Mortgage markets improved for the 5th straight week last week as consumer confidence waned and inflation data tamed. Investors ignored the news that 19 of 23 reporting S&P 500 companies beat their respective earnings estimates and sold off on stocks.

There’s concern about a potential economic slowdown for the months ahead and it may be well-founded.

Despite an improving jobs situation and booming retail sales, households are less optimistic about the future and so is the Federal Reserve. In its post-meeting minutes released last week, the Fed revised its U.S. growth estimates downward for 2010 and 2011.

For rate shoppers in Washington , this is excellent news.

Because of the weakness, conforming mortgage rates fell again last week, extending the current rally in rates to 16 weeks. Mortgage rates are lower than at any time in measured history.

This week, data will be housing market-heavy and mortgage rates could rise or fall.

• Monday : National Association of Home Builders Index
• Tuesday : Building Permits and Housing Starts
• Thursday : Existing Home Sales

Strength in any, or all three, of these housing-related reports should push mortgage rates higher on higher hopes for the economy. Weakness, on the other hand, should have the opposite effect.

Overall, though, mortgage markets are trending better.  Momentum is in effect and refinance activity is soaring. That said, it doesn’t mean that rates won’t rise — they could absolutely. It just takes a change in market sentiment. And that could happen quickly.

Mortgage rates are artificially right now so even the slightest jolt could cause them to spike. It would be similar to what happened in June 2009 when rates rose 1.125% in just 10 days’ time. Therefore, if you’re shopping for a mortgage and like the rate you’ve been quoted, consider locking in as soon as possible.

There’s very little room for rates to fall further but a lot of room for rates to rise. Make sure you’re on the right side of that bet.

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Mortgage markets improved again last week — if only barely — throughout a holiday-shortened week devoid of “major” data and market conviction.

Up-and-down trading characterized the week which ended with Washington mortgage rates slightly lower versus the week prior.

Mortgage rates have fallen in 4 consecutive weeks and are on an extended rally that dates back to mid-April.

This week, however, data returns and rates could reverse. Especially with inflation numbers are in play.

Inflation is the enemy of mortgage rates.

Inflation is bad for mortgage rates because mortgage rates based on the price of mortgage-backed bonds.  When inflation pressures mount, the demand for mortgage-backed bonds wanes and that pushes bond prices down which, in turn, pushed bond yields (i.e. rates) up.

There’s three pieces of inflation-related news this week.

The first inflation-related story is the Federal Reserve’s Wednesday release of the minutes from its last meeting. Now, when the Fed adjourned June 23, it said “underlying inflation has trended lower“. However, there was more to the conversation that what the FOMC released in its post-meeting statement.

Markets will be looking for clues.

Then, Thursday, the Producer Price Index is released. The Producer Price Index is a measure of business operating costs. When PPI is increasing, it means that “doing business” is more expensive — an inflationary situation. It’s inflationary because higher business costs are often absorbed by consumers in the form of higher prices for goods and services.

A rising PPI is usually bad for mortgage rates.

And lastly, Friday, the Consumer Price Index is released. The CPI measures the average American’s “cost of living”. Like PPI, when the Consumer Price Index is rising, mortgage rates tend to follow.

Other releases of import this week include Retail Sales and two consumer confidence surveys.

Last week, mortgage rates again made new all-time lows. If you haven’t checked with your loan officer about the possibility of a refinance, make that call this week.  Mortgage rates can stay low for a long time, but they can’t stay low forever. Lock your rate while you can.

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Today, in its first meeting in 5 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged.

The Fed Fund Rate remains within its target range of 0.000-0.250 percent.

In its press release, the FOMC said that, since April, “the economic recovery is proceeding” and that the jobs market “is improving gradually”. Business spending “has risen significantly”, too, with the exception of commercial real estate.

Today’s statement is the 8th straight press release in which the Fed shows optimism for the U.S. economy, dating back to June 2009.  Since that time, the Fed has terminated all of the programs it created to support the economy through the economic crisis.

