This Week in Mortgage News: Economic Data Falls Short

Sep 02 2016

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The two most important economic reports released this week both fell short of expectations. Despite these results, mortgage rates ended the week with little change.


Friday's Employment report was mildly disappointing. Against a consensus forecast of 175,000, the economy added 151,000 jobs in August. Despite the slower pace in August, the economy has added an average of 232,000 over the last three months. The unemployment rate remained at 4.9%. Average hourly earnings, an indicator of wage growth, fell slightly short of expectations. 

Another important indicator of economic activity also missed to the downside. The ISM national manufacturing index fell to 49.4, well below the consensus forecast, and the lowest level since January. Readings below 50 signal a contraction in the sector. The report suggests that manufacturers continue to face headwinds from a stronger dollar, economic weakness overseas, and reduced spending on machinery and other large equipment from U.S. businesses. 

These two reports did little to settle the question of whether the Fed should raise the federal funds rate at its next meeting on September 24. According to futures markets, investors have assigned about a 25% chance of a rate hike at this month's meeting, just slightly lower than before the two reports. 

Looking ahead, the most significant economic event likely will be Thursday's European Central Bank (ECB) meeting. The ECB announcement often has an impact on U.S. mortgage rates. It will be a light week for U.S. economic data. The ISM national services index will be released on Tuesday. The JOLTS report, which measures job openings and labor turnover rates, will come out on Wednesday. The Fed's Beige Book also will be released on Wednesday. 

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

Topics: mortgage news, economic data, mortgage rates

Mixed Messages from Fed

Aug 19 2016

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The economic data had little impact on mortgage rates over the past week. Mixed messages from the Fed caused some movement. For the week, mortgage rates ended just slightly higher.

Mortgage rates responded to comments from several Fed officials, creating some volatility during the week. By the end of the week, though, investors were left with the impression that Fed officials have a wide range of opinions about the appropriate timing to tighten monetary policy. As a result, there was little net change in either the outlook for future Fed policy or in mortgage rates. 

The mixed messages began on Tuesday with a speech from the Fed's Dudley that was unexpectedly hawkish. He suggested that Fed rate hikes may come sooner than investors expect. Wednesday's release of the minutes from the July 24 Fed meeting revealed conflicting views on the outlook for inflation and the degree of support for tighter monetary policy. Thursday's comments from the Fed's Bullard were very dovish. He said that one federal funds rate hike is all that will be needed for the "foreseeable future." 

The most recent reading for a widely followed inflation indicator, the core consumer price index (CPI), revealed that core inflation was 2.2% higher than a year ago. Core inflation excludes the volatile food and energy components. Many investors prefer to look at core inflation because it provides a clearer indication of the underlying trend. In 2016, core CPI has held close to the current level all year.

Looking ahead, the report on new home sales will come out on Tuesday and the report on existing home sales on Wednesday. Durable orders, an important indicator of economic activity, will be released on Thursday. The second estimate of second quarter GDP, the broadest measure of economic activity, will come out on Friday. In addition, Fed Chair Yellen will be speaking at Jackson Hole on Friday. Investors will be looking for additional guidance about future Fed policy.

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

Topics: mortgage news, economic data, monetary policy, mortgage rates, new home sales

ECB Holds Steady

Jul 22 2016

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Thursday's European Central Bank (ECB) meeting was viewed as negative for U.S. mortgage rates. The economic data released this week had little impact. As a result, mortgage rates ended the week a little higher.

Some investors were disappointed by Thursday's decision by the ECB to make no change in monetary policy. To help ease the impact of the June 23 Brexit vote, some wanted to see the ECB provide additional stimulus. Looser monetary policy from global central banks with bond purchase programs has been viewed as positive for mortgage rates in recent years. The reaction on Thursday morning to the lack of additional stimulus was an increase in mortgage rates. Comments from ECB officials left the door open for looser policy at the next meeting in September, however, and the impact of this meeting was small.

June was another good month for the housing market. Sales of existing homes rose in June for the fourth month in a row to an annualized rate of 5.6 million units, which was the best level since February 2007. This was achieved despite a very low supply of homes available for sale. There was just a 4.6-month supply in June. A healthy balance between buyers and sellers is considered to be a little over a 6.0-month supply.

Home builders are certainly aware of the lack of supply as they have ramped up construction. The Commerce Department reported that there were more houses under construction at the end of June than at any time in the last eight years.

Looking ahead, the next U.S. Fed meeting will take place on July 27. No change in rates is expected, but the statement from the Fed could have a significant impact on mortgage rates. Before the Fed meeting, the new home sales data will come out on Tuesday. The pending homes sales data and the report on durable orders will be released on Wednesday. The first reading for second quarter Gross Domestic Product (GDP), the broadest measure of economic growth, will come out on Friday. 

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

Topics: The Money Source, economic data, US Mortgage Rates, bond purchase program

Stocks Rally, Rates Rise

Jul 15 2016

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Investors showed a preference for stocks over bonds this week. The economic data had little impact. As a result, mortgage rates ended the week a little higher.

With long-term bond yields at or near record low levels following the Brexit vote on June 23, investors decided this week that stocks had become relatively more attractive than bonds. Investors shifted assets from bonds to stocks, pushing the Dow to a record high, and mortgage-backed securities (MBS) prices lower. Since mortgage rates are set based on MBS prices, rates moved higher. Mortgage rates still remain significantly lower than they were before the Brexit vote.

