Mortgage Rates Fall as Mood Shifts, August 30, 2011

We all have experience dealing with a friend, co-worker or family member who is moody.  One day they are happy and agreeable and the next nothing pleases them.  US markets are moody bouncing from one extreme to the other, with the rarity being the calm day.  Psychologists call this manic behavior and it fits market and mortgage rate activity over the past few months extremely well.  Just like the folks who must find dealing with the manic associate, friend or relative quite frustrating, those who must follow markets and mortgage rates (home purchasers and refinancers) must find the daily uncertainty scream-worthy. If you listen—you’ll hear me scream!

Why have markets shifted today and mortgage rates moved back down?  Three statements seem to be behind the move.  First, Bill Gross, the Chairman of PIMCO, the world’s largest bond holder said yesterday that he had made a mistake selling all US bond holdings from its portfolio several months ago out of fear that the rally in US Treasury Bonds was over-blown and would soon reverse course as inflation and growth picked up.  Secondly, the IMF announced that it was cutting its estimate for growth in the US in 2011 to 1.6% from 2.5% and in 2012 to 2.0% from 2.5%.  Finally, Chicago Federal Reserve Bank President Charlie Evans, in an interview on CNBC, argued that he believes the Fed should be very aggressive in providing further monetary accommodation.

On the busy data front today there are three reports that will impact markets.  The Case-Shiller Home Price Index is the only one of the three that is out before the stock market opens at 9:30 AM ET.  Surprisingly to some, I would think, the Case-Shiller report indicates that home prices have increased across the US in the last quarter.  At 10 AM ET, consumer confidence figures will be released and expectations are for a fairly significant decline.  Finally, at 2 PM ET, the minutes of last week’s meeting of the Federal Reserve Open Market Committee (FOMC) will be released.

The final two reports will have the most impact on current mortgage rates today.  The consumer confidence numbers will likely support the drop in rates that is currently underway.  The FOMC minutes will be particularly interesting in light of Mr. Evans comments this morning. I suspect it is not a coincidence that he chose to give an interview on the same day as the minutes are released.  It seems reasonable to believe he wanted to clarify or emphasize a point that is made in the minutes.  It will be interesting to see how markets interpret the two this afternoon.