Market Comment for Week of May 16, 2011…

MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates slightly lower. We started the week positive when it was announced Greek’s debt rating was downgraded. Retails sales were slightly lower than expected. Inflation readings on the producer side were slightly higher than expected as prices rose 0.8% and the core rose 0.3%. Consumer prices rose 0.4% and the core rate, which excludes the volatile food and energy costs, rose 0.2%. The core value was higher than expected mirroring PPI earlier in the week. Unfortunately the 30-year auction results showed poor demand that caused the bond market to fall and rates to rise Thursday afternoon. Mortgage bonds ended the week better by about 1/4 of a discount point. 

LOOKING AHEAD 

  • Housing Starts; May 17; Consensus Estimate 529K; Important. A measure of housing sector strength. Weakness may lead to lower rates.
  • Industrial Production; May 17; Consensus Estimate +0.6%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Capacity Utilization; May 17; Consensus Estimate 76.2; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • Weekly Jobless Claims; May 19; Consensus Estimate 440k; Important. An indication of employment. Higher claims may result in lower rates.
  • Existing Home Sales; May 19; Consensus Estimate 5.10M; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
  • Philadelphia Fed Survey; May 19; Consensus Estimate 19.2; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
  • Leading Economic Indicators; May 19; Consensus Estimate +0.5%; Important. An indication of future economic activity. Weakness may lead to lower rates.
  • 10-year TIPS Treasury Note Auction; May 19; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

A SURE THING   While nobody can accurately predict what the future holds for mortgage interest rates, the fact remains that they are historically low. It is difficult to justify the risk in floating when the excellent rates currently available are a sure thing. 

Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after the fact. While analysts constantly try to predict the future, the bottom line is they continually fall short in terms of accuracy. Recent history is a testament to this. At the end of last year analysts overwhelming predicted low rates for the months ahead. The first quarter of this year saw rates generally increase. Fortunately there has been a recent reprieve but things still remain volatile. The movements over the past 5 months show the challenge of making predictions. 

The good news is that the current low interest rates are here now. It is possible for rates to improve. However, if rates move higher, they are likely to spike fast and furiously with inflation fears looming. A cautious approach is necessary to protect against market volatility. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services, a proud member of Pilkerton Realtors, located in Nashville, Tennessee