Mortgage update for the week

Mortgage bond prices fell last week pushing interest rates higher. The Fed raised rates as expected, however the hope that the Fed was near the end of raising rates was diminished as the Fed indicated continued rate increases may be necessary. Unfortunately this announcement hurt the already battered mortgage bond market. For the week, interest rates on government and conventional loans rose about 5/8 of a discount point. The employment report Friday will be the most important event this week. Institute for Supply Management Index data will also be important.

A Focus on Employment
The Fed is most concerned with keeping a tight lid on inflation. Interest rate market analysts pay close attention to a multitude of measures of economic activity under the assumption that when economic activity increases to certain levels, inflationary pressures become imminent.
March employment data will be released on Friday morning. The employment data provides very important information about whether the economy is overheating to the point that inflationary pressures may increase. The logic is that as economic activity continues to grow and fewer people are left unemployed, employers have a tendency to bid up employee wages. The employment report provides an abundance of information for almost every sector of the economy. Not only does the employment report give basic employment payroll statistics for the major working sectors, it also provides the average hourly earnings and the average workweek. Using this information provided by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor, economists estimate many other economic indicators such as industrial production, personal income, housing starts, and GNP monthly revisions. Since there is little data for economists to base their estimates on, the margin of error for the estimates tends to be high. As a result, the employment report can cause substantial market movements. The BLS compiles data from two unrelated surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month.

This week’s employment data will provide valuable insight into factors the Federal Open Market Committee will use to make future rate decisions. Employment strength may prompt the Fed to continue to raise short-term interest rates. However, if employment begins to weaken, the Fed may take a break from the continued rate hikes and mortgage interest rates may get a much-needed reprieve.

Connie Echeverria
Loan Officer
Prosperity Mortgage Company
M4049-011
4400 Jenifer St., NW
Washington, DC 20015
202.364.1300 x6061 Office
202.285.3937 Mobile
202.966.4632 Confidential Fax
866.359.7205 Confidential eFax
connie.echeverria@wellsfargo.com