Looking Back and Looking Ahead: September 29, 2008

Mortgage rates bounced around last week, ending up worse overall. It was the second straight week in which rates deteriorated. Sentiment was driven largely by the proposed Emergency Economic Stabilization Act of 2008 -- a.k.a. The $700 Billion Bailout.

The good news is that Congress drafted its bill Sunday evening and within the 110 pages (up from it's original 3 pages to start), there is an important clause that should be good for mortgage rates.

On Page 40, it says, summarized:

* The U.S. Treasury gets $250 billion up-front
* It must ask the President to approve its next $100 billion
* And Congress must approve the remaining $350 billion

In other words, the U.S. Treasury checkbook is not "open". By limiting the Treasury's spending to $250 billion up-front, with the next $450 billion subject to third-party approval, some of the market's inflation concerns from last week should ease, providing downward pressure on mortgage rates in general.

But, that said, there's a few important data releases this week that could counter-effect these improvements.

First, today, it's September's Personal Consumption Expenditures data. The report sounds fancy with a name like Personal Consumption Expenditures, but it's really just a Cost of Living measurement, adjusted for human behavior.

For example, if whole grain cereal gets too expensive, PCE assumes that Americans will substitute for another breakfast food. This is one reason why PCE is the Fed's preferred measure of inflation.

The PCE did come in higher-than-expected, at 2.0%, which leaves the year-over-year PCE at 2.6%, the highest since 1995. At this point it hasn't made an impact in Mortgage rates because the Rescue Plan remains the focus. But it is considered inflationary and could cause rates to increase once the Rescure Plan is completed.

In addition, on Friday, the jobs report is released. It's widely expected that the September's job growth was negative (for the 9th straight month) and that unemployment remained in the 6.000 percent range.

Rates up or down, it's too hard to predict. Therefore, if you see a mortgage rate with a comfortable accompanying payment, consider locking it in.

With as fast as markets have moved this year, you can be pretty sure the rate -- whatever it is -- won't last for long.

Looking Back And Looking Ahead : March 31, 2008

Mortgage rates were up last week on weak housing data and a growing nervousness about mortgage bond quality.


Rates would have been up more if not for a tame inflation reading Friday.

The Personal Consumption Expenditures report fell Friday to 2.0% year-over-year, putting it back within the Federal Reserve's comfort zone of 1-2 percent.


PCE is the Fed's preferred inflation gauge and with inflation in check, Ben Bernanke & Co. can focus on other elements of the economy such as housing and employment.


Mortgage rates figure to be volatile (again) this week.


The first major event to strike markets is today's release of a 200-page, government-written plan outlining sweeping reforms for the financial industry.


If markets interpret the government's plan to be bad for bond markets, expect mortgage rates to rise as demand for bonds falls. Conversely, if the reforms are expected to benefit bonds, mortgage rates should fall.


Then, Wednesday, Fed Chairman Ben Bernanke testifies to Congress about the U.S. economy.

Expect the Fed Chief to stay on message, but mortgage rates will respond to his word choice and tone -- especially in remarks about large banks and their ability to survive the current market.


Traders are already on edge and will take Bernanke's testimony very seriously.

And lastly, also moving markets this week is the March jobs report, due Friday.

Remember that job growth was negative in January and February so with a third negative month in March, the calls of recession will grow louder; the expectation is the economy shed 40,000 jobs last month.


Whether a negative number will be good or bad for mortgage rates, though, will depend on the bond traders' mood come Friday morning.


Either way, though, if the actual jobs number deviates from the expected jobs number of 40,000, mortgage rates will swing wildly starting at market open Friday and continuing into the weekend.