HELP WANTED? Apparently not last week, as reports on job creations as well as unemployment claims came in worse than expected. After some hopeful signs that the job market was improving this summer, the recent data on the job market stubbornly lags behind the otherwise positive signs of an economic recovery. These soggy job reports helped fulfill last week’s prediction that mortgage interest rates would nudge a bit lower. In fact, the rate decline surpassed expectations, as mortgage rates dropped by about .25 to .375% over the course of the past week.

How significant are interest rates in the home buying decision? Just one out of twenty five potential homebuyers state low interest rates as a motivator. Read “The Mortgage Market View” below to learn the top five motivating factors for the homebuyer of today.

As mortgage interest rates have been on a fairly steady climb since late June, homeowners wasted no time in reacting to the refreshing change of pace recently. Last week saw a 22% percent jump in mortgage loan applications, as consumers took advantage of this dip in interest rates. What happens next? Can mortgage interest rates continue their recent decline, or is this just a brief pause on the road to higher rates? Read on for this week’s forecast…

The infamous Chairman Greenspan and his Federal Open Market Committee are meeting this Tuesday. The expectation is for rates to be left unchanged and fairly neutral comments about the economy, so this meeting should have no significant impact on mortgage interest rates. But, Mr. Greenspan and the Fed have certainly surprised us before, so listen in for the results this Tuesday afternoon.

The sudden drop in mortgage interest rates last week may continue to a lesser extent this week, but the chart below highlights why the latest decline in rates is probably going to be a temporary phenomenon. Remember that as mortgage bond prices increase, mortgage interest rates decrease, so it is clear to see the improvements made in interest rates over recent days.

In reviewing the chart below, it appears that some interesting action should be coming soon. Why? Mortgage bond prices tend to bump up when they hit a floor of support, causing mortgage interest rates to improve. Conversely, mortgage bond prices bounce down when hitting a ceiling of resistance, causing mortgage interest rates to worsen. Bonds will normally trade between levels of support and resistance until enough momentum is gained by a major market movement to break through one way or the other. Knowing this, it appears that mortgage bonds should now move sideways between a tight ceiling and floor indicated below. However, note that bonds have not been strong enough to break through the current ceiling of resistance any time recently, so it is a likely bet that mortgage bonds will bounce down from this ceiling yet once again. Hitting this resistance and bouncing down would cause mortgage rates to worsen, so stay tuned – The Mortgage Market G uide Weekly will keep you informed.

How Important are Interest Rates to Potential Homebuyers? Survey says…

According to a recent survey of over a thousand adults conducted for Lawyers.com, mortgage interest rates play a very minor role in the decision making process of potential homebuyers.

Interestingly enough, mortgage interest rates are the primary motivation in home purchases for just 4 percent of Americans who plan to buy within two years.

What are the top five motivators of today’s homebuyer?

• 25 percent of those surveyed said that a life change such as a retirement, relocation, new baby or divorce is the primary motivator for buying a new house.
• 18 percent stated they sought a bigger house or more property.
• 16 percent were eager to become homeowners because of the investment value.
• 12 percent wanted to buy in order to avoid the restrictions of renting.
• 7 percent cited the tax benefits of homeownership as a motivating factor.

The survey also asked homeowners about the process of buying a home and a majority responded that they feel it is a very confusing process. To be specific, the legal elements of the home buying process were labeled as “confusing” to 51 percent of current homeowners. 22 percent said that they were not clear on the various fees associated with real estate transactions, and 15 percent felt that they did not understand closing documents.

In general, weaker than expected numbers would indicate the economy is not improving as quickly as expected, and could cause mortgage rates to improve. Positive numbers would indicate a strengthening economic climate, and could cause mortgage rates to gradually climb higher.

The economic releases most likely to have the greatest impact on mortgage interest rates this week are the Consumer Price Index reports on Tuesday and the Initial Jobless Claims report on Thursday. The Consumer Price Index or “CPI” is a measure of the price level of a fixed market basket of goods and services purchased by consumers such as food, gas, clothing, and airline tickets. The CPI is very important, as it is a strong indicator of inflation. CPI can be greatly influenced in any given month by a movement in food and energy prices, which can be volatile. Therefore, it is important to look at CPI excluding food and energy, which is commonly called the "core rate" of inflation. Within the core rate, some of the most closely watched components are apparel, tobacco, airfares, and new cars. Initial jobless claims measure the number of filings for state unemployment benefits, and this report can cause a moderate to pronounced bond market r eaction. Last week’s report certainly was worse than anticipated, so what will this week bring? Get updated on all the action in next week’s issue.

For the week of September 15th - September 19th, 2003