THE ECONOMY IS FULL STEAM AHEAD…as the Commerce Department reported this past week that the U.S. economy expanded at a 7.2 percent annual rate in the third quarter. This is the fastest economic growth in over 19 years! This tremendous economic expansion was powered by tax cuts and low interest rates. So what was the result in terms of mortgage interest rates? All the good economic news of last week did pressure mortgage rates to trend very slightly higher. Interestingly enough, the damage would have been much worse if stocks could have managed to rally higher. Why were stocks restrained from further gains on all the superb economic data? Technical data indicates a “brick wall” of resistance at 1050 on the S&P 500, which is acting like a lid on stocks and helping mortgage bonds hold their ground. Never had the chance to see a brick wall of res istance up close and personal? Take a look at the chart below for the full scoop.

Speaking of steam, more good news: housing is still HOT! Homeownership rose to a new record in the third quarter as more Americans were able to buy homes, due in part to 45-year lows in mortgage rates and a strengthening economy. The share of households owning their home increased to 68.4%, accounting for 72.2 million homes. The housing market is clearly alive and kicking.

And last but never least: How about that Fed? As expected, the Fed left rates unchanged but they did have a trick up their sleeve…they played the “disinflation” card again. After the “D-word” hit the market, bonds made gains but failed to hold them, especially after Thursday’s impressive GDP Report.

THE FLOODWATERS ARE RISING…OR AT LEAST THE NEED FOR FLOOD INSURANCE WILL BE SOON! SHOULD YOU BE EXPECTING A CALL FROM YOUR INSURANCE AGENT ABOUT FLOOD COVERAGE? BE SURE TO READ THE MORTGAGE MARKET VIEW BELOW FOR THIS IMPORTANT NEWS ON FLOOD ZONE MAPPING.

What kind of action can we expect for the coming week? First and foremost, remember that positive economic news will help stocks and hurt bonds. Mortgage interest rates are determined by movement in mortgage bonds.

Perhaps you hadn’t heard, but on Monday, “Izzy” is coming! The ISM (Institute of Supply Management) report gives important insight into the manufacturing sector, and could set the early pace for trading this week. Midweek information will be light, and we’ll have to wait until Friday for the heavyweight to show. Friday morning, the Jobs Report for October will hit the street. The Jobs Report is typically the most important release of the entire month, and can cause dramatic changes in mortgage interest rates. How important? A look at the past several months can tell the tale. Mortgage bonds were rapidly deteriorating during July and August, causing mortgage rates to rise dramatically. Then on September 5th, the Jobs Report for August showed that employment growth was worse than expected. Bonds reversed course and rallied, causing mortgage rates to drop for the whole month of September! But when the very next J obs Report was released on October 3rd, it showed stronger than expected jobs growth. You guessed it…that caused bonds to worsen and rates to rise in October. This Friday’s report could drive the direction of both stocks and bonds for November. Savvy bond traders will look to Thursday’s Initial Jobless Claims report for clues to Friday’s data.

Can stocks bash through the “brick wall” of resistance? The chart below is typically one that shows the action in Mortgage Bonds. But this week, we want to take a look at the stock market and have illustrated the S&P 500 Stock Index. As mentioned, there is a very tough barrier of 1050 that the S&P 500 has tested several times and failed to break. Amazingly, the index closed the week EXACTLY at that level of 1050. A look back shows that this very same level once supported the index and acted as a floor. But way back in 2002 when the floor was tested in May and eventually broken in June, this same level has acted as a ceiling, putting a lid on stock prices. This week’s data could very well determine if stocks will break above or bounce below this critical barrier, and the outcome of this battle should set the stage for mortgage rates in the days and weeks ahead.

Grab your sandbags and barricade the door – FEMA is coming your way soon! The Federal Emergency Management Agency has decided to update its 100,000 flood plain maps, and even expand the mapping range into many areas previously undeveloped. What will this mean? The maps track and evaluate the risk of a property being damaged by flooding. This is not only important for homeowners and homebuilders, but is crucial information for home lenders and home insurers who are at great risk when a property is damaged by flood.

Flood insurance is generally very costly, so homeowners and builders have fought for waivers in the past, with a fair measure of success because the maps are so outdated. New maps will mean authorities are going to be much less likely to bend the rules.

What areas are most at risk for big changes in flood mapping? Those with large populations and repetitive losses over the past several years, such as North Carolina, Florida, and certain parts of New York and Texas. But can we blame FEMA for wanting to make the change? Over the past decade, FEMA has paid almost $7.4 billion in flood claims, and actual damages due to flooding are much, much greater. In 1993 alone, damages exceeded $20 billion as a result of major flooding in the Midwest.

What steps can be taken now? If you have a concern that your property may be found to be in a flood zone, contact local zoning boards, building inspectors, insurance agents or state floodplain managers to get recent history for your area. You may not be able to sandbag FEMA, but well informed is well armed.

The big releases of the week are the ISM (Institute of Supply Management) Index on Monday and the Jobs Report on Friday, both discussed in the Forecast above. The Jobs Report can definitely cause movement in mortgage interest rates, so listen carefully for the results on this report! Remember that 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 November 3rd - November 7th, 2003