Monday Market Commentary: Sub 5% Mortgage Rates are Not Just a Rumor

by Alex Stenback on March 30, 2009

barrons-employment-report.jpg
Friday’s employment report is expected to show 650,000 jobs lost in March (Graphic via Barron’s Econoday)

Last Week:
Mortgage rates, despite a mid-week uptick, managed to claw their way back to the historically low, sub 5% levels available earlier in the week by the close of markets on Friday. 

This happened against the tide of a stock market that spent most of the week in rally mode after the Treasury Announced the latest plan to rid the banks of toxic assets by allowing private investors to borrow (billions, cheaply) money to buy them.

The ongoing prospect of another $750 Billion dollars of Fed money going into the mortgage market to keep rates low did not hurt.

The economic calendar delivered a series of not-as-bad-as-expected (but still weak) reports.  Much was made over an increase in new and existing homes sales.  Let me briefly address those:

Most headlines told you New and Existing Home Sales posted increased in Feb then skipped to the “is this the bottom” and “there is hope” chatter.  What they did not tell you was that the increase in existing home sales was month over month (Jan -Feb 09) and that year-over-year sales were still down, though not as bad as forecast.

New home sales were indeed better than forecast (337k vs 315K) but remain at levels not seen since the 1960′s.  One way to look at this: no matter how bad things get there must be a lower bound for new home sales in a country of 300 Million people.  As always, these broad measures are snaphots of a single month.  The trend is what counts.

This Week:
A number of important reports on the economic calendar this week. Remember that weakness (especially worse than expected weakness) in the economy is usually good news for mortgage rates.  We’ve posted the most important for rate wacthers below:

  • Tue, 9.45AM ET: National Association of Purchasing Managers Index, Chicago: Consensus: 35.0 (below 50 is contracting business activity)
  • Wed 10:00AM Et: Institiue for Supply Management Mfg Index: Another manufacturing sector report. Consensus is 36 (below 50 is contracting.)
  • Friday, 8.30AM ET March Employment Report: Consensus is for 650K jobs lost and an 8.5% unemployment rate.

Also of note this week:   There are four Fed officials (whose utterances can move markets) speaking publicly, most notably Chairman Bernanke on Friday at 12:00 PM ET Friday.

Perhaps more importantly, the FASB will announce their ruling on mark-to-market accouting modifications. This is a big deal because current rules governing how assets must be valued have taken some blame for the banks troubles.  A broad revision of mark to market rules could send stocks on a tear and hurt bonds and mortgage rates.
This Week’s Economic Calendar [Barron's]
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