Mortgage bond prices fell last week applying upward pressure on mortgage interest rates. The bond market got a shock from a surprise increase in new home sales, stronger than expected durable goods orders, and some stock strength. There were also concerns about the US dollar in general and dollar denominated securities as China expressed interest in substituting the yuan to dollar peg in exchange for a new international currency. Fortunately the Fed continued to come to the rescue buying mortgage backed securities in an effort to keep interest rates relatively steady and low. For the week, interest rates on government and conventional loans rose by about 1/8 to 1/4 of a discount point. The employment report Friday will be the most important economic release this week.
Consumer Confidence
The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans. The consumer confidence index is significant in that it provides a precursor into consumers' willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures. Despite economic uncertainty, liquidity issues, and housing market weakness, American consumers continue to spend. However, many analysts question whether consumers can continue to buoy the economy, especially amid rising unemployment and tightening credit. This week's release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher. With mortgage interest rates relatively low, capitalizing on current levels is recommended to protect against future volatility. Remember, mortgage interest rates tend to trend lower slowly, while increases tend to occur quickly. A cautious approach is necessary to protect from future market volatility.