Another Rough Week

Nov 18 2016

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It has been another rough week for mortgage rates. Volatility has been high. The market action was driven almost entirely by expected policy changes under the Trump administration. Mortgage rates rose during the week to the highest levels of the year.

Investors expect that the policy changes under a Trump administration will be good for stocks and negative for bonds. Expectations of greater fiscal stimulus are good for stocks, but they also raise the outlook for future inflation. This is bad for bonds because investors judge the value of bonds based on their future cash flow. An increase in inflation reduces the value of future cash flows, so investors demand a higher yield when the outlook for inflation rises. Since mortgage rates are set based on the value of mortgage-backed securities (MBS), higher yields for MBS lead to higher mortgage rates. 

While it had little market impact, the report on housing starts was very encouraging. In October, total housing starts rose a massive 26% from September to an annual rate of 1.32 million, far above the consensus of just 1.17 million, and the fastest pace since August 2007.

MortgageNews_11-18.pngStrong gains were seen in both single-family and multi-family units. Single-family starts, which make up about 60% of the market, increased 11% to the highest level since October 2007. Building permits for single-family homes also rose in October, which is a positive sign for future activity.

Looking ahead, new information about the plans of the Trump administration likely will continue to influence mortgage rates. In addition, Existing Home Sales will be released on Tuesday. New Home Sales and Durable Orders will come out on Wednesday. The minutes from the November 2 Fed meeting also will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials. The minutes are not likely to change investor expectations for a rate hike at the next Fed meeting on December 14. Mortgage markets will be closed on Thursday for Thanksgiving.

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This Week in Mortgage News: Rates Rise after Election

Nov 10 2016

Rates Rise after Election

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The unexpected results in the Presidential election caused significant volatility in the markets, both overnight as the likelihood of a Trump victory grew and the next couple of days as investor expectations for the U.S. economy under Trump became the focus. Mortgage rates ended the week at the highest levels of the year, and the Dow stock index reached a record high.

As Trump performed well in the early voting states and the possibility of his victory grew, long-term Treasury yields and stock futures began to fall. At one point during Tuesday night, the yield on the 10-year Treasury had declined over 10 basis points and stock futures had fallen 5%. The early reaction by investors was a flight to safety. Investors felt that they mostly knew what to expect in a Clinton presidency, but they had more uncertainty about what to expect in a Trump presidency.  


Economic Consequences

Mortgage_news_election.pngThen, as a Trump victory became more certain, investors began to focus on the expected economic consequences of the policies Trump promoted during the campaign. The drop in 10-year yields and in stocks reversed direction. By Wednesday morning, the yield on the 10-year had risen over 25 basis points from the low, and similarly the Dow was 6% above the overnight low. 

Trump has advocated for greater spending on defense and infrastructure, and at the same time he proposes to cut taxes. These policies raise the prospects for increased deficits and inflation, neither of which are good for mortgage rates. 


Looking Ahead

Looking ahead, new information about the plans of the Trump administration likely will continue to influence mortgage rates. In addition, Retail Sales will be released on Tuesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Housing Starts and the Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on Thursday. CPI looks at the price change for goods and services which are sold to consumers.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

Three Central Bank Meetings

Nov 04 2016

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Over the past week, the meeting of the Bank of England and news related to the U.S. election were the main influences on mortgage rates. The U.S. economic data had little impact. The net result was that mortgage rates ended the week a little lower.

Three major central banks had meetings over the past week, and none of them made any policy changes. In the case of the U.S. Fed and the Bank of Japan, this was the expected outcome. However, investors were disappointed that the Bank of England (BOE) held rates steady and downplayed the likelihood of further rate cuts. Bond purchases from central banks around the world have helped push global bond yields lower in recent years, so this indication from the BOE that there may be less future stimulus than expected caused yields to rise on Thursday, including U.S. mortgage rates. 

As expected, the Fed made no change in policy and few changes in its statement. The statement suggested that the economy is closer to the threshold required to increase the federal funds rate. Fed officials also expressed more confidence that inflation will rise to its target level of 2.0% "over the medium term." 

11-4.pngThe economy added 161K jobs in October, a little below the consensus of 175K. However, upward revisions added 44K jobs to the results for prior months. Investors focused more on wage growth, which rose more than expected. Average hourly earnings were 2.8% higher than a year ago, which was the largest annual increase since June 2009.

Over the past week, there were many news stories about the two candidates in the U.S. election, and some of these stories had a noticeable effect on mortgage rates. Generally, news which favors a Trump victory has been positive for bonds and negative for stocks. News which favors a Clinton victory has caused the opposite reaction.

Looking ahead, the U.S. election likely will continue to influence mortgage rates. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. The economic calendar will be very light. The JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Consumer Sentiment will come out on Friday. While the stock market will be open, mortgage markets will be closed on Friday in observance of Veterans Day.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

This Week in Mortgage News: Strength in Europe

Oct 28 2016

Strength in Europe

MortgageNews_iPadArt-4-1.jpgOver the past week, events outside the U.S. caused global bond yields to move higher. The U.S. economic data had little impact. As a result, mortgage rates ended the week at the highest levels since the middle of June before the UK voted to exit the European Union.

