Mortgage Rate Indicators for Dallas

Market Comment - Week of August 16th, 2010
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.
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Economic Factors
Economic Indicator Release Date Time Consensus Estimate Analysis
Housing Starts Tuesday, Aug. 17, 2010 Up 2.2% Important. A measure of housing sector strength. Weakness may lead to lower rates.
Producer Price Index Tuesday, Aug. 17, 2010 Up 0.2%, Core up 0.1% Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Industrial Production Tuesday, Aug. 17, 2010 Up 0.5% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization Tuesday, Aug. 17, 2010 74.5% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, Aug. 19, 2010 450K Important. An indication of employment. An increase in jobless claims may bring lower rates.
Leading Economic Indicators Thursday, Aug. 19, 2010 Up 0.2% Important. An indication of future economic activity. Weakness may lead to lower rates.
Philadelphia Fed Survey Thursday, Aug. 19, 2010 5.10 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

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.