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Fed announced its plan to purchase Mortgage Backed Securities last week, and began buying them Monday. The Fed will announce the results each Thursday (This should be an interesting rate day).  The Fed is estimating 500b will be purchased. This process will continue gradually through June and should aid in pushing rates down until then. (Read between the lines, make sure your refinance or purchase before the end of July 2009, in order to take part in History) Market Forecast Week of January 5, 2009

As you can see from the chart it has not been pretty in the MBS Market. If my Technical Analysis serves me right; if we don’t fill Friday’s gap we are in trouble!

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It was the fourth time in 5 weeks that mortgage rates worsened.

By far, the biggest news of last week was Wednesday’s mortgage market meltdown.

Beginning shortly after 1:00 PM ET, and in the span of about 90 minutes, the 30-year fixed mortgage rate soared.  The action was so swift that a number of mortgage lenders shut down their Lock Desks, unwilling to accept new business.

There was no “news”-like reason for the action, by the way — just a general feeling on Wall Street that the U.S. government’s massive debt load may lead to inflation sometime in the future.   As inflationary fears rise, mortgage rates often rise with them and this is what we witnessed happened Wednesday.

Markets regained their cool Thursday and Friday, but could only erase half of Wednesday’s surge.

This week, look for data to determine whether mortgage rates rise or fall.  Monday and Friday will be the biggest days.

Today in addition to releasing consumer spending data from May, the government publishes the Federal Reserve’s preferred inflation gauge.

If Friday’s employment data is better-than-expected, rates should rise, too.  More working Americans means more consumer spending and spending makes up two-thirds of the economy.

Markets expect that another 550,000 workers lost their jobs last month, raising the 12-month total to 5.65 million.

Between Monday and Friday, a number of Federal Reserve members will be speaking publicly, including Fed Chairman Ben Bernanke.  Each speaker’s statements, of course, can influence mortgage rates as well.

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Loans closed in May will have first payment dates of July 2009.

If April was a harbinger of things to come for May, Homeowners and Homebuyers will be the proud recipients of stable LOW Historic Mortgage Rates (see chart).  The FED will continue its Agency Mortgage-Backed Securities Purchase Program, which is will temporarily keep rates low.  Once the Purchase Program wraps, “Hello Carter era Rates”!

From the current analysis of MBS charts coupled with GOV subsides look to see rates stay low until late fall. If you are planning on purchasing or refinancing, now is the time to “Get off the fence” as both can take anywhere between 20 – 60 days to close.

April 2009 Mortgage Rate Chart

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Although the FED announced to keep the FED Funds target unchanged, MBS gave up ground with the 30 YR FNMA 4.0% pulling back 22bp.  Mortgage Rates held their ground and closed where they ended yesterday.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.  The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months.  Household spending is stabilizing and financial markets are “easing”.

Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:

• The growing ranks of unemployed workers
• The reduction of housing wealth nationally
• Reduced inventories and investment from business

Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth.  This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.

The FOMC’s next scheduled meeting is June 23-24, 2009.

Source
Parsing the Fed Statement
The Wall Street Journal Online
April 29, 2009
http://online.wsj.com/public/resources/documents/info-fedparse0904.html

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For active home buyers who have yet to find the “right home”, long-term flatness like this is terrific.  While interest rates stay even, buyer purchasing power holds flat and pre-approval letters stay valid.

For buyers under contract or homeowners looking to refinance, though, the market’s pattern is a little more rough.  Although rates are holding steady week-to-week, the day-to-day action is quite different.  Bond markets are volatile and rate swings of a quarter-percent in a day have been common.

How good of a rate you get depends on day on which you shop. This complicates the process of “locking a rate” and makes it very hard for people trying to time a market bottom.

This week, though, the market may finally make a run and break its range.

Aside from it being an unusually data-heavy week, the Federal Reserve meets Tuesday and Wednesday to discuss monetary policy.  The data combined with the Fedspeak may push the markets one way or the other towards economic optimism or pessimism for the latter half of 2009.

