Market Update Jan 2, 2012
Mortgage bond prices were higher last week which pushed mortgage interest rates lower. We started the week with some unfriendly data as the consumer confidence report was higher than expected. Fortunately, thin trading conditions amid the holidays, the shortened trading week, and jittery stocks all went well for MBS prices. Weekly jobless claims were higher than expected. Claims came in @ 381k compared to the expected 375k mark. Mortgage bonds ended the week better by approximately 1/2 of a discount point.
The employment data this week will likely result in some mortgage interest rate volatility.
|
Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| ISM Index |
Tuesday, Jan. 3, 10:00 am, et |
52.8 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending |
Tuesday, Jan. 3, 10:00 am, et |
Up 0.8% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| Fed Minutes |
Tuesday, Jan. 3, 2:00 pm, et |
None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Factory Orders |
Wednesday, Jan. 4, 10:00 am, et |
Up 0.6% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| ADP Employment |
Thursday, Jan. 5, 8:30 am, et |
165k | Important. An indication of employment. Weakness may bring lower rates. |
| Weekly Jobless Claims |
Thursday, Jan. 5, 8:30 am, et |
379k | Important. An indication of employment. Higher claims may result in lower rates. |
| Employment |
Friday, Jan. 6, 8:30 am, et |
8.8%, Payrolls +115k |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
The future of the economy, recovery or additional weakness, will continue to be debated. There is no certainty in predictions. Data can be used to support both sides of the debate. What we can be certain of is the fact that mortgage interest rates are likely to remain volatile until the economy gains some stability. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often fast and furious. One negative day often erases a week of positive improvements. Of course even that maxim was tested the last few months of last year as market swings of 1/2 a discount point both up and down were often seen in very short spans of time.
It is possible for mortgage interest rates to push lower considering the Fed still wants to keep rates relatively low. However, we are in unprecedented times and we have seen rate volatility throughout last year. The Fed isn't the only player in the financial markets and there are many others buying and selling securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate. Rates are determined by the supply and demand for mortgage-backed securities. However, the Fed is the major player in the market at this time and they do set the lead.
Despite volatility throughout 2011, the Fed kept rates low. The big unknown is how things will play out this year. Now is a great time to take advantage of mortgage interest rates at these still historically favorable levels.
