A Mortgage Update from Jay Skwierawski for the week of January 27
Hello Everybody!
Click - click - clank - click - click - clank.
The noise the roller coaster makes as it rises up the first steep incline, before plummeting its cars and riders downward to whatever thrill awaits.
If you listened closely this week, you may have heard this noise within the stock and bond markets, as they went up and down, wildly, all week. The U.S. markets were closed on Monday for the Martin Luther King, Jr. holiday, but world markets were still open and experiencing a major sell-off of anywhere from 5 to 7%. The U.S. stock market was sure to follow on Tuesday, but at 7:30 Tuesday morning, the Federal Reserve unexpectedly dropped short term interest rates by .75%. The Dow Jones Industrial Average opened lower on Tuesday, dropping over 500 points, before recovering to end the day down only 128 points. The bond market, which impacts mortgage rates, rallied and we saw a large decrease in mortgage rates, almost down to the historically low levels we saw in 2001 and 2002. Wednesday morning, the stock market again dropped and bonds rallies some more, sending mortgage rates down even lower and causing mortgage loan officers around the country to start dancing in the streets! But, just as fast as the markets dropped on Wednesday, they recovered. The Dow Jones Industrial Average went from being down 300 points to up 300 points - a 600 point swing. This was enough to cause a sell-off in the bond market, which was unlike one that we have seen in quite some time. Rates jumped and then jumped again. Most mortgage lenders had several intraday price changes for the worse, which is very unusual. On Thursday, the buying continued in the stock market and the selling continued in the bond market. Mortgage rates rose again. Friday morning started with the market up on the day, and mortgage bonds relatively flat. However, by the end of the day, stock traders decided that they had gotten ahead of themselves in this buying frenzy, and started to sell stocks. The Dow closed down over 170 points on the day, and the mortgage bond market rallied. By the end of the week, we had the stock market up about 108 points on the week, and mortgage rates slightly higher than where they were when the week started. With all the news that is set to come out, next week could very well be as much of a roller coaster ride as this week was, if not more.
A quick look back at the news that came out last week. The big news stories of the week were the Fed's surprise move and the U.S. House of Representatives announcing that they had come up with an economic stimulus plan that would have most taxpayers receiving some sort of a rebate check in the coming months AND would increase the maximum loan amounts on conventional conforming and FHA loans. The Senate still has to pass a plan of their own, then the two plans have to be hashed out and the President would have to sign the bill before it goes into effect. The House passed their version of the plan in one week's time, which is quite amazing. The Senate will probably take longer, and it appears like there are going to be some stark differences between the two plans. The other news out this week was that Existing Home Sales were lower than expected (favorable for rates) and first time claims for unemployment were also lower than expected (not favorable for rates).
Next week, this is the news that we can anticipate, and it's anticipated effect on mortgage rates:
Monday - New Home Sales (Moderate)
Tuesday - Durable Goods Orders (Moderate)
Tuesday - Consumer Confidence (Moderate)
Wednesday - 4th Quarter Gross Domestic Product (GDP) - This will show whether the economy really is heading into a recession. (Moderate)
Wednesday - Chain Deflator, a key inflation measure in the GDP report. (High)
Wednesday - Federal Reserve Meeting - will they announce that they are lowering interest rates more? (High)
Thursday - Personal Consumption Expenditures - the Fed's favorite inflation gauge (High)
Thursday - Personal Income and Personal Spending (Moderate)
Thursday - Weekly first time jobless claims (Moderate)
Thursday - The Chicago PMI - a widely watched business barometer. (High)
Friday - January Employment Report (unemployment rate, nonfarm payrolls, etc.) (High, and probably the most important report every month)
Friday - ISM Index - Like the Chicago PMI, but a business barometer for the whole country (High)
Friday - Consumer Sentiment
Hopefully some time this week, we will also get more information on the increase in maximum loan amounts from FNMA, FHLMC and FHA. When that news breaks, you can count on hearing it from us!
There are so many important economic reports coming out this week that could affect rates. Add to these reports stock market volatility, sub-prime mortgage news and economic stimulus news, and it could prove to be a wild ride!
Buckle your seatbelts, pull the safety bar firmly on your laps and hold on tight!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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