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.

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

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

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

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