2006 September

Tuesday’s bond market has opened strong following the release of this morning’s Producer Price Index (PPI). The stock markets have not had the same reaction to the news though. The Dow is currently down 18 points while the Nasdaq is nearly unchanged form yesterday’s close. The bond market is currently up 14/32, which will likely improve this morning’s mortgage rates by approximately .250 of a point.

The Labor Department posted August’s PPI early this morning, showing much weaker than expected results. The Index was forecasted to rise 0.2%, but actually fell a surprising 0.4%. This means that inflationary pressures at the producer level of the economy were much weaker than expected.

Late Thursday morning, the Conference Board will release its Leading Economic Indicators (LEI). This index attempts to measure economic activity over the next three to six months. If it estimates an increase in activity, the bond market will probably fall and mortgage rates will rise slightly. If it shows weaker than expected readings, the bond market may rally and mortgage rates should fall. Current forecasts are calling for a decline of 0.2%.

What does all of this mean? A weaker economy will continue to keep mortgage interest rates lower- as was shown by the Producer Price Index release. However, a forecast of improving economic conditions could move the market and interest rates the other way- at least until the forecast is proven. To the consumer, this is a great window of opportunity to lock in on lower rates. If you are in the process of financing a home, this would be the day to lock your rate.

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Tuesday’s bond market has opened down slightly after a new record trade deficit was announced. The stock markets are showing gains with the Dow up 65 points while the Nasdaq has gained 20 points. The bond market is currently down 4/32, which may push this morning’s mortgage rates higher by approximately .125 of a discount point.

The Commerce Departmen t posted July’s Goods and Services Trade Balance data this morning, showing a record deficit of $68 billion. This was higher than expected, but hasn’t had a significant impact on bonds or mortgage rates.

The results of today’s 10-year Treasury Note auction will be posted at 1:00 PM ET. If demand was strong, particularly from international investors, we could see mortgage rates improve this afternoon and tomorrow morning.

The answer is a resounding “Maybe”- the market is in a state of flucuation. My best advice to anyone interested in buying or refinancing a home is to get the process started as quickly as possible. Rates will not decrease drastically in the near future, but bad news in the investment markets could like cause a sharp increase on any given day. Start your loan and have your loan officer to monitor rates for the best day to lock in the best rate.

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