The recent increase in mortgage rates has occurred despite little change in the outlook of investors for future Fed policy. Numerous Fed officials made speeches over the past week, and the central theme was that federal funds rate hikes will take place at a very gradual pace. In futures markets, investors have priced in less than a fifty percent chance of a rate hike during the remainder of 2016.

After a slow start to the year, retail sales posted a fourth straight month of solid gains on Friday. Retail sales excluding the volatile auto component surpassed expectations with an increase of 0.7% in June. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. 

Partly due to the pickup in consumer spending, second quarter Gross Domestic Product (GDP), the broadest measure of economic growth, is expected to more than double the 1.1% level seen during the first quarter. 

Looking ahead, most of next week's economic data will come from the housing sector. The NAHB housing confidence index will come out on Monday. Housing Starts will be released on Tuesday. Existing Home Sales and the Philly Fed regional manufacturing index will come out on Thursday. In addition, there will be a European Central Bank (ECB) meeting on Thursday which could influence U.S. mortgage rates. 

Topics: The Money Source, mortgage news, economic data, federal funds rate

Fed Lowers Forecasts

Jun 17 2016

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Over the past week, mortgage rates were helped by Wednesday's dovish Fed statement and concerns about the upcoming British vote on leaving the European Union. There was little reaction to the recent economic data. As a result, mortgage rates ended the week near the best levels of the year.

The Fed statement and Fed Chair Yellen's press conference proceeded pretty much as expected. The Fed made no change in the federal funds rate. Investors mostly focused on the projections from Fed officials for the path of rate hikes in coming years which showed a significantly slower pace than the last set of projections made three months ago. Little new information was provided about the timing of the next rate hike. The dovish tone of the statement was positive for mortgage rates.

After several months of disappointing readings, retail sales have bounced back strongly with three straight months of nice gains. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Consumer spending increased at just a 1.9% annual rate during the first quarter of 2016. 

Following the most recent results, economists estimate that consumer spending is increasing at a 3% to 4% annual rate during the second quarter, leading to higher forecasts for second quarter GDP growth.

The most recent inflation reading, the consumer price index (CPI), reported that core inflation in May was 2.2% higher than a year ago. Core inflation, which excludes the volatile food and energy components, has held steady near this level for several months. During most of 2015, the readings for core inflation were closer to 1.5%.

Looking ahead, the main influence on U.S. mortgage rates is likely to be the "Brexit" vote on Thursday. Due to the economic uncertainty which would result, a vote for the UK to exit the European Union is expected to be positive for U.S. mortgage rates, while a vote to remain would be negative. Polling data released during the week could increase daily volatility. The major U.S. economic reports which will be released next week include existing home sales, new home sales, and durable orders.

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

Topics: The Money Source, mortgage news, consumer price index, economic data, federal funds rate, mortgage rates, retail sales, consumer spending

Rates Near Multi-Year Lows

Jun 10 2016

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Central bankers were the main influence on mortgage rates over the past week. The economic data caused little reaction. Mortgage rates ended the week lower, near the best levels in several years.

In a speech on Monday, Fed Chair Janet Yellen discussed the disappointing Employment report seen in May. Yellen warned against reading too much into one report and pointed out that other recent labor market data has been more positive. Job openings, wage gains, and unemployment claims are at levels consistent with continued improvement in the labor market.

However, Yellen's speech dropped a key reference to "in coming months" which had been used in an earlier speech to describe the time frame for the next rate hike. It appears that the May Employment report caused enough concern for Fed officials that they are less confident that the next rate hike will take place soon. As a result, investor expectations for rate hikes from the Fed were pushed farther into the future, which was good for mortgage rates. 

Another positive factor for U.S. mortgage rates was a new stimulus measure from the European Central Bank (ECB), a corporate bond purchase program, which began this week. This new program helped push bond yields in Europe to record low levels, which made U.S. bonds relatively more attractive to investors. This was evident in the high demand for U.S. bonds seen at this week's Treasury auctions. The added demand for U.S. bonds helps keep yields low in the U.S., including mortgage rates. 

Looking ahead, the next Fed meeting will take place on Wednesday. No change in rates is expected, but investors will be looking for hints about the timing of the next rate hike. Before that, the report on 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. The Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on Thursday. The report on housing starts will be released on Friday.

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

Topics: The Money Source, mortgage news, consumer price index, employment report, economic data, mortgage rates, retail sales, US labor market

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

Retail Sales Jump

May 16 2016

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The economic data released over the past week was generally better than expected. Strength was seen in retail sales, the labor market, and consumer sentiment. As a result, mortgage rates ended the week a little higher, but they remain near the best levels of the year. 

After a slow start to the year, Friday's report on retail sales went a long way to increase optimism about stronger economic growth during the second quarter. April retail sales, excluding the volatile auto component, jumped 0.8% from March, which was far more than expected. It was the largest monthly gain in nearly a year. The results for March also were revised higher. 

Despite what appeared to be a weak report on jobless claims, this week's labor market data was encouraging. A spike in jobless claims was seen, but this was due to a strike at Verizon. Nice gains were seen in the JOLTS report, which measures job openings and labor turnover rates. The JOLTS report helps to provide a broader picture of the performance of the labor market. Job openings in March increased to levels which were very close to record highs. The "quits rate" also was at levels consistent with a healthy labor market. Employees are more likely to voluntarily leave their jobs if they are confident that they will find a better job.

Looking ahead, Housing Starts, Industrial Production, and 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. The Fed Minutes from the April 27 meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets. Existing Home Sales will be released on Friday. 

Topics: The Money Source, mortgage news, consumer price index, economic data, economic growth, mortgage rates, housing starts, retail sales, jolts, industrial production, US labor market

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

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

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