Your Certified Mortgage Planner — Michael Eiden, Mortgage Blogger

Last Week; wasn’t a good one for the economic bulls, and particularly those that think the housing markets are making a turn. Jan existing home sales were expected to have increased about 1.0%, they tanked to a decline of 7.7% with the inventory of unsold homes increasing to 7.8 month from 7.2 months in Dec. New home sales in Jan really fell, with the forecast of an increase of 3.7% over a weak month in Dec, sales plunged 11.2%. Bernanke testified in Congress last week, it went OK and markets only took out of it that once again Bernanke reiterated interest rates would stay low for a lot longer.

We are hearing that it will likely be four more meetings before the FF rate is increased, that takes to out to the latter part of this year. It all depends on the economy; we still think the foundations of the present optimism are too optimistic are too excessive, but that is that famous wall of worry it takes. Not only housing data; consumer confidence in Feb declined substantially; the Conference Board’s index of confidence dropped over 10 points (20%) from Jan to Feb to a low read of 46.0; the U. of Michigan consumer index didn’t slide at all and remained unchanged on the month——more to be confused about. Although the week was punctuated with very soft economic data, the equity markets held well with very little change in the key indexes. The interest rate markets improved; the 10 yr note yield fell 16 basis points to 3.62% and 30 yr mortgage rates declined about 8 to 10 basis points.

This Week; we believe will be one of the most important weeks in the last few months for the financial markets. Very key economic data this week; but none more important than Friday’s Feb employment data. The key data points this week are personal income and spending for Jan, both ISM manufacturing and services reports, Feb auto and truck sales, and the Fed’s Beige Book release. What will make this somewhat of a watershed week, and the relevance of the data releases, is what occurred last week with the very deep decline in consumer confidence. Markets are translating the collapse in confidence to more job losses and no improvement in wealth. We will add that many consumers that have managed to hold on, and hoped to wait the recession out, are now beginning to retreat as the end is slipping farther out for many that so far have “weathered” the economic recession. The early estimates for the Feb jobs report are for just 20K jobs lost and the unemployment rate to increase to 9.8% from 9.7% in Jan.

Early this week we are not expecting any additional improvement in the bond market, and equity markets to be relatively quiet. Based on the early estimates for the non-farm jobs, we believe the decline in jobs will be more than that, and the unemployment rate will be closing back toward 10%. The decline in interest rates last week had two legs; the continued increase in sovereign debt caused by debt problems in Greece, and safe haven moves by investors into treasuries that are taking some money off the table. Look for the week to become increasingly volatile at mid-week as players make adjustments for employment data.

Summary:  Las Week’s Negativity

• Consumer Confidence posted 16% short of expectations
• New Home Sales posted 13% short of expectations
• Initial Jobless Claims were higher than expected

Rates look fantastic right now; however all the risk of floating (not locking your interest rate) falls to Friday and the employment numbers.  The markets expect that 30,000 jobs were lost in February.  If the actual figure is better than 30,000 jobs lost, mortgage rates will rise. If it’s worse, rates will fall.

Last Week:  interest rates on treasuries increased, the 10 yr note yield jumped 12 basis points,, mortgage rates however remained generally unchanged.  The week brought the Greece deficit into full focus early in the week generating a little safe haven buying in treasuries but it didn’t las long as markets quickly realized the European Union would put a plan ion place to keep Greece from defaulting on its debt.  Spain and Portugal are also being observed closely as their financial conditions are not much better than in Greece.

The take away from the revelations that sovereign deb among many  nations is still on the edge of breaking down; not what markets need now as the debate about recover is heating up.  Las week had very little economic releases from which to measure economic conditions.  The week’s major headline was the quarterly refunding by Treasury; it sold $81 billion of 3 yr notes, 10 10 yr notes and 30 yr bonds.  The 10 and 30 yr auctions were not up to recent standards of strong bidding, but were not failures.  China’s decision to increase their bank reserves by 50 basis points was met with concern in the US that Asian countries may try to slow growth rates that have escalated to increase concerns over inflation.

This Week:  unlike las week there are a number of economic report that will draw attention; no Treasury borrowing buy on Thursday treasury will announce the following week’s borrowing, 2 yr notes, 5 yr notes and 7 yr notes will be sold.  Wednesday Jan housing starts and permits, starts will likely be up while we expect permits to have declined after a big jump in Dec.

Most of the economic data this week will be on the manufacturing and business sectors with industrial production and factory use for Jan and the key Philadelphia Fed Business index expected to be a little better.  Interest rates remain tethered to a narrow range for mortgages, moving in a 10 basis point yield range; all focus is on the equity markets with a growing outlook of a major correction coming.  That said, the equity markets have been looking for a correction for the past month but so far… nothing.  A day or two of selling then a day or tow of rallies keeping the key indexes from and serious declines.  It is overdue, we expect the stock market will deliver a huge decline but as long as traders see any decline as a buying opportunity, no bis sell-off is likely.

Market Moving News for this week:

1. Housing Starts and Building Permits (Wednesday)
2. The release of the last month’s FOMC Minutes (Wednesday)
3. Business and consumer inflation figures (Thursday and Friday)