Market Comment

Mortgage bond prices rose last week pushing mortgage interest rates lower. Relatively strong foreign demand for US debt along with tame inflation data helped rates improve. The consumer price index came in unchanged and the core, which excludes volatile food and energy prices, rose 0.1% as expected. The Fed left rates unchanged and continued to purchase billions of dollars worth of mortgage-backed securities in an effort to keep rates relatively low. For the week interest rates fell more than a full discount point.

The producer price index Tuesday will be the most important release this week setting the tone for trading ahead. If signs of inflation emerge at the producer level rates will likely suffer. Housing starts and leading economic indicators data may also move the market.

Market Analysis

The two traditional approaches to market forecasting are fundamental and technical analysis. Fundamental analysis is an attempt to predict future price movements based on the most current economic data. It is based on the theory that economic data can provide analysts with an insight into how levels of economic activity can affect the supply of and demand for money, and thereby impact interest rates.

In contrast, technical analysis is an attempt to predict future market movements based on past price movement patterns. Technical analysts typically use charts and graphs to find patterns or trends into potential future market movements. Technical analysis is based on the assumption that actual changes in economic activity precede the release of the corresponding economic data. Thus, technical analysts attempt to reveal hidden supply and demand factors by reviewing price and volume movements that are not supported by the release of the most current economic data. Another important factor of technical analysis is market sentiment. Market sentiment measures the emotions and expectations of investors in the market. Sentiment, like most emotions, changes often in a short span of time and is impossible to predict accurately.

The inability of anyone to accurately predict the future makes a cautious approach necessary to protect against market volatility. The fact remains that mortgage interest rate are historically favorable. It is difficult to justify the risk in floating when the low rates currently available are a sure thing.

Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after the fact. While analysts constantly try to predict the future, the bottom line is they continually fall short in terms of accuracy. The good news is that the Fed has done a relatively good job of keeping rates favorable, but not without some serious spikes here and there. Without the Fed pouring billions into mortgage bonds, rates would surely be higher.

Provided by
Sam Meekins

Monarch Mortgage