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Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The US Treasury auctions went well with relatively strong foreign demand for most issues. The gains came as the Fed continued to pour billions into mortgage bonds in an effort to keep rates low. The data was mixed as weekly jobless claims came in better than expected and the Fed “Beige Book” indicated that inflation remained in check.

For the week, interest rates fell by about 3/8 of a discount point.

The consumer price index will be the most important data this week. If inflation indications are tame, rates will likely hold steady or improve. However, if inflation increases, mortgage interest rates could spike.

Business Inventories


The report on business inventories gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, it also provides a peek into the economy in the upcoming months. Business inventory changes slow down as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore, the change in business inventories is a leading indicator of GDP. The data for this report, published by the Department of Commerce’s Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers’ shipments, as well as merchant wholesalers and retail trade surveys.

Only a small amount of attention is typically paid to this report because much of the data is already available and surprises are rare. The only new information in this report is retail inventories. However, in this environment, every piece of data has the potential to cause some volatility.

The future of mortgage interest rates remains uncertain. It’s wise to take advantage of the recent improvements in rates.

Happy Monday! Here’s a quick look at market movement and the week ahead. Become a fan of PERL Mortgage on Facebook and get our secret “word of the week”. The fifth email to the PERL Mortgage Prize Team with the secret word wins our special prize! Congratulations to last week’s winner, Julie Weix! She won a PERL plant pot, PERL hand sanitizer and a pack of gum (who doesn’t like gum?)

Market Update
Mortgage bond prices fell last week pushing mortgage interest rates higher. The gains we had mid week were basically erased as stocks remained strong. The DOW rose despite continued signs that the labor market remained weak. Fortunately, news reports indicated that the Fed may continue the purchase of mortgage bonds into 2010.

For the week, interest rates rose about 1/4 of a discount point.

The employment report Friday will be the most important data this week. ISM Index data and revised productivity data may also move the market. Continued stock strength may also pressure rates.

Change is in the Air
The recent fluctuation in mortgage interest rates has been escalated by the increased Fed purchasing of mortgage bonds.The Fed’s goal of keeping mortgage interest rates relatively low has been a challenge. Analysts called the recent ramp up in purchasing “surprising”, as amounts have exceeded recent averages. This year, the Fed purchased almost $800 billion of mortgage bonds, with the goal of spending $1.25 trillion on the program by the end of 2009.

Different Fed officials have come out recently with what could be interpreted as conflicting positions on the program. Richmond Fed President Lacker told reporters recently, “Whether there is a so-called cliff effect or any disruption due to discontinuous change in our purchases is up in the air.” Lacker also indicated, “I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide.” On a slightly different note Atlanta Fed President Lockhart indicated the Fed would probably extend the timeframe of MBS purchases beyond the end of the year. The remarks leave many questions:

Will the Fed spend all of the slated money? Will the purchases take place before the end of the year or will they extend into 2010?

With so much uncertainty, even among Fed officials, mortgage interest rate fluctuation is likely. The good news is that despite ups and down, rates have stayed at historic lows.

Word of the Week
Become a fan of PERL Mortgage on Facebook and win free stuff! Each week, we will post a “word of the week” in our Monday Market Update on our PERL Mortgage Facebook page. When you see it, email perl@perlmortgage.com with the word. The fifth email we get each week wins a cool prize!

Market Comment
Mortgage bond prices fell last week, pushing mortgage interest rates higher. Inflation data remained bond friendly with the Producer Price Index data coming in lower than expected. Rates seesawed with stocks. Last Monday’s severe stock weakness helped mortgage bonds kick off the week on a positive note. Unfortunately, Tuesday’s stock rebound erased Monday’s gains and this pattern continued throughout the week. Fortunately, the Fed continued to purchase billions of dollars of mortgage-backed securities in an effort to keep rates relatively low.

For the week, interest rates rose about 1/8 of a discount point.

The Treasury auctions will take center stage once again as record debt issuance continues. If signs of foreign demand falter, rates will likely suffer. Consumer confidence data may also move the market. Look for stocks to play a role as well.

Other industries
The automotive industry is going through a roller coaster of month, with the government backed CARS (Cash For Clunkers) program ending this week, which has resulted in a rush of new car sales.

Durable Goods Orders
Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector, because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.

Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories. Since the data is very volatile and difficult to forecast, there is often a huge disparity between the actual release and the initial projections. Be cautious heading into this release.

Market Comment
Mortgage bond prices rose last week, pushing mortgage interest rates lower. Relatively strong foreign demand for US debt, along with tame inflation data, helped rates improve. The consumer price index came in unchanged and the core, which excludes food and energy prices, rose 0.1% as expected. The Fed left rates unchanged and continued to purchase billions of dollars worth of mortgage-backed securities in an effort to keep rates relatively low.

For the week, interest rates fell more than a full discount point.

Tuesday’s producer price index will be the most important release this week, setting the tone for trading ahead. If signs of inflation emerge at the producer level, rates will likely suffer. Housing starts and leading economic indicators data may also move the market.

Market Analysis
The two traditional approaches to market forecasting are fundamental and technical analysis. Fundamental analysis is an attempt to predict future price movements based on the most current economic data. The data provides analysts with insight into how economic activity affects the supply of and demand for money, thereby impacting interest rates.

In contrast, technical analysis is an attempt to predict future market movements based on past price movement patterns. Technical analysts typically use charts and graphs to find patterns or trends into potential future market movements. Technical analysis is based on the assumption that actual changes in economic activity precede the release of the corresponding economic data. Thus, technical analysts attempt to reveal hidden supply and demand factors by reviewing price and volume movements that are not supported by the release of the most current economic data. Another important factor of technical analysis is market sentiment. Market sentiment measures the emotions and expectations of investors in the market. Sentiment, like most emotions, changes often in a short span of time and is impossible to predict accurately.

The inability to accurately predict the future makes it necessary to take a cautious approach to protect yourself against unfavorable market swings. When low rates are available, as they are today, it’s wise to lock in rather than wait and float.

Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after it’s done. While analysts constantly try to predict the future, the bottom line is they continually fall short. The good news is that the Fed has done a relatively good job of keeping rates favorable, but not without some serious spikes here and there. Without the Fed pouring billions into mortgage bonds, rates would surely be higher.

Market Comment
Mortgage bond prices rallied early in the week, only to give back the gains as stocks surged. The DOW eclipsed the 9000 mark. Ben Bernanke spoke of a “jobless recovery”, where employers use productivity to increase production without additional labor. This would maintain a high unemployment rate even after the economy is in recovery.

Existing home sales data came in higher than expected. For the week, interest rates rose by about 1/8 of a discount point.

The US Treasury will auction $115 billion of 2, 5, and 7-year notes this week. The additional debt supply may pressure rates. With so many data releases, expect the market to move.

Employment Cost Index
The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures because it factors employees’ total compensation.

If wage pressures rise, expectations of inflation will increase. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services.

No single economic indicator can consistently predict the future of the economy. However, the employment cost index is a closely watched release. Most of the recent Fed releases and speeches indicate that inflation is a concern. Market participants remain cautious. Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market fluctuation.