UK Votes to Exit

Jun 27 2016

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A shocking British vote to exit the European Union sent both stocks and mortgage rates much lower on Friday. The other economic news had little influence. As a result, mortgage rates ended the week lower, near the best levels since early 2015.

While the final polls ahead of the vote were close, the vast majority of investors expected the UK to vote to remain in the European Union. When the outcome indicated that the UK will exit the EU, the resulting uncertainty caused investors to swiftly shift to safer assets on Friday. Global stock markets sold off sharply and bond yields declined, including mortgage-backed securities (MBS). Since mortgage rates are set based on MBS prices, mortgage rates moved lower.

The British exit (Brexit) is expected to result in slower economic activity. The degree is difficult to predict. The uncertainty is heightened by the prospect of other countries in Europe proposing similar referendums. It is likely that European trade will be hindered by higher tariffs, companies will be more hesitant to hire new workers, and investors will be slower to commit capital to the region. However, this was viewed as positive for mortgage rates, since slower global economic growth reduces the outlook for future inflation. 

In the U.S., low mortgage rates have contributed to healthy housing market activity. Sales of previously owned homes in May rose to the best level since 2007. This occurred despite a low level of homes available for sale. Strong demand and low supply pushed the housing market to two records in May. The median price of homes sold rose to the highest level on record, and the days on the market fell to a record low.

Looking ahead, the reaction to the British vote will continue to influence U.S. mortgage rates. In the U.S., the third estimate for first quarter GDP will be released on Tuesday. The report on pending home sales and the core PCE price index will come out on Wednesday. Core PCE is the favorite inflation indicator of the Fed. The ISM national manufacturing index will be released on Friday. Mortgage markets will close early on Friday in observance of July Fourth. 

Topics: Ali Vafai, The Money Source, housing market, mortgage rates, european union

Shift in Outlook for Fed Policy

May 20 2016

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Stronger than expected economic data and a shift in expectations for Fed policy were negative for mortgage rates over the past week. As a result, mortgage rates ended the week higher.

Speeches made by Fed officials during the first part of the week alerted investors that the Fed may be much closer to another federal funds rate hike than investors expected. On Wednesday, the release of the minutes from the April 27 Fed meeting confirmed this. In the minutes, Fed officials made it clear that they will consider raising rates as soon as June if economic conditions continue to improve. Investors currently view tighter Fed policy as negative for mortgage rates, so rates rose as the Fed's position became better understood.

One factor supporting the case for tighter monetary policy is stronger than expected improvement in the recent housing data. Existing home sales in April rose for the second straight month and were 6% higher than a year ago. Inventories of existing homes available for sale jumped 9% from March. Sales of existing homes make up about 90% of the market. Housing starts, an indicator of future sales activity for newly built homes, increased 7% in April from March. 

Complicating the decision for the Fed a little is the recent inflation data. The core consumer price index (CPI) in April was 2.1% higher than a year ago, down from a multi-year high of 2.3% in February. After rising significantly for several months, core inflation has declined for the last two months. If this trend continues, it would make the Fed less likely to raise rates. 

Looking ahead, the new home sales data will be released on Tuesday. Durable orders and the pending home sales data will come out on Thursday. The second estimate of first quarter GDP, the broadest measure of economic growth, will be released on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Several Fed officials are scheduled to make speeches next week as well. Mortgage markets will close early on Friday in observance of Memorial Day. 

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

Topics: Ali Vafai, The Money Source, mortgage news, consumer price index, economic data, housing data, inflation data

Europe and China Worry Investors

May 09 2016

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Concerns about the pace of global economic growth were positive for mortgage rates over the past week. Friday's key employment data caused some volatility, but had little net effect. Mortgage rates ended the week lower. 

The news released over the past week caused investors to reduce their outlook for economic growth in Europe and China. On Tuesday, the European Commission, the executive body of the European Union, cut its growth forecast for the eurozone for 2016 and 2017. The data from China released on Tuesday also was disappointing. China's PMI manufacturing index fell more than expected to a level which suggests that the sector is contracting. When global economic growth slows, it reduces the outlook for future inflation, which is positive for mortgage rates.

