Market Reports
A Mortgage Update from Jay Skwierawski for the week of March 2
Hello Everybody!
There is an old Welsh proverb that goes like this - "Bad news goes about in clogs, good news in stockinged feet." That certainly is the case lately where any news on the economy is concerned. Bad news makes the headlines, both in the newspapers and on the evening news, while good news is tucked silently away. This week, mortgage rates rose slightly from where they started even in the face of news on the economy that would have caused rates to drop in the past. The economic reports announced last week and the reports due out this week are listed at the end of this update.
In addition to the news on the economy last week, we had some other big developments. The Chairman of the Federal Reserve had his semi-annual two day report to Congress, and what he had to say was "soothing" for the markets, as he predicted that things would get better soon. President Obama spoke on Tuesday night, and also had some positive things to say. This was good to hear, considering that his "honesty and transparency in government" has been seen as dismal to the markets, causing sell-offs in both the stock and bond markets. We also had the Treasury Secretary give details on plans to put banks through a stress test to see how much more of an economic downturn they can endure. One of those banks - Citigroup learned on Friday that government plans to take a 36% stake in it. This will dilute shareholder value, but will allow Citi to survive. And finally, there was a survey released by Reuters that showed that 47 professional forecasters predict that the economy will start to recover in the second half of this year. Let's hope they're right!
In addition to the economic reports detailed below, the markets will have other news to consider this week. The Treasury Secretary will be releasing details of the Homeowner Affordability and Stability Plan that was loosely introduced a couple of weeks ago. This plan should help make it easier for homeowners to take advantage of today's low interest rates by refinancing, even in the face of diminishing equity. It will also help those homeowners that are in foreclosure, and those that are struggling to not be. The Plan is supposed to go into effect on March 5, so we should hear about it early in the week. Could the government make an effort to push mortgage rates down to coincide with the release of the details of the plan to "sweeten the pot?" We'll see this week! The bond market will also be affected by what happens in the stock market. This past week was very volatile, with the stock market selling off to lows not seen in over 12 years, only to partially recover by week's end.
ECONOMIC NEWS RELEASED LAST WEEK:
Consumer Confidence fell to its lowest level since confidence records have been kept in 1967. Existing Home Sales dropped more than expected, although this could have been caused by would be homebuyers waiting for details of the homebuyer credit. First Time Jobless Claims reached a new high, while a decrease had been expected. Durable Goods Orders also fell more than expected, as did New Home Sales. Friday brought the first revision for the nation's Gross Domestic Product (GDP), which showed the economy slowed by 6.2% in the fourth quarter of 2008, rather than the -3.8% previously estimated. This number is subject to further revision next month. The inflation component of the GDP report showed a small rise in prices, instead of the small decline that was expected. This took away some of the deflation worries that were in the market. Finally, the Chicago Purchasing Managers Index and the University of Michigan Consumer Sentiment Index both came in slightly better than anticipated. The markets seemed to get quite excited by these numbers, even though the levels they came in at would have been scary for the markets had they been lower than expected.
ECONOMIC NEWS TO BE RELEASED THIS WEEK (AND THERE'S A LOT OF IT):
Monday - The Federal Reserve's favorite measure of inflation - the Personal Consumption Expenditures Index (PCE) for January is expected to show a slight increase over December's number. Personal Income is expected to show a decline from December, while Personal Spending is expected to show an increase. The Industrial Supply Manager's Index (ISM) is anticipated to show a further decrease from last month's number.
Wednesday - ADP announces its estimate for new jobs created or lost in February. This number, although often inaccurate, is usually good at showing the trend in employment ahead of the U.S. Labor Department's employment numbers due out on Friday. A further increase in the number of jobs lost is anticipated. The ISM Services Index is expected to show a decrease from January's number.
Thursday - First Time Unemployment Claims, which have been increasing lately, will be released, as will a report on Productivity for the fourth quarter of 2008.
Friday - BIG NEWS DAY - The U.S. Labor Department's Employment report will be released. This report is often thought of as the most important release each month, and Friday's should be no exception. The Unemployment Rate is expected to increase from 7.6% to 7.9%. The market is anticipating a loss of 615,000 jobs last month, up from 598,000 lost in December. Also watched will be revisions from previously released numbers for further signs of deterioration in the employment picture. Hourly earnings and the average number of hours worked per week are expected to be unchanged from January.
It could prove to be a very volatile week for the stock and bond markets. I will keep you posted with any major developments in the markets and with the details of the President's Homeowner Affordability and Stability Plan. Buckle your seat belts. The ride could get bumpy this week!
The above chart shows the movement of the price of mortgage bonds over the past 3 months, with the most recent days on the right. Remember on this report, green and up are good, while red and down are bad. This past saw more bad than good, that's why mortgage rates increased. You will notice on the report a level of support which the market is currently resting on. As long as it holds through the week, rates are likely to hold steady or decrease. Time will tell!
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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