Mortgage Review for January 21, 2008
Posted on: January 21, 2008
Last Week in Review
“WHO ARE YOU? WHO, WHO, WHO, WHO?” When Pete Townshend and The Who penned this song back in 1978, they probably never imagined that it would come to mind during a Fed Chairman’s testimony to the House Budget Committee. But sure enough – one of the Representatives questioning Fed Chair Ben Bernanke actually mistook him for Treasury Secretary Paulson…and apologized by telling Bernanke that she got him “confused with the other one.” Great reminder to keep an eye on what our elected officials are telling us during this particularly important year, as they might just have their facts a bit confused.
The financial markets also appear to be a bit confused of late, with some mixed data on the health and future of the economy causing continued volatility in both Stocks and Bonds. While there was plenty of mid-week action, home loan rates ended just slightly higher for the week overall.
The Stock market has gotten hammered lower since the beginning of the year, and last week was no exception. But when Stocks move lower, money can flow over into Bonds, helping home loan rates improve. What caused last week’s action was a combination of terrible earnings reports from Citigroup and Merrill Lynch; higher inflation numbers indicated in the Consumer Price Index; lower than anticipated Retail Sales; a weak report from the Philadelphia Fed showing a sharp contraction in manufacturing activity; and a Housing Starts and Building Permits report showing the worst levels of starts and permits in about 16 years.
But bear this in mind…the slowdown in new home construction is actually not bad news, as overbuilding has helped to create a glut of inventory in the real estate market. Less inventory coming on the market is actually a real positive as the housing market continues to settle. And with home loan rates at multi-year lows, now may be the time to act on that home purchase or refinance.
Forecast for the Week
After a jam packed economic news calendar last week, the week ahead has very little scheduled economic reports in store, with only Existing Home Sales and Initial Jobless Claims coming on Thursday.
But when the economic calendar slows down, the technical signals can take center stage. Remembering that as Bond prices move higher, home loan rates move lower, the chart below shows how Bond prices have moved higher for the last several months, causing home loan rates to move lower.
Yet notice how Bond prices are hitting an overhead “ceiling”...which may just drive them back lower. Unless other financial news arrives for the week that helps Bonds move higher – it appears that Bonds may just make a turn lower, causing home loan rates to worsen.
Chart: Fannie Mae 5.5% Mortgage Bond (Friday Jan 18, 2008)
The Week’s Economic Indicator Calendar
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of January 21 – January 25
Contributed by Mitcheal Carpenter of the Carpenter Group. Give them a call at 503.594.1144 to set up your next loan.