On Thursday, a burst of news from Europe and Japan was negative for global bonds. In the UK, third quarter GDP growth was stronger than expected, and Spain's unemployment rate declined more than expected. An official from the European Central Bank (ECB) then reminded investors that the ECB will decide whether to extend its bond purchase program at its next meeting on December 8. Given the better than expected European data, concerns grew that the ECB may provide less stimulus. In addition, an official of the Bank of Japan (BOJ) said that the BOJ may not increase its bond purchase program. Bond purchases from central banks around the world have helped push global bond yields lower in recent years, so indications that there may be less stimulus in the future caused yields to rise, including U.S. mortgage rates.

GDP Estimate 

gdp_estimate.pngThe first estimate for third quarter Gross Domestic Product (GDP), the broadest measure of economic activity, was considerably stronger than other recent readings. After three straight quarters below 2.0%, GDP grew 2.9% during the third quarter of 2016, above the consensus of 2.5%, and up from 1.4% during the second quarter.

Strength was seen in exports and inventory levels. On the negative side for the economy, consumer spending grew at a slower pace than in the second quarter. The report caused some volatility for mortgage rates but had little net effect.


Looking Ahead

Looking ahead, next week will be packed with central bank meetings and economic reports. The Core PCE price index, the inflation indicator favored by the Fed, will be released on Monday. On Tuesday, ISM Manufacturing will come out and a Bank of Japan meeting will take place. A U.S. Fed meeting will take place on Wednesday, but no significant change in policy or in guidance is expected. Finally, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

This Week in Mortgage News: Inflation and the Fed

Oct 24 2016

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Both central bankers and economic data influenced mortgage rates over the past week. Comments from the top two Fed officials caused some volatility but had little net impact. Weaker than expected inflation data was favorable. As a result, mortgage rates ended the week a little lower.

Late Friday afternoon, Fed Chair Yellen unexpectedly discussed a potential new twist on U.S. monetary policy that was being researched by the Fed. According to Yellen, the idea being explored would involve keeping monetary policy looser for longer to help boost the economy, even at the risk of higher than desired inflation levels. Concerns about a possible future Fed policy which tolerates higher inflation caused mortgage rates to increase late Friday. On Monday, however, Fed Vice Chair Fischer discussed the risks to the economy and to financial markets of keeping rates low for too long. The contrasting views of Fischer compared to Yellen soothed investors and Friday's unfavorable reaction was reversed. 

Mortgage rates improved on Tuesday following the release of the consumer price index (CPI). This widely followed monthly inflation indicator revealed that core inflation in September was lower than expected at an annual rate of 2.2%. Core CPI has held steady near current levels all year. Core inflation excludes the volatile food and energy components.

Thursday's highly anticipated European Central Bank (ECB) meeting caused little reaction for mortgage rates. The ECB made no policy changes. In the press conference, ECB President Draghi essentially postponed any new guidance on monetary policy. He said that the ECB will decide at its next meeting on December 8 whether to extend the bond purchase program which is currently set to conclude in March. Given that there is also a key U.S. Fed meeting on December 14, the first half of December will be a highly important period for mortgage rates. 

Looking ahead, New Home Sales will be released on Wednesday. Durable Orders, an important indicator of economic activity, and Pending Home Sales will come out on Thursday. The first reading for third quarter GDP, the broadest measure of economic activity, will be released on Friday.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

Mortgage News: Retail Sales Rebound

Oct 17 2016

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After an increase in mortgage rates last week, this week saw little net change in rates. There were no surprises in the Fed minutes or from other central banks. The major economic data mostly matched expectations and had little impact.

The minutes from the September 17 Fed meeting released on Wednesday revealed little new information. The minutes reflected the split among Fed officials about the appropriate timing to raise the federal funds rate. According to the minutes, some officials were ready to hike rates "relatively soon," while others preferred to wait for "more convincing evidence" that inflation was rising to the Fed's target level of 2%. The minutes caused little movement in mortgage rates.

The most significant economic data released over the past week was the retail sales report. After two months of declines, retail sales rebounded nicely in September. Excluding the volatile auto component, retail sales increased 0.5% from August, matching the consensus. Consumer spending accounts for about 70% of U.S. economic activity, and the retail sales data is a key indicator. 

The latest data on weekly jobless claims also was encouraging. The number of people applying for unemployment benefits matched the lowest level since 1973. While the pace of new hiring has slowed a little from elevated levels over the summer, the jobless claims data suggests that employers are trying to retain their existing workers. As the labor market tightens, employers typically become more reluctant to lay off workers. In the past, this generally has resulted in larger wage gains.

Looking ahead, the next European Central Bank (ECB) meeting will take place on Thursday. Any guidance on future monetary policy could have an impact on global markets. In the U.S., Industrial Production will be released on Monday. The Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on Tuesday. CPI looks at the price change for goods and services which are sold to consumers. Housing Starts will be released on Wednesday, and Existing Home Sales will come out on Thursday. 

