After touching their lowest levels since Memorial Day, mortgage rates spiked to close out the week.

Despite pricing getting worse by 1/4 percent Friday afternoon, however, mortgage rates still managed to fall for the second consecutive week.

There were two main storylines last week on Wall Street.  The first was data-driven.

After several months of better-than-expected results, the September Non-Farm Payrolls report fell well short of expectations.

According to the government, another quarter-million jobs were lost last month, raising the 12-month tally to 5.75 million.  Additionally, consumer confidence figures dropped. 

The stories are related and it brings us to the second storyline.  Without job growth, some analysts are openly wondering how the economy will ever start to expand.  Especially with the Holiday Shopping season getting underway.

The negative vibes were enough to shake off an overwhelmingly positive series of housing reports.  Both Pending Home Sales and the Case-Shiller Index continue to gain.

This week, without much economic data set to release, look for market psychology to play an important role in the direction of mortgage rates.  The last two times that mortgage rates fell to these levels, they quickly reversed.

All the pieces are in place for that to happen again.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is “picking up following its severe downturn” and that financial markets have “improved further”.

It’s the second consecutive post-FOMC statement in which the Fed appears somewhat optimistic — a signal that the recession will end soon, or has already ended.

That said, the economy still has some soft spots and the Fed made a point to single them out.  Each poses a distinct threat to economic recovery.

1. Ongoing job losses
2. Sluggish income growth
3. Tight credit conditions

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.

However, the FOMC changed its timeframe on the mortgage-backed bond buys, extending its deadline to March 2010.  This move should help the Fed keep mortgage rates from rising too high as the economic expansion takes hold.

Market reaction to the Fed’s press release is positive.  After an early day sell-off that drove rates higher by about a quarter-percent, most of the pressure is easing.  Pricing is worse on the day overall, but well off its lows.

The FOMC’s next scheduled meeting is November 3-4, 2009.

The scheduled get-together ends at 2:15 PM ET Wednesday after which the FOMC will issue a press release to the markets.

Consider locking your mortgage in advance of the press release. 

The FOMC meets 8 times annually and its adjournments are among the biggest market-movers of the year. 

The Fed’s post-meeting press release is a direct look into the mind of the Federal Reserve and Wall Street is looking for clues anywhere it can find them.

After its August 2009 meeting, the FOMC said in its press release:

1. Financial markets have improved, relative
2. Household spending remains constrained
3. Although weak, the economy is “leveling off”

Since then, however, credit risks have lessened on Wall Street, consumer spending have shown signs of life and Fed Chairman Ben Bernanke said the recession is “very likely over”.

This is why tomorrow’s FOMC press release is so important.  Markets don’t expect the Fed to raise or lower the Fed Funds Rate, but they do expect the Fed to shed light on its next series of moves.

If the Fed alludes to inflation and stronger growth ahead, mortgage rates should rise. By contrast, reference to slower growth ahead should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it’s been in history.  However, it’s what the Fed says Wednesday that will matter more than what the its does.

If you’re floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.

Mortgage rates were down early in the week but managed to give up all of their gains late-Friday afternoon.  It’s the same volatility variety we’ve seen in most weeks this year. 

Markets moved on to both positive- and negative-type news last week.  On the positive side:

• Fed Chairman Ben Bernanke said the recession is “very likely over“
• Retail Sales were much stronger than expected
• Warren Buffett confirmed to CNBC that he was back in the market

On the negative side, Housing Starts idled and corporate earnings fell flat.

This week, the market moves on. 

Investors will watch several key releases including Existing Home Sales on Thursday, and Consumer Sentiment and New Homes Sales on Friday.  The most important event of the week by far, however, is the scheduled, 2-day meeting of the Federal Open Market Committee. 

The FOMC is the policy-setting group of the Federal Reserve and each time it meets, markets have a tendency to get volatile.

Markets expect the FOMC to leave the Fed Funds Rate within its current “target range” of 0.000-0.250 percent but that doesn’t mean mortgage rates will remain unchanged as well.  Depending on the verbiage of the FOMC’s post-meeting press release, mortgage rates could rise or fall by a lot.

The FOMC adjourns from its 2-day meeting Wednesday at 2:15 PM.

(Image courtesy: Wikipedia, licensed under Creative Commons)

His comments were supported by a Retail Sales report for August that was much better-than-expected.

Equities improved on the day, mortgage markets worsened, and home affordability suffered. 

The days of ultra-low mortgage rates may be coming to an end.

Since last September, mortgage bonds markets have been in Rally Mode.  As the Financial Crisis of 2008 worsened, investors fled the relatively risky world of stocks and moved dollars into safer investments like cash and bonds — including the mortgage-backed kind.

Risk aversion is common when market uncertainty exists but last year’s aversion was so strong that, by late-November, it had forced mortgage rates down to an all-time low. 

Since November, however, rates have been on the rise.  Stronger economic data and a general feeling of optimism have helped stock markets recover and some of those gains are coming at the expense of low mortgage rates.

Therefore, if you’re wondering what mortgage rates might do going forward, listen to the words of the Federal Reserve Chairman. If he sees economic recovery ahead, it’s probably going to happen.

It should spell higher mortgage rates into 2010.

On Wednesday, briefly, mortgage rates touched an 8-week low.  Following that, mortgage rates began to climb and stayed on an upward trajectory clear through Friday’s closing.

Rate shoppers suffered, realizing a 0.250 percent rise in rates – roughly $32 per month per $200,000 borrowed.

The biggest story of last week was the U.S. jobs report.  It showed the Unemployment Rate climbing to 9.7 percent and a loss of 216,000 jobs nationwide. 

