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Market Update

By Judi Desiderio, Monday, March 29, 2010
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Eve Robin Jarrett
Senior Mortgage Consultant
Manhattan Mortgage
Office: 631-324-1555 x 25
Blackberry: 631-697-3366
e-Fax: 631-514-3654
Email: EJarrett(at)manhattanmortgage(dotted)com

For the week of Mar 29, 2010 // Vol. 8, Issue 13
In This Issue

Last Week in Review: Learn why March is going out like a lion instead of a lamb. Also, the latest on housing numbers…and more!

Forecast for the Week: The Fed’s Mortgage Backed Security buying program ends Wednesday…what will this mean for home loan rates? Plus – big economic releases on jobs and inflation could be market movers.

The View: Just one month left to take advantage of the Homebuyer Tax Credit, which could mean up to $8,000 in your pocket. Don’t miss the details…or pass them on to someone who could benefit!

Last Week in Review

THEY SAY THAT MARCH COMES IN LIKE A LION AND GOES OUT LIKE A LAMB… But this year, the exact reverse is true when it comes to home loan rates – for quite a few reasons, including the end of the Federal Reserve acting as a large buyer of Mortgage Backed Securities (MBS). The “demand” created by their fifteen-month program has helped Bond prices stay high and home loan rates stay low.

But the Fed’s MBS purchase program will end on March 31st. The Fed has confirmed this several times, including during last week’s testimony by Fed Chairman Ben Bernanke. What’s more, the Fed will likely change sides entirely, and actually become a seller of MBS, since their balance sheet hangs heavy with MBS holdings. However, once the Fed begins selling MBS and puts more supply into the market – at the same time as entirely removing their past demand as buyers – this will pressure Bond prices lower and push home loan rates higher.

If you or someone you know would like to learn more about how you can take advantage of today’s low-rate environment, or the Homebuyer Tax Credit which is due to expire on April 30 (see the below View article for more details), just call or email me. Additionally, consider forwarding this issue to a friend, family member, neighbor or coworker who might benefit from the information.

Chart: Gross Domestic Product

In other news, the final reading on 2009?s Fourth Quarter Gross Domestic Product (GDP) roared in at 5.6%. While this was the best quarterly performance in six years, the economy shrank 2.4% during 2009, the worst single-year performance since 1946.

However, last week’s housing news arrived with a bit of a whimper. While Existing Home Sales for February were reported in line with expectations, the inventory number swelled to the highest inventory level since last August. In addition, New Home Sales fell slightly in February – the fourth straight monthly drop – to yet another record low. On the new construction front – this may be due in part to buyers feeling a new home purchase may not close in time to take advantage of the Homebuyers Tax Credit before it expires on April 30th…but the bottom line is that the real fix for housing will depend on a stronger labor market.

Weak auction results and the approaching end of the Fed’s MBS purchase program contributed to a volatile week in the markets, causing Bonds to fall below important technical levels. As a result, Bonds and home loan rates ended the week worse than where they began.


Forecast for the Week

March will certainly roar out with a big week of news, beginning with Monday’s Personal Income and Personal Spending Reports. We’ll also get a look at the Core Personal Consumption Expenditure (PCE), which is the Fed’s favorite gauge of inflation. Rest assured the Fed will be watching this report closely!

The Labor Market will also be in the spotlight, first with Thursday’s Initial Jobless Claims Report. Last week’s Initial Jobless Claims were reported lower than expectations and at the lowest reading in 6 weeks. The numbers show modest improvements and are somewhat encouraging.

Hopefully, Friday’s official Jobs Report from the Labor Department for March will also be encouraging. Last month’s report showed that 36,000 jobs were lost in February, which was better than the 68,000+ job losses that were expected. However, while the Unemployment Rate remained stable at 9.7%, a deeper look beyond the headlines of the report showed what many consider to be the Real Unemployment Rate to be near 17%…which includes discouraged workers who are no longer seeking employment, as well as “underemployed” folks who have taken part-time or low paying jobs, just to be bringing some money in the door. The bottom line is that real improvement is needed in the labor market for our economy to continue to recover.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. And with the Fed MBS buying program ending…there will likely be more volatility for home loan rates in store.