Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending May 16, 2008

Events This Week:
Inflation Down
Retail Sales Rose
Housing Starts Up
Manufacturing Mixed

Events Next Week:

Mon 5/19
Leading Indicators
Tues 5/20
PPI
Wed 5/21
FOMC Minutes
Fri 5/23
Existing Home Sales

Tame Inflation Data Turns Rates Lower

Mortgage rates ended the week close to where they began the week, but the end result masked a lot of movement. The week began poorly for mortgage markets. Stronger than expected Retail Sales data and tough talk on inflation from Fed officials pushed mortgage rates higher on Monday and Tuesday. In particular, Tuesday's Fed speakers suggested that the economy was beginning to recover - even if there is still a long way to go - and that inflation concerns have increased. The tide turned on Wednesday, however, when CPI, the most closely watched inflation report of the month, showed a lower than expected increase in inflation. Mortgage rates fell every day through the remainder of the week.

The April Core Consumer Price Index (CPI) rose at a 2.3% annual rate, below the consensus forecast of 2.4%. So far, higher food and energy prices have not been passed through in a large way to the prices of other goods. The Fed has been emphasizing inflation fears for a couple of weeks, which has had a negative impact on mortgage markets, so the good news on inflation was a relief to many investors. The Fed is generally considered to be comfortable with Core CPI readings below 2.5%.

In the housing sector, this week's news was mixed. Against a consensus forecast of 940K, April Housing Starts rose 8% to an annual rate of 1,032K units. Building Permits, a leading indicator of housing market activity, rose 5%, the first increase in in five months. The construction of single family homes remained weak, however. The strength in the Housing Starts report came from new apartment construction, which is extremely volatile on a monthly basis. Separately, the National Association of Realtors (NAR) reported that median home prices fell 8% during the first quarter from the same period one year ago. The chief economist of the NAR suggested that the data may be a little misleading, since a smaller percentage of high end homes were sold during the period due to the difficulty in obtaining jumbo mortgages. In addition, the results varied in different parts of the country. 100 out of 149 metropolitan areas saw price declines during the first quarter.

• Also Notable:
• In May, Consumer Sentiment fell to the lowest level in 28 years
• Fed Chief Bernanke described conditions in financial markets as "far from normal"
• The May NAHB survey of home builder sentiment dropped slightly from April
• The US will stop purchasing oil for the strategic reserve until oil prices drop

Average 30 yr fixed rate:
Last week:-0.08%
This week:+0.08%

Stocks (weekly):
Dow:12,901+141
NASDAQ:2,508+65

Week Ahead

The recent pattern of one busy week followed by one slower week will continue, and next week's Economic Calendar will be very light. Leading Indicators will be released on Monday. The biggest economic report of the week will be Tuesday's Producer Price Index (PPI) data. Almost without exception, higher inflation leads to higher interest rates, and PPI focuses on the increase in prices of "intermediate" goods used by companies to produce finished products. The minutes from the April 30 FOMC meeting will come out on Wednesday. The detailed record of the discussion between Fed officials often provides additional insight into the reasoning behind the Fed statement. Friday's Existing Home Sales report will wrap up the week. Mortgage markets will close early on Friday and will be closed the following Monday in observance of Memorial Day.

admin@corefinancegroup.com.

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