Mortgage backed securities (MBS) lost more ground last week pushing mortgage rates up from the beginning of the week.  However the market seems to have stabilized some at the end of the week.

There are six economic reports worth watching this week that are likely to affect mortgage rates in addition to the minutes from the last FOMC meeting and two speaking appearances from Fed Chairman Bernanke. This is a far cry from last week’s schedule, making it very likely that we will see plenty of movement in mortgage pricing this week.

Date Time (ET) Statistic For Market Expects Prior
02/15/11 08:30:00 AM Retail Sales Jan 0.50% 0.60%
02/15/11 08:30:00 AM Retail Sales ex-auto Jan 0.60% 0.50%
02/15/11 10:00:00 AM Business Inventories Dec 0.60% 0.20%
02/16/11 08:30:00 AM Housing Starts Jan 540K 529K
02/16/11 08:30:00 AM Building Permits Jan 575K 635K
02/16/11 08:30:00 AM PPI Jan 0.70% 1.10%
02/16/11 08:30:00 AM Core PPI Jan 0.20% 0.20%
02/16/11 09:15:00 AM Industrial Production Jan 0.60% 0.80%
02/16/11 09:15:00 AM Capacity Utilization Jan 76.40% 76.00%
02/16/11 10:30:00 AM Crude Inventories 02/12/11 NA 1.9M
02/16/11 02:00:00 PM Fed Minutes
02/17/11 08:30:00 AM CPI Jan 0.30% 0.50%
02/17/11 08:30:00 AM Core CPI Jan 0.10% 0.10%
02/17/11 08:30:00 AM Initial Claims 02/12/11 408K 383K
02/17/11 08:30:00 AM Continuing Claims 02/05/11 3900K 3888K
02/17/11 10:00:00 AM Leading Indicators Jan 0.30% 1.00%
02/17/11 10:00:00 AM Philadelphia Fed Feb 21 19.3

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The week’s first release is one of the highly important ones when the Commerce Department posts January’s Retail Sales data. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched quite closely. If Tuesday’s report reveals weaker than expected sales, the bond market should thrive and mortgage rates will fall since it would b e a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.5% increase that is expected could lead to higher mortgage rates.

Wednesday brings us three economic releases in addition to the FOMC minutes. January’s Housing Starts will be posted early Wednesday morning, giving us an indication of housing sector strength and mortgage credit demand. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in starts of new housing.

The Labor Department will post their Producer Price Index (PPI) for January early Wednesday morning also. It measures inflationary pressures at the producer level of the economy and is considered to be one the two key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to mark participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.7% in the overall reading and a 0.2% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about inflation that make long-term securities less attractive to investors.

January’s Industrial Production data will be released mid-morning Wednesday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.6% increase in production from December to January. A smaller than expected rise in output would be good news and should push bond prices higher, lowering mortgage rates Wednesday. That is assuming that the PPI doesn’t give us any negative surprises.

The minutes from last FOMC meeting will be released Wednesday afternoon. Traders will be looking for any indication of the Fed’s next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may indicate if there is a consensus amongst Fed members or if there is disagreement about their actions or inaction. This release may lead to afternoon volatility Wednesday, or it may be a non-factor. However, the minutes do carry the potential to influence mortgage rates so they should be watched.

The sister report to Wednesday’s PPI will be posted early Thursday morning when the Labor Department releases January’s Consumer Price Index (CPI). The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on th e financial markets, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.3% increase in the overall index and a 0.1% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall.

Thursday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.5% increase, meaning that economic activity may rise in the near future. A smaller than expected rise would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have to match estimates.

Fed Chairman Bernanke will speak before the Senate Banking Committee Thursday morning and overseas Friday morning. Neither engagement is expected to bring any new theories or give an indication of the Fed’s next move to boost or limit economic activity. The markets always watch his words, but I would be surprised if either of these lead to changes in mortgage rates.

Interest rate markets continue their bearish trend and outlook. The economy is improving, as long as it continues and with the threat of inflation still high, rates will not show much improvement. We remain with our longer outlook that mortgage rates will continue to edge slowly higher but we still are not expecting a serious increase in rates. 5.5% on 30 yr mortgages by the end of the second quarter or early third quarter, then possibly a slow decline as the economic outlook stalls.

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Last week rates increased to their highest levels in the last eight months.  The bond market has solidly broken out of its long tight range, meaning higher rates.  Concerns of higher interest rates in Europe, China and the rest of the BRICs as well as improving economic conditions will keep US rates from falling with the most likely path being up for rates.

