Mortgage Rate Forecast - August 9, 2010

Good Monday morning to all and I trust you had a wonderful weekend.  What a week we had last week and even with all of the data flowing, mortgage backed securities moved exactly as was predicted here, ending the week at new record highs, sending mortgage rates to new record lows.  Remember that you heard it here that mortgage rates would push lower still last week.  So where will mortgage rates go this week?

First, let’s recap some of what happened last week.  We started off the week with continued good news for the economy as the ISM Manufacturing Index followed the Chicago PMI and was better than expected.  That helped MBS prices continue their corrective move.  Then inflation came in fairly tame again as the Fed’s favorite gauge on inflation, the PCE, showed inflation is still not a concern.  Jobs became the focal point of the week as the ADP Employment Report predicted 42K more private payroll jobs, but the ISM Services Index made sure no gains in MBS prices were to be had.  Jobless Claims threw a curveball with a nice jump to 479K when expectations were for a dip.  And then came Friday and its dismal Jobs Report, which was –131K overall with a below expected report on Private Payrolls at 71K and that sent MBS prices through resistance to new heights.

This week could get interesting despite a lack of major data until Friday.  While it starts benign, keep in mind that there will be Treasury Auctions which will be assisting in setting momentum for the week until Friday as we are set for some longer-term Treasury Auctions including the 30-year T-Bond.  We also will be looking at the next FOMC Meeting Announcement and what the Fed has to say about the economic outlook at this point.  Remember, we don’t really care much about what they do with the Fed Funds Rate, but their Policy Statement is key as significant changes can make huge waves in the markets.  There are some data plays before Friday, so don’t omit those either.  Here is the weekly schedule as of right now…

• Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
• Tuesday:  Productivity and Costs (8:30), Wholesale Trade (10:00), 4-week T-Bill Auction (11:30), 3-year T-Note Auction (1:00), FOMC Meeting Announcement (2:15)
• Wednesday:  MBA Purchase Applications (7:00), International Trade (8:30), Crude Inventories (10:30), 10-year T-Note Auction (1:00)
• Thursday:  Jobless Claims (8:30), 30-year T-Bond (1:00), Money Supply (4:30)
• Friday:  Consumer Price Index (8:30), Retail Sales (8:30), Consumer Sentiment (9:55)

Remember also that stocks play a role in where MBS prices and mortgage rates move, and with a lack of data Monday, stocks and technical indications will be driving the markets and that may mean it is time for the next corrective move.

Speaking of technical indications, let’s get into the charts.  If you look back over the couple of months, you can see the trend is “baby steps”, meaning little gains along the way, but trending higher nonetheless.  Once again, at the risk of being a broken record, all moving averages keep moving higher and so long as MBS prices remain above their 10-day moving average, the trend remains intact.  The negatives are that stochastic indications are nearly at the top of the overbought spectrum, so a corrective move is again needed, so the short-term points to that move.  The reality is that even if MBS prices dip slightly below their 10-day moving average, the trend is not necessarily broken, so you may not want to be quick to lock if this happens.  However, if they linger below this level or make a significant move  below it, the picture may change so make sure you are watching the daily reports at Florida Mortgage Daily.

The bottom line this week is essentially the same as last week.  The overall trend remains intact though a corrective move is likely going to occur.  With MBS prices holding above their 10-day moving average, or even dipping slightly below, there is no reason to lock for the long-term.  Also, don’t forget to check out the Weekly Mortgage Market show as we cover this report and begin hitting some hot topics in the industry.  Larry Bettag of Mortgage Mythbusters will be joining today.