How To Get Home

A combination of stronger than expected economic data and inflation warnings from the Fed pushed mortgage rates to the highest levels of the month. In a highly anticipated appearance, Fed Chief Bernanke testified before Congress on Wednesday that inflation is running higher than the Fed’s comfort level and that the Fed’s primary policy concern is that inflation will not move lower. On the other hand, he described downside risks to economic growth, particularly if problems in the housing sector were to expand to other areas of the economy. He suggested that future policy will continue to be based on incoming data, and his tough talk about inflation diminished market expectations for any near term easing of interest rates.

The most damaging economic data for mortgage markets last week came with Friday’s release of the Fed’s preferred PCE inflation measure, which showed an unexpected rise to a 2.4% annual rate. Coming on the heels of Bernanke’s concerns about stubbornly high inflation, this was definitely bad news for mortgage markets. The same day, the Chicago PMI national manufacturing index far exceeded the forecasts, providing a second blow. In addition, Thursday’s final revision to growth in fourth quarter 2006 GDP, the broadest measure of economic activity, was also higher than expected.

Unlike many of last week’s other economic reports, February New Home Sales came in far below the consensus forecasts, falling to the lowest level in seven years, while unsold inventories rose to the highest level since 1991. Tighter lending standards may have had a larger than expected impact on New Home Sales last month. Fortunately for the housing sector, though, the troubles have not spread to Existing Home Sales, which make up about 85% of the housing market, as the February data released the week before last exceeded forecasts.

Next week is a big week in the news department as well. Friday will bring the all important jobs report and everyone will continue to watch and see how the subprime story continues to develop. Today brought even more testimony from the Fed chief on the recent mortgage troubles. Nice to see that everyone agrees that current lending practices need to be evaluated to make sure they are helping and not hurting consumers.

No go outside and play. The weather is much to nice to be inside reading some blog.