After last weeks increase in interest rates the market will have supply to contend with. Treasury will conduct its quarterly refunding beginning Tuesday with $32B of 3yr notes, Wednesday $24B of new 10 yr notes and Thursday $16B of new 30 yr bonds. After the 10 yr not increased 29 basis points in yield and the 30 yr bond up 14 basis points the auctions should see good demand. This week doesn’t provide much data, in fact only weekly jobless claims that carry any significance. .

Date Time (ET) Statistic For Market Expects Prior
02/07/11 03:00:00 PM Consumer Credit Dec $2.5B $1.3B
02/09/11 07:00:00 AM MBA Mortgage Purchase Index 02/04/11 NA 11.30%
02/09/11 10:30:00 AM Crude Inventories 02/05/11 NA 2.59M
02/10/11 08:30:00 AM Initial Claims 02/05/11 413K 415K
02/10/11 08:30:00 AM Continuing Claims 01/29/11 3900K 3925K
02/10/11 10:00:00 AM Wholesale Inventories Dec 0.70% -0.20%
02/10/11 02:00:00 PM Treasury Budget Jan -$60.0B -42.6B
02/11/11 08:30:00 AM Trade Balance Dec -$40.7B -$38.3B
02/11/11 09:55:00 AM Mich Sentiment Feb 75.5 74.2

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Nothing of major concern Monday and Tuesday, leaving bond trading to be driven by the stock markets If the major stock indexes move higher, we will probably see more funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing rates lower.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us an indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 413,000 new claims for unemployment benefits were filed last week, falling slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage rates.

Early Friday morning December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $40.7 billion trade deficit.

Despite being a light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note break above 3.50% and close at 3.65% last week. This should be of concern for mortgage shoppers as the 10-year was trading in a well-defined range until late last week. Since mortgage rates follow yields, we need to see some stabilization very soon or yields (and rates) may be moving higher. I suspect it will be tough to fall below 3.5% unless we get some unexpected major news or a significant stock sell-off. Therefore, please be careful if still floating an interest rate this week as I believe we are set for a noticeable move in the very near future. However, the question is if it will be rates moving higher or lower from current levels

One key thing to keep in mind, US rates remain as low as we have had for generations.

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  • Keep your emotions in check and your eyes on the goal, and you’ll pay less when purchasing a home. Read

Visit houselogic.com for more articles like this.

Copyright 2011 NATIONAL ASSOCIATION OF REALTORS®

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The US Government reports January Unemployment rate drops to 9%.  (Not that this is a low unemployment rate nor the real unemployment rate subject of another post).  This shows the rate of employment to be higher than what the market had expected of 9.4% to 9.6%. However the number of new jobs created, 36,000, was much lower than anticipated. The severe winter weather may explain this.

A different measure of unemployment, which includes discouraged workers and those forced to work part-time because of the economy, fell to 16.1% in January from 16.7 in December,  its lowest level since April 2009.

http://news.yahoo.com/video/business-15749628/jobs-amp-the-markets-24076619

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Bernanke explains how the Fed’s tinkering with mortgage rate through the purchase of securities has helped the economy.

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2011 Mortgage Rates

For the third week in a row mortgage rates have risen, according to Freddie Mac’s Primary Mortgage Market Survey.  Although rates for home buyers and those refinancing have increased lately, mortgage rates are lower than they were this time last year.

To add to the pressure on home loan rates positive job numbers and retail sales this week have caused rates to rise.  Commodity prices are rising and at some point will be passed on to the consumer which will result in inflation.  Now is a good time to refinance ot make that home purchase.

Click here to request information on refinancing.

Click here to request information on buying a home.

Click here to receive weekly mortgage market update.

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In a statement yesterday the Fed is punting its authority over Reg-z (Truth-in-Lending) disclosures to the to be formed  Consumer Financial Protection Bureau per the Dodd Frank Reforms.   Their is still uncertainty regarding  loan officer / lender compensation and if different rates may be offered by paying more or less at closing (points) after April 1st of this year.

Read the Press Release.

More to come.

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FHA announced the extension of the anti-flipping wavier through the end of 2011.  This will help stabilize the market and make financing foreclosed homes easier..

FHA regulations typically prohibit insuring a mortgage on a home owned by the seller for less than 90 days.   FHA today posted a notice extending this waiver through the remainder of 2011.  The wavier allows buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales..

Read the full notice.

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