Mortgage Rates May Fall Even Lower

How low can mortgage rates go?

It seems like mortgage interest rates keep falling to new lows, largely thanks to a struggling economy.

The 30-year fixed-rate mortgage fell to 3.56 percent with an average point of 0.7 for the week ending July 12, down from 3.62 percent the previous week, according to Freddie Mac. At the same time, the 15-year fixed-rate mortgage dropped to 2.86 percent with an average 0.7 point, down from 2.89 percent from the previous week. This time last year, the 30-year fixed-rate mortgage averaged 4.51 percent, and the 15-year was at 3.65 percent.

A poor jobs report for June helped decrease long-term Treasury bond yields and mortgage rates. Only 80,000 jobs were created, not enough to make a dent in the 8.2 percent unemployment rate.

Homebuyers and current homeowners, as well as mortgage professionals, are probably wondering if rates can drop even more. Homeowners may be wondering if they should put off their mortgage refinance in a bid to lock into an even lower interest rate.

Wait for Lower Rates?

Home buyers might be thinking about delaying a home purchase for another year a few more months to wait for a better rate. Perhaps they think home prices will go down even more, and they figure they’ll be able to buy a larger, better house if interest rates decline a bit more.

Here are some reasons why mortgage rates could drop even more.

Bond spreads. Mortgage rates are higher than usual when compared to Treasury bonds.

Mortgage rates, typically based on Treasury bond yields, are usually about a 1.7 percentage point higher than the 10-yield Treasury bond yield. But recently the difference between mortgage rates and those bond yields, or the spread, been has more than 2 percentage points higher.

The euro zone. The ongoing euro zone debacle, which shows no signs of ending, could prompt investors to put even more of their money into Treasuries. That would drive both Treasury yields and mortgage rates even lower. European leaders appear to be dedicated to austerity measures that have proven to be a failure.

Drastically slashing public spending and raising taxes in an effort to decrease countries’ debt have decreased government revenues and worsened recessions. Recession in Europe will probably be a drag on the U.S. economy, as Europeans will have less money to buy American goods.

Plus, financial markets will probably continue to fear that break up of the euro zone will create a financial crisis that spreads to this country. Many European banks are highly interconnected with the U.S. financial system, and our fragile economy remains vulnerable in this integrated financial landscape.

Quantitative easing. The Federal Reserve might pursue another round of quantitative easing, a so-called QE 3, in which it purchases large amounts of bonds in an effort to drive down interest rates. Although only a few Fed board members now advocate more easing, other members say they will support it if economic conditions worsen.

The Fed has already extended its Operation Twist – selling short-term bonds and buying long-term bonds in an effort to drive down long-term interest rates – through the end of the year.

China. A slowing Chinese economy could export more economic troubles. The signs of an approaching economic meltdown are clear, notes an article in the journal, Foreign Policy. Chinese businesses are obtaining fewer loans. Interest rates have been cut. Manufacturing output has tanked. Imports are flat, and GDP growth projections are down. Real-world signs, like fire sales of government property, falling pork prices, and wealthy Chinese moving their money overseas, and incidents of social unrest, are evidence of a faltering economy.

Consumers Benefiting from Low Interest Rates

While low home loan rates show the feebleness of the global economic recovery, homeowners benefit by being able to refinance at much lower rates. If home loan rates are not at record lows, they’ll probably stay pretty close. The average 30-year fixed has stayed below 4 percent for 16 weeks, while the average 15-year fixed has remained under 3 percent for seven weeks, according to Freddie Mac.

But then again, anything is possible. It’s possible that the world economy will unexpectedly rebound and euro zone leaders will suddenly agree on a comprehensive solution to their fiscal crisis. Instead of waiting for mortgage rates to drop even more, home buyers and homeowners should lock into a low mortgage rate when it’s in their best financial interest.

 

Where Will Mortgage Rates Go in 2011?

Last week’s Treasury auctions’ effects heavily amplified; High volatility still common in fixed-income markets; Traders coming back this week; Strong beliefs that economic growth in 2011 will be significant; What about housing?

