Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending February 8, 2008

Events This Week:


Jobless Claims Down
ISM Services Lower
Productivity Strong
Pending Sales Fell

Events Next Week:

Wed 2/13
Retail Sales

Thurs 2/14
Trade Balance
Jobless Claims

Fri 2/15
Industrial Prod
Sentiment
Empire State

Fed Officials Highlight Divergent Risks


With a light schedule of economic events, investors focused on a stream of Fed officials making appearances last week, and two conflicting themes emerged. Thursday, the Fed's Fisher emphasized that the risk of higher future inflation remains a concern, and mortgage rates rose after his comments. Friday, however, the Fed's Yellen pointed out that the risk of slower economic growth or recession has increased. A decline in economic growth generally leads to lower inflation, so it was viewed as good news for mortgage markets. As a result, mortgage rates fell, ending the week just a little higher than the previous week. In contrast, slower economic growth and higher inflation are both unfavorable for stocks, and the Dow suffered a 500 point loss during the week.

Friday, the government moved closer to passing an economic stimulus package which is expected to boost economic activity as well as help the housing market, and the passage of the bill appears to be imminent. Under the terms of the pending legislation, Fannie Mae and Freddie Mac will temporarily be allowed to purchase or insure loans up to 125% of the median home price in the area, subject to a maximum cap of about $730,000, which means that in some markets loans above the current limit of $417,000 will be considered conforming loans. FHA loan limits will increase as well, according to a similar formula and subject to a maximum of 175% of the current limit. Qualifying loans should have lower rates than if the limits were not increased, making homes more affordable and refinancings more attractive.

In the housing sector, the December Pending Home Sales index fell more than the expected from November, and the index was down -24% from one year ago. Pending Home Sales are a leading indicator of future housing market activity, so the next Existing and New Home Sales reports may show declines. The National Association of Realtors (NAR) latest forecast predicted that conditions will remain soft for the first half of 2008, but that activity will pick up during the second half of the year.

Also Notable:

• Continued Jobless Claims rose to the highest level since October 2005
• The Central Bank of England cut rates by one quarter point, while the European Central Bank made no change
• The Fed reported that consumer credit card borrowing fell sharply in December
• Treasury Secretary Paulson remarked that the housing market was undergoing a "necessary correction"

Average 30 yr fixed rate:
Last week:-0.05%
This week:+0.03%

Stocks (weekly):
Dow:12,173-512
NASDAQ:2,298-93

Week Ahead

The first economic report next week will be Wednesday's Retail Sales data. Consumers account for about 70% of economic activity, and this report is a major indicator of spending levels by consumers. Thursday, the Trade Balance will be released. Friday will be a busy day, highlighted by Industrial Production, an important measure of economic activity. Import Prices, Consumer Sentiment, and the Empire State regional manufacturing index will also come out that day. Fed speakers will play an important role next week as well.

adam@corefinancegroup.com