Comments Off on Looking Back And Looking Ahead : September 29, 2008

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, 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, on Monday, 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.

If PCE is higher-than-expected, it’s considered to be a signal of inflation and mortgage rates should rise.

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.

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