Hummer Forums by Elcova - Mortgage Times

Mortgage Market News for the week ending September 7, 2007

Compliments of :
The Colorado Real Estate Group, Inc.
Real Estate Investment Bankers
Lending in all 50 States!

PHONE:303-770-2262
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Events This Week:

Employment Fell
Productivity Up
Housing Weaker
Manufacturing Mixed

Events Next Week:

Tues 9/11
Trade Balance

Thurs 9/13
Jobless Claims

Fri 9/14
Retail Sales
Industrial Prod.
Sentiment

US Economy Lost Jobs in August

On Friday, the weakest monthly Employment report since the summer of 2003 caused mortgage markets to rally and the stock market to fall. Against a consensus forecast of 110K new jobs, the economy lost 4K jobs in August, and the June and July figures were revised significantly lower as well. The shortfall was spread across many sectors, with the construction sector losing 22K jobs. The growth in Average Hourly Earnings, a proxy for wages, matched expectations. To keep the August news in perspective, it's worth noting that the drop followed a streak of 47 consecutive months without a decline in job growth, which was just one month shy of the all-time record.

The significance of the Employment data is that it provides a clear justification for the Fed to cut rates based on economic conditions. In recent weeks, Fed officials have expressed an unwillingness to be seen as cutting rates in response to a financial crisis in the credit markets, because that might increase inflation expectations. Slower economic growth implies a lower risk of inflation, allowing the Fed the flexibility to cut rates to boost the economy. As a result, investors now price in about a 75% chance of a 50 basis point rate cut at the next FOMC meeting on September 18. Prior to the report, the implied likelihood was closer to 30%.

In the housing sector, the May Pending Home Sales index fell more than expected. Pending Home Sales are a leading indicator of future housing market activity, so the next Existing and New Home Sales reports may show declines. The chief economist of the National Association of Realtors (NAR) attributed the drop to "disruptions" in the mortgage market. The combination of weakness in the housing sector and the job market has shifted expectations for economic growth lower, which has caused mortgage investors to push down mortgage rates.

Also Notable:
The Unemployment Rate held steady at 4.6% in August as expected
On Thursday, the European Central Bank and the Bank of England both announced that interest rates would remain unchanged
Oil prices climbed to nearly $77 per barrel, up from $70 p/b in the middle of August
Banking regulators strongly urged lenders to work with borrowers in danger of defaulting on their home loans

Average 30 yr fixed rate:
Last week:-0.02%
This week:-0.20%

Stocks (weekly):
Dow:13,161-282
NASDAQ:2,566-31

Week Ahead

Next week, the economic calendar will be relatively light, and investors will be looking ahead to the FOMC meeting on September 18. The Trade Balance will be released on Tuesday, although this report has not been a market mover recently. Friday's Retail Sales report will provide a read on the health of the economy. Consumers account for about 70% of economic activity, and this report is a major indicator of spending levels by consumers. Industrial Production, another important indicator of economic activity, will also be released on Friday.