Monday Market Commentary: This Week In Mortgage rates

by Alex Stenback on May 17, 2010

Last Week:

Mortgages improved modestly/minimally again last week – now even the pricier lenders are posting 1pt-included 30 year mortgage rates under 5%, though much of the street has been there for weeks.

In an interesting twist, and part of a play that may run to several acts, the domestic economy, while still anemic, is posting better numbers:  Last week showed retail sales up .4%, industrial production up .8% and capacity utilization up 7.9%.  Even the small business survey crossed a key threshsod.  All of this as if to say “The recovery may not be on, but the bottom looks to be in.”

The preceding paragraph would normally be a recipe for rising mortgage rates, mind you.

But then there is Europe, whose central bank stepped into the markets crosshairs by floating a trillon dollars in loan guarantees in an attempt to get ahead of a building fiscal crisis (too much government debt) triggered by Greece but now almost guaranteed to spread to other EU nations at some point.  The loans did little to assure the markets, and the Euro continued to lose value into the weekend – this will hurt exports, and US stocks by extension, but not all is bad.

In fact, net result on this side of the pond is positive.  Inflation stays in check as the economy recovers, and money flows from overseas into treasury debt and other lower risk, dollar demoninated stuff, with some spillover into mortgage bonds.  This means low rates for perhaps longer than we’d hoped at this time 2 months ago.

This Week:

Key events on the economic calendar – recall as you read that

1.  Strong economic data generally pushes rates higher and
2.  All of this will happen with Europe’s “issues” as a backdrop.

This may mean that even stronger than expected US economic data won’t push mortgage rates up if money-at-large is unconvinced that Europe is out of the woods.

Empire State Index 8.30A Monday 17th: Measures manufacturing activity in New York as a proxy for the national picture.  May was very strong, April was nowhere near (19 versus May’s 30 reading) but still good.

Housing Starts 8.30A Tuesday 18th: Permits last month suggest a decent number here – consensus is somehwere between 600-700K new starts, which is histprically low.  My guess is that despite the tax credit expiry, the builders think the bottom is in, and are seeing daylight as underwater homes restrict quality re-sale inventory in many markets, so this may be a decent print.

Producer Price Index 8.30A Tueaday 18th: What inflation?  PPI is a key yardstick for inflation at the producer level – consensus is that food/energy retreat from a spike in last months reading, with the core rate muddling about close to unchanged.  That would be a good thing for mortgage rates.

Consumer Price Index 8.30A Wednesday 19th: Sme as above, but at the consumer level.

Philadephia Fed Survey 10A Thursday 20th: This business (manufacturing) conditions survey crossed into the “growth” side of the chart/index early this year, and while still modest, is expected to continue the trend toward expansion.

This Week’s Full Economic Calendar [Barron's]

Watching Rates?  Follow Behind The Mortgage on Twitter for regular updates on mortgages and the markets this week.

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