The most highly anticipated economic report of the month contained just minor surprises. Against a consensus forecast of 200K, the economy added 160K jobs in April, which was the lowest level since September 2015. Downward revisions to prior months subtracted 19K. Strength was seen in health care, while the retail sector was weak. 

The unemployment rate remained at 5.0%. Average hourly earnings, an indicator of wage growth, were 2.5% higher than a year ago. The weakness in job gains was offset by the strength in the wage data, and the report caused little change in mortgage rates.

Looking ahead, additional labor market data in the JOLTS report will be released on Tuesday. JOLTS measures job openings and labor turnover rates. The report on retail sales will be released 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 producer price index (PPI) inflation data also will come out on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 

Topics: Ali Vafai, The Money Source, mortgage news, Pink Unicorn, economic data, mortgage rates, wage growth, unemployement rates

No New ECB Stimulus

Apr 22 2016

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After spending the last couple of weeks at or near the lowest levels of the year, mortgage rates rose this week. The cause came from investor disappointment with Thursday's European Central Bank (ECB) meeting. The U.S. economic data contained few significant surprises and had little effect.

At its last meeting in March, the ECB announced significant new stimulus measures to spur economic activity and inflation in the eurozone. In speeches following the March meeting, ECB President Mario Draghi emphasized the ECB's readiness to do more if needed. Investors liked what they heard and pushed interest rates around the world lower in anticipation of more stimulus. This week, however, the ECB chose to add no new measures, and some of the improvement in rates was reversed. 

The recent housing data was mixed. The existing home sales data for March revealed a solid increase of 5% from February, and they were higher than a year ago. Also notable, inventories of existing homes for sale increased 6%. Tight inventories have been a big factor holding back home sales activity in many regions. National median sale prices were 6% higher than a year ago.

In contrast to home sales, housing starts declined 9% from February, but they still were 14% higher than a year ago. The drop was evenly split between single-family and multi-family units. Building permits, a leading indicator of future activity, fell 8% in March but also remained above year ago levels.

Looking ahead, the next Fed meeting will take place on Wednesday. No change in rates is expected, but the statement could have an impact on mortgage rates. This will be followed by a Bank of Japan meeting which could influence U.S. markets on Thursday. Before the meetings, durable orders will come out on Tuesday. The first reading for first quarter gross domestic product (GDP), the broadest measure of economic activity, will be released on Thursday. The core PCE price index, the Fed's preferred measure of inflation, will come out on Friday.

Topics: Ali Vafai, The Money Source, mortgage news, housing data, economic stimulus, existing homes, economic inflation

Inflation Declines

Apr 15 2016

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While the U.S. economic data released over the past week generally was a bit weaker than expected, it was offset to some degree by stronger than expected data in China. The net effect was small, and mortgage rates ended the week just a little higher, up from the lowest levels of the year. 

While explaining why the Fed plans to move gradually to tighten monetary policy, Fed Chair Yellen said that she was concerned that the recent increase in core inflation may be due to temporary factors. The consumer price index (CPI) report for March released on Thursday might be a sign that her concerns are justified. 

Core CPI inflation, which excludes the volatile food and energy components, was 2.2% higher than a year ago, down from a 2.3% annual rate in February, and below the consensus forecast. This follows four straight months of increasing levels of core inflation and may be the start of a trend lower. It would be good for mortgage rates if inflation continues to decline.

Retail sales in March were a good deal weaker than expected. The results were decent, but investors were looking for better. Excluding the volatile auto component, retail sales increased 0.2% from February, which was the largest increase in four months, but it was half the expected level. Consumer spending is an important component of gross domestic product (GDP), and it was somewhat surprising that the report caused so little reaction. 

Looking ahead, the biggest event next week may be Thursday's European Central Bank (ECB) meeting. Bond purchases by the ECB have helped keep global bond yields low, so comments about future policy could have an impact on U.S. mortgage rates. Before that, the NAHB housing index will be released on Monday. Housing starts will come out on Tuesday. Existing home sales will be released on Wednesday.

