How To Get Home

Sorry for being a little late on the weekly recap, but I was a little under the weather this weekend.

From Monday morning until Friday evening, mortgage rates barely moved last week. In the current environment, investors are highly sensitive to fresh economic information, but a lack of surprises last week left them with little news on which to trade. The first major event last week was Wednesday’s release of the FOMC minutes from the March 21 Fed meeting. The primary message was that the Fed believes the level of uncertainty in its outlook for both inflation and economic growth has increased. This led to the change from its tightening bias to a neutral stance, but it did not lessen the Fed’s concerns about higher inflation. Fed Chief Bernanke’s speech the week before last essentially made the same point, so the reaction in mortgage markets was minimal.

The only other major economic news last week was the Producer Price Index (PPI) inflation report. The core price level of intermediate goods remained unchanged in March, which was lower than expected, but the figures for February were revised higher, offsetting the good news. Generally, investors were inclined to wait for next week’s more influential Consumer Price Index (CPI) report for possible guidance on the inflation outlook.

In the housing sector, the National Association of Realtors (NAR) released a revised economic forecast for 2007 and 2008. The chief economist of the NAR suggested that tighter lending standards resulting from the troubles in the subprime sector will slow the recovery, but will lead to a healthier housing market in the future. The NAR expects 2007 to have the fourth highest level of existing home sales on record. According to their forecasts, existing home prices will remain roughly flat on average in 2007 and will increase modestly in 2008. In addition, they predict that mortgage rates will gradually rise to 6.60% during 2007.

Next week will start off quickly with the Retail Sales report on Monday. Consumers account for about 70% of economic activity, and this report is a major indicator of spending by consumers. Tuesday will be the biggest day with the Consumer Price Index (CPI), Housing Starts, and Industrial Production. Almost without exception, higher inflation leads to higher interest rates, and CPI is the most widely watched indicator. CPI looks at those finished goods which are sold to consumers. After Tuesday, the rest of the week will contain a scattering of second tier economic data. Finally, a weekend G7 meeting of world finance ministers may have an impact on Monday morning’s opening levels.

The picture to the right has nothing to do with the update, I just found it funny. My caption for it would be “life is good.”