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Mortgage Market News for the week ending April 4, 2008

Events This Week:

Employment Fell
Wage Inflation Lower
Manufacturing Mixed

Events Next Week:

Tues 4/8
Pending Sales
FOMC Minutes
Thurs 4/10
Trade Balance
Fri 4/11
Import Prices
Sentiment

Economic Weakness Lowers Mortgage Rates

Comments from Fed Chief Bernanke and weaker than expected data from the job market painted a grim picture of current economic conditions. Slower economic growth generally leads to lower inflation, which is good news for mortgage markets, and mortgage rates dropped moderately during the week.

Wednesday, Bernanke testified before Congress. The focus was on the Bear Stearns rescue plan rather than current economic conditions, but he did outline the Fed's latest economic outlook. While acknowledging that the economy is in the midst of a downturn, he suggested that the economy will strengthen in the second half of the year, and he expects that growth will be positive in 2009. He believes that Fed rate cuts and government stimulus packages will help lift the economy. He also predicted that inflation will moderate in future months.

Friday's Employment report fell short of even Wall Street's reduced expectations. Against a consensus forecast for a loss of -50K jobs, the economy lost -80K jobs in March, and the figures from prior months were revised lower by an additional -67K. This marked the worst monthly results since March 2003. Once again, the construction and manufacturing sectors performed poorly. Average Hourly Earnings, a proxy for wages, rose at the expected rate. Overall, even though the job market performed very poorly during the first quarter of 2008, the current Unemployment Rate of 5.1% is still reasonably low by historical standards, and the Fed thinks that a recovery is not too far away.

Also Notable:
The March Unemployment Rate jumped to 5.1%, the highest level since September 2005
Construction Spending fell for a record twenty-fourth straight month
Fed Chief Bernanke predicted that the housing market will stabilize late this year or next year
Treasury Secretary Paulson's proposed overhaul of financial services oversight faced much resistance

Average 30 yr fixed rate:
Last week:+0.31%
This week:-0.13%

Stocks (weekly):
Dow:12,615+285
NASDAQ:2,370+79

Week Ahead

The Economic Calendar will be much lighter next week. The minutes from the March 18 Fed meeting will be released on Tuesday. The detailed record of the discussion between Fed officials often provides additional insight into the reasoning behind the Fed statement. Pending Home Sales, a leading indicator for the housing market, will also come out that day. The Trade Balance will be revealed on Thursday. Import Prices and Consumer Sentiment will wrap up the week on Friday. Fed speakers may provide an additional jolt to mortgage markets during the week.

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