Real Estate @ Deep Creek Long & Foster

Market Comment

Mortgage bond prices fell pushing rates higher following stronger than expected inflation data last week. The producer price index and consumer price index both came in higher than expected fanning inflation fears. Inflation fears generally cause bond prices to fall and interest rates to rise, which we saw last week. Stronger than expected housing starts, retail sales, and industrial production data piled on to help equities rally at the expense of mortgage bonds. It appeared the Fed tried to step in Thursday to stem the losses. For the week interest rates rose by over a full discount point.

The leading economic indicators data will set the tone for trading this week. With so few data releases expect oil and stocks to factor into trading.

LOOKING AHEAD

Consumer Sentiment

In the US the consumer is often seen as the driving force of the economy. A large percentage of the total economic output is for personal use. Analysts attempt to predict the future spending patterns of consumers to gauge economic activity.

The Michigan consumer sentiment index is one piece of data used to measure consumer attitudes. The index is derived from a telephone survey, which gathers information on consumer expectations of the overall economy. The preliminary report is released around the 10th of each month and then is revised throughout the remainder of the month. It is significant in that it provides a precursor into consumers’ willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.

Despite economic uncertainty, liquidity issues, housing market weakness, and high energy costs, American consumers continue to spend. However, many analysts question whether consumers can continue to buoy the economy. The most recent sentiment data showed continued uncertainty. "Consumers concluded that the economic downturn would last longer and their personal finances would not recover as quickly as they had previously expected," the University of Michigan Survey said in a statement

This week’s release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.

Remember that mortgage interest rates remaining historically favorable and are subject to change on a daily basis. Last week was a prime example of the danger of floating into the economic data. Rates worsened Tuesday and Wednesday with the higher than expected inflation figures. Capitalizing on current levels is wise.

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Copyright 2009. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Market Comment

Mortgage bond prices had another volatile week pushing mortgage interest rates higher. US debt concerns played the biggest factor in rate swings as worries continued that countries would shift out of US dollar holdings. Russia indicated a willingness to move some reserves from US Treasuries to International Monetary Fund bonds. Retails sales rose 0.5% as expected but the positive figure reinforced the belief that the economy is turning. Oil prices continued to escalate hitting over $72/barrel. For the week interest rates rose by 1/4 of a discount point.

The consumer price index Wednesday will be the most important release this week. Strength in the other economic data will do little to help mortgage interest rates improve.

LOOKING AHEAD

Consumer Price Index

The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices.

High oil prices continue to weigh heavily upon the financial markets. The health of the economy remains uncertain. The Fed has itself in a precarious position of wanting to stoke the economy amid the real possibility of increased inflation.

Market participants expect the consumer price index to be critical heading into the Fed’s meeting next week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. A cautious approach to float/lock decisions is prudent.

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Copyright 2009. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.