Weekly Market Report

Since the Fed announced a plan to purchase $500 billion of mortgage-backed securities on November 25, mortgage rates have moved progressively lower, and the trend continued this week. Conforming fixed-rate mortgage rates dropped to levels last seen in 2003. Weak Retail Sales data and low inflation figures released during the week also supported the move lower.

As the government strives to offset the current weakness in the economy, its actions have exerted a much stronger than usual influence on mortgage rates. Programs to purchase mortgage-backed securities and to provide capital to financial institutions have been favorable for mortgage rates, while a bill introduced in Congress this week could have the opposite effect if passed. The bill would permit bankruptcy judges to modify troubled mortgages by reducing the principal and payments. The goal would be to help prevent foreclosures, which is a worthy objective. However, opponents of the plan are concerned that inve! stors may require higher mortgage rates to compensate for the increased risk that loan contract terms may be changed. At this point, it’s not certain when the bill will come up for a vote.

The big news next week will be Tuesday’s Fed meeting. Expectations are for a 50 or 75 basis point rate cut, and the accompanying statement will provide the Fed’s latest views on the state of the economy and the financial system. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will also come out on Tuesday. CPI looks at the price change for those finished goods which are sold to consumers. Industrial Production, an important indicator of economic activity, will be released on Monday. Housing Starts is scheduled for Tuesday. The regional manufacturing indexes will also be released next week.
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