Dallas Mortgage Rate Indicator

Market Comment - Week of June 21st, 2010
Mortgage bond prices rose last week pushing mortgage interest rates lower. Uncertainty in the Euro zone resulted in some flight to quality buying of US debt instruments. There were concerns that Spain could be the next economy to falter following the Greek instability. Most of the data showed a US economy that continues to struggle with little current price pressures. Weekly jobless claims were higher than expected and the consumer price data came in exactly as expected. Rates fell by about 1/2 of a discount point for the week.

The Fed meeting Wednesday will be the most important event this week. With the world economies in turmoil the Fed is expected to keep the course with the current low interest rate policy. Some Fed officials indicate that rate increases may eventually be necessary. Few expect the hikes to come this week. If there are surprises we could see huge swings in the financial markets.


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Economic Factors
Economic Indicator Release Date Time Consensus Estimate Analysis
Existing Home Sales Tuesday, June 22, 2010 Up 4.3% Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
New Home Sales Wednesday, June 23, 2010 Down 4.8% Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Fed Meeting Adjourns Wednesday, June 23, 2010 No change Important. No rate changes are expected but some volatility may surround the adjournment of this meeting.
Durable Goods Orders Thursday, June 24, 2010 Down 1.4% Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, June 24, 2010 460k Important. An indication of US employment situation. A higher figure should help rates.
Preliminary Q1 GDP Friday, June 25, 2010 3.0 Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, June 25, 2010 75.2 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.


Fed Meeting

The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.

The Federal Reserve can adjust two distinct short-term interest rates. The discount rate is the interest rate which banks pay the Fed for primarily overnight loans. Despite its name, the Fed funds rate is the rate banks pay to borrow from other banks. The Federal Reserve has direct control over the level of short-term interest rates, the Fed's influence over longer-term interest rates is less certain. All eyes will be focused on the Fed meeting Wednesday. Most analysts predict no rate change following the tame inflation data.

Keep in mind that Fed rate changed do not automatically mean mortgage interest rates will change. The Federal Reserve has direct control over the level of short-term interest rates. The Fed's influence over longer-term interest rates is less certain. A cautious approach to float/lock decisions is prudent heading into the Fed meeting this week. Market volatility is likely.