The Daily Mortgage Advisor

Mortgage markets closed unchanged last week, but that’s not say mortgage rates were calm. Monday through Wednesday, rates improved steadily before a swift, late-week sell-off unwound the gains.

Mortgage rates have been very low for a very long time — against the expectations of most market experts.  The speed of the Thursday-Friday reversal may signal that markets are preparing for change.

One key story from last week was the Federal Open Market Committee’s scheduled Tuesday meeting. Upon adjournment, the Fed voted 9-1 to hold the Fed Funds rate in its current target range near 0.000% and reiterated its plan to keep rates low for “an extended period of time”. 

Kansas Fed President Thomas Hoenig was the lone dissenting vote.

For rate shoppers in California , take note. 

The Fed specifically mentioned that the its $1.25 trillion mortgage buyback program will end, as planned, March 31, 2010.  This could force rates higher over the next two weeks because, according to the Fed, the existence of a buyback program forced rates lower by 1 percentage point in 2009.

When the program ends, it’s expected that markets will give back some of that 1 percent, leading to higher mortgage rates for conventional and FHA borrowers.

This week, in addition to the buyback program’s looming end-date, there’s several other potential influences on mortgage rates:

1. The Existing Home Sales data for February is released Tuesday, along with the Home Price Index
2. The New Home Sales data for February is released Wednesday
3. Consumer Confidence data hits Friday

Strength in any — or all three — of these reports should put pressure on mortgage rates to rise.

But there’s one wildcard this week and that’s the aforementioned Kansas Fed President Hoenig’s scheduled speech Wednesday morning. Typically, Fed members stay on message when making public appearances, but Hoenig is expected to talk about why rates should be higher, and what the Fed needs to do to prepare the economy for late-2010 and beyond.

His words could lead Wall Street to rethink its position on the mortgage bond market and that could cause rates to spike Wednesday afternoon.

Mortgage rates remain volatile and are still relatively low. If you’re unsure of whether now is a good time to lock in, consider that there’s a lot more room for rates to rise than to fall right now. Especially with momentum shifting for the worse.

Mortgage markets worsened last week with little economic news to push markets in either direction. Momentum trading and rebalancing of portfolios drove mortgage rates higher, on average.

FHA and conventional mortgage rates in California rose last week, marking the first time that’s happened this month. 

Mortgage rates have been on impressive run lately and mortgages are priced far better than what most experts predicted.  Weaker-than-expected economic data is one reason why.  Lack of economic data may be another.

This week, however, data returns.

• Monday : Industrial Production and Home Builder Index
• Tuesday : Housing Starts and Building Permits
• Wednesday: Consumer Confidence
• Thursday : Producer Price Index and Initial Jobless Claims
• Friday : Consumer Price Index and Continuing Jobless Claims

And, as if all that weren’t enough to spook you, the Federal Open Market Committee meets for a scheduled, 1-day event Tuesday.

The Federal Reserve is expected to vote to hold the Fed Funds Rate in its current target range near 0.000%, but that doesn’t mean mortgage rates won’t change. Markets are responsive to the FOMC’s post-meeting press release and any clear talk of economic strengthening should drive rates higher.

Wall Street is in Wait-and-See Mode and this week will give it plenty to look at.

If you’re floating a mortgage rate, or waiting to lock, be prepared for wild swings in mortgage rates — especially leading up to Tuesday afternoon’s FOMC adjournment. The Fed adjourns at 2:15 PM.

Mortgage markets improved last week in low-volume trading.

Between Monday to Thursday, Wall Street focused on the upcoming jobs reports and mortgage markets gained while traders jockeyed for position. Mortgage rates drifted lower through Thursday afternoon. But, then, after a better-than-expected Non-Farm Payrolls report Friday morning, mortgage markets — and mortgage rates — reversed.

Overall, mortgage rates dropped last week, but only by a small margin. Rates were best Thursday afternoon.

It was the second consecutive week in which mortgage rates fell.

Last week was also interesting in that both stock markets and bond markets improved, proving that rates don’t always rise when stock prices do. 455 of the S&P 500 companies posted gains last week.

If you’re shopping for a home or a refinance, though, don’t rest on your laurels. After Friday’s big sell-off, this week opens into a major headwind and, plus, the Federal Reserve’s support for mortgage markets ends in just 3 weeks.

This week, without much data to influence traders, the upward momentum in rates may have little cause to temper. We’ll see the Consumer Confidence numbers on Tuesday and Retail Sales on Friday.  Beyond that, there’s not much else.

After last week’s performance, conforming mortgage rates in California may be poised to rise rather sharply. If you’re waiting for the right time to lock your rate, it may have been this past Thursday. Consider locking your rate early this week to protect against further rate hikes.

Mortgage markets improved last week as economic reports painted a less-than-stellar portrait of the U.S. economy and concerns of a looming monetary policy change eased. Mortgage pricing improved dramatically, despite a late-Friday retreat.

Mortgage rates are now at their lowest levels since early-February.

Last week was heavy on negative data:

• Consumer Confidence posted 16% short of expectations
• New Home Sales posted 13% short of expectations
• Initial Jobless Claims were higher than expected

In addition, both the Case-Shiller and Home Price Indices showed a slight pullback in the housing sector.

The impact of these statistics was muted, however. This is because Fed Chairman Ben Bernanke gave his semi-annual outlook to Congress and markets focused more on the chairman verbiage than hard data, looking for clues about the future of Fed policy.

Bernanke stayed on message — the Fed Funds Rate will stay low for an extended period of time.

Mortgage rates were also helped by a strengthening U.S. dollar and demand for U.S.-denominated bonds. When demand for mortgage-backed bonds is strong, mortgage rates fall.

This week, mortgage rates will jockey around Friday’s Non-Farm Payrolls report.

Jobs are playing a large role in mortgage bond trading and markets expect that 30,000 jobs were lost in February.  If the actual figure is better than 30,000 jobs lost, mortgage rates will rise. If it’s worse, rates will rise.

Other important data this week include Personal Consumption Expenditures — the Fed’s preferred inflation gauge — plus the Fed’s Beige Book release.  Mortgage rates remain in flux so float with caution.

Mortgage rates look good today, but by Friday, they could be much, much worse.

Mortgage markets had a terrible, holiday-shortened week last week as Wall Street responded to worse-than-expected inflation data and action from the Federal Reserve.  Mortgage bonds sold off with force, causing mortgage rates to rise for the second week in a row.

Last week was a bad week to float a mortgage, to say the least. Rates in Lake Forest rose by the largest margin in any week since late-2009.

The two biggest stories from last week both came from the Federal Reserve.  The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed’s surprise announcement to raise the nation’s Discount Rate to 0.75%. Both sparked risk-taking on Wall Street and bonds sold-off as a result. 

Now, the Fed Funds Rate won’t climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets — The Era of Loose Monetary Policy is over.

This week, there’s a lot of economic data set for release.

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

With markets already on edge, any better-than-expected results should be bad for mortgage rates.

After last week’s performance, conforming mortgage rates for residents of California have now unwound most their January gains.  If you’re waiting for the right time to lock, it may have been 2 weeks ago. Consider locking in this week to protect against any further deterioration in price.