Much of the optimism about the pace or economic recovery evaporated last week, as economic news turned mostly sour. Consumer confidence plunged, and both new, and existing, home sales slowed considerably. While mortgage rates moved upward in last week’s Freddie Mac survey, they may begin trending downward if economic news this week continues to point to a stuttering recovery.

This week brings us the usual cascade of first-of-the-month data, with very important insight into manufacturing and employment. While GDP was adjusted upward last week, most of the increase was due to inventory-related adjustments. If the ISM Manufacturing Survey comes in below 55.0, w could see mortgage rates begin the week on a decidedly downward bent as traders begin worry about a manufacturing slowdown. However, if the ISM shows any improvement, rates will flatten, or perhaps even move slightly upward. Friday’s employment report will be hugely influential as usual. If we get an unexpected month of job creation we could see rates moving back upward next week.

Graph Courtesy from NY Times in an article by Bob Tedeschi February 24, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Last week the Federal Reserve took center stage by raising its discount rate: the rate at which banks can borrow money directly from the Federal Reserve. While this move has very little immediate impact, the increase was widely viewed as a symbolic first step in beginning to remove the emergency measures put into place during this deep recession. The Fed’s meeting minutes also provided some more insight into future Fed moves. In addition to letting certain programs expire as planned, the Fed will create some new tools that will enable it to “mop up” excess cash in the market. These new tools, in conjunction with its primary method of adjusting the Fed Funds rate, will be targeted at keeping inflationary pressure under control.

This week, and coming weeks, could begin to see mortgage rates become more volatile as the market digests everything coming out of the Fed. We’ll also get new and existing home sales data this week. With housing and employment as the weakest link, any positive news could push rates upward.

Graph Courtesy from NY Times in an article by Bob Tedeschi February 17, 2010. Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

According to comments this last weekend by Treasury Secretary Timothy Geithner the risk that the economy will slip back into recession is lower now than at any time in the past year. While the probability of a “double-dip recession” may be unlikely,  Geithner believes the current recovery is likely to be very uneven. Some evidence of this was certainly present in last week’s ISM Indices. The services index managed to stay above 50, indicating a slight amount of growth in service industries. while the manufacturing index bolted to its highest level since 2004. While the Labor Department employment data did show signs of an improving labor market, other measures released last week were not as positive. Overall, we are at a point where mortgage rates might slip slightly, but the risk of a quick upward movement continues to grow.

This week has a bit less economic data than last week, but with Retail Sales data due, we could see rates moving upward, especially if sales come in stronger than most analvsts are predicting.

Graph Courtesy from NY Times in an article by Bob Tedeschi January 28, 2010. Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Last week saw mortgage rates sliding downward, as a few big concerns began weighing heavily on the market. Economic news continues to highlight a very muted recovery, but fears of a double-dip recession were fanned by events in Washington. While bank-bashing has become a popular pastime, the Obama administration took it one step further with the proposal of a tax structure that would hit all large banks.  Regardless of one’s opinion of banks or the tax, it is very likely that business and consumers will ultimately bear this new tax. To compound the market’s concerns, uncertainty surrounding the reappointment of Fed Chair Bernanke stoked anxiety.  A failed confirmation could easily lead to months of political bickering, dragging the search for a successor on for many months.

This week is a huge week for markets.  In addition to the political concerns, the Fed meets again with analysts ready to dissect its policy announcement looking for clues of future Fed moves. With GDP data, Consumer Confidence. and slew of housing data on tap. rates could move either way.

Graph Courtesy from NY Times in an article by Bob Tedeschi January 14, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Graph Courtesy from NY Times in an article by Bob Tedeschi January 14, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

BUYERS of homes in high-priced markets [like New York City] have some reason to cheer: the federal government recently extended through 2010 the maximum dollar amount for “conforming loans.” This will probably mean better options for borrowers who might otherwise have had to take out “jumbo” mortgages.

Conforming loans meet all the guidelines of Fannie Mae and Freddie Mac, the government-controlled agencies that resell packages of loans to investors, and are therefore eligible for purchase by these agencies. Jumbo mortgages, issued in amounts above the government’s maximum, are nonconforming. Because lenders assume less risk in making conforming loans, the interest rates are usually lower.

As reported by Bob Tedeschi of the New York Times

Economic Data Falls Short

After several weeks of economic announcements generally exceeding forecasts, weaker than expected labor and manufacturing data, along with comforting comments from Fed officials about inflation, helped mortgage markets this week. Reacting to the data, investors shifted funds out of the stock market and into bond markets, and mortgage rates ended the week at the lowest levels since May.

The Employment report, the biggest economic report of the month, was a little weaker than expected. Against a consensus forecast of -175K, the economy lost -263K jobs in September, and the revisions to prior months were negative as well. The Unemployment Rate was 9.8%, the highest level since June 1983. Average Hourly Earnings, a proxy for wage growth, increased at a modest 2.5% annual rate. The length of the average work week declined.

In addition to the release of important economic data, several Fed officials delivered speeches during the week. What emerged was a good amount of disagreement over how soon they expect to need to tighten monetary policy. Some officials expressed concern that the time to begin to remove stimulus is close, while others see it as much farther down the road. There was a general consensus, though, that the Fed will be required to raise the fed funds rate while unemployment remains high. When the Fed eventually does indicate that rate hikes are imminent, the immediate reaction for mortgage rates is likely to be a move higher.

Mortgage trend information provided by Larry Weinstein Senior Loan Officers at Preferred Empire Mortgage Company, a sister company of Prudential Douglas Elliman. Chart: New York Times Mortgage Column 10-2-2009

Fed Extends MBS Purchase Program

Favorable news from the Fed, weaker than expected economic data, and strong demand for a record $112 billion in Treasury auctions helped mortgage markets this week. While the daily price movements were often large, mortgage rates ended the week just a little lower.

As expected, the Fed made no change in the fed funds rate on Wednesday. Although there was much disagreement about what the statement would say, in general it contained the minimum number of surprises. The Fed offered its most optimistic view on the economy since the recession began, yet officials believe that slack in the economy will keep inflation low. Fed officials continue to expect the fed funds rate to remain at exceptionally low levels “for an extended period.”

Of particular significance for the mortgage industry, the end date for the $1.25 trillion mortgage-backed securities (MBS) purchase program was moved from the end of this year to the end of the first quarter of next year. The total quantity of purchases will not change, and the Fed will gradually scale back the level of weekly purchases to minimize disruptions to mortgage markets. Investors had been concerned that the Fed statement might contain less favorable news, and mortgage rates improved after its release. Longer-term, the decrease in demand from the Fed is expected to move mortgage rates higher, and it might lead to greater daily volatility.

This week’s housing data was mixed. After four months of increases, August Existing Home Sales fell 3%. Inventories of unsold homes fell to an 8.5-month supply from a 9.3-month supply in July. First-time homebuyers accounted for 30% of total sales. August New Home Sales rose slightly, and inventories dropped moderately.

Mortgage trend information provided by Larry Weinstein Senior Loan Officers at Preferred Empire Mortgage Company, a sister company of Prudential Douglas Elliman. Chart: New York Times Mortgage Column 9/25/2009.