J.BermanGroup Market Update: February 17, 2009

High unemployment rates are one reason why the economy is struggling. In anticipation of a strong, government-led stimulus plan, mortgage markets improved with fervor early last week only to fizzle with equal speed as efforts fell short of expectations.

Neither the Fed, nor the Treasury nor Congress gave markets what they wanted.

Between Monday and Friday, mortgage markets were essentially unchanged, ending a 4-week slide.  From day-to-day, however, rates were quite volatile.

The biggest shift of the week occurred late-morning Friday, in advance of the early-market closing.  As the terms of the Congress’ pending stimulus package became more clear, the piling-on of national debt suddenly spooked Wall Street, re-igniting traders’ fear of inflation.

It’s strange, in a way, because the final package represented fewer dollars than originally announced and markets had all week to come to terms with the government’s three-pronged response to economy.

Nevertheless, traders saved their angst all for the last 90 minutes of the week.  Fears of inflation led to a sudden and massive sell-off in all types of bonds, including the mortgage-backed kind.  Bond sell-offs are linked to higher mortgage rates, of course, and that caused mortgage rates to spike Friday afternoon.

This week, the selling is expected to continue but hope for reversal to lower rates is possible.  It all depends on the news and it changes every day.

  • Tuesday: Will GM and Chrysler’s viability plans be rejected?
  • Wednesday: Will the Fed’s January meeting minutes show fear of depression?
  • Thursday: Will Congress and the Treasury have clarified their respective stimulus plans?
  • Friday: What will the Cost of Living index say about inflation?

There’s news to make mortgage rates move up or down every day week.  Unfortunately, unlike in the past when it was very clear what sort of news was good for rates or bad for rates, right now, it’s not so apparent.  There are so many expectations cooked in to the market already that it’s hard to know what traders expect.

What we do know, though, is that markets are on edge and that can be dangerous for a mortgage rate shopper.  Rates may fall by a lot this week on the right type of news.  Or, they may rise by the same.  We can’t know for sure but we can know that — historically — rates remain low.

If you haven’t joined the Refi Boom yet, this week may be one of your last chances. One bad bounce on Wall Street and we’re back to 6 percent.

(Image courtesy: The Wall Street Journal Online)