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

This Week in Mortgage News: ECB Stirs up Markets

Oct 07 2016

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Comments from the ECB this week were perceived as negative for mortgage rates. The economic data had little net effect. As a result, mortgage rates ended the week higher. 

On Tuesday, comments from an unnamed official at the European Central Bank (ECB) caused global bond yields to rise, including U.S. mortgage-backed securities (MBS). The official said that a "consensus" was forming about what approach to use when they decide that it's time to conclude their bond buying program. The plan would be to gradually taper the monthly purchases, similar to what the U.S. Fed did to end its bond buying program. According to the ECB, the decision about when to end the program will depend on the performance of the economy. The added demand for bonds from central banks around the world has helped push down yields. Although no mention was made about the timing of the end of the bond purchases, these comments caused investors to reduce their expectations for additional stimulus from the ECB, which was negative for both stocks and bonds. 

Friday's important Employment report came in very close to expectations and caused little net change in mortgage rates. Against a consensus forecast of 170K, the economy added 156K jobs in September. The unemployment rate increased from 4.9% to 5.0%, above the consensus for a flat reading of 4.9%. This was viewed as a sign of strength, however, because the increase was due to the entrance of 444K people to the workforce.

The labor force participation rate rose to 62.9%, up half a point from a year ago. Average hourly earnings, an indicator of wage growth, matched expectations and were 2.6% higher than a year ago. 

The most significant economic report next week will be Retail Sales on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The JOLTS report, measuring job openings and labor turnover rates, will come out on Wednesday. The minutes from the September 17 Fed meeting also will be released on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to move markets. The next ECB meeting will take place on October 20. Mortgage markets will be closed on Monday in observance of Columbus Day.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

Experience EASY

Oct 04 2016

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This Week In Mortgage News: European Banks and Oil

Sep 30 2016

European Banks and Oil

TMS This week in Mortgage NewsA couple of global events caused a moderate amount of volatility for stocks and bonds over the past week, but the effects were offsetting. The economic data had little impact. As a result, mortgage rates ended the week with little change, remaining near the best levels of the year. 

Early in the week, it was reported that the U.S. Department of Justice was seeking a $14 billion fine from Deutsche Bank, the largest bank in Germany, for issues regarding the sale of mortgage-backed securities (MBS) before the 2008 financial crisis. While the actual fine is expected to be considerably lower, investors still are concerned about the impact it will have on Deutsche Bank's capital reserves. Bank stocks around the world declined over the past week on this issue and on overall concerns about the soundness of the European banking system. In response, investors shifted to relatively safer assets, including U.S. MBS, and the added demand caused a small improvement in mortgage rates. Most of the gains were offset later in the week, however, when it was reported that OPEC had reached an agreement on an oil production cut. This news caused investors to shift back to stocks. 

The Market Reaction 

Mortgage_News_Graph.pngWhile it caused little market reaction, Friday's inflation data showed an uptick in August. The core PCE price index, the inflation indicator favored by the Fed, was 1.7% higher than a year ago, up from an annual rate of 1.6% for the prior five months. Core inflation excludes the volatile food and energy components.

Investors often prefer to look at core inflation because it provides a clearer indication of the underlying trend. While core PCE remains steady at levels below the Fed's target of 2.0%, investors will be watching to see if the August data marks the start of a trend toward rising inflation.


Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index and Construction Spending will be released on Monday. The ADP Employment Change, Factory Orders, and the ISM national services index will come out on Wednesday.  

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Favorable Fed Meeting

Sep 26 2016

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Investors liked what the Fed said, or didn't say, following Wednesday's meeting. Both stocks and bonds reacted favorably. The economic data had little impact. As a result, mortgage rates ended the week lower. 

As expected by most investors, the Fed did not raise the federal funds rate. The Fed explained in its post-meeting statement that the case for a rate hike "has strengthened," but Fed officials decided to wait for "further evidence of continued progress toward its objectives." Notably, Fed officials remain divided about the appropriate timing to tighten monetary policy. In a rare occurrence, three out of ten voting Fed members dissented from the decision because they wanted a rate hike to take place at this meeting. Conversely, three Fed officials indicated in their forecasts that they do not see a need to raise rates at all this year. Investors were pleased that the Fed did not come out more strongly in favor of tighter monetary policy, and mortgage rates improved following the meeting. 

The housing data released over the past week was mixed. After reaching a multi-year high this summer, sales of previously owned homes in August declined for the second straight month. According to the National Association of Realtors, low levels of inventory are holding back home sales in many regions. Inventories of homes for sale declined 3% from July and were 10% lower than a year ago. 

There are signs that building activity for single-family homes may pick up in coming months, however. In August, building permits for single-family homes increased 3.7% from July, which was the largest monthly increase since June 2014. In addition, the NAHB home builder confidence index jumped to 65 in September, which matched the highest reading since 2005.

Looking ahead, New Home Sales will be released on Monday. Durable Orders, an important indicator of economic activity, will come out on Wednesday. Pending Home Sales and the third estimate of second quarter GDP will be released on Thursday. The Core PCE price index, the Fed's preferred inflation indicator, will come out on Friday.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline)

Topics: mortgage news

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