Neither figure was a surprise, per se, but Wall Street had visions of a stronger showing.  Investors want to see strength in housing and employment and, for now, they’re only getting the former.  And so long as the U.S. economic future is unclear, mortgage rates will remain unpredictable.

This week, there isn’t much news, but there are some stories to keep an eye on:

• The Fed’s regional economic summary releases Wednesday. Strength should drive rates up. Weakness should lower them.
• Gas prices are easing, a positive for the economy (and negative for rates) as the Holiday Shopping Season nears
• Two consumer confidence polls are released this week.  Confidence can lead to spending, a spur for the economy.

When there’s a lack of economic data, mortgage rates tend to trade on trends. If you’re shopping for a mortgage, watch for developing patterns and be ready to lock at a moment’s notice if mortgage rates are rising — rates tend to worsen with more speed than at they improve.

Officially known as “Fed Minutes”, the report is an in-depth account Federal Reserve’s last get-together, detailing the discussions and decisions that create our country’s monetary policy. 

It’s the lengthy companion to the Federal Reserve’s brief, post-meeting press release.

For comparison’s sake, the Federal Reserve’s April 29 announcement contained 383 words.  The minutes of that same meeting held 5,754 words.  The extra words offer extra details about what the next monetary steps might be for the nation’s policymakers. 

This is a big deal to markets because investors are always looking for clues about what’s next — especially considering how the April Fed Minutes showed that group discussed increasing its $1.25 trillion mortgage market commitment to something bigger.

Remember that the Fed’s mortgage-buying program is largely credited with keeping mortgage rates low this year.  If there’s more buying ahead, that should help rates stay similarly low.  Mortgage rates fell Wednesday in anticipation of a move like that.  For now, though, the Fed Minutes are just talk. 

As economic conditions change later this year, so might the Federal Reserve’s stance.

Today’s conforming mortgage rates are much higher than from the registered low point of April 30, 2009.

There are a few reasons why mortgage rates were up last week. 

• Stress test results weren’t as bad as originally feared
• The pace of job loss appears to be slowing
• The Dow Jones Industrial Average gained another 4 percent

Separately, bullet points like these can move markets and change rates.  Together, though, they’re a force. 

The combination of events reinforces Wall Street’s belief that the U.S. economy is on the mend. Even Fed Chairman Ben Bernanke remarked in his testimony to Congress that the economy should “turn up later this year”.

As a result, this week, markets will be tuned in to inflation-related data.

Oil prices have been rising steadily since January and are up roughly 30 percent year-to-date.  Because of this, Thursday and Friday’s Producer Price Index and Consumer Price Index, respectively, will be closely watched. Both are a sort of “Cost of Living” measurement and are, therefore, susceptible to spiraling energy costs. 

If either reading comes in higher-than-expected, look for inflation fears to ignite on Wall Street and mortgage rates to rise.

Similarly, if Friday’s Consumer Sentiment Index reveals a more confident American consumer, mortgage rates are likely to rise in that scenario, too.  This is because a confident consumer tends to spend more, thereby hastening the recession’s end.

And, lastly, it’s worth noting that six members of the Federal Reserve will be delivering prepared speeches this week, including Chairman Bernanke. When Fed officials speak, the markets can move quickly.

If you’re still shopping for a mortgage rate, consider locking one in soon. Rates have been trending higher and there’s little reason for them to fall.

It’s a similar run-up to what we’ve seen for retail gas prices in each of the last 5 Spring Seasons.

For people trying to time the mortgage market’s bottom, clues about the future of mortgage rates may be at the local gas station.

Rising gas prices are indicative of the rising cost of energy and, indeed, crude oil is closing in on its 2009 highpoint.  As these energy costs grow, so do inflationary pressures on the U.S. economy.

Inflation, of course, is awful for mortgage rates. When it’s present, mortgage markets deteriorate and rates tend to rise — often sharply and with little advance warning.

So, for today’s homebuyers-in-process and would-be refinancers, prices at the pump may foreshadow bad news for the future of housing affordability.  Even a modest, quarter-percent increase would have a palpable effect on payments, adding $372 in annual costs to a $200,000 home loan.

Since last week, gas prices are already up by 10 cents per gallon.

This caused mortgage rates to spike from Wednesday to Friday and it caused the “lowest rates of all-time” to seem like an opportunity lost.

It’s the first time in 4 weeks that mortgage rates rose overall.

Last week was a strange week, to say the least.  Aside from the large docket of economic data, there was also:

• A Federal Reserve meeting
• 160 of the S&P 500 firms reporting earnings
• A global public health emergency

It all combined to make for a volatile week in mortgages and the biggest losers were the people that hadn’t yet locked a mortgage rates.  Based on the current market, each quarter-percent that mortgage rates rose added $32 per month per $100,00 borrowed.

This week, the market should be similarly jumpy. 

Early in the week, there’s not much data to sway markets, nor is there much in the way of public policy.  Therefore, expect external factors like the Swine Flu to dictate the market’s path.  If the outbreak’s intensity grows, look for Safe Haven to lower rates much like it did last Monday.

Also, be aware and listen for Stress Test rumors.

Thursday, the government is expected to release its bank Stress Test results.  However, history shows that markets often make large movements before news is ever official — mostly on rumors. As a result, expect mortgage markets to carve out wide ranges on Tuesday and Wednesday in advance of the reports, making it very hard to “time” low mortgage rates.

And lastly, Friday brings us April’s employment data.  There’s nothing the report can show us that we don’t already know so the biggest risk here is that employment is not as bad as we all expect it to be. 

If that’s the case, stock markets will rally and mortgage rates will rise.

Like always, mortgage markets can change in an instant — especially when there’s outside influences on “normal” trading like we’re seeing with Swine Flu and the Stress Test.  If you’re offered a rate and it fits your budget, consider locking right away.  It may not last long.