Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending November 30, 2007

Events This Week:

GDP Jumped
Inflation Steady
Employment Weaker
Housing Mixed

Events Next Week:

Mon 12/3
ISM Manufacturing

Wed 12/5
Pending Home Sales
Producttivity
ISM Services

Thurs 12/6
Jobless Claims

Fri 12/7
Employment
Sentiment

Rate Cut a Sure Thing?

The Fed's big guns came out late last week paving the way for a rate cut at the next FOMC meeting on December 11, and financial markets responded in typical fashion. Mortgage rates fell and stock markets jumped. On Wednesday, Fed Vice Chairman Kohn surprised investors by suggesting that the turmoil in financial markets may have had a greater impact on the economy than he expected, and that Fed policy needed to be flexible to respond. Investors interpreted his comments to mean that the Fed was open to additional rate cuts. When Fed Chairman Bernanke appeared to confirm the likelihood of further rate cuts on Thursday evening, investors priced in a certain quarter point rate cut, with the possibility of a larger half point rate cut at the next FOMC meeting. Bernanke stated that the risks of slower economic growth had increased in recent weeks.

Last week's economic data supported the case for a Fed rate cut. Inflation remained under control, as the Core PCE inflation data came in right on target at a 1.9% annual rate. Meanwhile, the reports on economic growth and employment levels were generally weak, and Wall Street forecasts for fourth quarter economic growth were sharply lower than the third quarter growth rate. The White House economic forecast released twice per year also cut the growth rate for the remainder of this year and next year. In short, all signs point to another rate cut on December 11.

In the housing sector, the economic news was mixed. October Existing Home Sales came in slightly lower than expected, decreasing -1% from September, to a 9-year low. Inventories of unsold homes rose a little to a 10.8 month supply. Median home prices were down -5% from one year ago. October New Home Sales came in a little below expectations, and the September numbers were revised significantly lower.

The Office of Federal Housing Enterprise Oversight (OFHEO) announced that the 2008 conforming loan limits for Fannie Mae and Freddie Mac would remain at the limits set in 2006 and 2007. Limits for single-family mortgages purchased by Fannie Mae and Freddie Mac will remain at $417,000. The conforming loan limit determines the maximum size of a mortgage that Fannie and Freddie can buy or guarantee. One proposed solution to increase liquidity in the mortgage market has been to raise the conforming loan limit, even if only on a temporary basis, but so far this has not happened.

• Also Notable:
• The US Treasury proposed a plan to freeze certain adjustable-rate mortgage (ARM) resets
• Fed policy needs to remain "nimble", according to Fed Vice Chairman Kohn
• The largest two-day rally in five years left the Dow stock index well above its recent lows
• Freddie Mac reported considerable investor interest in its $6 billion sale of preferred stock to raise capital
• Oil prices fell below $90 per barrel, after reaching record levels just below $100 per barrel last week

Average 30 yr fixed rate:
Last week:+0.01%
This week:-0.24%

Stocks (weekly):
Dow:13,386+391NASDAQ:2,668+103

Week Ahead

Friday's always important monthly Employment report will be the highlight next week. As usual, this data on the number of new jobs created, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for 75,000 net new jobs added in November.

Before then, the ISM national manufacturing index will be released on Monday. Wednesday's biggest report will be the Pending Home Sales index, a leading indicator for the housing market. In addition, ISM Services, Factory Orders, and third quarter Productivity will come out on Wednesday. Consumer Sentiment on Friday will round out the schedule.

admin@corefinancegroup.com