Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending May 18, 2007

Compliments of
CORE Finance Group
303-770-2262
adam@corefinancegroup.com
5310 DTC Pkwy
Greenwood Village, CO 80111


Events This Week:

Inflation Lower
Employment Solid
Manufacturing Up
Housing Mixed

Events Next Week:
Thur 5/24
Durable Orders
New Home Sales
Jobless Claims
Fri 5/25
Existing Home Sales

Inflation on Target; Mortgage Rates Rose


Since the May 9 Fed meeting, there have been few surprises in the economic data, yet mortgage rates have climbed steadily higher. A variety of reasons are behind the move. Some investors had been hoping for signs from the Fed that the risks of higher inflation were diminishing, but the Fed stuck with the message that the inflation threat remains a top priority.

Inflation is negative for mortgage markets, so the lack of good news from the Fed prompted some selling of mortgage securities, which continued through today. Monday's important Consumer Price Index inflation data matched the consensus forecast, yet more favorable results were needed to prompt a shift in investor sentiment.

The other primary source of selling pressure for mortgage securities is resulting from diversification efforts of investors around the world. In the US, the stock market has been consistently rising recently, and investors have been shifting funds out of fixed income securities - including mortgage securities - and into stocks. In addition, private investors and central banks in other countries, particularly in China, have reportedly been opting for riskier assets such as stocks instead of fixed income securities in recent months. In short, with lower worldwide demand, interest rates for fixed income securities needed to rise to attract investors.

In the housing sector, April Housing Starts rose a higher than expected 3%, to the strongest pace since December. The good news was partially offset, however, by a decline in Building Permits, which are a leading indicator of future Housing Starts. Once again, the mixed economic data is a sign of stabilization in the housing market.

• Also Notable:
• The Mortgage Bankers Assoc. Refinancing activity index is up over 50% from one year ago at this time
• The National Association of Realtors (NAR) reported that median home prices declined slightly during the first quarter of 2007
• The National Association of Home Builders (NAHB) May index of home sales activity fell to the lowest level in 15 years
• Many major US equity markets finished at or near record levels

Average 30 yr fixed rate: Last week:-0.04%This week:+0.10%
Stocks (weekly): Dow:13,549+264NASDAQ:2,558+6

Week Ahead

There's a light week ahead, with no economic data on the calendar until Thursday. The Housing sector data on New and Existing Home Sales will be the featured reports next week. Durable Orders, an important indicator of economic activity, will be the only other major scheduled economic data. A full slate of Fed speakers may fill the void during the first half of the week. Mortgage markets will close early on Friday ahead of the Memorial Day weekend.