Don Grimes

Mortgage markets improved last week after a series of hugely volatile trading sessions. Rates carved out a wide range on the week, culminating in a late-Friday plunge that dropped rates by about 1/8 percent. It was the first time in 5 weeks that mortgage rates fell. Volatility like that of last week is nothing new on Wall Street; it's been a running theme in 2009. Volatility occurs when markets don't agree on what's next for the economy and, this year, there's been a lot of disagreement like that.

Data has been inconsistent. Take last week for example: At 9:00 AM Tuesday morning, the Case-Shiller Index showed home prices rising nationwide. Because many analysts believe housing fueled the recession, strength in the sector is widely construed a positive for the economy.

Mortgage rates rose on the news. But then, an hour later, the national consumer confidence report revealed a substantial deterioration in sentiment versus the month prior. The data forced Wall Street to do an about-face. Housing is important to the economy, but it can't affect growth like consumer spending can. When Americans are less confident about their future income, they tend to keep their wallets closed, retarding economic growth.

Holiday Shopping Season is getting underway and the last thing businesses want to see is a suddenly reserved American shopper.This week, the volatility should continue. In addition to the release of key employment and housing data, the Federal Open Market Committee has a scheduled 2-day meeting. The group's Wednesday afternoon adjournment will influence mortgage rates.

The Fed is widely expected to keep the Fed Funds Rate in its target range near 0.000 percent, but it won't be what the Fed does that will matter as much as what the Fed says. If the FOMC's press release shows optimism for the economy, mortgage rates will rise in response.

Alternatively, if the Fed appears more dour, rates will fall.

Either way, consider locking your rate before the Wednesday afternoon announcement.

Mortgage markets were volatile last week, making it very difficult to shop for mortgage rates.

On most days, lenders issued multiple rate sheets with the trend putting rates higher in the morning, and lower in the afternoon.

Overall, mortgage rates were unchanged on the week. It broke a three-week streak through which mortgage rates rose.

Rates remain roughly one-half percent higher than the lows of early-October.

The biggest positive for rate shoppers last week was tame economic data -- specifically concerning the Producer Price Index and the housing sector.

The Producer Price Index is an inflationary, Cost of Living-like measurement for businesses and it went negative in September. Analysts weren't expecting that and the surprise pulled rates down an eighth.

Similarly, in housing, both the Home Price Index and Housing Starts figures were softer than expectations. These, too, tugged mortgage rates down.

At least temporarily.

We say "temporarily" because -- all week long -- a steadily-weakening U.S. dollar was leading mortgage rates higher.

All things equal, mortgage rates rise as the dollar loses value and, last week, the dollar touched a 14-month low versus the Euro. The greenback's weakness countered most of the "positive" news for rate shoppers and is a major reason why rates were so volatile.

The volatility should continue into this week, too. With little data and no Fed speakers, look for mortgage rates to move with the market's momentum.

Lately, momentum has been pulling rates higher so if you're floating a rate and trying to time a bottom, the chances are good that we already passed it. Consider locking your rate before rates rise much further.

Once rates break 6 percent, they may not come back down.

This week brings us the release of five economic reports that are of interest to the mortgage market along with the minutes from the last FOMC meeting. The week also gets heavy in quarterly earnings releases for companies, which could cause significant movement in the stock markets again. The earnings results could affect bond trading as investors move funds into stocks if the reports are good. The other possibility is that the earnings reports would generally disappoint, meaning investors may move funds out of stocks and into bonds as a safe-haven. The latter would be good news for the bond market and mortgage rates.

The first piece of data comes Wednesday morning when September's Retail Sales report is posted. This data is very important to the markets because it measures consumer spending by tracking sales at retail establishments in the U.S. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be highly important. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop. However, stronger than expected sales could fuel a stock rally and push mortgage rates higher. Current forecasts are calling for a 2.1% decline in sales. The large drop from August's sales is expected to come from a significant decline in auto transactions since the Cash for Clunkers program ended.

Also scheduled for release Wednesday is the minutes to the last FOMC meeting. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over inflation and the Fed's next move. If the Fed members were concerned about inflationary pressures, we may see the bond market move lower and mortgage rates higher Wednesday afternoon. However, if they indicate that inflation is still not a threat and that a rate increase is not likely in the near future, the bond market and mortgage rates should remain calm.

The remaining two reports are both scheduled for release Friday morning. September's Industrial Production data is the first release of the day and will be posted mid-morning. It gives us an indication of manufacturing strength by tracking orders at U.S. factories, mines and utilities. It is expected to show a 0.1% increase in output from August's level, meaning that manufacturing activity rose slightly. A larger than expected increase in output would be negative for bonds and mortgage rates while a decline should help push mortgage rates lower Friday morning.

The last report of the week is October's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows a sizable decline in consumer confidence, bond prices will probably rise. It is expected to show a reading of 74.0, up slightly from September's final of 73.5.

