Mortgage Commentary

[Adam in CO]

Mortgage Market News for the week ending July 13, 2007 of

CORE
PHONE:
303-770-2262
adam@corefinancegroup.com
5310 DTC Pkwy
Greenwood Village, CO 80111



Events This Week:

Employment Steady
Import Prices Higher
Retail Sales Weaker
Sentiment Strong

Events Next Week:
Mon 7/16
Empire State
Tues 7/17
PPI
Industrial Prod.
Wed 7/18
CPI
Housing Starts
Thur 7/19
FOMC Minutes
Philly Fed

Mortgage Rates Finish Unchanged


Volatility was prevalent in mortgage markets last week, although the net effect of a wide range of financial news was that mortgage rates finished at about the same level as they began. Mortgage rates moved lower early in the week when a major rating agency announced the downgrade of $12 billion of subprime mortgage securities, which are made up of loans made to the riskiest borrowers. Investors reacted by selling subprime mortgage securities and buying higher rated agency mortgage backed securities. This flight to safety had the effect of pushing down prime mortgage rates.

Later in the week, attention shifted away from the subprime downgrade when US stock markets posted a huge one-day rally on Thursday. In typical fashion, investors shifted funds out of bonds and into stocks, resulting in higher mortgage rates. The next day, the only major economic report released last week, the Retail Sales report, came in much weaker than expected. Consumers account for about 70% of economic activity, and this report was a major indicator of spending levels by consumers, so the unexpected drop caused a quick reaction in the mortgage markets, causing rates to reverse some of Thursday's increase.

In the housing sector, the National Association of Realtors (NAR) released a revised economic outlook, which lowered slightly their 2007 forecast due to stricter lending standards, while adding that activity levels will vary significantly in different regions. Specifically, they expect the number of Existing-home sales to be somewhat lower in 2007, before returning to 2006 levels in 2008. They also believe that modest home price appreciation will resume during the second half of 2007. Finally, their forecast shows mortgage rates holding near current levels for the rest of the year.

• Also Notable:
• S&P downgraded the credit ratings on many subprime mortgage securities
• Fed Chief Bernanke suggested that higher oil prices have had a minimal impact on core inflation expectations
• Freddie Mac forecasted that mortgage rates will remain near current levels for the rest of the year
• The Dow Jones stock index hit new record highs

Average 30 yr fixed rate:
Last week:+0.05%
This week:0.00%

Stocks (weekly):
Dow:13,901+278
NASDAQ:2,701+39

Week Ahead

The biggest economic news during the first half of next week will be the monthly inflation reports, PPI and CPI, on Tuesday and Wednesday respectively. Almost without exception, higher inflation leads to higher interest rates, and the Consumer Price Index (CPI) is the most widely watched indicator. The Producer Price Index (PPI) inflation report focuses on the increase in prices of "intermediate" goods used by companies to produce finished products, while CPI looks at the price change for those finished goods which are sold to consumers. Industrial Production, an important indicator of economic activity, will also be released on Tuesday, and Housing Starts will come out on Wednesday. Two regional manufacturing indexes will round out the Economic Calendar. Thursday, attention will turn to the Fed, as Chief Bernanke will begin addressing Congress for the semi-annual testimony. The minutes from the June 28 FOMC meeting will also be released that day.