Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending June 13, 2008

Events This Week:

Inflation Rose
Retail Sales Higher
Manufacturing Mixed
Pending Sales Up

Events Next Week:

Mon 6/16
Empire State
Tues 6/17
PPI
Industrial Prod.
Housing Starts
Thurs 6/19
Philly Fed
Leading Indicators

Inflation Fears Persist

Global inflation concerns pushed average mortgage rates to the highest levels of the year. In both the US and in Europe, central bank officials have focused recently on the threat of higher inflation. Monday, the Fed's Fisher pointed to increased global demand as a major source of inflationary pressures. Later in the week, the Fed's Plosser described inflation as a very serious problem for the economy. Fed Chief Bernanke warned that the Fed will "strongly resist" a rise in long-term inflation. He also remarked that the surprising jump in the Unemployment Rate from 5.0% to 5.5% didn't have much impact on the Fed's outlook for economic growth and inflation.

With so much talk about the threat of higher inflation, many mortgage investors positioned their portfolios very conservatively ahead of Friday's big Consumer Price Index (CPI) inflation report. The report, however, revealed no startling surge in inflation. May CPI came in slightly higher than expected, while May Core CPI, which excludes the food and energy components, matched the consensus forecast. Mortgage investors were pleased that the news wasn't worse, and mortgage rates declined after the report was released, although they remained far higher than the prior week.

In the housing sector, the April Pending Home Sales index jumped 6% from March, far exceeding the consensus forecast for a small decline. Pending Home Sales are a leading indicator of future housing market activity, so the next Existing and New Home Sales reports may show increases. The National Association of Realtors (NAR) latest forecast predicted that conditions will remain soft in the short term, but that activity will pick up during the second half of the year.

• Also Notable:
• Stimulus checks led to an unexpectedly large jump in Retail Sales in May
• Consumer Sentiment fell to the lowest level in 28 years
• The National Bureau of Economic Research lowered its outlook for economic growth this year
• The Fed's Plosser stated that the Fed Funds rate is low by historical standards and eventually will need to rise

Average 30 yr fixed rate:
Last week:+0.06%
This week:+0.30%

Stocks (weekly):
Dow:12,271-84
NASDAQ:2,446-63

Week Ahead

The biggest economic report of the week will be Tuesday's Producer Price Index (PPI) inflation data. PPI focuses on the increase in prices of "intermediate" goods used by companies to produce finished products. Housing Starts and Industrial Production, an important indicator of economic activity, will also be released that day. The rest of the week will be much lighter. The Empire State regional manufacturing index is scheduled for Monday. The Philly Fed regional manufacturing index and Leading Indicators will come out on Thursday. Fed speakers may have a large impact on mortgage markets as well.

admin@corefinancegroup.com