What's Ahead For Mortgage Rates This Week : October 25, 2010

Mortgage markets improved last week overall, but barely. After making a sizable move lower through Monday, Tuesday and Wednesday, mortgage pricing jumped Thursday and Friday. Nearly all of the early-week gains were erased.

Conforming mortgage rates in Arizona ended the week slightly improved.

There wasn't much economic news on which for markets to trade last week. In its absence, bond traders took cues from the currency markets, among other things.

Mortgage rates are closely tied to the value of the U.S. dollar. This is because mortgage bond investors are repaid in U.S. dollars and, as the dollar gains value, demand for dollar-denominated bonds tend to grow.

More demand for bonds raises prices which, in turn, lowers rates.

Bond prices and bond yields move in opposite directions.

The dollar was strong in the first part of last week, then weakened through Friday's close with the G-20 meeting looming.  Mortgage rates trended along similar lines.

This week, there's a return to data and mortgage markets should respond -- especially because the week is housing-data heavy. Housing is believed to be a key part of the country's ongoing economic recovery.

• Monday : Existing Home Sales
• Tuesday : Case-Shiller Index, Consumer Confidence, Home Price Index
• Wednesday : New Home Sales
• Thursday : Initial and Continuing Jobless Claims

Mortgage rates are near all-time lows and it's unclear whether they'll stay this low, or start rising. Either way, if you haven't talked to your loan officer about a refinance at today's great pricing, set aside some time this week to do that.

Once rates reverse higher, they're unlikely to fall back down.

Which Model Is More Accurate : The Case-Shiller Index Or The Home Price Index?

The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government's own Home Price Index, however, reached a different conclusion.

According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.

So, as a home buyer and/or homeowner in Scottsdale , by which valuation model should you make your bets?  Perhaps neither. 

This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets. 

The Case-Shiller sample set, for example, comes from just 20 cities across the country -- and they're not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population. 

That's hardly representative of the housing stock overall.

By comparison, the Home Price Index tracks home sales everywhere -- every city in every state -- but it specifically excludes certain properties.  The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing. 

The HPI ignores homes backed by "jumbo" loans, too.

Therefore, the "right" model for home values cannot come from national data at all -- it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood. A real estate agent in the area does, however.

The best way to get a pulse for what's happening in markets right now is to talk to somebody with good data.