A Mortgage Update from Jay Skwierawski for the week of February 3
Hello Everybody!
It happened again this week.
What would the next six weeks be like? Would there be six more weeks of winter, or would we see an early Spring market?
No, not Punxsutawney Phil, but Federal Reserve Ben Bernanke. The Federal Reserve gathered this week, as they do every six weeks, to decide on monetary policy. As widely expected, they decided to lower the Fed Funds rate by 1/2%. This followed the surprise 3/4% cut from last week. Mortgage rates reacted favorably to the news, but the response was not tremendous, and mortgage rates finished Wednesday about where they started. On Thursday, the news on the economy was favorable for mortgage rates, but they finished flat on the day. Finally, Friday's employment report was very favorable for mortgage rates, the mortgage bond market started out strong, but then sold off in the face of a rally in the stock market. By the end of the day, and week, mortgage rates had finished only slightly lower than where they started the week. Considering all of the interest rate favorable news, we should have seen mortgage rates drop.
First, a quick peek at the news that came out this week:
News that was favorable for mortgage rates:
New home sales came in less than expected
Consumer confidence fell, although not as much as expected
The Gross Domestic Product (GDP) came in much less than expected
First time claims for unemployment came in much higher than expected
The Chicago Purchasing Managers Index (PMI) came in lower than expected
New Jobs created, hourly earnings and average work week, and consumer sentiment came in lower than expected
News that was not favorable, or had no impact on mortgage rates:
Durable Goods Orders came in much stronger than expected
The Fed dropped rates by 1/2%, as expected
Personal income and spending came in higher than expected
The PCE (the Fed's favorite measure of inflation) came in exactly as expected
The Unemployment Rate came in lower than expected (at 4.9% vs 5.0%)
The ISM index came in higher than expected
All in all, the news should have pointed to lower mortgage rates. There was no bad news on the subprime front. There had been some rumors that some major bond insurers were having difficulty covering losses due to the subprime mess, but by the end of the week, they were dispelling the rumors, and a group of banks stepped in to say that they would help back the bond insurers.
Next week, we only have two pieces of news scheduled to be released on the economy: Tuesday's release of the ISM Services Index and Thursday's weekly first time claims for unemployment. Neither report typically has much impact on mortgage rates. Mortgage rates could drift lower as a result of last week's news. However, a rally in the stock market could cause mortgage rates to go up, while a sell-off in stocks could cause mortgage rates to plummet.
An article in this morning's Tribune quoted a Senator as saying that the stimulus package should be all done by February 15. The article didn't give many specifics, like did that mean that the Senate would be finished by then, or would the bill be on the President's desk by that day? It also didn't go into specifics about any of the changes that the Senate might make to the stimulus package. Either way, it looks like we could have an increase in conforming loan limits, and possibly FHA loan limits by the end of February. You'll hear it from us when it becomes official!
Looks like it could be a good year for the stock market. Since the SuperBowl began 42 years ago, the stock market has finished higher in 81% of the years when one of the original NFL teams wins the SuperBowl. The New York Football Giants are one of those teams, and they just defeated the previously undefeated New England Patriots 17-14 in SuperBowl XLII!
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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