Market Comment - Week of November 17th, 2008

Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading was choppy with thin conditions surrounding the holiday. Continued global economic uncertainty remained the focus. Both stocks and bonds exhibited wild swings. The US Treasury modified the earlier $700 billion bailout plan to strengthen financial institutions that offer credit instead of purchasing troubled sub-prime mortgage assets. The change caused additional uncertainty and debate. For the week, interest rates on government and conventional loans remained nearly unchanged.The consumer price index Wednesday will be the most important event this week. Producer price index and the Fed minutes also have the potential to result in mortgage interest rate volatility.

Economic Factors for the week:

Industrial Production
Monday, Nov. 17, 2008
Consensus Estimate: Down 0.1%
Analysis: Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Capacity Utilization
Monday, Nov. 17, 2008
Consensus Estimate: 76.6%
Analysis: Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.

Producer Price Index
Tuesday, Nov. 18, 2008
Consensus Estimate: Down 1.5%, Core up 0.2%
Analysis: Important. An indication of inflationary pressures at the producer level. Lower inflation may lead to lower rates.

Consumer Price Index
Wednesday, Nov. 19, 2008
Consensus Estimate: Down 0.8%, Core up 0.2%
Analysis: Important. A measure of inflation at the consumer level. Lower inflation may lead to lower rates.

Housing Starts
Wednesday, Nov. 19, 2008
Consensus Estimate: Down 4.5%
Analysis: Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.

Fed Minutes
Wednesday, Nov. 19, 2008
Consensus Estimate: None
Analysis: Important. Details of the last Fed meeting will be thoroughly analyzed.

Leading Economic Indicators
Thursday, Nov. 20, 2008
Consensus Estimate: Down 0.6%
Analysis: Important. An indication of future economic activity. A smaller increase may lead to lower rates.

Philadelphia Fed Survey
Thursday, Nov. 20, 2008
Consensus Estimate: None
Analysis: Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Volatility Likely
The likeliness of mortgage interest rate volatility this week is very high considering the abundance of important economic releases. Each piece of data has the ability to cause volatility in the financial markets. Floating ahead of the data exposes a person to a tremendous amount of risk. It is possible for interest rates to improve if the data shows continued weakness in the economy with few price pressures. However, any surprises will likely be bad for mortgage interest rates. Governmental actions in addition to the economic data continue to weigh upon the financial markets. We are really in uncharted territory here with the wobbly underpinnings of the economy. Credit remains tight, as lending has become more stringent. However, there still remain funds available. Real estate transactions continue to take place despite perceptions to the contrary. The important thing to remember is that even the Treasury officials trying to shore the economy do not know exactly what the future holds. With this in mind, be cautious during these times of economic uncertainty and be ready to lock in the event interest rates spike higher.