Mortgage markets improved last week, riding a steady stream of negative news into its best levels of the year.
Day-to-day, mortgage rates priced across a very wide range, but managed to close out the week lower overall.
Mortgage rates improving on “bad news” is a break from the trading patterns of September and October. Back then, even the slightly evidence of a recession caused mortgage rates to soar.
Now, however, markets have accepted economic weakness and have started to look to the future. Not even sagging retail sales and the rising ranks of the unemployed could quell market optimism.
Indeed, the incoming administration may be leading the sudden sentiment shift; its stimulus package is expected to top $1 trillion over the next 24 months and put thousands of unemployed Americans back to work. The widespread press coverage of this story may be one reason why Consumer Sentiment rose off its all-time low, despite the economic evidence that tougher times may still be ahead.
So, as markets shift their attention away from fundamentals and towards the government, mortgage rates are benefiting and refinance activity is gaining steam.
This week, the government should be the top story again. On Tuesday, the Federal Open Market Committee will adjourn from its 2-day meeting and is widely expected to lower the Fed Funds Rate by a half-percent to an all-time low of 0.500 percent. This move, too, is meant to stimulate the economy.
But it won’t be what the Fed does that matters; it will be what the Fed says.
In the 2:15 P.M. press release, Fed Chairman Ben Bernanke is expected to outline measures by which the Federal Reserve will stabilize the economy. If markets consider the moves to be “enough”, stock markets should soar and mortgage rates should suffer. However, there may be specific verbiage for providing mortgage relief, in which case, mortgage rates would fall.
Other noteworthy data scheduled for this week include the Cost of Living Index and Housing Starts, but neither should matter much to mortgage rates. For now, it’s all eyes on the government.
