The inflation data will be the most important release this week. The recent inflation reports were mixed. The PCE price index will be carefully watched for any signs of inflationary pressures. The bond market will close early Thursday in advance of the Christmas holiday Friday. The shortened trading week may result in some market volatility coupled with thin trading conditions likely.

The Federal Reserve left interest rates unchanged last week as expected. The remarks were mixed and caused some mortgage market uncertainty. The Fed statement indicated, “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.” The Fed’s challenge will be stepping out of the mortgage market without causing mortgage interest rates to spike uncontrollably higher. The housing sector is a vital component of the economy. The last thing the Fed needs is for mortgage interest rates to escalate causing the housing sector to suffer. While the most recent data shows positive housing trends across most of the nation, analysts attribute the positive movements to artificially low mortgage interest rates tied to the Fed buying of mortgage bonds. How this will all play out is still very uncertain.

More updates later!

Tish Washington, the Honest Mortgage Pro, can be reached at 877-897-4831. Now lending in AZ, CA, CO, CT, FL, HI, ME, NM, NV, OR, and WA.

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Newsletter-Chrisman,Rob

Ah, inflation – at all levels. During the life of a 30-yr fixed-rate mortgage, there are bound to be periods of inflation. It is debatable, in the market of mortgages, whether or not borrowers and lenders take inflation into account. Certainly ARM loans do to some extent. But bond prices (aside from TIP securities, some of which are being auctioned today) are not indexed to inflation. Yes, a bond holder who owns $1 million in bonds earning 4% earns $40,000 per year, but at the end of 30 years, that bond holder still has $1 million in bonds, which might be worth $500-600k in today’s buying power.

How is the week looking for economic news? Today at 10:00AM EST we have the ISM Services number for June. Thursday we’ll see our friend Jobless Claims. And on Friday we have Import and Export Prices, along with the Trade Balance figures and the preliminary University of Michigan Consumer Sentiment Survey. Currently Treasury securities and mortgage prices are worse by about .125 in price from Thursday afternoon’s levels (the 10-yr yield is around 3.54%).

But of greater importance, since data is limited, are the Treasury auctions, which begin tomorrow. (We also have an $8B 10-year TIPS auction.) Tomorrow is a $35 billion 3-year note auction, Wednesday’s $19B 10-year note auction, and Thursday’s $11B 30-year bond auction. Don’t look for much change in mortgage rates until or unless there is more substantial news about the economic outlook.

Here in California, the California Franchise Tax Board has turned off the $10,000 California New Construction Tax Credit after they reached the $100,000,000 maximum investment, as well as their maximum application status of 10,000. “The CA Franchise Tax Board did continue to accept additional applications – up to 12,000 total – to allow for duplications in faxes or for any home buyers that were not authorized for the tax credits, and to allow for any expected rejections. Both limits have been reached and applications for the California New Construction Tax Credit will no longer be accepted.” The state began accepting applications in March. http://www.ftb.ca.gov/individuals/New_home_Credit.shtml

A friend’s maid asked for a pay increase. His wife was very upset about this and decided to talk to her about the raise. She asked, “Now Maria, why do you want a pay increase?”
Maria: “Well, Señora, there are three reasons why I want an increase. The first is that I iron better than you.”
Wife: “Who said you iron better than me?”
Maria: “Your husband said so.”
Wife: “Oh.”
Maria: “The second reason is that I am a better cook than you.”
Wife: “Nonsense, who said you were a better cook than me?”
Maria: “Your husband did.”
Wife: “Oh.”
Maria: “My third reason is that I am a better lover than you.”
Wife: (really furious now): “Did my husband say that as well?”
Maria: “No Señora…the gardener did.”
Wife: “So how much do you want?”