Monday Market Commentary, August 17th 2009: Where are mortgage rates headed this week?

by Alex Stenback on August 17, 2009

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Image courtesy of Barron’s Econoday
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Monday Market Commentary is a weekly post on the week ahead in the mortgage market.  I’ve published this 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.
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Last Week:
“Hopeful pessimism” may best describe the overall tenor of the markets and the data last week – this type of sentiment is generally helpful to mortgage rates, which managed to improve slightly last week, despite some very volatile price action.

The biggest mortgage rate friendly report was the Consumer Price index, which posted an annual decline of 1.9% – the largest such decline in almost 6 decades.  A weak retail sales figure also helped bring into focus the fact that though things have begun to stabilize, the economy is still beating into the wind and will likely do so for some time.

Wednesday’s much anticipated FOMC policy statement suggested as much in stating that “economic activity is likely to remain weak for a time” adding that they expect the actions taken by the Fed thus far will foster “a gradual resumption of sustainable economic growth in a context of price stability.”

This Week:

A full economic calendar will ladle out reports on Manufacturing, Wholesale inflation, Jobless claims, crude inventories, and the housing market this week. In terms of potential impact on the mortgage market, here are the headliners:

Tuesday Aug 18th, 2009:

  • Producer Price Index: Gives a snapshot of prices at the wholesale level.  Inflation here could eventually be passed on to consumers, so this is carefully watched as an inflationary “canary in the coal mine.”
  • Housing Starts and Building Permits: Starts and permits should remain at very low levels, but any rebound or unexpected gains will fall in the “good because better than expected even though still horrible” category.

Thursday Aug 20th 2009:

  • Philadelphia Fed Index: This widely followed measure of manufacturing sector health is a leading indicator for industrial production. It is expected to show continued recovery from the super-lows set in late 2008, early 2009.

Friday Aug 21st 2009:

  • Existing Home Sales: Housing market metrics are not traditionally market movers, but given the housing market has come to be viewed such a key component of economic recovery, a strong number here could have outsized impact.

As for how to interpret the results above, say it with me: What is good for the economy is usually bad for mortgage rates.  Reports showing economic weakness, or non-threatening levels if inflation, are (usually) good for mortgage rates.

Also, in the absence of Treasury auctions, I expect the mortgage market to stay tightly levered to stocks this week, so if you are unable to follow the economic calendar closely, watch the stock market: Rising stocks often hurt mortgage rates and falling stocks often help improve mortgage rates.

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This Week’s Economic Calendar [Barron's]

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