Lately, it’s been a combination of the two — a “cautious optimism” — and that’s a big reason why mortgage rates have held in a tight range for so long.

Understand, though, that when mortgage rates finally do move, they’re going to move in a big way.  So, if you’re among the crowd looking for lower rates, the best possible outcomes you can hope for this week are:

• Weak consumer confidence data (Tuesday, Friday)
• Weak consumer spending data (Thursday)
• Falling “cost of living” calculations (Thursday)
• Fed concerns about deflation and/or recession (Wednesday)

Any of these four events would likely temper hope for a quick economic revival, sending mortgage rates lower.  On the other hand, if confidence or spending is strong, or the Fed has no regard for deflation or recession, expect mortgage rates to rise.

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Clip of former FED Chairman Allen Greenspan supporting his FED Cuts, from David Faber’s documentary House of Cards

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Overall rates remain low for the time being, thanks to the FEDs Subsidy Suppression program.  The FED continued its weekly protocol purchase of Agency Mortgage-Backed Securities Purchase Program.

Gross purchases from April 9 through April 15: $30,400 million
Net purchases from April 9 through April 15: $21,750 million

With respect to housing data, news is rarely positive or negative on a universal level. There’s always two perspectives to consider, after all.

1. The home buyer’s perspective
2. The home seller’s perspective

Usually, when data is beneficial to one group, it’s less beneficial to the other.  This is true for rising home prices, average days on market and so forth.

Today, the group that gets the most benefit from data is the home seller group.

Published Thursday, a government report showed that Housing Starts fell 11 percent nationwide in March and also fell short of analyst expectations.  A “Housing Start” is a new housing unit on which construction has started.

The press is calling this a stumbling block for the economy, but that’s not exactly true.

Fewer Housing Starts last month means that fewer new homes will come on the market later this year.  This is not necessarily bad news.  Especially if you’re planning to sell your home in the latter half of the year.  With fewer homes for sale, the supply-and-demand curve should shift in favor of home sellers.  This helps stabilize home prices at a time when they might otherwise be prone to fall.

If it’s true that stable housing markets are key in an economic recovery, then fewer Housing Starts is actually a push in the right direction.

But there’s more to the story (as always).

As footnoted in the Commerce Department’s report, a statistical disclaimer states that the Housing Starts data’s Margin of Error was so high that the report’s conclusion is just a guess.  Technically, the entire report is invalid anyway

So, the government won’t issue its final March 2009 Housing Starts data for months, but if the initial figures stick, home sellers may be in position to command higher sale prices later this year to the detriment of home buyers.  It’s basic economics.

And from a home seller’s perspective, that news is good.

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In some case, after touching all-time lows, conforming mortgage rates added a half-percent in the second half of the week, ruining some homeowners’ chance to refinance.

It was the second week in a row that mortgage rates worsened.

One reason why mortgage rates are up is because investors are turning bullish on the economy, even as it sputters.

From investors’ perspective, the data is weak, but not as weak as it has been — or could have been.  It’s a glass-is-half-full approach and it’s the opposite of how Wall Street worked in 2008.

For example, from last week:

1. Consumer Confidence measured a paltry 26.0 — but the reading was up from February’s all-time lows
2. The Case-Shiller Index showed a big drop in home prices — but the report ignores strong housing data from the last 60 days
3. Unemployment rates reached 8.5 percent nationally — but employment is a lagging indicator for the economy

In time, we’ll learn whether investors were on-time or premature in their bets for an economic turnaround but, for now, the mere belief that the economy is improving is leading mortgage rates higher.  And until Wall Street’s sentiment changes, rates should continue in that direction.

This week, there won’t be much chance to change traders’ minds.  For one, it’s a holiday-shortened week.  Secondly, there’s just one release of importance to markets — Wednesday’s release of the March Fed Minutes.

Mortgage rates may not rise for the third week in a row this week but long-term momentum is working against rate shoppers.  If you see a rate you like, consider locking it.  Before long, it might be gone.

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