Mortgage bond prices were higher last week applying downward pressure on mortgage rates. Turmoil and volatility remain high with wide swings occurring in both stocks and bonds on an almost daily basis. The economic outlook remains clouded at best. Weekly jobless claims and the trade deficit remained high, hindering recovery in the jobs market. As expected, the Federal Reserve will restart the quantitative easing program by purchasing Treasury bonds.

Rates fell by about 1/4 of a discount point for the week.

The most important data this week will be the Producer Price Index Tuesday. Housing starts and LEI data may also move the financial markets.

LOOKING AHEAD

FED RESULTS

The Federal Open Market Committee kept rates unchanged last week at the historically low levels. The remarks following the meeting were bond friendly. They indicated the pace of economic recovery slowed in recent months. Inflation is expected to remain subdued for some time. Most importantly they confirmed the suspicions that they would restructure their quantitative easing actions in an effort to continue to keep rates low for an extended period of time and to spur the economy.

The Fed stated they would keep holdings of securities at current levels through reinvesting funds from maturing mortgage-backed securities into longer term US Treasuries. The Fed is concerned the recovery is waning and specifically noted that it was “more modest” than previously thought. Consumer spending increased gradually but there remain concerns that increasing unemployment along with tight credit conditions may limit increases in the future.

The Fed decision was a result of a 9-1 vote as the lone dissenter disagreed with stance of keeping rates low for an extended period of time. He was concerned that position would limit the Fed’s ability to raise rates in the future and also disagreed with the quantitative easing program.

Interest rates remain historically favorable. The demand for bonds remains high pushing rates lower. Anytime prices rise substantially there is always a danger of a correction. The big unknown is if or when that correction may come. For now it remains wise to take advantage of mortgage interest rates at their current levels.

Mortgage bond prices rose pushing mortgage interest rates lower. Higher than expected weekly jobless claims and continued claims helped mortgage interest rates remain very favorable. Higher than expected existing home sales and leading economic indicators data prevented rates from improving dramatically. Stocks remained volatile, which also resulted in some mortgage interest rate volatility.

Rates fell by about 1/8 of a discount point for the week.

The most important data will be the gross domestic product and employment cost index. The Treasury auctions may also result in mortgage interest rate volatility as foreign appetite for US debt instruments is gauged.

LOOKING AHEAD

FED “BEIGE BOOK”

The Fed “Beige Book” is a summary of economic conditions from each of the 12 Federal Reserve regional districts. The release takes place eight times a year approximately two weeks ahead of each of the Federal Open Market Committee meetings. The report is used at the FOMC meetings, which tends to be one of the most influential events in the market.

Market participants are continually attempting to determine what FOMC interest rate policy will be ahead of the next meeting. Any deviation from expectations usually results in extreme short-term market volatility. The timing of the “Beige Book” provides analysts a valuable look at one of the many factors the FOMC consider.

RATE LINK is provided by Market Information for Mortgage Professionals. 1-800-938-5193. Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Mortgage bond prices were near unchanged holding rates unchanged overall for the week. We started in positive territory as rates held low following the extended holiday weekend. Unfortunately some considerable stock strength pressured mortgage bonds lower and rates higher mid week. There wasn’t much data but the weekly jobless claims did come in better than expected which didn’t help rates. Rates initially fell by about 1/8 of a discount point the beginning of the week only to have those improvements erased Wednesday afternoon and Thursday morning.

The most important data will be the inflation releases the latter portion of the week. The Treasury will have another round of record auctions with a 3-year auction Monday, 10-year auction Tuesday, and a 30-year auction Wednesday. Foreign appetite for US debt will continue to play a key role in the ability of interest rates to remain low.

LOOKING AHEAD

RETAIL SALES

Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise.

There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits. Consumers have generally been given credit for sustaining the economy even amid the economic turmoil.

RATE LINK is provided by Market Information for Mortgage Professionals. 1-800-938-5193. Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

By Dan Serra

RISMEDIA, June 28, 2010–(MCT)–While most financial-savvy consumers do their best to avoid debt, one debt that is unavoidable to many families is a mortgage. Because many of us feel more in control of our home and expenses without a mortgage, a common question is whether to pay it off as quickly as possible.

The answer depends on each person’s financial situation. A mortgage can actually be a blessing to some.

For example, mortgage interest is tax-deductible. This deduction saves taxpayers about $103 billion a year, according to the U.S. Treasury. The benefit is less to owners of low- to moderate-valued homes who may not have much interest or enough to claim it by itemizing deductions. But for families with a higher net worth, it allows a tax savings and may encourage them to buy larger homes.

With tax brackets for the wealthy rising next year, this tax break becomes more valuable. When the break is included, a 6 percent mortgage could have a rate closer to 4 percent in reality. Calculate your mortgage’s effective rate by subtracting your tax rate from 100 and multiplying that number by the interest rate. For example, a 28 percent tax bracket with a 6 percent mortgage would result in (.06 x 72) to equal the equivalent of a 4.32 percent mortgage rate after considering tax savings if itemized. That helps the interest look less daunting.

