MARKET COMMENT Finally, some much-needed good news on housing: The National Association of Realtors' index for pending sales of existing homes rose in February at a seasonally adjusted annual rate of 0.7%. The consensus was for a contraction of 0.4%. Fears that subprime mortgage problems would decimate the sector had been a major factor in market volatility of the past several weeks, and so the upsurge in pending home sales comes as a welcomed surprise. Further good news was found in the employment situation, where the unemployment rate dropped 4.4%, matching a five-year low, and where workers saw bigger paychecks - average hourly earnings rose 0.3% to $17.22 in March, matching expectations. It was a surprisingly strong performance in an economy that has otherwise shown stubborn signs of sluggishness. On the mortgage front, rates inched up slightly, but continued a pattern of relative stability. The 30-year fixed-rate mortgage averaged 6.17%, the 15-year fixed-rate mortgage averaged 5.87%, and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.92%, according to Freddie Mac's weekly survey. Depending on the duration, rates today are 25 to 30 basis points lower than where they were at this time last year. |
| Economic Indicator | Release Date and Time | Consensus Estimate | Analysis |
U.S. Economic | Tues. April 10, | 51 | Moderately Important. Consumers remain optimistic, but less so than in previous months. |
MBA Mortgage | Wed. April 11, | None | Important. The housing slowdown is showing signs of slowing refinance and purchase activity. |
| Wed. April 11, | None | Important. The minutes will explicate the Federal Reserve's position on the economy and inflation. |
U.S. Import Prices | Wed. April 11, | 1% (Increase) | Important. The consensus estimate suggests little risk of importing inflation. |
U.S. Trade Balance | Fri. April 13, | $60 Billion (Deficit) | Moderately Important. The trade deficit has been falling in recent months, which should help strengthen the dollar abroad. |
Producer Price | Fri. April 13, | Complete 0.8% (Increase) | Very Important. The core reading - less food and energy - is most important. Unexpected increases elevate inflation concerns. |
A DELICATE BALANCING ACT Friday's employment situation report was a positive, to be sure. People have money, income, and jobs. Furthermore, solid wage growth is good for workers and supports consumer spending, which is indispensable to the economy's health. Taken in conjunction with the pending home sales data, it appears people are growing sufficiently optimistic to make larger purchases - including home purchases. That said, too much of a good thing can be bad. A rapid pick up in wages and employment - if prolonged and not blunted by other economic forces - can stimulate inflation, which would erode any wage gains. Federal Reserve Chairman Ben Bernanke believes as much, telling congress in March 28 that "policy is still oriented toward control of inflation.'' Given last week's spat of positive economic news, mortgage rates are unlikely to improve much this week, if at all. But that's not necessarily bad. The economic outlook appears brighter than it was only a week ago and that's of far greater importance to most people than the short-term direction of interest rates. |
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