A Mortgage Update from Jay Skwierawski for the week of March 2
Happy Spring! According to most meteorologists, Spring starts on March 1, which was yesterday. Hopefully the housing market will follow this same schedule. The mortgage rate market this week should certainly help, especially if this week's trend in mortgage rates continues.
This week, some fairly favorable news on the economy, combined with market-friendly testimony by Federal Reserve Chairman Ben Bernanke before congress, led to a decent decline in mortgage rates.
First the news:
Existing home sales came in slightly higher than expected, but still showing a struggling real estate market.
The Producer Price Index (PPI) and the Core PPI came in higher than expected, but the inflation problem is no longer a surprise to the markets.
Consumer Confidence came in much lower than expected, and at its lowest level in years.
Durable Goods Orders came in much lower than expected, for the fourth month in a row.
New Home Sales came in lower than expected, also showing the continuation of the struggling real estate market.
Gross Domestic Product (GDP) came in lower than expected at +.6%, which is next to nothing for growth in the economy.
Personal Income came in slightly higher than expected.
Personal Spending came in slightly higher than expected, but when adjusted for inflation, came in flat for the 3rd month in a row.
Personal Consumption Expenditures (PCE) and Core PCE, two of the Fed's favorite inflation gauges, came in slightly higher than expected.
The Chicago Purchasing Managers Index (PMI) came in much lower than expected.
Consumer Sentiment came in slightly higher than expected.
First Time Claims for Unemployment came in much higher than expected, as did continuing unemployment claims.
So, the reports that came in higher than expected were, for the most part, only slightly higher than expected, while the reports that came in worse than expected were a lot worse. So, in the end, bad news won the week, and we saw mortgage rates have a much hoped for decline.
In addition to the news that came out, Ben Bernanke, the Chairman of the Federal Reserve testified before Congress on Tuesday and Wednesday. He said that the Fed will continue to lower rates to help the economy, and that although the inflation numbers out recently have been elevated, the slowing economy should help to lessen the risk of runaway inflation. In other words, there is more risk in the economy slipping into a recession than there is inflation going wild, and the Fed's main focus has to be to rev up the economy right now.
The coming week will bring only a few economic reports, but those reports are major, and could shape the future direction of interest rates:
Monday - The ISM Index (like the Chicago PMI, but a national number) has a HIGH impact on interest rates.
Wednesday - The Productivity index has a LOW impact on rates
Wednesday - The ISM Services Index, which shows how the service sector is doing, has a MODERATE impact on rates
Wednesday - The "Beige Book" is released, giving an idea of how the economy is doing in each of the Federal Reserve Bank areas
Thursday - Initial Jobless Claims, which have been rising of late, has a MODERATE impact on rates
Friday - THE BIGGIES! - The employment report is released, with news on the unemployment rate, new jobs created, hourly earnings and the average hourly work week. All of these reports can have a HIGH impact on interest rates. This report can be the biggest report of the month, and will often determine the future direction of interest rates.
Mortgage rates dropped as much as 1/2% from Monday to Friday. It was a great week. The candlestick chart above shows the price of bonds over the past quarter. On this chart, remember the following:
Green is good, red is bad
The higher the lines go, the better!
The highest red line in the middle is what happened to rates immediately following the Fed's last rate decrease. Mortgage bond prices jumped, and rates fell to their lowest level in years, but on that same day, the rates shifted course and rose for a couple of days before treading water for about eight days and then selling off wildly for the next two weeks. It's been a very wild ride, but mostly down the wrong tracks! This week, we finally seem to be seeing the light at the end of the tunnel, and I don't think it's another train heading towards us!
Watch for my special report on recent underwriting and PMI changes, coming shortly.
Have a great week!
Happy Spring!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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