Market Reports
A Mortgage Update from Jay Skwierawski for the Week of January 25
Hello Everybody!
Interest rates rose this week, even in the face of many events that typically lead to lower rates. We had worse than expected economic news, the stock market dropping, President Obama's inauguration and the Fed continuing its program of purchasing Mortgage Backed Securities. What the mortgage bond market couldn't overcome was the fear of inflation and the fear of our increasing federal debt. The government continues to come out with programs to help solve the financial crisis, and those programs have to be funded. How? Typically by the issuance of more government bonds, and the more bonds that are issued, the higher the rate has to be to attract investors into those bonds.
The markets aren't the only reason that mortgage rates have gone up for some borrowers. Recently announced changes by Fannie Mae will also have a negative impact on mortgage rates. I am preparing a Mortgage Minute or Two "Special Edition" about these changes, and their impact on mortgage rates. Be sure to check it out!
There wasn't much news out last week, but that which did come out was not very favorable:
New Housing Starts came in much weaker than expected, as did Building Permits for new homes. First time claims for unemployment jumped to another record high, much higher than anticipated. Finally, U.S. crude oil inventories jumped as is typical in a slowing economy. There wasn't much news, but it all was mortgage bond friendly - yet interest rates rose anyway.
The stock market dropped, with the Dow spending time below the 8000 level every day, and finishing the week about 200 points lower than where it began - yet interest rates rose anyway.
President Obama's long awaited inauguration day finally came, along with all of the plans that the new administration has to fix the ailing economy - yet interest rates rose.
The Federal Reserve Bank of New York reported that they had purchased an additional $19 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, bringing its total purchase so far up to over $50 billion. This is about 10% of their $500 billion commitment to purchase by the end of June. The announcement of this total commitment and the initial purchases helped to bring mortgage rates down in the past month. Even with the additional purchase the Fed made through last week, interest rates rose.
This week, the markets have a lot more economic news to look forward to, including:
Monday - Existing Home Sales are expected to show a decline in December. (Moderate impact on rates)
Monday - Leading Economic Indicators are also expected to show a decline in December, although not as bad as November. (Moderate)
Tuesday - Consumer Confidence is expected to remain level, although the inauguration could cause an upside surprise in this number. (Moderate)
Wednesday - The Federal Reserve's Open Market Committee (FOMC) ends its two day meeting, and since its rate is already at a range of 0-.25%, no rate movement is expected. What will be watched is what the Fed has to say about the economy. Especially important will be if it shows any fear of inflation or indicates an end or lessening of its mortgage purchase program. (HIGH)
Thursday - First Time Jobless Claims will be reported. This number has been increasing lately, expected in an economic downturn. (Moderate)
Thursday - Durable Goods Orders are expected to show another decline in December. (Moderate)
Thursday - New Home Sales are expected to show another decline in December. (Moderate)
Friday - The U.S. Gross Domestic Product for the 4th quarter of 2008 could be a whopper of a report. It is expected to show that the economy slowed by 5.2%, compared to a slowdown of 0.5% in the 3rd quarter. A number better than expected could cause a stock market rally and interest rates to rise, while a worse than expected number could cause a stock market sell-off and rates to drop. (Moderate)
Friday - GDP Chain Deflator - This inflation figure, which is part of the GDP report is expected to show a small rise of 0.5% in the 4th quarter, vs. a large 3.9% increase in the 3rd quarter. This decrease has to do with the slowing economy and the decrease in oil prices in the quarter. The markets watch this report, as they do all inflation reports. (HIGH)
Friday - Employment Cost Index (ECI), also a part of the GDP report, is expected to have remained steady in the 4th quarter. (HIGH)
Friday - Chicago Purchasing Managers Index (PMI) is expected to show a further slowing in the Midwest region. (HIGH)
Friday - The University of Michigan's latest Consumer Sentiment Index is expected to be unchanged from their last report, as the inauguration of President Obama is expected to offset recent bad news on the economy and the markets.
With all of the news that is due this week, watch for volatility in both the stock and mortgage bond markets. Although, if last week's market reaction is any indication, the markets will be moving more on what is said about inflation, the increasing Federal debt and actions that are going to be taken to fix the ailing economy.
I will keep you posted on any wild swings, one way or the other, in mortgage rates.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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