The recession is widely believed to be over.

And, although the Fed’s statement acknowledged economic growth, it did highlight lingering threats, too.

1. Employers are still reluctant to hire new workers
2. European debt concerns could spill-over to the U.S.
3. Bank lending is contracting

Also, as expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”, citing that “inflation has trended lower” recently.

Mortgage market reaction has been positive thus far. Mortgage rates in Washington are slightly improved post-FOMC.

The FOMC’s next scheduled meeting is August 10, 2010.

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Mortgage markets improved last week on weaker-than-expected jobless figures, ongoing troubles in Europe, and a tame reading on domestic inflation.

As a result, conforming mortgage rates for Washington fell last week, drawing loads of new refinance applications.

For a brief moment Thursday afternoon, mortgage bond prices pierced a key support level, dropping rates in Seattle to their best levels of the year.

It didn’t last long, however. By Friday morning, pricing was worsening on profit-taking and in preparation for this week — a week that promises to be heavy on both data and rhetoric.

To mortgage markets, this can be a dangerous combination.

The biggest news of the week is the Federal Reserve’s 2-day meeting, scheduled for Tuesday and Wednesday in Washington D.C.

The Fed is expected to hold the Fed Funds Rate in its target range near 0.000-0.250 percent. It won’t be what the Fed does at its meeting that will matter to rates, though. It will be what the Fed says — about jobs, about growth, about inflation — in its post-meeting press release.

Remarks that reflect well upon the economy should lead mortgage rates higher. Remarks viewed as negative should lead mortgage rates down.

There’s key data due for release next week, too:

• Tuesday : Existing Home Sales and Home Price Index
• Wednesday : New Home Sales
• Thursday : Continuing Jobless Claims
• Friday : GDP and Consumer Sentiment

Mortgage rates remained relatively tame last week.  This week, volatility should return.

If you’re shopping for a mortgage, rates remain very low but could reverse quickly. Your biggest risk is tied to the Fed’s adjournment Wednesday afternoon.

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Mortgage rates were wildly volatile between Monday and Friday before closing the week slightly better than their best levels of the year.

It’s the 3rd straight week in which mortgage rates improved but that doesn’t necessarily mean the trend for lower rates will continue. The last two times mortgage rates teased these levels, they immediately spiked higher.

It happened once in February 2010, and again, 4 weeks later in March.

This week, the same could happen.  After a week-and-a-half without much data of consequence, the newswires will be on overtime.

The first release to watch is Monday’s National Association of Home Builder’s Housing Market Index.  It’s not a “mainstream” release, per se, but the index gives some insight into how homebuilders are feeling about the economy and homebuilders are on the frontlines of the housing market. The stronger the report, the worse it should be for mortgage rates going forward.

The same goes for Tuesday’s Housing Starts and Building Permits numbers.

Also on Tuesday, the government releases the Producer Price Index. The Producer Price Index is like a “cost of living” report for U.S. businesses — it measures the change in operating cost from mont-to-month and from year-to-year.

PPI is viewed as a precursor to inflation and inflation is bad for mortgage rates. Therefore, if the Producer Price Index reads higher-than-expected, mortgage rates will rise. If PPI is in-line, rates should hold steady.

Then, on Wednesday, the Consumer Price Index is released. Again, if costs are rising, mortgage rates will likely follow.

The week closes with the release of the Federal Reserve’s minutes from its last meeting in April and the jobs figures.  All in all, a busy week of data and mortgage rates could change by a lot.

If you’re still shopping for the market bottom, luck’s been on your side but there’s a point when it’s best to just lock in.  This week may be that point.

Talk to your loan officer about today’s market and make yourself a game plan for locking a rate. Rates have never stayed this low, for this long, and this week doesn’t figure to be much different.

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The factors combined to drop conforming mortgage rates to their lowest levels in 6 weeks.

It’s an unexpected development considering that mortgage rates were supposed to rise post March 31, 2010.  That was the day the Fed’s support for mortgage markets ended.

