Mortgage Market in Review from Monte Hill week of 1/22/2007
Mortgage Market in Review
Week of January 22, 2007 Volume 14, Issue 4
Market Comment
Mortgage bond prices fell pushing rates higher last week as a slew of strong economic releases showed the economy continued to grow with price pressures. The Fed “Beige Book” indicated that economic activity expanded at a modest pace over the past few months and overall prices rose moderately. The Fed also noted that labor conditions continue to tighten which has many traders concerned about wage inflation. For the week, interest rates on government and conventional loans rose by about 1/8 of a discount point.
Leading economic indicators, durable goods orders, and new home sales data will all be important this week. Look for the leading economic indicators data to set the trading tone for most of the week as the mid portion of the week is void of any data.
Looking Ahead |
Economic Indicator | Release Date and Time | Consensus Estimate |
Analysis |
Leading Economic Indicators | Monday, Jan. 22, 10:00 am, et | Up 0.2% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
Existing Home Sales | Thursday, Jan. 25, 10:00 am, et | Up 0.3% | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
Durable Goods Orders | Friday, Jan. 26, 8:30 am, et | Up 1.0% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
New Home Sales | Friday, Jan. 26, 10:00 am, et | Up 0.5% | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
New Home Sales
New Home Sales data is compiled monthly by the Department of Commerce’s Census Bureau and is gathered from builders throughout the country. The data represents new home sales for the nation as well as four areas of the country: the Northeast, the Midwest, the South, and the West. Information on the average price of a home, the number of homes for sale, and the supply of unsold homes are also provided. The data is an important indicator because it shows any strength or weakness in the housing sector. The housing sector data is valuable because when consumer spending changes, it appears in this sector first. Consequently, a chain reaction typically occurs. A slowdown in new home sales tends to lead to a slowdown in housing starts, which will continue to affect other indicators possibly resulting in weakness in the economy.
New Home Sales data is often volatile and difficult to predict. Most analysts look at a three-month average in order to see any trends in the growth rate. Surges in the release are often greeted with little more than an average reaction in the bond market. However, the data remains significant in showing the condition of the housing sector of the economy. The housing sector had been a bright spot of the economy over the past few years. Recently the Fed “Beige Book” indicated the housing market is still softening.
If interest rates rise, a damper could be placed on new home sales. However, if interest rates remain steady, new home sales should be able to stabilize.
The risks of floating far outweigh the potential benefits. Therefore, a cautious approach is necessary to protect against short-term movements in mortgage interest rates. Now is a great time to take advantage of mortgage interest rates at their historically favorable levels.
Monte J. Hill
586-308-6420
MacombHomeLending.com