Mortgage Market News for the week ending March 21, 2008

Events This Week:

Jobless Claims Up
Inflation Higher
Manufacturing Mixed
Housing Starts Up

Events Next Week:
Mon 3/24
Existing Sales
Tues 3/25
Confidence
Wed 3/26
Durable Orders
New Home Sales
Thur 3/27
GDP
Fri 3/28
Core PCE
Sentiment

Fed Cuts Rates

It was another volatile week in mortgage markets, with major news out on each of the first three days. The net effect of the ups and downs was a nice reduction in mortgage rates. Two stories surprised investors Monday morning. In an uncommon emergency meeting over the weekend, the Fed decided to lower its discount rate to 3.25% from 3.50%. The other major announcement was the sale of Bear Stearns, a large investment bank, to avoid bankruptcy. Bear's stock, which had been trading around $80 per share in January, would be sold for just $2 per share. Investors took the news to mean that the risks to the credit markets were even greater than they thought, and they embarked on a flight to relatively safe investments, which lowered mortgage rates.

Tuesday, the Fed cut the Fed Funds rate by three quarters of a point to 2.25%, as expected by many investors, although two of the ten voting Fed members were in favor of a smaller rate cut. Stocks rallied on the news, and the Dow closed higher by a whopping 420 points, but the Fed's emphasis on the risk of higher inflation hurt mortgage markets. Overall, the Fed's statement described reduced economic growth and higher inflation expectations. The Fed believes that inflation should moderate over coming quarters, but that the uncertainty over the inflation outlook has increased. Mortgage investors require higher yields to offset future inflation, and mortgage rates rose, offsetting some of Monday's reduction.

Another big news story hit the wires on Wednesday. OFHEO, the regulator for Fannie Mae and Freddie Mac, relaxed the capital requirements for the two firms. Early estimates are that the changes will enable Fannie and Freddie to make an additional $200 billion in loans. The additional capacity for mortgage investments boosted mortgage markets, and mortgage rates fell again.

[ul][*]Also Notable: [*]In February, Core PPI inflation jumped well above the consensus forecast[*]February Housing Starts were higher than expected, while Building Permits fell short[*]Oil prices fell below $100 per barrel, down from record levels above $110 p/b last week[*]Cong. Barney Frank proposed a new risk regulatory body for the financial services industry[/ul]Average 30 yr fixed rate:
Last week:-0.36%
This week:-0.38%

Stocks (weekly):
Dow:12,361+393
NASDAQ:2,258+37

Week Ahead

There will be economic data released every day next week. Existing Home Sales will lead off on Monday, and Consumer Confidence will come out on Tuesday. Durable Orders and New Home Sales are scheduled for Wednesday. The final revisions to fourth quarter Gross Domestic Product (GDP) will be released on Thursday. GDP is the broadest measure of economic activity. The biggest report of the week will be the Core PCE price index on Friday. This is the Fed's preferred inflation indicator, and inflation levels have been running higher than the Fed would like in recent months, so this report will receive a lot of attention.

admin@corefinancegroup.com.
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Thanks for the update. Good to get a recap for those busy weeks when I miss MadMoney and Fast Money.

 

that's economics... interest rates go up, then go down. it's just too bad to see people that get suckered into refinancing (again) and getting pulled back to 30 years. The industry average is that every 3-5 years people refinance. And if people keep moving back to 30 years just to save some money each month, is it really helping them out? NO! they end up spending more in total cost and time in debt. Im so glad to work for a company that does not do this!
Economics if definitely a very interesting topic when you get it broken down to what happens, why it happens, and how it effects us.