Mortgage Market in Review from Monte Hill week of 5/14/2007
Mortgage Market in Review
Week of May 14, 2007 Volume 14, Issue 20
Market Comment
Mortgage bond prices were near unchanged last week holding rates steady. Bonds continued to trade within a narrow range as the data releases were mixed. Inflation fears were stoked a bit as the Fed left rates unchanged but warned core inflation remains elevated. Bond friendly core producer price index data last Friday helped alleviate some of the inflation fears. For the week, interest rates on government and conventional loans were near unchanged.
The consumer price index Tuesday will be the most important event this week. Housing starts, industrial production, capacity use, and consumer sentiment data will also be important.
Looking Ahead |
Economic Indicator | Release Date and Time | Consensus Estimate | Analysis |
Consumer Price Index | Tuesday, May 15, 8:30 am, et | Up 0.5%, Core up 0.2% | Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. |
Housing Starts | Wednesday, May 16, 8:30 am, et | Down 2.8% | Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates. |
Industrial Production | Wednesday, May 16, 9:15 am, et | Up 0.3% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
Capacity Utilization | Wednesday, May 16, 9:15 am, et | 81.5% | Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates. |
Philadelphia Fed Survey | Thursday, May 17, 12:00 pm, et | None | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
U of Michigan Consumer Sentiment | Friday, May 18, 10:00 am, et | None | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Consumer Price Index
The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices.
High oil prices continue to weigh heavily upon the financial markets. The health of the economy remains uncertain. Stocks continue to bounce up and down. Market participants expect the consumer price index to set the tone for bond market trading this week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. With the uncertainty surrounding the release now is a great time to take advantage of mortgage interest rates at their current levels.
Monte J. Hill
586-308-6420