Mortgage Rates Continue to Rise; Fed Announcement Due Tomorrow
Bernanke’s comments, tax plans and Europe dominated last week; Fed meeting, inflation, manufacturing readings on the way
Last week, the markets for mortgage-backed securities were absolutely dominated by irregular economic events. Monday morning, mortgage rates looked like they might start to stabilize, as Federal Reserve Chairman Ben Bernanke’s interview on 60 Minutes assured traders that neither inflation nor long-term rates would be allowed to rise too rapidly. By the end of the day, though, sufficient doubts had arisen to bring that position into question.
Tuesday, that rally was officially over. The administration announced a tentative agreement with Republicans in Congress to extend the tax cuts currently due to expire December 31st. While still subject to substantial debate, the main effect of this announcement on markets for fixed-income securities like mortgages and Treasuries was in the huge increase in borrowing the US Treasury would need to do in order to fund the cuts. Markets had expected something to happen, perhaps at a cost between $400-500 billion, but the overall package weighed in at $700-800 billion, dwarfing prior expectations. In addition, much of the new borrowing would fund a cut to Social Security, or payroll tax withholding, which would effectively serve as a new stimulus package to the US economy.
Both the extra borrowing and the effective stimulus put extreme pressure on mortgage rates, and we saw the biggest one-day worsening in mortgage rates in many years on Tuesday. This continued affecting mortgage rates through the week’s end, as better-than-expected unemployment claims and a decrease in the trade deficit both contributed to opinions that the economy may be improving.
To be clear, it is unlikely much of anything would have happened in mortgage pricing, if it hadn’t been for the effects of the extraordinary events of Sunday and Tuesday. The other news for the week was of nominal value. This week, though, we will see substantially more interesting events, starting tomorrow with the announcement of the November PPI and the meeting of the Federal Reserve Open Markets Committee. Here’s the full calendar:
Monday:
- No significant events
Tuesday:
- Producer Price Index
- Retail Sales
- Fed Meeting Announcement
Wednesday:
- Consumer Price Index
- Empire Manufacturing Survey
- Industrial Production
Thursday:
- Jobless Claims
- Philadelphia Fed Survey
Friday:
- Quadruple witching hour (options expiration)
Clearly, the volume of rate sheet influential economic data this week is far beyond that seen last week. Rates could go either way this week; if the Fed offers some clarity on its policies, the inflation measure show muted price increases, and manufacturing data is on target, mortgage rates could actually improve. If any of these things doesn’t happen, mortgage rates will probably continue to worsen.
Average 30-year fixed rates have already risen about 1/2% from recent lows. A recent blog post does an excellent job of explaining the effect of this on mortgage qualifications. Bottom line: higher rates are bad for the already beleaguered housing sector. We’ll find out soon whether rates will continue to rise, or if they’ll put the brakes on. 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!
Related articles:
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.
December 13, 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.