A Mortgage Update from Jay Skwierawski for the week of August 3
Good Morning Everybody!
Mortgage rates finished their second straight week with a slight improvement in rates.
The biggest newsmaker of the week was President Bush signing into law HR 3221 - "the Housing and Economic Recovery Act of 2008," which is a sweeping $300 Billion plan to help struggling homeowners avoid foreclosure and to boost confidence in the sluggish housing market. The bill is several hundred pages long, and there have already been hundreds, if not thousands, of articles, summaries and analyses of the bill from the media and other mortgage "experts," many with inconsistent and conflicting data. I put out a brief "mortgage minute or two" last week on some of the key parts of the law. Be sure to watch for another "mortgage minute or two" later today regarding down payment assistance programs!
In addition to the housing bill being signed last week, there was a slew of economic reports that had an impact on mortgage rates. Remembering that negative news on the economy is typically good for mortgage rates, several of the reports last week helped progress mortgage rates towards better levels. Some bad economic data out of Europe, negative comments by one of the Federal Reserve Presidents and a weaker than expected Gross Domestic Product number helped to offset some good news last week on lower oil prices, some higher than expected consumer confidence numbers and a lower than anticipated loss of jobs for the U.S. economy. Here's a recap of what we saw last week:
Consumer Confidence unexpectedly rose last week to 51.9 from a reading of 51.0 last week. A drop to 50 was expected.
U.S. Crude Oil Inventories dropped, which was also unexpected. Remember rising inventories have been helping to bring down the cost of oil.
The Gross Domestic Product for the 2nd Quarter of 2007 rose less than expected to up 1.9%. The market was expecting the economy to have grown by 2.3%. Other parts of this report showed employment costs coming in-line with expectations for the quarter, while the GDP inflation gauge actually was a little tamer than the market anticipated.
First Time Unemployment claims surged to 448,000, although the government blamed part of the increase on a statistical anomaly!
Friday's employment report brought some surprises as well, as the unemployment rate increased to 5.7% from 5.5% the previous month. The economy lost only 51,000 jobs in June, less than expected, but still a lot of job losses. The average work week was a little shorter than expected, while average hourly earnings came in as targeted.
The Chicago Purchasing Manager's Index (PMI) and the Industrial Supply Manager's Index both came in higher than expected, with numbers that showed the economy either expanding, or at least not contracting.
All in all, the good news in the employment report (less jobs lost than expected) was offset by bad news in the other reports, and we saw rates decrease slightly over the week.
This week brings another round of economic reports that may prove to be market moving, including:
Monday - Personal Income and Personal Spending (Moderate Impact on mortgage rates) (Note - these numbers have been announced already this morning. Personal Income and Spending both came in slightly higher than expected, reflecting the balance of stimulus checks being received.)
Monday - Personal Consumption Expenditures (PCE) and core PCE (less food and energy) - HIGH (This is the Fed's favorite inflation gauge) (Note, these numbers have also been released, and the numbers came in pretty much in line with expectations, albeit higher than the Fed's target rates. These numbers have caused a small sell off in mortgage rates, which could cause rates to go up today.)
Tuesday - Industrial Supply Managers' (ISM) Service Index (Moderate)
Tuesday - 1:15pm C.D.T - The Federal Reserve will announce their latest decision on interest rates (HIGH). The market is not anticipating a change.
Wednesday - U.S. Crude Oil Inventories (Moderate)
Thursday - First time Unemployment Claims (Moderate)
Also this week, Brett Favre has been reinstated to the NFL and is expected to rejoin the Green Bay Packers today. It is unknown if this will have any impact on mortgage rates. It certainly will have an impact on ESPN, as they will have to find something else to talk about. If he stays in Green Bay and regains his starter status, it is expected to have a dramatic impact on the economy of Green Bay!
The chart above shows the change in prices of mortgage bonds over the past quarter, with the most recent dates being on the right. You will notice that there was a nice march upward in the past several sessions. Keep in mind when looking at the chart that the price of mortgage bonds moves opposite of mortgage rates. So, on the chart, up and green are good, down and red are bad!
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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