A Mortgage Update from Jay Skwierawski for the week of May 4
Hello Everybody!
Another roller coaster week in mortgage rates and like most roller coaster rides, this one ended up pretty much where it started! There was A LOT of news on the economy released this week - some good for rates, some bad, and some downright confusing!
Tuesday brought news that Consumer Confidence had dropped, again, to a number that was worse than estimated. On Wednesday, the Gross Domestic Product news showed that the economy grew at a .6% pace in the first quarter of 2008. This was slightly better than the markets expected, but still anemic. It also was a positive number, which goes against the beliefs of those people that think that we are currently in a recession, since the definition of a recession is two straight quarters of negative growth. Although, .6% is pretty close to negative. The Chicago Purchasing Managers' Index (PMI) release on Wednesday was better than expected, but still a bad number. That's the kind of news week it was. Numbers were bad, just not as bad as expected. Wednesday afternoon brought the announcement that the Federal Reserve's Open Market Committee (FOMC) had voted to lower the Fed Funds rate by 1/4%. In doing so, they also "hinted" that they may be done lowering rates for this cycle. The market reacted very favorably to this news. Almost every other time that the Fed has dropped rates, the markets have had a negative reaction because lower interest rates can lead to higher inflation, and inflation has been a problem lately. So, the Fed signalling that they might not lower rates any more was welcome news to the bond markets. Thursday's news was on Personal Spending and Income. Spending came in higher than expected, but that may have been more as a result of inflation, and income came in slightly lower than expected. The big news on Thursday was the release of the Personal Consumption Expenditures and Core PCE. This is the Fed's favorite inflation gauge, and it came in a tad higher than expected, and a tad higher than the range accepted by the Fed. Normally, the markets would have sold off on this news, but inflation isn't new news right now, and with the Fed's announcement from the previous day, the markets pretty much shrugged it off. Initial Jobless Claims jumped to 380,000, much higher than expected. The Industrial Supply Managers index came in better than expected, but also a pretty bad number - just not as bad as the market was expecting. On Friday, the big numbers of the month were released - the monthly employment numbers. The Unemployment Rate decreased to 5.0% in April, down from 5.1% in March, and better than the 5.2% that the markets expected. Also, the economy lost 20,000 jobs, instead of the 80,000 that the market was expecting. The markets actually rallied on this news. The economy loses 20,000 jobs, and the market rallies. Again, because the news wasn't as bad as expected. Kind of like going to the dentist and he tells you that your teeth are fine, but your gums have to go!
So, the markets were up one day, down the next. Make that up one hour, down the next! It could have been worse with all of the news that was released. The markets will now focus on any news being released with the notion that the Fed probably won't be lowering rates again. There is not a lot of news coming out next week, which doesn't mean that we won't have mortgage rate movement. Every time there has been a "quiet week," some other news has come out unexpectedly that has caused rates to move. Time will tell!
News due this week:
Monday - Industrial Supply Manager's Service Index (Moderate)
Thursday - Initial Jobless Claims (Moderate)
Friday - Balance of Trade (Moderate)
The chart above shows the price movement of mortgage bonds over the past three months. Remember, green and up are good, red and down are bad. The longer the line for the day, more volatile the market was that day. The most recent day (Friday) is to the far right. It was quite a volatile day!
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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