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. 

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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

Retail Sales Stall

Aug 12 2016

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The most significant economic report released over the past week, retail sales, fell far short of expectations, which was good for mortgage rates. A decline in bond yields overseas also helped, and mortgage rates ended the week lower. 

After several months of strong readings, Friday's retail sales data fell far short of expectations. Excluding the volatile auto component, retail sales in July fell 0.3% from June, below the consensus for an increase of 0.2%. Auto sales rose a strong 1.1% in July, and total retail sales in July were flat from June, but again this was far below the consensus for an increase of 0.4%. .

Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. Consumer spending during the second quarter was one of the bright spots for the economy. Since the data can be volatile from month to month, investors will be closely watching to see if the July results reflected just a temporary pause or the start of a longer period of weaker spending. Slower economic growth reduces the outlook for future inflation, so the retail sales data was positive for mortgage rates.

Over the past week, bond yields overseas declined. When this happens, it makes the yields on U.S. bonds relatively more attractive to global investors, driving up the demand. This in turn causes the price of U.S. bonds to rise and yields to fall. The strong demand was seen at the Treasury auctions which took place this week. Mortgage-backed securities (MBS) prices also rose, causing mortgage rates to move lower. 

Looking ahead, 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 also will come out on Tuesday. The minutes from the July 24 Fed 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. 

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

Topics: The Money Source, mortgage news, consumer price index, mortgage rates, consumer spending

Job Gains Surge

Aug 05 2016

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Over the past week, two highly anticipated economic events caused significant, but offsetting, reactions for mortgage rates. The negative impact of Friday's strong Employment report was greater than the positive effect of Thursday's Bank of England announcement, and mortgage rates ended the week a little higher. 

Mortgage rates increased following the release of Friday's upside surprise in the important monthly Employment report. Against a consensus forecast of 180K, the economy added 255K jobs in July. In addition, upward revisions added 18K jobs to the results for prior months. The unemployment rate remained at 4.9%, above the consensus of 4.8%, as more people entered the workforce. 

Average hourly earnings, an indicator of wage growth, exceeded expectations, and they were 2.6% higher than a year ago. Stronger job and wage gains are negative for mortgage rates, since they increase the outlook for future inflation.

On Thursday, the Bank of England (BOE) announced a 25 basis point rate cut and a new bond purchase program to stimulate economic activity. Investors had expected the rate cut, but the additional bond purchases were a surprise to some. In the statement, the BOE said that the outlook for economic growth had "weakened materially" following the Brexit vote on June 23. The added demand for bonds from the BOE helped push global bond prices higher and yields lower, including U.S. mortgage rates. 

Looking ahead, second quarter Productivity will be released on Tuesday. The JOLTS report, which measures job openings and labor turnover rates, will come out on Wednesday. The most significant report of the week, 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. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 

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Topics: The Money Source, mortgage news, mortgage rates, retail sales, bond purchase program, employement report

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.

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

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

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

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

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

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

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