Monday Market Commentary, Aug 10 2009: Where Are Mortgage Rates Headed This Week?

by Alex Stenback on August 10, 2009

Monday Market Commentary is a weekly post on the past and upcoming week in the mortgage market I’ve published here since 2004 with one thought in mind:

Deciding when to lock your rate is not about knowing where rates are going, but about understanding the market, avoiding dumb risks, and taking smart ones.

Last Week:
Mortgage rates felt some upward pressure last week as a series of economic reports suggested the worst of the economic downturn may be behind us.  Benchmark 30 year fixed rates posted an increase of .125-.25% as a result.

The biggest market mover was Friday’s July employment report.  Though the employment picture still looks decidedly weak, with almost 250K jobs lost, it was better than expected, and the unemployment rate improved to 9.4% (note the graphic above, from Econompic Data, which reminds us that under a broader measure, unemployment reaches nearly 16.5%.

This bit of good news on the employment front, taken with a better-than-expected pending home sales report and the fact that the DJIA gained 198 points for the week (up 43% from March lows) was enough to put the mortgage market in the tank and cause rates to rise.

This Week:
As a backdrop to this week’s economic reports and acitvities, we have the latest Treasury auction.  Uncle Sam will seek to place $75 Billion (another record) worth of debt in the form of 3 and 10 year notes (Tue & Wed) and 30 year bonds (Fri).

I’ve remarked before on the impact of supply on mortgage rates: Too much supply often sparks a rise in mortgage rates.  This is because mortgage bonds are put in competition with treasury securities (lots and lots and lots of them) for dollars; as a result, sellers are are often forced to offer higher rates to entice investors to buy mortgage bonds, instead of Treasury-issued debt.

Of course, there’s also a Fed Meeting this week, and while the committee won’t monkey with the Federal Funds rate (already at zero, effectively) we will be treated to the Fed’s current economic outlook via the policy statement at the conclusion of their meeting on Wednesday.  Investors will scrutinize this statement for any hints as to whether the Fed’s policy of “Quantitative Easing” (buying mortgage bonds to force mortgage rates lower is an example of quantitative easing) – will persist, or be quietly retired.

July Retail sales and the consumer price index also post this week on Thursday and Friday, respectively.  Stronger than expected retail sales and any hints of inflation at the consumer level may put mortgage rates under pressure.
Watching Rates?  If you like this update, you’ll love following the events that influence mortgage rates in almost real time via our Ratewatch Twitter Feed.

· This Week’s Economic Calendar [Barrons]

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