Topics: Ali Vafai, The Money Source, mortgage industry, mortgage news, consumer price index, economic data, mortgage rates, retail sales, inflation, consumer spending

Central Banks See Continued Support

Apr 11 2016

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Mortgage rates improved again this week and are now near their best levels of the year. Again the improvement resulted from statements by central bankers. The economic data had little effect.

Statements by the heads of the International Monetary Fund (IMF), the European Central Bank (ECB), and the U.S. Fed shared the same sentiment, the global economy needs support. IMF Managing Director Lagarde described economic growth in Europe as "too slow, too fragile". ECB President Draghi said the ECB will do what ever it takes to stimulate growth and raise inflation. Inflation in the eurozone is now -0.1%. The target is 2.0%. The minutes from the U.S. Fed meeting on March 16th supported recent comments that the Fed will take a gradual approach to raising the federal funds rate. These dovish comments were well received by the bond markets, including U.S. mortgage-backed securities.

The economic data released this week shows that the U.S. economy is on far better footing than the overall global economy. The JOLTS report, which measures job openings and labor turnover rates, showed that job openings rose and voluntary quits increased. Both are signs of an improving labor market.

The ISM Services index measures expansion or contraction in the services sector of the economy. Readings above 50 indicate expansion. The index for March, at 54.5, shows that the service sector expanded again and did so at a better pace than the previous two months.

Looking ahead, the Retail Sales report will be released on Wednesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The consumer price index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services which are sold to consumers. Industrial production, another important indicator of economic activity, will be released on Friday.

Topics: Ali Vafai, The Money Source, mortgage news, economic data, federal funds rate, mortgage rates, stimulate growth, US labor market

Fed Officials Split

Mar 28 2016

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This week's economic data contained few surprises, and the attacks in Brussels had little impact on U.S. financial markets. As a result, mortgage rates ended the week with little change. 

At the Fed meeting on March 16, nine Fed officials voted in favor of holding the federal funds rate steady and just one supported a rate hike. Fed Chair Yellen suggested that the Fed should proceed cautiously in tightening monetary policy to see the effect of overseas weakness on the U.S. economy.  

Since the meeting, however, several Fed officials have supported tighter monetary policy, sending a mixed message to investors. These officials feel that the performance of the U.S. economy may justify a rate hike as soon as the next Fed meeting on April 27. Investors will be closely monitoring comments from other Fed officials to determine how much support there is for these more hawkish views.

The headline numbers for February home sales released this week were mixed. Sales of existing homes fell 7% from January, while sales of newly built homes showed an increase of 2%. The details show that the fall in existing home sales was from an elevated January level, and the rise of new home sales was from an unusually low level in January. 

Both measures have been volatile lately. An average of home sales over a multiple month period provides a clearer picture of the underlying trend, and the three-month average has shown steady improvement over the last few months. 

Looking ahead, mortgage-backed securities (MBS) markets will be closed tomorrow for Good Friday. Next week, 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, Pending Home Sales and Core PCE inflation will be released on Monday. The ISM national manufacturing index will come out on Friday.

Topics: Ali Vafai, The Money Source, The Money Source Inc., mortgage news, employment report, Pink Unicorn, employment rate, home sales, monetary policy, mortgage rates

Strong Job Gains

Mar 07 2016

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A wide range of major U.S. economic data was released over the past week covering the labor market, manufacturing, services, and housing. Overall, the data suggested that U.S. economic growth and inflation were a little stronger than expected. As a result, mortgage rates ended the week higher. 

Friday's Employment report showed that job gains remained strong. Against a consensus forecast of 190K, the economy added 242K jobs in February. Upward revisions to prior months added another 30K. The economy has added an average of 228K jobs per month over the last three months. The Unemployment Rate remained at 4.9%, as expected.

