Mick Rothblott

MARKET COMMENT

Mortgage bond prices rose last week pushing mortgage interest rates lower. The Fed spent another $45 billion buying mortgage bonds between November 5th and the 11th. For all the criticism the Fed receives for the handling of the economy, they do deserve credit for keeping mortgage interest rates low throughout this year. How it all plays out in the long term is uncertain. The record Treasury auctions continued to be absorbed in trading without any major problems. For the week, interest rates improved by about 7/8ths of a discount point.

The consumer price index data Wednesday will be the most important release this week. Producer price index data along with retail sales data will set the tone for the start of the week. Inflation indications would likely hurt mortgage interest rates but signs of tame inflation could help rates improve.

LOOKING AHEAD

TAX CREDIT EXTENSION

The housing market received some good news when Congress recently acted on the pleas of housing sector professionals and extended the $8000 first time homebuyer tax credit. In addition, the program was expanded to include move-up buyers with a $6500 tax credit. The program now runs through April of next year. Prior to the extension the program was set to eclipse at the end of November.

Even with the positive measure there is still some criticism the program does nothing to address the foreclosure problems that continue to plague the housing market. Unfortunately the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the isle concerned.

The new and move-up buyer incentives coupled with historically low interest rates make now a great time to purchase a home. Low rates also make it favorable for many current homeowners to refinance.

MARKET COMMENT

Mortgage bond prices rose last week pushing mortgage interest rates lower. Rates spiked higher Monday morning as stocks surged and the Treasury auctions loomed. Fortunately, foreign demand for the notes was solid, helping to keep mortgage rates low. The stock markets remained volatile all week with the Dow Jones index swinging by triple digits both up and down.

For the week, interest rates improved by about 1/4 of a discount point.

The Fed meeting on Wednesday will be the most important event this week. Productivity and employment figures are likely to move the market.

LOOKING AHEAD

VOLATILITY LIKELY

The likeliness of mortgage interest rate volatility this week is very high considering the abundance of important economic releases.

Each piece of data has the ability to cause volatility in the financial markets. Floating ahead of the data exposes a person to a tremendous amount of risk. It is possible for interest rates to improve if the data shows weakness in the economy with few price pressures. However, any surprises will likely be bad for mortgage interest rates.

Governmental actions in addition to the economic data continue to weigh upon the financial markets. We are really in uncharted territory here with the wobbly underpinnings of the economy. Credit remains tight, as lending has become more stringent. However, there still remain funds available. Real estate transactions continue to take place despite perceptions to the contrary.

The important thing to remember is that even the Treasury officials trying to shore the economy do not know exactly what the future holds. With this in mind, be cautious during these times of economic uncertainty and be ready to lock in the event interest rates start to spike higher.

Market Comment

Mortgage bond prices ended the week nearly unchanged despite considerable market volatility. Trading was up and down all week. Rates improved the first portion of the week as stocks fell below key psychological levels. Unfortunately a reversal the middle portion of the week eroded the earlier improvements. Data was mixed with tame inflation readings but generally stronger than expected economic activity. For the week, interest rates were near unchanged.

The Treasury auctions will take center stage again this week. If there is strong foreign demand it will likely spill over to the mortgage bond market. Weak auctions will likely result in mortgage interest rate increases. Employment cost index data will also be carefully watched.

LOOKING AHEAD

Existing Home Sales

Last week's existing home sales data shocked the market with a stronger than expected increase. Sales rose 9.4%, considerably stronger than the expected 5.5% increase. Some analysts attribute the surge in sales to the $8000 tax credit that is currently set to expire at the end of November. Lower home prices and historically low mortgage interest rates also factored into the increase. From a national perspective this is a positive report. However, the fact that some major metropolitan areas of the country failed to see improvements is an example of the axiom that real estate is local.

There is still uncertainty regarding the future state of the economy. Mortgage rates are great. Take advantage of them while that remains the case.

MARKET COMMENT

Mortgage bond prices rallied Friday pushing mortgage interest rates lower. Bond friendly Core PCE inflation data came in lower than expected. The Fed's most recent estimates call for an increase in this figure by the end of the year. The fact that the data showed lower inflation helped mortgage bonds rally. Consumer confidence came in at a weaker than expected 46.6 mark. Analysts were looking for a reading of 48.7. The Treasury auctions were mixed. The 2 and 5 year note auctions received poor foreign demand while the 7-year auction showed strong foreign demand. For the week interest rates fell by about 3/4 of a discount point.

The employment report will be the most important release this week. With so many data releases expect the market to be very volatile.

LOOKING AHEAD

PERSONAL INCOME & OUTLAYS

The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption.

The prior release showed wages and salaries decreased $12.4 billion. Future decreases may adversely affect consumer spending and the entire US economy. Decreased wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money.

It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy.

Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.

MARKET COMMENT

Mortgage bond prices rallied Friday pushing mortgage interest rates lower. Bond friendly Core PCE inflation data came in lower than expected. The Fed's most recent estimates call for an increase in this figure by the end of the year. The fact that the data showed lower inflation helped mortgage bonds rally. Consumer confidence came in at a weaker than expected 46.6 mark. Analysts were looking for a reading of 48.7. The Treasury auctions were mixed. The 2 and 5 year note auctions received poor foreign demand while the 7-year auction showed strong foreign demand. For the week interest rates fell by about 3/4 of a discount point.

The employment report will be the most important release this week. With so many data releases expect the market to be very volatile.

LOOKING AHEAD

The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption.

The prior release showed wages and salaries decreased $12.4 billion. Future decreases may adversely affect consumer spending and the entire US economy. Decreased wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money.

It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy.

Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.