Market Reports
A Mortgage Update from Jay Skwierawski for the Week of September 28
Hello Everybody!
Another week chock-full of market moving news left mortgage rates slightly higher than where they were when the week began.
News out of Washington has us believing that a deal has been struck on the bailout plan, or "rescue" plan, as they prefer to call it. Congressional leaders and President Bush have both spent time before the cameras telling us that the deal is all but done. It still has to be approved by the full House, which is expected to vote on it around noon today, and it's expected to pass by a "squeaker." Then the full Senate takes it up in a couple of days. It should reach the President's desk by the end of the week. Hopefully it won't get stalled as it makes its way to the President's desk. The full details of the bill haven't been released yet, but it appears that it allows for the U.S. Treasury to purchase up to $700 billion in trouble mortgages and mortgage-backed securities from banks and mortgage firms. This should free up capital that those banks and mortgage firms will hopefully use to start lending under better terms than have been available over the past several months. In addition, the bill calls for more oversight over the entire lending system, some guarantees that U.S. taxpayers are going to get their money back and a provision that the Treasury develops a plan to prevent foreclosures on the mortgages that it acquires. We will come out with the full details of the plan when they become available.
The "rescue" plan wasn't the only news item to make headlines last week. In addition, we had the biggest bank failure in U.S. history with the fall of Washington Mutual, as it was taken over by the federal government and its assets sold to J.P. Morgan Chase. Talk about a woo-hoo kind of day. Japan's Mitsubishi Financial Bank purchased 10 - 20 percent of Morgan Stanley, which saved it from the same bankruptcy fate as Lehman Bros. the week before. Also, Goldman Sachs and the financial system received a vote of confidence from billionaire investor Warren Buffet's Berkshire Hathaway, when Berkshire announced it was investing $5 billion in Goldman. The Morgan Stanley and Goldman Sachs decisions were probably easier to make after Monday, when the government waived a magic wand over both and turned them into bank holding companies, which means they can now operate like a bank, with the same deposit insurance that banks have, BUT also with the same regulations and regulatory governance that comes with being a bank.
In addition to all of that, there was some economic news reported last week:
On Wednesday we learned that existing home sales had dipped in August to 4.91 million units, less than the 4.93 million that were expected and the 5.0 million that were reported the month before. Then, on Thursday, New Home Sales were reported at 460,000 units - far less than the 518,000 that were expected and the 520,000 reported the month before. First Time Unemployment claims came in much higher than expected at 493,000. Orders for Durable Goods (items expected to last at least 3 years) came in lower than expected. Friday brought word that the final revision to the GDP for the second quarter came in at +2.8 percent. It had previously been reported at +3.3 percent, and was expected to show a slight improvement to +3.4 percent. Not so much! The only good news out of the GDP report was that the GDP chain deflator, which is one of the Fed's favorite gauges on inflation came in slightly lower than expected. We finished the week with Consumer Confidence numbers that were slightly lower than expected. All in all, the news should have been favorable for mortgage rates, but the uncertainty about investing in mortgage bonds kept rates in check, and they worsened by about 1/8 percent over the week.
This week, in addition to the eventual passing of the "rescue" bill, we have some other MAJOR news to be reported, including:
Today - Personal Income was reported at -0.5 percent, much less than the +0.2 percent that was expected. (Moderate impact on mortgage rates)
Today - Personal Spending was reported at 0.0 percent (flat,) less than the +0.2 percent expected number (at least we weren't spending what we weren't making!)
Today - Personal Consumption Expenditures (PCE) came in as expected - this is the Fed's FAVORITE inflation gauge, so that was a good thing! (HIGH)
Tuesday - Consumer Confidence is expected to have decreased slightly last month. (Moderate)
Tuesday - Chicago PMI is expected to show a slight slowdown in the region last month (HIGH)
Wednesday - Industrial Supply Manager's Index (ISM) is expected to show a slight slowdown from last month (HIGH)
Thursday - Weekly First Time Unemployment Claims will be reported (Moderate)
Friday - The Labor Department releases the employment figures for September, including:
New Non-Farm Payrolls, which is expected to show a loss of 94,000 jobs in September (HIGH)
The Unemployment Rate is expected to remain unchanged at 6.1 percent (HIGH)
Average Hourly Earnings are expected to show a slight decrease (HIGH)
Average Hours Worked is expected to remain steady (HIGH)
Friday - Industrial Supply Manager's Service Index is expected to show a slight slowdown in September (Moderate)
Although there will be a lot of news to digest this week, the markets will certainly focus on what happens with the "rescue" bill and with whatever else we are faced with as the week progresses. As I am writing this on Monday morning, the stock market is selling off to the tune of 250 points on the Dow, which has been causing a "flight to quality" into treasury bonds, and a little bit less into mortgage bonds. When the "rescue" plan is finally done, the stock markets may rally, and this could cause a jump in mortgage rates, although that would probably be short-lived.
Above is a chart of the price of mortgage bonds for the past 90 days, with the most recent trading days on the right side. Remember that the price of the bond does the opposite of the rates on those bonds, so on the chart - Green and up are good, red and down are bad! We didn't see too much movement last week.
We'll keep you posted on any major developments throughout the week ahead.
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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