In addition, with the possibility of investing with a goal of a 5 or 6 percent return, instead of putting that money into a mortgage the homeowner could get a return higher than the effective rate, which could help grow net worth. On the other hand, if the effective rate is higher, it may make sense to pay down the mortgage.

Another situation that makes paying off a mortgage attractive is for someone at risk of bankruptcy. Many states offer protection from creditors seizing a home to pay debts. If a home is paid in full, it is more likely the owner could stay in it if he goes broke, providing he can pay for the upkeep.

Money taken out for a mortgage also could reduce net worth later in life. The potential for higher investment returns are gone; that money will not be able to grow if investments grow over the long term. Not to mention having too much invested in a house. That could be detrimental at retirement. While we can get a loan for a house, there are no loans to finance retirement.

(c) 2010, McClatchy-Tribune Information Services

Mortgage bond prices rose last week applying downward pressure on mortgage rates. Volatility in both the stock and bond markets remained high with broad swings occurring on a daily basis. Mortgage rates moved lower following the release of weak housing data. The improvements seen earlier in the week were reversed following a weak 5-year Treasury auction on Wednesday. The volatility seen this week is expected to continue until the future of the economy becomes clear.

Rates fell by about 3/8 of a discount point for the week.

Personal income and outlays will set the tone for trading this week. The employment report to be released on Friday will be the most important release this week. The focus lately has been on the payrolls component rather than the headline figure. If payrolls come in stronger than expected, mortgage interest rates may worsen.

LOOKING AHEAD

EMPLOYMENT

The employment report provides an abundance of information for almost every sector of the economy. Not only does the employment report give basic employment payroll statistics for the major working sectors, it also provides the average hourly earnings and the average workweek. Using this information provided by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor, economists estimate many other economic indicators such as industrial production, personal income, housing starts, and GDP monthly revisions. Since there is little data for economists to base their estimates on, the margin of error for the estimates tends to be high. As a result, the employment report can cause substantial market movements.

The BLS compiles data from two unrelated surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month.

This week’s employment data will provide valuable insight into factors the Federal Open Market Committee will use to make future rate decisions. An employment rebound may prompt the Fed to raise short-term interest rates. However, if employment remains weak, then the Fed may seriously consider keeping rates low. Floating into this report is very risky without considerable gains Thursday afternoon heading into it.

RATE LINK is provided by Market Information for Mortgage Professionals. 1-800-938-5193. Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Mortgage bond prices fell last week pushing mortgage interest rates higher. Trading was positive for the week through Wednesday’s close. The data generally was benign causing no large mortgage bond market swings. Unfortunately a strong 273-point jump in the DOW Thursday resulted in mortgage rates worsening by about 3/8 of a discount point that afternoon. Fortunately bond prices recovered some Friday, as the stocks were unable to hold those gains. Rates rose by about 1/8 of a discount point for the week.

The producer and consumer price index data will be the most important releases this week. If inflation remains tame mortgage interest rates may improve. Expect global economies to continue to factor into trading.

LOOKING AHEAD

INDUSTRIAL PRODUCTION

The Federal Reserve releases the Industrial Production report each month. It is a real measure of output from manufacturing, mining, electric, and gas utilities. The data is significant in that it provides an indicator of the state of the economy. Analysts use the data to attempt to determine market direction. The Fed uses the data to help set the course for monetary policy. Generally the Fed likes to see steady growth in the economy with little price pressures.

Mortgage interest rates generally react favorably to weaker than expected industrial production data. In times of economic weakness investors often move out of stocks and into mortgage bonds. When things look good investors often move out of bonds and back into stocks. We have seen these patterns frequently in recent months.

Floating into significant economic data always has some risk involved but the last release came in as expected and didn’t move the market much. Nonetheless, now is a great time to take advantage of mortgage interest rates at these historically low levels to avoid future market volatility.

Mortgage bond prices rose last week pushing mortgage interest rates lower. We were negative through Thursday as stocks performed generally well until Friday’s data was released. Fortunately bond prices surged higher Friday morning following the weaker than expected payrolls component of the employment report. In addition, news of a troubled Hungarian economy reignited global fears and resulted in flight to quality buying of US debt instruments. Stocks fell precipitously Friday. Rates fell by about 1/2 of a discount point for the week.

The retail sales data will be the most important release this week. The US Treasury auctions will also factor into trading along with the global economic uncertainty. The Euro remains especially volatile. If additional countries announce economic trouble the flight to quality buying of US debt instruments could continue.

LOOKING AHEAD

WARNING OF HIGHER RATES

Last week Atlanta Fed’s Lockhart said that the Fed might need to raise rates to counter inflation even with high unemployment. “Good policy, even in circumstances of unacceptable levels of unemployment, may incorporate higher interest rates. The time is approaching when it will be appropriate to consider recalibrating interest rate policy.” He added, “as the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability.”

Lockhart noted inflation remained under control for now. Now is a great time to take advantage of mortgage interest rates at these historically low levels to avoid future market volatility, especially with the recent decline in rates and remarks like Lockhart’s hitting the market.