leave early today."
Little Johnny says to himself "Good, I want to get outta here. I'm smart and will answer the question."
Teacher: "Who said 'Four Score and Seven Years Ago'?"
Before Johnny can open his mouth, Susie says, "Abraham Lincoln."
Teacher: "That's right Susie, you can go home."
Johnny is mad that Susie answered the question first.
Teacher: "Who said 'I Have a Dream'?"
Before Johnny can open his mouth, Mary says, "Martin Luther King."Teacher:
"That's right Mary, you can go."
Johnny is even madder than before.
Teacher: "Who said 'Ask not, what your country can do for you'?"
Before Johnny can open his mouth, Nancy says, "John F. Kennedy."
Teacher: "That's right Nancy, you may also leave."
Johnny is boiling mad that he has not been able to answer to any of the questions.
When the teacher turns her back Johnny says, "I wish these “gals” would keep their mouths shut!"
The teacher turns around: "NOW WHO SAID THAT?"
Johnny: "TIGER WOODS. CAN I GO NOW?"

The material contained in this newsletter is provided by a compilation of third parties to real estate, financial services and other professionals for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is not without errors.