Mortgage Rates Rise Sharply on Inflation Fears, G20 Pressure
Many mortgage rates rise 0.5% or more; World leaders battle on currency manipulation; Substantial data coming this week; Is Quantitative Easing backfiring?
After several months of stability at very high pricing levels, the floor dropped out from under mortgage pricing last week. Mortgage prices fell 175 basis points, or 1.75 points last week, as traders headed for the exits. Treasury prices were also under a lot of pressure, with the benchmark 10-year yield rose 20 basis points, ending at 2.76% from 2.56% on Monday. In spite of this, reported average offered rates of 4.17% on the 30-year fixed mortgage with an average of 0.8 points, a rate which was based on pricing available Monday through Wednesday, before the worst of the market slide.
The biggest economic news of a week devoid of economic data was the G20 summit in Seoul, South Korea, where leaders of the world’s 20 largest economies met to discuss strategies to foster economic growth, and to negotiate future economic policy. The hot topic of discussion was currency valuation, and the ongoing debate about differences of opinion regarding the value of the Chinese Yuan. Many countries question China’s activities in currency markets and its reluctance to let the Yuan appreciate relative to other currencies.
Meanwhile, the US was ridiculed for precisely the opposite reason: letting its currency depreciate too much. The recent Federal Reserve announcement it will buy $600 billion in Treasury securities means that the value of the dollar should be expected to fall relative to other currencies as the supply of the dollar is bolstered. This will make US exports cheaper to most foreign buyers, with the exception of the Chinese, as that country’s central bank is likely to put more Yuan into circulation to maintain current pricing levels.
There is some concern that China’s policy of keeping up with the US could be creating a large asset bubble there, larger even than the recent US real estate bubble. If this is the case, its unraveling could set back world economic stabilization enormously.
The Federal Reserve’s recently announced quantitative easing plan kicked off last Friday, as the bank bought slightly more than $5 billion in medium term 3-7 year Treasury notes. It is quite interesting to see the effects of this in markets. Essentially, the result has been the opposite of the desired effect. Instead of lowering rates, it has effectively raised rates on longer-term securities. The Fed still has over $590 billion to spend, so we’ll see how things digest.
One factor that put markets in a position to move so rapidly last week was the complete lack of interest-rate-relevant market data. The only data point of the week was the report on weekly unemployment claims, and that came in a little lower than expected at 434,000, edging closer to a level consistent with employment growth. This week will be much busier, as we’ll see significant data on inflation and business activity to drive markets.
Monday:
- Retail sales – already in at +1.2%, better than market expectations, but driven by volatile auto sales
- Empire Fed index – flipped from +15.73 to -11.14, a negative indicator for activity
Tuesday
- Producer Price Index – highly important reading on inflation, as QEII is believed to be increasing this
- Industrial Production – are retail sales causing companies to make more goods?
Wednesday
- Eric Rosengren, President of Boston Fed to speak at Greater Providence Chamber of Commerce – I will be attending personally, so if you have questions to ask Mr. Rosengren, please send them along
- Consumer Price Index – another highly influential look at inflation
Thursday
- Initial Jobless Claims
- Philadelphia Fed Survey
- 4 different Fed leaders speak
Friday
- no significant data
Clearly, this week will give a lot of definition to markets at a loss for data last week. The question is, will the data show that inflation is up and markets are improving? If it does, those hoping for lower mortgage rates could be in trouble. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!
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Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
November 15, 2010 by Dan Hartman · Leave a Comment
Dan Hartman is a founding Senior Mortgage Advisor with Province Mortgage Associates, a Rhode Island Mortgage Lender, and a Massachusetts, Connecticut and New Hampshire Mortgage Broker. Dan has worked in the mortgage industry for more than 10 years, and holds an MBA in Finance from Clark University. Every day, Dan helps homeowners and home buyers in southern New England with their mortgage and refinance questions. He also serves as an Adjunct Professor at Roger Williams University and the University of New Haven. NMLS #13507.