Monday Market Commentary, Sep 21st 2009: Where are Mortgage Rates Headed This Week?

by Alex Stenback on September 21, 2009

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, what has the potential to move rates and avoiding dumb risks.
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Last Week:
30 year fixed rates see-sawed last week, marking improvements early, but closing out the week slightly higher as stocks closed out the week with a 200+ point gain.

Ther best news of the week was the mortgage market’s non-reaction reaction to two inflation measures – the Producer Price Index, and the Consumer Price Index.  Both came in hotter than expected, which would normally be a negative event for mortgage rates.  Apparently the market believes the Fed, who’s repeatedly said that they do not see inflation (or higher rates resulting from inflation) as a near-term problem.

Understand of course that eventually, when the economy recovers, and as the massive amount of government financed stimulus runs its course, we will get inflation, and it will cause rates to rise.  Eventually.  Just not last week anyway.

This Week:
The Fed meets this week, and will release a policy statement and rate decision on Wednesday.  The Fed won’t tinker with short term rates, but many eyes will follow the policy statement for guidance on future Fed policy decisions – these words can move markets.

In addition to the Fed Suppply, in the form of $112 Billion dollars in Treasury Notes, provides a backdrop for this week’s economic calendar.  Regular readers know that supply – big government debt sales especially – often crowd out demand for mortgage backed bonds, and have a chilling effect on the mortgage market in general.

This can be important because rates may have a hard time improving, or simply holding their ground (don’t forget, 30 year rates are getting close to some of the ultra-low levels from earlier this year) even if the economic calendar or the Fed delivers news that is otherwise rate friendly.

I am still watching stocks – “what’s good for stocks is bad for bonds and mortgage rates” has been as reliable a barometer as any lately.  However, don’t get overly reliant on stocks as a rate indicator - bonds run against this trend ferociously at times.

 As for the economic calendar itself, here are the highlights:

  • Existing Home Sales, Thursday: Everybody is looking for continued improvement, and they will probably see at least modest gains as the stimulative effect of the Tax Credit continues.
  • New Homes Sales, Friday: Gains in new home sales may be tougher to come by, though improved housing starts may be a leading indicator for a slight rebound here as well.
  • Durable Goods Orders, Friday: The manufacturing sector has a lot of excess capacity – we’ll see how much of this will be put to use in the coming months.  Strength in this number could be bad for mortgage rates.

This Week’s Economic Calendar [Barrons]
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