Mortgage Market update
For the week of December 3, 2007
Mortgage bonds prices rose last week applying downward pressure to mortgage interest rates. Trading was volatile throughout the week as market participants remained concerned over the recent credit issues and high energy prices. Adding to the volatility were triple digit movements in stock prices.
For the week, interest rates on government and conventional loans fell by about 1/4 of a discount point.
The employment report Friday will be the most important event this week. ISM Index, productivity, factory orders, and consumer sentiment data will also be important.
Economic Factors |
Economic Indicator | Release Date Time | Consensus Estimate | Analysis |
ISM Index | Monday, Dec. 3, 2007 | 50.5 | Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates. |
Revised Q3 Productivity | Wednesday, Dec. 5, 2007 | Up 5.5% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
Factory Orders | Wednesday, Dec. 5, 2007 | Up 0.4% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
Employment | Friday, Dec. 7, 2007 | Unemp. @ 4.8%, Payrolls +75k | Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
U of Michigan Consumer Sentiment | Friday, Dec. 7, 2007 | 75.5 | Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. |
Consumer Credit | Friday, Dec. 7, 2007 | Up $5.0 billion | Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates. |
Play it Smart
As we all know, mortgage interest rates change on a daily and intra-day basis. With so much volatility, it is often difficult to make the right decision regarding floating or locking. What is important to remember is the fact that there is a difference between gambling and taking a calculated risk when making mortgage interest rate decisions. Floating into an economic release such as the employment report is usually a gamble. In addition, floating over a span of more than a few days is also a gamble. Unforeseen events can cause instability in the financial markets that results in mortgage interest rate gyrations. On the contrary, floating on a day of positive market movement with no economic data the following day, while such action is still vulnerable to market movements, can be considered a calculated risk.
The potential for mortgage interest rates to push lower is real considering the tremendous uncertainty of the US economy. However, interest rates could also rise. Energy prices remain high and inflationary fears are abundant. Inflation, real or perceived, can erode the value of bonds causing prices to fall and rates to rise.
It is important to remember that interest rates tend to improve slowly while negative movements tend to happen fast and furiously. Capitalizing on interest rates at the current levels protects against uncertainty surrounding future interest rate developments. The important thing to remember is that mortgage interest rates remain historically favorable.