Mortgage Trends for August 3, 2009


Last week held some good news for the economy. GDP for the second quarter of this year came in at a higher-than-expected – 1.0%. While there are a number of revisions to come before that One_Year_Mortgage_Rate_08-02-09number is finalized, it is a solid sign that the recession is beginning to fade.  However, all the news last week was not positive.  Consumer Confidence continues to slide downward, most likely due to continued challenges in the labor market.  While mortgage rates bounced around, they did not stray too far.Freddie_Mac_08-02-09

This week has two very important pieces of economic data that could help set a trend for mortgage rates over the next few weeks. The lSM Manufacturing Survey is due with expectations of another small tic upwards. If it comes in at or above expectations, we’re likely to see mortgage rates trying to nose upward as the week progresses. The week’s most influential report likely will be Friday’s employment data. After last week’s stronger-than-expected GDP numbers, an unexpected dip in unemployment would very likely power mortgage rates upward on Friday and well into next week.

Auction Results Push Mortgage Rates Lower

Mortgage investors were more focused on this week’s Treasury auctions than on the economic data. Overall, demand remained healthy for US Treasury securities, and mortgage rates ended the week a little lower. Major economic reports on Gross Domestic Product (GDP), Durable Orders, and Chicago PMI manufacturing contained mixed results and were roughly neutral for mortgage rates.

Top_Economic_Reports_08-02-09While recent Treasury auctions have seen stronger than average demand, investors remained cautious ahead of this week’s record supply of government debt. The auctions got off to a rocky start, with demand falling back to average levels for the 2-yr and 5-yr auctions. Strong foreign demand for the 7-yr Treasuries eased investor concerns, however, and mortgage rates improved after the auction. China, in particular, holds about $800 billion in US Treasury securities and is an enormous buyer. Chinese officials were in Washington this week meeting with US economic leaders, and the Chinese expressed concern that US budget deficits would reduce the value of its US Treasuries. Analysts believe that reduced buying from China caused the weaker than expected demand for the 2-yr and 5-yr auctions, but they fully participated in the 7-yr auction. With the US government issuing record amounts of new debt, investors will be closely watching for changes in China’s purchasing policy. Any perceived reduction in China’s demand would likely push long-term interest rates, including mortgage rates, higher.

This week’s housing market data was generally positive. June New Home Sales jumped 11%, the third straight month of increases. Inventories of unsold new homes fell to an 8.8-month supply from a 10.2-month supply in May. The May Case-Shiller index of home prices in 20 metropolitan areas rose 0.5% from April, following 34 straight months of declines. While the results varied greatly in different parts of the country, the increase in average prices provided support for the analysts who believe that the housing market has bottomed.

Week Ahead

Next week, the important Employment report will come out on Friday.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.  Early estimates are for a loss of about 333K jobs in July. Before the Employment data, the ISM national manufacturing index will come out on Monday. Pending Home Sales, a leading indicator for the housing market, will be released on Tuesday. Personal Income, ISM Services, Construction Spending, and Factory Orders will round out the schedule. Also notable, the Treasury will announce the size of upcoming Treasury auctions on Wednesday.

Data provided by Larry Weinstein and Fred Ashe, Senior Loan Officers at Preferred Empire Mortgage Company, a sister company to Prudential Douglas Elliman.

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