Between Monday to Thursday, Wall Street focused on the upcoming jobs reports and mortgage markets gained while traders jockeyed for position. Mortgage rates drifted lower through Thursday afternoon. But, then, after a better-than-expected Non-Farm Payrolls report Friday morning, mortgage markets — and mortgage rates — reversed.

Overall, mortgage rates dropped last week, but only by a small margin. Rates were best Thursday afternoon.

It was the second consecutive week in which mortgage rates fell.

Last week was also interesting in that both stock markets and bond markets improved, proving that rates don’t always rise when stock prices do. 455 of the S&P 500 companies posted gains last week.

If you’re shopping for a home or a refinance, though, don’t rest on your laurels. After Friday’s big sell-off, this week opens into a major headwind and, plus, the Federal Reserve’s support for mortgage markets ends in just 3 weeks.

This week, without much data to influence traders, the upward momentum in rates may have little cause to temper. We’ll see the Consumer Confidence numbers on Tuesday and Retail Sales on Friday. Beyond that, there’s not much else.

After last week’s performance, conforming mortgage rates may be poised to rise rather sharply. If you’re waiting for the right time to lock your rate, it may have been this past Thursday. Consider locking your rate early this week to protect against further rate hikes.

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The market has twenty trading sessions before the cessation of the MBS purchase program.  Traders believe that mortgage rates should increase, most noticeably in the lower coupon, current production area. At this point, besides the Fed, traders are not seeing much buying outside of some hedge funds and money managers for current coupon product. There was some hope that with the agencies buying delinquent mortgages out of pools, demand would pick up, but so far they have seen little interest in spite of the ultra-clean current production. Possibly their reinvestment decisions are now going to coincide with the end of the fed program. Much of this community is concerned with higher yields because of this and the overall macro environment. (Crisman Report 3-4)

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Last week was a bad week to float a mortgage, to say the least. Rates rose by the largest margin in any week since late-2009.

The two biggest stories from last week both came from the Federal Reserve.  The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed’s surprise announcement to raise the nation’s Discount Rate to 0.75%. Both sparked risk-taking on Wall Street and bonds sold-off as a result.

Now, the Fed Funds Rate won’t climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets — The Era of Loose Monetary Policy is over.

This week, there’s a lot of economic data set for release.

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

With markets already on edge, any better-than-expected results should be bad for mortgage rates.

After last week’s performance, conforming mortgage rates have now unwound most their January gains.  If you’re waiting for the right time to lock, it may have been 2 weeks ago. Consider locking in this week to protect against any further deterioration in price.

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The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It’s a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers’ policy decisions.

The Minutes is a terrific look into the Fed’s collective mind and, yesterday, Wall Street didn’t like what it saw.  Specifically, the report disclosed that:

1. The Fed plans to break support for mortgage markets after March 31, 2010
2. Raising the Fed Funds Rate will be a key part of the Fed’s strategy to tighten monetary policy
3. The fundamentals behind consumer spending strengthened modestly

Furthermore, the Fed Minutes said that there is a growing risk of “higher medium-term inflation”. Inflation, of course, is awful for mortgage rates.

Overall, the Fed’s economic optimism appeared stronger after its January meeting as compared to its December one.  A stronger economy should lead to better job growth and higher home prices throughout 2010.

Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more.  Therefore, if you’re buying a home in the near-term, or know you’ll need a new mortgage, consider moving up your time frame.

Every 1/8 percent makes a difference in your household budget.

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They are going up!!!
http://www.marketwatch.com/story/bernanke-exit-timing-to-depend-on-data-2010-02-10-120120

The Fed could increase the interest paid on excess bank reserves to sop up “extra” cash out there, which may have more of an impact than raising the overnight Fed Funds rate. Not only are investors wondering about another extension (not likely) of the MBS purchase program, but also when the Fed might decide to start selling MBS’s from their portfolio… this would pull money out of the economy and shrink the Fed’s $2.2 trillion balance sheet, helping to avoid inflation and getting the Fed out of the business of subsidizing mortgages, but also push mortgage rates higher. (Crisman Report 2-10)

Also:

“Refinances in 2010 will be down 52% and purchase mortgage volume will be down 5%
from 2009, according to the latest projections from iEmergent, a Des Moines,
Iowa-based market research firm.” (National Mortgage News)

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• How and When Will the Fed Reverse the Huge Addition to Bank Reserves? (seekingalpha.com)
• Freddie Mac to start buying back bad loans (sfgate.com)
• Bernanke outlines plan for pulling in stimulus aid (sfgate.com)

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Mortgage rates are now at a 6-week low but probably shouldn’t be.  It underscores just how important global events can be to U.S. mortgage markets.

For example, corporate earnings continue to improve and key elements of the economy are strengthening.  Even the Federal Reserve acknowledges this.  In most circumstances, that would be a boon for the stock markets and bond markets would suffer, including mortgage bonds.

Last week, that wasn’t the case.

Early in the week, as (1) China tightened its monetary policy, (2) Greece did little to quell lingering default fears, and (3) Spain raised its deficit forecasts, global investors sought to reduce their collective risk exposure. For safety of principal, many sold some of their more aggressive positions and moved the cash proceeds into the U.S. bond market — which includes mortgage bonds.

On Wall Street, this type of trading pattern is called a “flight-to-quality”.  Because mortgage bonds are backed by U.S. government entities, the debt is considered to be ultra-safe.  Last week’s extra demand for bonds helped to push prices up and mortgage rates down.

And that was before Friday’s weak jobs report. Although the Unemployment Rate fell to 9.7%, the government reported a net loss of 98,000 jobs last month and this, too, helped mortgage rates tick lower.

