Market Comment

Mortgage bond prices rose last week pushing mortgage interest rates lower. We were negative through Thursday as stocks performed generally well until Friday's data was released. Fortunately bond prices surged higher Friday morning following the weaker than expected payrolls component of the employment report. In addition, news of a troubled Hungarian economy reignited global fears and resulted in flight to quality buying of US debt instruments. Stocks fell precipitously Friday. Rates fell by about 1/2 of a discount point for the week.

The retail sales data will be the most important release this week. The US Treasury auctions will also factor into trading along with the global economic uncertainty. The Euro remains especially volatile. If additional countries announce economic trouble the flight to quality buying of US debt instruments could continue.

LOOKING AHEAD

Warning of Higher Rates

Last week Atlanta Fed's Lockhart said that the Fed might need to raise rates to counter inflation even with high unemployment. "Good policy, even in circumstances of unacceptable levels of unemployment, may incorporate higher interest rates. The time is approaching when it will be appropriate to consider recalibrating interest rate policy." He added, "as the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability."

Lockhart noted inflation remained under control for now. Now is a great time to take advantage of mortgage interest rates at these historically low levels to avoid future market volatility, especially with the recent decline in rates and remarks like Lockhart's hitting the market.

Market Comment

Mortgage bond prices rose last week applying downward pressure to mortgage interest rates. The Greek economic turmoil spread throughout the globe with equities falling precipitously. As a result we saw a tremendous amount of flight to quality buying of US debt instruments. The majority of the data came in bond-friendly with higher than expected weekly jobless claims helping rates improve. Rates fell by about 3/4 of a discount point for the week.

The Treasury auctions, gross domestic product data, and the PCE core inflation reading will be the most important events this week. Look for continued choppy trading amid global economic instability.

LOOKING AHEAD

New Home Sales

New Home Sales data is compiled monthly by the Department of Commerce's Census Bureau and is gathered from builders throughout the country. The data represents new home sales for the nation as well as four areas of the country: the Northeast, the Midwest, the South, and the West. Information on the average price of a home, the number of homes for sale, and the supply of unsold homes are also provided. The data is an important indicator because it shows any strength or weakness in the housing sector. A slowdown in new home sales tends to lead to a slowdown in housing starts, which will continue to affect other indicators. New Home Sales data is often volatile and difficult to predict. The data remains significant and can move mortgage interest rates.

Market Comment

Mortgage bond prices rose last week applying downward pressure on mortgage interest rates. The week started on negative footing when the European Union poured a trillion dollars into efforts to stabilize Greece. Stocks across the globe rallied at the expense of bonds. Fortunately that was short-lived, as traders remain concerned the efforts will not stop future economic turmoil in Europe.

Rates fell by about 1/4 of a discount point for the week.

The consumer price index Wednesday will be the most important event this week. The housing data, producer price index, and leading economic indicators data may also move the market.

LOOKING AHEAD

Consumer Price Index

The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices.

Record debt levels continue to weigh heavily upon the financial markets. The health of the economy remains uncertain. The Fed has itself in a precarious position of wanting to stoke the economy amid the real possibility of increased inflation and increased debt loads.

Market participants expect the consumer price relatively tame this week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. A cautious approach to float/lock decisions is prudent.

Market Comment

Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading was once again dominated by foreign influences as the Greek debt concerns spread across the globe. US stocks fell precipitously Thursday afternoon. At one point the DOW was down over 900 points. This sent a flood of investor funds into mortgage bonds helping rates improve. The data for the week was mixed with higher than expected unemployment and a larger than expected payrolls figure. Oil prices fell to around $77/barrel, which helped alleviate inflation concerns. Rates fell by about 3/4 of a discount point for the week.

The retail sales data Friday will be the most important event this week. The Treasury auctions will also take center stage as market participants cautiously await the result to determine foreign investor appetite for US debt instruments.

LOOKING AHEAD

Global Uncertainty

The inability of Greece to pay their debt continues to result in economic uncertainty across the globe. The recent announcement that Greece would receive aid from the other Euro members initially resulted in some stability. However, the aid package didn't erase the concern that Greece could still default and the contagion may spread to other countries.

The positive for US dollar-denominated securities is the flight to quality buying that often occurs with the turmoil abroad. Investors often exit troubled markets and pour their money into US securities such as mortgage bonds. This pushes mortgage bond prices higher causing rates to fall in the short term. Unfortunately the improvements can evaporate just as quickly as they appear if the inverse flight occurs. With that in mind be cautious in the event the wild market swings continue.

On Thursday, April 27, 2010, The US House of Representatives passed the Rural Housing Preservation & Stabilization Act of 2010.  This bill must still be voted and approved by the US Senate before the anticipated changes below can be implemented:Increase the Guarantee Fee up to 3.5% on loans for housing & buildings on adequate farms.Authorize the Sec of Agriculture to collect an annual fee during the term of such loan, of up to 0.50% of its outstanding principal balanceIf this passes the Senate it guarantees the USDA Rural Development up to $30 billion in loans in the Fiscal Year 2010.  (Represents an additional $18 billion in loans making authority for the reminder of this year.) I will keep you updated as more information becomes available.

Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the $8000 credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, they need to close by June 30, 2011. Members of the military and members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual's spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

FHA is still allowing 6% seller contributions! Take advantage before it changes this summer to 3%!

Market Comment

Mortgage bond prices fell last week pushing mortgage interest rates higher. The first portion of the week had very little data. Leading economic indictors came in stronger than expected which really didn't help us. Strong stocks pressured mortgage bonds a bit. Producer prices rose more than expected but the core rate was tame. New home sales shocked the market with a 26.9% increase. This was the largest increase in 47 years and not bond friendly. Rates rose by about 3/8 of a discount point for the week.

The Fed meeting Wednesday will be the most important event this week. The Treasury auctions will also likely overshadow a lot of the other releases as traders digest record debt that continues to hit the market. Friday morning may be volatile as the employment cost index and gross domestic product data are very important releases.

LOOKING AHEAD

Consumer Confidence

The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans.

The consumer confidence index is significant in that it provides a precursor into consumers' willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.

This week's release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.