Average hourly earnings, an indicator of wage growth, declined slightly from January, well below the consensus for a modest increase. After a concerning rise in wages in January, the decline in February was good news for mortgage rates and partially offset the negative effect of the strong job gains.

The February ISM national manufacturing survey released on Tuesday indicated that things may be turning a little more positive for this sector. The survey rose to the best level in five months. For mortgage rates, one component of the survey was concerning. The prices paid component measures the change in the prices that manufacturers charge. In February, the survey on prices paid revealed a much higher reading than was expected, hinting at rising inflation. This follows significant increases in the recent broad-based monthly inflation measures. Mortgage rates are highly influenced by the outlook for future inflation. As inflation expectations rise, so do mortgage rates. 

Looking ahead, the biggest event next week will be the European Central Bank (ECB) meeting on Thursday. It is expected that the ECB will announce additional stimulus measures, which could include an expansion of its bond purchase program. Very little U.S. economic data will be released next week. Import Prices will come out on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Topics: Ali Vafai, The Money Source, Correspondent Mortgage, employment report, economic growth

Higher Inflation

Feb 19 2016

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Mortgage rates spiked higher late last week, as investors bought stocks and sold bonds. The volatility continued this week, but the net effect was favorable for mortgage rates. Despite an upside surprise in the CPI inflation data and stock market gains, mortgage rates ended the week a little lower. 

The Consumer Price Index (CPI) is the most widely followed monthly inflation indicator, and the readings for January were higher than expected. CPI was 1.4% higher than a year ago, which was the highest level since October 2014. 

Core CPI, which excludes the volatile food and energy components, was 2.2% higher than a year ago, which was the highest level since June 2012. Economists often look at core inflation rather than the overall rate to get a clearer sense of the underlying trend. 

While some forces have helped hold down inflation over the past year, including the stronger dollar and lower oil prices, the service sector has remained strong and costs have been rising. In particular, shelter and medical costs have increased over the past year. Mortgage rates are highly influenced by the outlook for future inflation. If the trend toward higher inflation accelerates, it would be negative for mortgage rates.


Looking ahead, Existing Home Sales will be released on Tuesday and New Home Sales on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. The Core PCE price index, the Fed's preferred inflation indicator, and the second estimate of fourth quarter GDP will be released on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 

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


 

Topics: Ali Vafai, The Money Source, mortgage industry, mortgage news, consumer price index, Pink Unicorn, service sector, mortgage rates

Trend Continues

Feb 16 2016

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With investors focused on the outlook for global economic growth, it was another week of declines in both stocks and mortgage rates. Fed Chair Yellen's comments contained no major surprises and were roughly neutral. Current mortgage rates are not far from the record lows seen in 2012.

The trend continued this week as investors displayed a preference for safer assets. Concerns about the pace of global economic growth caused investors to reduce the level of risk in their portfolios. Stock markets around the world posted another week of large losses. For mortgage rates, however, slower economic growth is good news, as it reduces the outlook for future inflation. Combined with the decline in oil prices, inflationary pressures appear to be contained for a while, and mortgage rates have benefited greatly this year. 

While the global economic picture remains clouded, incoming data suggests that economic conditions in the U.S. remain relatively healthy. 

Friday's report on retail sales revealed steady growth over the last several months, consistent with good job gains and lower gas prices. Excluding the volatile auto component, retail sales in January posted better than expected improvement. Upward revisions to the December results added to the strength of the report. Mortgage rates moved a little higher after the release of the data.

Looking ahead, the NAHB Housing confidence index will be released on Tuesday. The Fed Minutes from the December 16 meeting will come out on Thursday. These detailed Minutes provide additional insight into the debate between Fed officials. Housing Starts, PPI, and Industrial Production also will come out on Wednesday. The Consumer Price Index (CPI) will be released on Friday. CPI is the most closely watched monthly inflation report, and it looks at the price change for finished goods which are sold to consumers.

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

Topics: Ali Vafai, The Money Source, mortgage news, economic news, Pink Unicorn, stocks, mortgage rates, retail growth

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