This week, we’ll hope for momentum to continue.

There’s very little domestic news to move rates this week so keep an eye on the global market for similar stories like what we saw last week.  Or, if you’re not sure what to look for, just give me a call or send me an email and I’ll be happy to watch the markets and mortgage rates for you.

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But, given last week’s data and domestic story lines, it’s surprising that rates actually fell.

1. The Federal Reserve said the economy continues to strengthen
2. Consumer Confidence pushed to a 2-year high
3. 4th Quarter domestic output exceeded Wall Street’s expectations

Usually, events like these draw money away from the bond markets and into the stock markets and Wall Street preps for better corporate earnings. The movement pressures mortgage rates to rise.

Last week, however, different stories trumped the headlines including a report from Standard & Poor’s that said U.K. banks are no longer counted among the world’s most stable.  This research, in particular, triggered a flight-to-quality among investors that pumped the U.S. dollar and sparked new demand for mortgage bonds.

It’s one reason why we ended the week on a rally and it just goes to show how unpredictable mortgage rates can be.

This week figures to be a challenge, too.

First, we start the week with key inflation data.  When inflation runs hot, it’s usually bad for mortgage rates.  Inflation is expected to be tame, however — a point the Fed made several times in its press release last week.  That said, inflation data is closely watched by markets and can make a big impact on rates.

Then, on Wednesday, ADP releases its private sector job report.  The ADP data is a precursor to the government’s own Non-Farm Payrolls report which is due to hit Friday.  ADP is expected to show a net loss of roughly 85,000 jobs.  Depending on where the actual numbers comes in, mortgage rates could wiggle a bit.

If the ADP report shows much fewer than 85,000 jobs lost, expect mortgage rates to rise.  The same is true for Friday’s job report.  A miss on expectations will cause mortgage to ratchet higher.

Since peaking on the last day of December, mortgage rates took a slow, steady descent through January. They’ve have taken back close to two-thirds of December’s overall losses.  This week, rates could fall some more, or they could bounce back up.  The most prudent time to lock would be prior to Tuesday’s closing.

After that, the respective jobs reports will take over and rates could go either way with force.

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The group adjourns at 2:15 PM ET.

As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country’s current economic condition, and the outlook for the near-term future.

The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up.  Every word, sentence and phrase is carefully disected in the hope of gaining an investment edge over other active traders.

It’s for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically rebalancing its bets.

Today should be no different.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it’s been in history.  However, it’s what the Fed says Wednesday that will matter more than what it does.

After the Fed’s last meeting in December, it made several observations:

1. The jobs market is getting “less worse”
2. The housing sector is making improvements
3. Financial markets are stabilizing further

The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead.  Furthermore, inflation remains in check.

As compared to December’s press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates to rise as Wall Street moves its money from bonds to stocks.

Conversely, reference to slower growth in 2010 should lead rates lower.

We can’t know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone’s guess.

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The S&P 500 shed nearly 4 percent in its worst weekly showing since October 2009 as all 10 sectors fell. As the money left stock markets, it made its way to bonds — including the mortgage-backed variety.

As a result, mortgage rates fell for the third straight week.

Since shedding 300 basis points in December, mortgage bond pricing has recovered a bit more than half of those losses.  It’s helping with home affordability and opening new refinance opportunities around the country.

This week, though, mortgage rates could rise back up.  There’s a lot going on.

First, on Monday, the December Existing Homes Sales report will be released.  The report is expected to be extremely weak as compared to November.  This is because of a combination of factors including:

1. The initial tax credit expiration date of November 30, 2009
2. Sharply rising mortgage rates throughout the month of December
3. A general slowdown from the holidays and from the weather

Therefore, don’t be surprised by the newspaper headlines you see Tuesday morning.

Other data this week includes the Case-Shiller Index – a measure of home prices nationwide — and the New Home Sales report. The Case-Shiller Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same.  New Home Sales should be similarly strong.

But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.

The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely.  The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed’s post-meeting press release.

What the Fed says about the economy will be much more important that what it specifically does about the economy for now.  If the Fed says the economy is growing as expected, look for mortgage rates to rise. Conversely, if the Fed says the economy is at risk, expect mortgage rates to fall.

The safest rate lock strategy this week is to lock your mortgage rate before the Fed’s 2:15 PM ET adjournment Wednesday.  Rates will be bouncy all week, but once the Fed’s press release hits the wires, it’s anyone’s guess what will happen.

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The Fed Minutes is a follow-up piece to the post-FOMC meeting press release. But whereas the press release is succinct and to-the-point, the minutes are lengthy and often meandering.

As a comparison, December’s press release contained 535 words. December’s minutes had 6,260.

But these “extra words” aren’t superfluous. They’re actually very important to homeowners. Because the Federal Reserve’s internal debates help to shape Wall Street expectations, it doesn’t take much for those conversations to have a trickle-down effect on Main Street.

For example, after the December meeting, the Fed said that economic growth is steady, inflation is in check, and an orderly wind-down of mortgage market support was underway. A look at the minutes, though, showed some disconnect.

Some Fed members believe rising commodity prices could lead to stronger-than-expected, and others think that improvement is housing could be “undercut” by a pull-back in government stimulus.

Overall, the Fed appears optimistic about the economy, but not as optimistic as on December 16. Mortgage markets responded favorably to the minutes and mortgage pricing improved.

Although rates remain higher as compared to early-December, pricing has been on a good run this week. If you’re under contract for a home or just looking to refinance, now may be a good time to lock.

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