This Week's Market Commentary

 

This week brings us the release of six economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke. Two of the reports are considered to be very important, but nearly all of the week’s releases have the potential to affect mortgage rates.

The week’s first data comes this morning with the release of January’s Personal Income ad Outlays data, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.3% while spending is expected to rise 0.4.

Since consumer spending makes up two-thirds of the U.S. economy, the bond market does better when spending is slowing. Good news would be a smaller than expected increase, or better yet, a decline in spending.

The Institute for Supply Management (ISM) will release their manufacturing index for February late Tuesday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a decline from January’s 60.8 to 60.5 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning likely growth in the manufacturing sector. If we see a weaker than expected reading, the bond market could rally.

Fed Chairman Bernanke will deliver the Fed’s semi-annual testimony on the status of the economy late Tuesday and Wednesday mornings. He will be speaking to the Senate Banking Committee Tuesday and the House Financial Services Committee Wednesday.

The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but could cause enough movement in bond prices to possibly improve or worsen mortgage rates slightly if it reveals any significant surprises.

The biggest news of the week comes Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February’s Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading.

The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a large drop in payrolls and little or no increase in earnings. Current forecasts are calling for 0.1% increase in the unemployment rate to 9.1% and approximately 180,000 jobs added during the month. Weaker than expected readings would be great news for the bond market and should lead to lower mortgage rates Friday.

January’s Factory Orders will be posted late Friday morning, which will give us another measurement of manufacturing sector strength. This data is similar to last week’s Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for an increase in new orders of approximately 2.1%. A smaller than expected rise would be good news for the bond market and could lead to an improvement in mortgage rates.

Overall, look for a fairly active week for mortgage rates. Friday is undoubtedly the biggest day of the week, but Tuesday may also bring noticeable movement in mortgage rates.

This past week, mortgage rates have declined “as fears about the economic impacts of turmoil in the Middle East helped depress yields on long-term bonds, including those that fund most home loans,” according to Inman News and a survey by Freddie Mac.

The Wall Street Journal reported that the 30-year fixed-rate mortgage averaged 4.95%, down from last week’s 5% and 5.05% a year before.

Rates on 15-year fixed-rate mortgages were 4.22%, below last week’s 4.27% and the year-earlier average of 4.4%, as well.

After a spike in rates that hadn’t been so high since last April, this is promising for a downward trend in mortgage rates despite mixed overall economic reports.

Homeowners Turning To Home Improvement Projects

Homeowners across the country have started to spend more on home improvement projects despite a challenging housing market, according to a recent San Francisco Chronicle article.

This shows consumer confidence, which is a great sign for the mortgage market. Also, it shows that people are making further investments into their home.

Both Lowe’s and Home Depot have seen an increase in sales in the most recent quarter. Lowe’s said yesterday that their fourth-quarter profits increased by 39%.

While the spike in sales is not a complete economic recovery omen, “the positive results show home-improvement retailers are seeing signs of life from shoppers as they take on projects around the house that were delayed during the consumer spending slowdown and recession,” said the CEO of Lowe’s, Robert Niblock, in the Chronicle.

Read the full article here. Have you taken on any home improvement projects recently?

Prepare for an Earthquake: Making a Disaster Kit

In California, earthquakes can and will happen here quite often. If a big one strikes on this earthquake-prone area, it is important to be prepared and keep you and your family safe.

Creating a disaster kit for your home is not difficult and could make all the difference one day, as well as providing peace of mind. The California Emergency Management Agency (CalEMA) emphasizes that the first 72 hours after a major disaster are critical.

“Electricity, gas, water, and telephones may not be working. In addition, public safety services such as police and fire departments will be busy handling serious crises. You should be prepared to be self-sufficient – able to live without running water, electricity and/or gas, and telephones – for at least three days following a major emergency.”

In order to prepare for three days, create a Disaster Kit with supplies for three days and place it in a central location. Most importantly, make sure you have one gallon of water per person, per day. This is the amount of water needed for survival.

Other supplies, including food, essential medications, and a freshly stocked first aid kit are essential in a proper disaster kit. This state video runs through how to make one: Emergency Kit Video

Mortgage Delinquencies Declining

According to a recent Wall Street Journal article, there has been a decline in mortgage delinquencies as a result of an improving labor market.

The job market effects the mortgage market intensely, because, as the article points out, “people need a paycheck to pay their mortgage.”
 
During the fourth quarter, the number of people behind on mortgage payments fell to its lowest point in two years. 

An important takeaway from this article: “The figures provide the clearest indication yet that the mortgage crisis that began four years ago has stopped getting worse and is easing.”

Another thing to note is that the state of California is doing extremely well compared to others, with the state’s total foreclosure inventory in the fourth quarter below the national average for the first time since the mortgage crisis began.

An economist said that without a spike in unemployment, the mortgage delinquency rate should continue to decline; a great sign for economic recovery.