FOOD FOR THOUGHT…exactly as predicted in the last issue, stocks determined market movement last week. As stocks were pushed lower, the drop in stock prices helped mortgage bonds as money flowed out of stocks and into bonds. The improvement in mortgage bonds meant a decrease in mortgage interest rates of between .125 and .25%.

Why the drop in stock prices and will the sell-off continue? Stocks have enjoyed a terrific rally, but stalled at a tough resistance level identified on the S&P 500 of 1050. This will continue to be a tough barrier to break. Last week, tech giant Microsoft issued very cautious forecasts for the tech sector, which added to the decline in stocks. But signs of a comeback appeared late Friday, as stocks narrowed their losses and closed on an upbeat note. The resiliency of stocks tells us that the table may be set for a move higher off some good economic news, and this week happens to be chock full of market moving reports and releases. If stocks do get back to their winning ways, the money currently parked in bonds may quickly find its way back to stocks, causing mortgage interest rates to worsen.

Where will the new crop of homebuyers come from? And will they be able to keep the hot housing market cooking for years to come? Look no further than the Mortgage Market View below to learn more about the fastest growing group of new homeowners…

The economic reports last week looked like the offerings on the “South Beach Diet” compared to the smorgasbord of All-You-Can-Eat economic news this week. What’s on the menu? For starters, the week kicks off with important news about the strength of the housing sector with both New and Existing Home Sales Reports. The main course will be served on Thursday with the Gross Domestic Products report. Some experts feel that the estimates could be significantly exceeded. If this happens, look for a stock rally and a bond debacle, meaning an increase in mortgage interest rates during the coming week. There are many other market moving goodies on the economic calendar as well. Durable Goods, The Employment Cost Index (a Greenspan favorite), The Chicago Purchasing Managers Index, Initial Jobless Claims and Tuesday’s Fed meeting all highlight the menu. The chart below shows the narrow channel that mortgage bonds are trading in, between the 100-day and 50-day moving averages. Any of this week’s daily specials could cause a push through key resistance or support levels.

BOOM…BOOM! Don’t look now, but here come the “Echo Boomers”, the fastest growing segment of homebuyers. These new Boomers are the children of the Baby Boomers, aged 25 and under. US census data shows that the number of homeowners who are below age 25 nearly doubled to 1.5 million in 2002, from 792,000 a decade earlier. The National Association of Realtors says a surge in younger buyers has driven down the median age of a first-time homebuyer to just 31 in 2001, from 36 in 1993.

What’s pushing the new trend? Historically low mortgage rates are certainly a driving factor, but also many new lending programs that do not require the hefty down payments that once were the standard. The advancements made in credit scoring and automated underwriting make it much easier for mortgage lenders to gauge risk, and offer loans that more easily allow these young homebuyers to pursue homeownership.

This crop of younger buyers along with an improving economy should keep the housing market cooking for years to come, even with moderately higher mortgage interest rates. Marketing efforts to capture these more youthful home purchasers may possibly be more closely focused on college graduates at the early stages of their earning potential. These individuals could represent a repeat source of business long into the future.

This week’s economic calendar swings into high gear with a number of releases having a potential to impact mortgage interest rates. Tuesday, the Durable Orders report along with the Federal Open Market Committee’s monetary policy statement will have a high potential to impact the short-term direction of interest rates. Thursday brings the Initial Jobless Claims, Employment Cost Index, and GDP reports. The week finishes up with Personal Income and Spending followed by the always significant Chicago Purchase Managers Index (PMI) report. All of these reports have the potential to trigger bond market responses that can impact the direction of interest rates.

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.

For the week of October 27th - October 31st, 2003