Mortgage Rate Update, June 16, 2011

Mortgage rates fell sharply yesterday and appear poised to continue in that direction today. Today also offers a wealth of economic data to help guide traders and investors. Volatility is likely the rule for the next couple of weeks.

Mortgage Rate Trend Direction:    Down
Economic Reports/Rate Impact:   Weekly Jobless Claims, 8:30 AM ET, Moderate Rate Impact
                                                                Housing Starts, 8:30 AM ET, Moderate Rate Impact
                                                                Philly Fed Index, 10:15 AM ET, Moderate Rate Impact
Key News:                                          Greek bailout or default?

Summary
Mortgage rates are in a strange situation.  Rates might be expected to rise with the end of the Fed's quantitative easing program, yet are dropping because of the potential default of Greece.  Greece appears to be the dominant story again today and will push mortgage rates even lower.

Impact of economic reports
Jobless claims fell from last week's numbers but stayed over the key 400k threshold.  Is the drop simply a meaningless reduction in the numbers of folks applying for unemployment benefits or the start of a period of real improvement? My guess is that it is simply a temporary blip.

Housing starts also improved from last month and exceeded analyst's expectations.  The same question applies here: temporary blip or new trend?  Here I think the change may be more of a change in trend.  Surveys from around the country over the past few months have suggested that consumers are choosing new construction over existing homes.  It seems understandable that folks would want a home that meets all there desires and is new, versus an existing home that isn't exactly what is wanted, needs renovation, and is still under valuation pressure.

Later this morning we will see the results of the Philly Fed Index which will provide another peek at manufacturing activity which is not expected to be positive.

Impact of international or political events
The protests in Greece have grown more intensive and as of this writing no deal to provide bailout funds to Greece had been reached.  Some reports this morning have suggested that bailout funds may be provided to Greece without the requirement of further austerity measures, or more accurately, in spite of requirements for further austerity (budget cuts).  Which is worse: Greece defaulting on its debt or giving Greece more money when they have no prospects being able to pay their debts going forward?