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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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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There wasn’t much hard data on which to trade last week, either, so momentum took markets farther than they otherwise might have moved on their own.  It marked the first time in 5 weeks that rates rose for rate shoppers.

This week, data returns. Expect mortgage market movement.

Some of the week’s more important releases include:

1. Housing Starts and Building Permits (Wednesday)
2. The release of the last month’s FOMC Minutes (Wednesday)
3. Business and consumer inflation figures (Thursday and Friday)

Inclement weather may have impacted last month’s Housing Starts reading so pay closer attention to Building Permits.  Permits precede actual construction and can be more indicative of economic optimism. If permit readings are strong, it should be a negative for mortgage rates.

The same is true for the FOMC Minutes.

Last month’s FOMC post-meeting press-release was decidedly middle-of-the-road, but the statement is just a summary of the Fed’s 2-day meeting, boiled down to a few paragraphs.  Wednesday’s release of the FOMC Minutes will reveal the deeper discussions among members of the Fed.  Wall Street will mine it for clues about the future of the economy.

If Wall Street senses optimism coming from the Fed — again — mortgage rates should rise.

And, lastly, keep an eye on Thursday and Friday’s inflation data.  Inflation is bad for mortgage rates so a higher-than-expected reading should spark a bond market sell-off.

Since mid-December, mortgage rates have moved within a tight range and there’s little reason for rates will break this range this week. However, we are near the top of the channel. If you know you’re going to need a rate locked soon, it’s probably best to do early in the week.

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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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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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Luckily for rate shoppers, mortgage rate momentum was favorable. Rates were slightly lower Monday through Thursday before breaking downward Friday afternoon. Home shoppers this past weekend caught a nice break.

Last week marked the second straight week in which mortgage rates fell.

This week, in holiday-shortened trading and with little economic data set for release, expect mortgage rates to again move on momentum. The biggest report of the week is Wednesday’s Producer Price Index.

Producer Price Index is important to mortgage rates because of its role in inflation.  PPI is akin to a Cost of Living-type measurement, but for business.  As business costs rise, the thought goes, it’s not long before consumer costs rise, too. Businesses eventually pass on costs, after all.

In this manner, a rising Producer Price Index can foreshadow rising consumer prices, and, therefore, inflation.

Inflation is awful for mortgage rates.

PPI expectations have revised downward this month, especially because last week’s data showed a deceleration in consumer prices nationwide. If PPI isn’t as weak as expected, mortgage rates will rise.

Other influential data this week includes Housing Starts, Consumer Confidence and Initial Jobless Claims.

So far, 2010 has been for mortgage rates around the country. If you’re in need of a rate lock, this week may be a good time to take one.

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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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After re-reaching an all-time low December 1, mortgage rates have since rolled back to mid-November levels.

Rates are still low right now. Just not as low.

And meanwhile, last week’s big story — the one that should concern mortgage applicants between now and early-2010 — is the story of Retail Sales.

Last week, a government report showed that American consumers are spending more this holiday season than was expected.  The Retail Sales data implies that consumers are feeling more confident in themselves, and in the economy overall.

This is one of the last remaining pieces in the economic recovery puzzle.  Job growth, of course, is another, and both will be in focus this week as the Federal Open Market Committee meets for its final 2-day meeting of the year.

The FOMC isn’t expected to raise the Fed Funds Rate from its current “target range” near 0.000%, but when the FOMC adjourns at 2:15 PM Wednesday, its press release will dominate the news.

Specifically, watch for verbiage on the expected economic growth for 2010 because no matter what the Fed says, mortgage rates will be in flux.  As one example:

• If the Fed says inflation is under control, mortgage rates should fall
• If the Fed says inflation pressures are growing, mortgage rates should rise

There’s other news this week, too, including PPI and CPI — 2 popular inflation gauges, plus some housing data, too.

If you need to lock a rate this week, it may be safer to lock prior to the FOMC’s adjournment. Given the recent strength in Retail Sales and the reports of “crowded malls” this past weekend, the Fed may choose to revise its growth estimates for the economy — a move that would be awful for mortgage rates.

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