MMG March 26 2007

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For the week of Mar 26, 2007 --- Vol. 5, Issue 13

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Last Week in Review

"AS A RULE, MEN WORRY MORE ABOUT WHAT THEY CAN'T SEE...THAN ABOUT WHAT THEY CAN." Julius Caesar And the whole financial world anxiously sat on the edge of their seats this week, waiting to see what the Fed had in store following their most recent meeting. But no surprises to have been worried about - as expected, the Fed decided to hold the Fed Funds Rate steady at 5.25%. But they did make a subtle change in the carefully crafted wording of their Policy Statement, which suggested that a rate cut may be more likely than a hike as their next move down the road. However, the Fed also said that Core inflation remains above their comfort level...and the Fed will not cut rates as long as this remains true. The Fed's mission is to fight inflation, period. And until their favored measure of inflation, the Core Personal Consumption Expenditure Index dips below 2% for a few consecutive months, don't expect to see a Fed rate cut anytime soon. Mixed news from the housing front, in the form of new construction Housing Starts bouncing higher, yet new Building Permits moving lower. Existing Home Sales rose somewhat unexpectedly in February, marking the largest monthly gain since March 2004 and the highest pace of sales was the highest since April of 2006. Overall, not bad reports, considering how the media still wearily beats away on their housing bubble drum. But it wasn't all great news - overall sales are off 3% from last year, the inventory of existing homes on the market rose slightly to a 6.7 month supply, and the median price of a home declined slightly to $212,800. Many experts feel it is likely the housing market saw its worst days during August of last year, but although stabilizing, the housing market still has a ways to go. Worried about what rates did this week? Despite some frantic moves throughout the week, home loan rates ended up unchanged to only slightly worse than where the week began. AND IF YOU'RE OVER 40...YOU MIGHT BE WORRIED ABOUT THE FACT THAT YOU'RE HAVING TO SQUINT TO READ THIS NEWSLETTER, OR EVEN REACH FOR A PAIR OF READING GLASSES. THINK IT'S JUST A PART OF AGING THAT YOU HAVE TO ACCEPT? MAYBE NOT. READ THIS WEEK'S MORTGAGE MARKET VIEW.

Forecast for the Week

The chart below shows how Bond prices have stayed within a tight trading range, bouncing up from a "floor of support" and down from a "ceiling of resistance". When Bond prices go up, home loan rates improve, and when Bond prices go down, home loan rates worsen. So during the week ahead, will Bonds stay at "home on the range?" With all the news in store, the action just might be intense enough to help Bonds make a break. Remember, weak or negative economic news tends to be bad for the Stock market, but good for Bonds and home loan rates as money flows out of Stocks and into Bonds. And conversely, strong or positive economic news causes investors and traders to want to move money into Stocks, but pull it out of the Bond market, causing Bond prices to go lower and home loan rates to rise. Bonds are currently sitting right on the "floor of support"...so unless the news is quite strong for the economy, Bond prices may move higher within the range, and home loan rates may see some improvement during the week. With that in mind, the economic calendar will deliver fresh news every single day next week, with New Home Sales on Monday, Consumer Confidence on Tuesday, Durable Goods Orders on Wednesday, Final 4th Quarter GDP on Thursday, and last but certainly not least, the highly anticipated Personal Consumption Expenditure Index on Friday. This does happen to be the Fed's most favored measure of inflation, so investors, traders, and armchair analysts alike will be watching carefully...and attempting to guess how the Fed will read the report, and what their next move might be. Chart: Fannie Mae 5.5% Mortgage Bond (Friday Mar 23, 2007)

The Mortgage Market View...

THEY SAY HINDSIGHT IS ALWAYS 20/20...BUT AROUND AGE 40-SOMETHING, EVEN THE BEST OF EYES CAN'T MAKE THAT BOAST. Yes, almost everyone reaches an age where the frustrating fact of failing vision means reading glasses are likely inevitable. For some, glasses can be a real fashion statement...while for others, they are a nuisance, or simply an item that only grandparents should wear. But modern medicine has come a long way in the last few years. LASIK surgery has become a billion dollar industry, and millions of people have had great success with the surgery, correcting poor vision issues like nearsightedness, farsightedness, and even astigmatism. Yet the one thing that LASIK physicians will tell any individual considering the procedure is that it cannot correct "presbyopia", the condition that makes it difficult for aging eyes to read fine print. But now - for those who are too vain to pull out a pair of reading glasses to read a menu, or just don't want to deal with the hassle, there just might be something that can help. What's the answer? A new procedure called Conductive Keratoplasty, or "CK". And like any medical procedure, there is good news...and bad news. The good news is the procedure only takes about fifteen minutes and is non-invasive, requiring just an eyedropper of local anesthetic. More good news, the surgeon may only need to perform the surgery on one eye. Why? Because the correction is being made to accommodate focus at near, middle, and distance ranges at the same time, so the surgeon may only need to correct the one non-dominant eye for near vision, and can leave the other eye untreated to achieve the desired result. The bad news? Well, aging eyes keep right on aging...and the results from the CK procedure will only last five to ten years. And it's not especially cheap, costing around $1500 per eye. About 100,000 people have already had the surgery done...so if you've found yourself to be squinting or reaching for your reading glasses as you've read this issue...you might decide to check with your eye doctor, and perhaps be next in line for this interesting new procedure!

The Week's Economic Indicator Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of March 26 – March 30 Date ET Economic Report For Estimate Actual Prior Impact

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors. As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.