Franklin Township, NJ

Mortgage pricing moved slightly higher last week by about 20 bps, but had at one point moved up 100 bps mid-week after fairly weak Treasury auctions and much stronger than expected Retail sales and Consumer Confidence readings. In fact, Retail sales were triple the expectations when excluding auto sales.

Mortgage rates still closed the week firmly under 5.00% on the Conf 30-Year Fixed for well qualified borrowers.

The very positive employment report from the previous week coupled with last weeks strong retail sales has added more confirmation that the economic recovery is underway.

The 10-year Treasury had dropped to 3.21% following the news out of Dubai, but has now rebounded to close the week at 3.55%

The Week Ahead:

This week is fairly busy in terms of the number of economic releases scheduled for release with five on the agenda in addition to the last Federal Open Market Committee (FOMC) meeting of the year. Two of the five economic reports are considered to be of high importance, so the data should have a heavy influence on the markets and mortgage rates this week.

Overall, expect to see a pretty volatile week in the financial markets and mortgage pricing. The most important day of the week is certainly Wednesday with the CPI and the FOMC meeting both scheduled.

Please maintain contact with your mortgage professional if you have not locked an interest rate yet because we may see sizable changes to mortgage pricing more than one day this week.

Tuesday:
The first relevant report of the week is one of the two highly important ones. The Labor Department will release November's Producer Price Index (PPI) early Tuesday morning. This index measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If Tuesday's release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should fair well and mort gage rates should fall. Current forecasts are showing a 0.8% increase in the overall index and a 0.2% rise in the core data.

November's Industrial Production data is also scheduled to be posted Tuesday morning, but a little later than the PPI. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.5% increase in output. A smaller than expected rise would be good news for bonds, while a stronger than expected reading may result in slightly higher mortgage pricing. However, the PPI release is more important to the markets than this data is.

Wednesday:
The week's most important economic data comes Wednesday morning when November's Consumer Price Index (CPI) is posted. It is similar to Tuesday's Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the econ omy. Current forecasts call for an increase of 0.4% in the overall index and a 0.2% rise in the core data reading. The core data is watched more closely because it excludes more volatile food and energy prices, giving a more stabile reading for analysts to consider.

November's Housing Starts report will also be released Wednesday morning, but I don't see it causing much movement in mortgage rates. This report, which is expected to show a sizable increase in starts of new homes, gives us an indication of housing sector strength and future mortgage credit demand. However, it can be considered the least important of this week's news.

The last FOMC meeting of the year begins Tuesday and will adjourn at 2:15 PM ET Wednesday. There is not much debate about what the Fed will do at this meeting with little chance of them raising key short-term interest rates. Therefore, the post meeting statement will likely be the sole source of a market reaction. This statement has the potential to have a significant influence on the markets and mortgage rates as investors look for any indication of what and when the Fed may do next. Generally speaking, the bond market would like to hear something that indicates the Fed will not be raising rates anytime soon.

Thursday:
The last piece of economic news will be posted Thursday morning with the release of the Conference Board's Leading Economic Indicators (LEI) for the month of November. This 10:00 AM release attempts to measure or predict economic activity over the next three to six months. It is expected to show a sizable increase in activity, meaning that it predicts any expanding economy over the next several months. This probably will not have much of an impact on bond prices or affect mortgage rates unless it exceeds current forecasts of a 0.7% increase from October's reading. The lower the reading, the better the news for bonds. If it show s a smaller increase, the bond market may move slightly higher, improving mortgage rates slightly.

Two-Month Rate Forecast:
With rates at multi-year or near historic and all-time lows, it's tough to expect that they have considerable space to decline much from here, especially in the face of a modestly improving economic climate and improving corporate earnings picture.

It appears low mortgage rates will be with us at least until the Fed's MBS purchase program comes to an end in March as scheduled. There are many speculating that the Fed may find a way to extend this program in some form to continue to support housing as it appears to be just getting legs under it. Low market rates in general will be with us for "an extended period of time" as committed by the Fed and Ben Bernanke. The minutes of their November 3-4 meetings reveal that all members continue to support the Fed's large scale assets purchase programs. While there are discussions around possible exit strategies, none of the members seem to feel that any immediate or urgent action must be taken anytime soon.

We expect mortgage rates to likely wander in a range from about 4.75% to 5.25% on the Conv. 30-year fixed, but to be choppy in that range as the stock and bond markets search for new trend lines.

Mortgage Market Advisory Disclaimer

This is only our opinion and cannot be guaranteed to be in the best interest of any or all parties. This service is provided for informational purposes only and is not intended for trading purposes. None of the information provided constitutes a solicitation, offer, or recommendation by NHLA to buy or sell any security, or to provide legal, professional, tax, accounting, or investment advice. Every lender's price desk has their own strategies and reactions to market movements. Our information is simply based on market movements and does not predict or report potential pricing adjustments by particular lenders.