Mortgage Market Review - 1/4/10

This Morning…Monday, January 4, 2010:
It is back to work this morning after two weeks of thin trading. This morning the stock indexes traded higher, At 9:30 the DJIA opened +80. Today we have the ISM Manufacturing Index which is one of the measures of manufacturing sentiment

Last Week:
It was another bad week for the bond and mortgage markets. Mortgage rates increased approximately ¼-3/8% in the past three weeks. Why are rates where they are? The answer is stronger-than-expected economic news. Thursday morning we learned that Jobless Claims unexpectedly fell by 22,000 to 432,000, which is their lowest level in almost a year and a half. Continuing Claims fell by 57,000. So the thinking goes that “if fewer people are filing jobless claims, the employment picture is starting to look a little rosier, which means that the economy must be doing better…” We also had the ISM Index print its highest level in almost 4 years.

This Week:
This week promises to be a busier week, news-wise, than last. Today we start with the ISM Manufacturing data. Tomorrow we throw in a few Pending Home Sales and Construction Spending numbers, Wednesday ISM Services, Thursday Jobless Claims, and on Friday we have all the Unemployment numbers. This will be the first full week of trading this year. It will be interesting to see how traders react to the recent spike in rates following the various shortened trading sessions.

EconomicIndicator
Construction Spending
Monday, Jan. 4,10:00 am, et
Down 0.5%
Low importance. An indication of economic strength. Weakness may lead to lower rates.
ISM Index
Monday, Jan. 4,10:00 am, et
54.0
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Factory Orders
Tuesday, Jan. 5,10:00 am, et
Up 0.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
ADP Employment
Wednesday, Jan. 6,8:30 am, et
-75k
Important. A measure of employment. A larger than expected decrease in jobs may bring lower rates.
Employment
Friday, Jan. 8,8:30 am, et
Unemp. @ 10%,Payrolls unchanged
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.

Market Forecast:
Following is a short opinion I read of “The Year Ahead” that I would be of interest to you.

“What will occur in the future, economic recovery or additional weakness will continue to be debated. There is no certainty in predictions. Data can be used to support both sides of the debate. What we can be certain of is the fact that until the economy gains some stability, mortgage interest rates are likely to be volatile. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often fast and furious. One negative day often erases a week of positive improvements.
It is possible for mortgage interest rates to push lower considering the Fed still has a few hundred billion dollars of MBS purchasing left. However, we are in unprecedented times. The Fed has clearly signaled they want rates to remain low but also want to exit the market. The Fed isn’t the only player in the mortgage bond market and there are many others buying and selling the securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain percentage. Rates are determined by the supply and demand for mortgage-backed securities.
The Fed kept rates in check for 2009. The big unknown is how they will exit the market without causing major disturbances this year. While there have been signs of improvement in the housing sector, the last thing we need is higher rates. Without the Fed buying mortgage bonds rates may very well head considerably higher. Now is a great time to take advantage of favorable rates.”

Some Humor:
Four guys are driving cross-country together. One of them claims to be from Idaho, one is from Iowa, one is from Florida, and the last one is from New York. A bit down the road the man who claims to be from Idaho starts to pull potatoes from his bag and throws them out the window. The man from Iowa turns to him and asks, "What the heck are you doing?"
The Idahoan answers, "Man, we have so many of these things in Idaho just laying around on the ground – I'm sick of looking at them!"
A few miles down the road, the man from Iowa begins pulling ears of corn from his bag and throwing them out the window.
The man from Florida asks, "What are you doing that for?"
The man from Iowa replies, "Man, we have so many of these things in Iowa I'm sick of looking at them!"
Inspired by the others, the man from Florida opens the car door and pushes the New Yorker out.

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