Since then, however, a month-long string of devastating economic and meteorological events within the Eurozone sparked a global flight-to-quality that benefited “safe” assets such as mortgage bonds.

May 2010 may not be so kind.

The week starts with news that Greece reached a $147 billion bailout agreement with the IMF Sunday. This is a plus for the Eurozone and mortgage market negative. Rates should rise on the bailout.

Also on Monday, the government releases Personal Consumptions and Expenditures data.

PCE is the Fed’s preferred inflation gauge and it’s expected to show an annual read of 1.3 percent. Anything higher and rates should rise.

Then, for the rest of the week, employment data takes center stage.

• Wednesday : ADP releases its private sector employment data
• Thursday : The government releases initial jobless claims
• Friday : The government releases April’s job report

Jobs are key to the U.S. economic recovery, tied to consumer spending, consumer confidence, and mortgage delinquencies.  If job growth is better than expected, mortgage rates should rise.  If job growth is worse, rates should fall.

There’s no “best day” to lock this week so keep an eye on the market.  However, if rates rise as quickly in May as they fell in April, you won’t have much time to act.

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The Fed Minutes is a detailed recap of the debate and discussion that shapes the nation’s monetary policy. The notes are dense; it takes 3 weeks to compile them for publication.

As compared to the more well-known, post-meeting press release, the Fed Minutes are extremely lengthy. For example:

• March 16 press release : 451 words
• March 16 meeting minutes : 6,152 words

If the press release is the executive summary, the Fed Minutes are the novel.

The extra words matter.The minutes recount what the Fed did, how the Fed did it, and what the Fed plans to do next. And, in the minutes, Wall Street looks for clues.

This is why the report is important to every rate shopper in the country.

When the Federal Reserve publishes the minutes from its meetings, it leave clues about the groups next policy-making steps.  For example, in March’s Fed Minutes, it’s clear that the Fed’s concern about inflation is hugely diminished and that’s a major plus for the mortgage bond market.

Inflation causes mortgage rates to rise. The absence of inflation, therefore, helps them to fall.  This improves home affordability, among other things.

Similarly, the Fed Minutes note that real estate sales may have been worse throughout the winter months if not for low mortgage rates and the sense among Americans that home prices were troughing. We may infer, therefore, that rising rates may suppress home sales later this year.

Markets are always looking for clues from inside the Fed and the last meeting’s minute signal that the economy is on its way up.  If you’re looking for a bargain in the housing market, your window to act may be closing.

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Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant.  It’s something worth watching.

Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.

If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation“. Mortgage rates are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring tax credit, the timing to buy a home may be as good as it gets.

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Mortgage rates are now at their lowest levels since early-February.

Last week was heavy on negative data:

• Consumer Confidence posted 16% short of expectations
• New Home Sales posted 13% short of expectations
• Initial Jobless Claims were higher than expected

In addition, both the Case-Shiller and Home Price Indices showed a slight pullback in the housing sector.

The impact of these statistics was muted, however. This is because Fed Chairman Ben Bernanke gave his semi-annual outlook to Congress and markets focused more on the chairman verbiage than hard data, looking for clues about the future of Fed policy.

Bernanke stayed on message — the Fed Funds Rate will stay low for an extended period of time.

Mortgage rates were also helped by a strengthening U.S. dollar and demand for U.S.-denominated bonds. When demand for mortgage-backed bonds is strong, mortgage rates fall.

This week, mortgage rates will jockey around Friday’s Non-Farm Payrolls report.

Jobs are playing a large role in mortgage bond trading and markets expect that 30,000 jobs were lost in February.  If the actual figure is better than 30,000 jobs lost, mortgage rates will rise. If it’s worse, rates will rise.

Other important data this week include Personal Consumption Expenditures — the Fed’s preferred inflation gauge — plus the Fed’s Beige Book release.  Mortgage rates remain in flux so float with caution.

Mortgage rates look good today, but by Friday, they could be much, much worse.

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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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