Market Reports
A Mortgage Update from Jay Skwierawski for the week of March 23
Hello Everybody!
Talk about roller coaster rides. Last week's mortgage market certainly would top anything that Six Flags has to offer!
It started unusually early, with the announcement last Sunday by JP Morgan Chase that they were purchasing investment banker Bear Stearns. At the same time, the Federal Reserve announced that they were dropping the discount rate by 1/4% and were going to allow investment bankers like Bear Stearns to start to borrow directly from the Fed. This opportunity had only been available to regular banks before. Investment firms like Bear Stearns and Morgan Stanley are heavily invested in mortgage bonds - both the good ones and the bad ones. The trouble that they have seen with mortgages lately has been impacting the availability of mortgage funds. Now that they can borrow directly from the Fed, at it's discount rate, they may be more in a position to weather the continuing storm.
In addition to this news, there were several economic reports out in the shortened holiday week:
New home starts came in higher than expected, while new home permits came in lower than expected. The Producer Price Index (PPI) came in just as expected, while the Core PPI (excluding the cost of gas and food) came in a bit higher than expected. This is inflationary, and the markets didn't like it. Crude Oil Inventories came in higher than expected, which could mean oil prices could drop in the future. First time jobless claims came in much higher than expected, at near recessionary levels. The Index of Leading Economic Indicators came in lower, as expected. And, finally, the Philadelphia Fed Index came in with a very bad reading, although a worse one was expected.
Plus, the following events also took place last week, impacting treasury and mortgage bond rates:
Three investment bankers - Morgan Stanley, Lehman Bros., and Goldman Sachs all came out with better earnings reports than expected. This was very good news coming on the heels of the problems with Bear Stearns. On Tuesday, the Federal Reserve reduced the rate on the Fed Funds Rate by 3/4%. This news was followed by an increase in mortgage rates, as it has been almost every time that the Fed has dropped rates. However, the fact that the Fed only went 3/4%, instead of a full 1% as was expected, probably kept rates from jumping too high. A full 1% drop would have been thought of as being very inflationary.
All in all, it ended up being a good week for mortgage rates, and we saw most of them dip by about 1/4% from where they started the week.
This week, we have the following economic reports due. (Shown with their typical impact on mortgage rates):
Monday - Existing Home Sales - how many existing homes went under contract last month? (Moderate)
Tuesday - Consumer Confidence - how do John and Jane Q. Public feel about the economy? (Moderate)
Wednesday - Durable Goods Orders - are big ticket items, like cars, being purchased? (Moderate)
Wednesday - New Home Sales - Is the nicer weather and great mortgage rates leading buyers into builders subdivisions? (Moderate)
Wednesday - Crude Oil Inventories - this number has been rising lately, which could bode well for oil and gas prices. (Moderate)
Thursday - Existing Jobless Claims - this number has also been rising. If people aren't working, then they can't be buying. (Moderate)
Thursday - Gross Domestic Product - the final revision for the 4th qtr of 2007. Was the economy really as slow as reported? (Moderate)
Friday - Personal Income and Spending - did incomes rise, and were people willing to spend what they were making? (Moderate)
Friday - Personal Consumption Expenditure (PCE) and Core PCE, excluding food & energy - the Fed's favorite inflation gauge (HIGH)
Friday - Consumer Sentiment - another measure of how consumers feel about the economy (Moderate)
Above is the candlestick chart of mortgage rates through the end of last week. Remember that on this chart, green is good, red is bad, up is good and down is not! The chart shows a pattern that seems to be going in the right direction!
As if this full menu of reports wasn't enough, I'm sure there will be other "events" this week that will affect mortgage rates. We will keep you updated on any major developments through the week.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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