GDP Falls Short

Jul 29 2016

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Wednesday's Fed meeting contained no major surprises and the reaction was positive for mortgage rates. Weaker than expected economic growth data also was favorable for rates. As a result, mortgage rates ended the week lower.

As expected, the Fed meeting concluded with no change in the federal funds rate. The Fed statement modestly upgraded its assessment of the U.S. economy. In particular, the labor market has "strengthened" and consumer spending has been "growing strongly." However, the overall tone of the statement was less hawkish than investors had expected, and mortgage rates improved a little after its release.

Mortgage rates also improved following the release of Friday's disappointing GDP data. Second quarter gross domestic product (GDP), the broadest measure of economic growth, grew at a rate of just 1.2% in the second quarter, far below the consensus of 2.6%. This was the third straight quarter of growth below 2.0%. Consumer spending was strong during the second quarter, but business investment was weak.

Recent reports showed that the housing sector remained a bright spot for the U.S. economy. Similar to the results for previously owned homes, sales of new homes rose in June to the best levels in about eight years. The pending home sales report showed a small increase in June. This report measures contracts signed for the purchase of previously owned homes. Once again, these two reports likely would have been even better except for a low supply of homes available for sale.

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 will come out on Monday. The core PCE price index, the Fed's preferred inflation indicator, will be released on Tuesday. The ISM national services index will come out on Wednesday. In addition, the Bank of England meeting announcement could influence U.S. mortgage rates on Thursday.

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Topics: mortgage news, employment report, mortgage rates, us economy

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

Huge Home Buying Activity

May 31 2016

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Despite stronger than expected housing data and a nice rally in the stock market, investors showed significant demand for bonds, including mortgage backed securities (MBS). As a result, prices for MBS improved, causing mortgage rates to end the week a little lower.

The housing data released this week showed that home buyers were busy in April signing contacts to purchase homes. The market for both previously owned homes and newly built homes saw their best activity in years. Improved labor market conditions and low mortgage rates are a great combination to support a very active housing market.

The Pending Home Sales Index, which measures the number of contracts signed to buy previously owned homes, jumped in April by 5% over March, to the highest level of activity since February 2006. Similarly, the New Home Sales report, which measures the number of contracts signed to buy newly built homes, surged by 17% over March, to its best level since January 2008.

The Fed has stated that the decision on when to next hike the federal funds rate will depend on the incoming economic data. This week's data certainly increases the chance of a rate hike in the near term. Besides the strong housing data, Durable Goods orders rose in April by much more than expected. Orders jumped 3.4% from March when an increase of only 0.5% was expected. March orders were revised higher as well. Although the durable orders data is volatile from month to month, the April data does show that demand for big ticket items is high and that there is confidence in improved future economic activity.

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 core PCE price index, an inflation indicator favored by the Fed, will come out on Tuesday. The ISM national manufacturing index will be released on Wednesday, and the ISM national services index will come out on Friday. Mortgage markets will be closed on Monday in observance of Memorial Day.

Topics: The Money Source, mortgage news, employment report, housing data, federal funds rate, mortgage rates, labor market conditions, unemployment rate, new home sales report, pending home sales

Dovish Speech from Yellen

Apr 04 2016

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Despite the release of a wide range of major economic data, a speech from Fed Chair Yellen had the biggest influence on mortgage rates over the past week. Her comments were favorable for both stocks and bonds, and mortgage rates ended the week lower. 

Since the March 16 Fed meeting, several Fed officials have expressed support for tightening monetary policy at a more rapid pace. In Tuesday's speech, Yellen laid out reasons that the Fed should take a very gradual approach to tightening monetary policy. According to Yellen, economic troubles in other countries pose downside risks to the U.S. economy. She also said that it is unclear if the recent pickup in core inflation will be sustained or whether it was due to temporary factors. Yellen's message about an outlook for low inflation and a longer expected timeline for tightening by the Fed was good news for mortgage rates.

There were few surprises in the important monthly employment report released on Friday, and it caused little reaction. Against a consensus forecast of 210K, the economy added 215K jobs in March. This is close to the average monthly pace seen over the past year. 

The unemployment rate edged up from 4.9% to 5.0%. The higher rate was mostly due to people entering the workforce, which is a sign of strength. Average hourly earnings, an indicator of wage growth, rose 0.3% from February, matching expectations. The vast majority of the job gains came in the service sector, while manufacturing continued to shed jobs.

Looking ahead, Factory Orders will be released on Monday. The ISM national services index and the JOLTS report will come out on Tuesday. JOLTS measures job openings and labor turnover rates. The Fed minutes from the March 16 meeting will be released on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets.

Topics: employment report, Pink Unicorn, economic data, monetary policy, mortgage rates, stocks and bond

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

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