Market Comment - Week of March 10, 2008 Mortgage bond prices fell last week pushing mortgage interest rates significantly higher. The spread between Treasuries and mortgage-bonds continued to widen as banks and portfolio investors sold mortgage bonds to raise cash for battered balance sheets. This selling pressure coupled with investors already leery of mortgage related debt sent prices through the floor pushing rates considerably higher. For the week, interest rates on government and conventional loans rose by 3/8% to 1/2% in rate. The consumer price index data Friday will be the most important event this week. Trade data, retail sales, and consumer sentiment also have the real potential to cause mortgage interest rate volatility. This is the last full week of data heading into the March 18th Fed meeting. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Trade Data Tuesday, March 11, 2008 $59.5 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. Retail Sales Thursday, March 13, 2008 Up 0.1% Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. Business Inventories Thursday, March 13, 2008 Up 0.3% Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. Consumer Price Index Friday, March 14, 2008 Up 0.3%, Core up 0.2% Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. U of Michigan Consumer Sentiment Friday, March 14, 2008 70.5 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.   Consumer Price Index The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. High oil prices continue to weigh heavily upon the financial markets. The health of the economy remains uncertain. Stocks continue to bounce up and down. Fed Chairman Bernanke recently indicated that inflation could complicate the Fed’s next move. He specifically noted the risk of higher energy and a weak dollar eventually passing into the core rate. The Fed has itself in a precarious position of wanting to stoke the economy amid the real possibility of increased inflation. Market participants expect the consumer price index to be critical heading into the Fed’s meeting next week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. The flight to quality purchasing of mortgage bonds has all but dried up and only the Treasury market has benefited from the continued global economic uncertainty. A cautious approach to lock decision is prudent considering the uncertainty surrounding the release and the continued mortgage interest rate volatility. Chuck Sands Sales Associate/Loan Officer 3100 Dick Pond Rd. Ste. A Myrtle Beach, SC 29588  Work: 843-294-2300 ext 225 Fax: 866-609-2788 Cell: 843-504-1803 Brought to you by W.R Starkey Mortgage