Overall, I am expecting to see a fair amount of movement in mortgage rates this week, but mostly the latter part of the week. The key reports are Wednesday's Retail Sales report and Thursday's CPI data. But the active week for corporate earnings can also heavily influence trading and mortgage rates any day of the week. Accordingly, please proceed cautiously if you have not locked an interest rates yet.

If I were considering financing/refinancing a home, I would....

Lock if my closing was taking place within 7 days...

Lock if my closing was taking place between 8 and 20 days...

Lock if my closing was taking place between 21 and 60 days...

Lock if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

This week brings us only one monthly economic report for the markets to digest and it is not considered to be of high importance. This means that the week will be left mostly up to the stock markets and other influences since there is a lack of factual data for bonds to trade on. In addition to the one report, we also have two relevant Treasury auctions that can also cause movement in rates if demand for them is particularly strong or weak.

The first relevant event of the week is Wednesday's 10-year Treasury Note auction. a lackluster interest in the sale would likely lead to higher mortgage rates Wednesday afternoon.

The second important sale is Thursday's 30-year Bond sale. It is not as important to mortgage rates as Wednesday's 10-year Note sale is, but it is important enough to influence trading and bond market sentiment. As with Wednesday's sale, a strong demand would be good news for mortgage pricing while a weak interest may lead to upward revisions to rates Thursday afternoon.

The only factual economic data of the week will be posted Friday morning. August's Goods and Services Trade Balance will be released that day, but is not likely to cause much of a change in mortgage pricing. It will give us the size of the U.S. trade deficit, but usually does not lead to significant movement in bond prices or mortgage rates. It is expected to show a $32.9 billion trade deficit.

Overall, I suspect this is going to be fairly quiet week for the bond market and mortgage rates, especially compared to last week. For the most part, I believe the week will be left to the stock markets and the Fed auctions. The most important day of the week is likely Wednesday due to the 10-year Treasury Note sale, but any day of significant stock volatility may make that particular day the most eventful.

The bond market will be closed next Monday in observance of the Columbus Day holiday, but there will not be an early close in trading Friday. The only recognition of the holiday comes next Monday.

If I were considering financing/refinancing a home, I would....

Lock if my closing was taking place within 7 days...

Lock if my closing was taking place between 8 and 20 days...

Lock if my closing was taking place between 21 and 60 days...

Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

This week brings us the release of six relevant economic reports for the bond market to digest. There is nothing of importance scheduled for release tomorrow, so look for the stock markets to influence bond trading and possibly mortgage rates. I would not be surprised to see a relatively calm day as traders prepare for this week's data, some of which is considered to be extremely important.

The first release of the week is September's Consumer Confidence Index (CCI) late Tuesday morning. This Conference Board index will be posted at 10:00 AM and gives us a measurement of consumer willingness to spend. Analysts are calling for a reading of approximately 57.0, up from August's 54.1. If we see a larger than expected increase, the bond market should move lower and mortgage rates move higher Tuesday.

Wednesday's sole report is the final revision to the 2nd Quarter Gross Domestic Product (GDP). It is expected to show a slight downward revision from the previous estimate of a 1.0% decline in GDP.

August's Personal Income and Outlays will be released early Thursday morning. It gives us an indication of consumer ability to spend and current spending habits. This is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is negative news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. It is expected to show a 0.1% rise in income and a 1.1% increase in spending due to auto sales.

The Institute for Supply Management (ISM) will post their manufacturing index for September late Thursday morning. This index gives us an indication of manufacturer sentiment. Analysts are expecting an increase from last month's 52.9 reading. The 50.0 benchmark is extremely important because a reading above that level means more surveyed executives felt business improved than those who said it had worsened. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that are 30-60 days old, but the ISM index is only a few weeks old. If we get a smaller than expected reading, I expect to see the bond market rally and mortgage rates fall Thursday morning.

The Labor Department will post September's Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

If this report gives us weaker than expected readings Friday, bond prices should move higher and we should see lower mortgage rates Friday. However, stronger than forecasted readings could be disastrous for mortgage pricing. Analysts are expecting to see the unemployment rate at 9.8%, a decline in new payrolls of approximately 180,000 and a 0.2% increase in earnings.

The final report of the week comes late Friday morning when the Commerce Department will post August's Factory Orders data. This manufacturing sector report is similar to last week's Durable Goods Orders release, but includes orders for non-durable goods. It can usually impact the financial markets enough to change mortgage rates slightly if it varies from forecasts by a wide margin, but due to the importance of the Employment report I doubt this data will heavily influence the markets. Current forecasts are calling for an increase in new orders of approximately 0.5%.

Overall, it is likely going to be a very active week in the markets and mortgage rates. The most important day will be Friday due to the employment report being scheduled, but Tuesday's and Thursday's data can also fairly heavily influence mortgage rates. With important data being released each day of the week except tomorrow, I would recommend maintaining contact with your mortgage professional.

If I were considering financing/refinancing a home, I would....

Lock if my closing was taking place within 7 days...

Lock if my closing was taking place between 8 and 20 days...

Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.