Chicago Mortgage Update

Interest rate rose a bit last week mostly as a result of an announcement by the U.S. Treasury that it would auction off $162 Billion worth of bonds this coming week. This is an enormous amount of bonds, and rates had to go up in order to attract investors in these bonds. The government has to issue all of this debt (and much more) to help pay for the huge stimulus programs. Other economic news released last week was favorable for mortgage rates, but it wasn't good enough to overcome the Treasury's announcement.


Last weeks news:

New housing starts fell to 458,000 in April, down from 525,000 in March, and well below expectations of 527,000. Also during April, permits for new homes came in at 494,000, down from 511,000 in March, and also well below the 530,000 that were expected. Although on the surface this looks like bad news, the fact that less houses are being built means that the excess inventory is being used up and this bodes well for the future of both the new home and resale markets. On Wednesday, the minutes from the Federal Reserve Open Markets Committee's most recent meeting were released, and the markets learned that the Fed is considering buying more mortgage backed securities. This caused a small rally in mortgage bonds, until the markets realized that the Fed still has a long way to go in its original plan to purchase $1.25 Trillion in mortgage backed securities, which will probably carry us through the balance of this year. The Fed also revised it's forecast for the U.S. Gross Domestic Product downward and it's forecast for unemployment upward. This was timely, since Thursday brought news that first time unemployment claims increased by 631,000 the week before, down from 643,000 the week before that, and lower than expectations of 640,000. Although any decrease is good, 631,000 is still a huge number, and continuing claims (those people going more than one week) is running at 6.7 Million - a huge number of people out of work. Also on Thursday, the Index of Leading Economic Indicators showed an increase of 1%, much better than March's decrease of 0.3% and anticipations of a 0.6% increase. The Philadelphia Fed's index showed an unexpected decrease of -22.6. Even though it was better than March's -24, it was still worse than expected.

This week's news:

The market will have a fair amount of news to digest this week, and one less day to do so, with the markets closed on Monday for Memorial Day.


This week brings:

Tuesday - Consumer Confidence
Wednesday - Existing Home Sales are expected to show an increase to 4.63 Million, from 4.57 Million in March
Wednesday - Crude oil inventories will be watched in hopes that an increase in supply will help stem the recent rise in crude oil and gasoline prices
Thursday - Weekly first time unemployment claims are usually one of the most important news releases of the week
Thursday - New Home Sales figures are expected to have remained steady from March to April Thursday - Durable Goods Orders are anticipated to increase from a reading of -0.8% in March Friday - Gross Domestic Product - the first of three revisions to the first quarter GDP number is expected to show a rise from -6.1% to -5.5%
Friday - The Chicago Purchasing Managers Index for May is expected to come in at a reading of 42, up from 40.1. Any number below 50 is considered bad for the economy.
Friday - Consumer Sentiment for May should show a slight increase from last month.


The markets will have a lot of economic news to get through this month. In addition, the markets will really be watching how the Treasuries bond auctions go. Good treasury auction results coupled with some bond friendly economic news could bring a retreat in mortgage rates back to where they started last week. I will keep you posted with any big movements one way or the other!


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