The final week of 2011 was quite the roller coaster for mortgage originators and home buyers waiting to lock in their mortgage rate. After a very weak 5-year Treasury note auction on Tuesday, mortgage pricing worsened by almost 1 point, roughly the equivalent of a 0.25% increase in interest rates. Then, on Wednesday, 7-year notes were on the block. Surprisingly, that auction saw the healthiest bidding in many auctions. Mortgage pricing reversed, more than offsetting Tuesday’s losses. Activity was minimal on Thursday, in spite of the best weekly unemployment claims report since 2008, while Friday, mortgage pricing improved on minimal activity, as traders closed out positions to close the year.

The key characteristic seen recently in fixed-income markets, such as those for Treasury debt and mortgage-backed securities is volatility. Movement in markets since the November 3rd announcement of “Quantitative Easing II” has been exaggerated, with daily pricing changes often more than twice the previously common change. That is to say, if mortgage originators had become accustomed to mortgage prices changing by 1/4 to 1/2 point on a busy day, since November 3rd, the new reality is that it isn’t uncommon for mortgage prices to change by 1/2 to 1 point. That type of change results in very rapid shifts in mortgage rates, and volatility like that makes home buyers nervous.

A significant factor that has contributed to this volatility is low trading volume. Traders are tending to purchase fewer Treasury secruities, which is contributing to the exaggerated swings we have seen in markets. This is not at all uncommon in the holiday season. From the Monday before Thanksgiving through New Year’s Day, many bond traders schedule time off from work, as do professionals in many other industries. The result of this is that the remaining traders are more likely to be swayed when markets make a sudden move in one direction or another. Short sellers, betting that mortgage prices will continue to worsen, also contributed to this effect.

On Wall Street, the consensus is that 2011 will be a strong year for the economy. Recent economic data (other than employment and housing data) has borne this out, with most of the regional Federal Reserve Bank business indexes showing positive signs for growth, inflation starting to pull away from zero, and retail sales figures suggesting the just-ended holiday season was the best in 4 or 5 years. The Federal Reserve, on the other hand, isn’t so sure, and is continuing its $600 billion asset-purchase program, intended to provide some stimulus to the economy, but, more importantly, to keep inflation positive.

A too-low inflation rate can lead to economic stagnation much like what Japan experienced in the latter part of the 20th century. The bigger concern is that the economy might actually slip into deflation, in which prices of goods and services decline over time. This causes consumers to defer purchases, expecting lower prices, which leads to lower economic growth and still-lower prices. It can be a very difficult economic cycle to break.

If recent data is correct (and we’ll have a very good idea on January 28th when the advance reading on 4th quarter GDP is released), we should expect mortgage rates to continue rising gradually, with the 30-year fixed rate mortgage staying between 5%-6% for most of 2011, barring other significant economic shifts. If, however, the Fed is correct, and economic growth has been overestimated, mortgage rates could correct significantly later this month, likely bringing the average 30-year fixed rate back below 4.5%. At present, according to Freddie Mac, the average 30-year fixed rate is 4.86% with an average of 0.8 points.

This week will provide a significant test for mortgage rates, as the most significant data of any month is published: employment market data. November was a conundrum, as only 39,000 jobs were added, in spite of continual declines in weekly unemployment claims. When we get a reading on December, it is hoped the picture becomes much clearer. Here’s what to expect later this week:

Monday:

  • ISM Manufacturing index
  • Construction spending

Tuesday:

  • Factory orders
  • Same-store sales
  • Fed minutes

Wednesday:

  • ADP employment – private payrolls
  • ISM Non-manufacturing

Thursday:

  • Weekly unemployment claims
  • Monster employment index

Friday:

  • EMPLOYMENT SITUATION REPORT
  • Ben Bernanke speaks

All the key data points this week hit Americans in their pay checks. Are those checks growing? We’ll know by Friday. If they are, then predictions of a better-than-expected 2011 may come true.

But what about housing? Housing led the US economy into the Great Recession, as home prices tumbled when many owners were unable to make their payments, whether initially due to predatory lending, poor underwriting, or poor consumer choices, or later as the initial effects of the crisis sparked wave after wave of layoffs. Housing data has been dismal since the expiration of the home buyer tax credit last June. Because so many middle-class Americans held such a large proportion of their wealth in their homes, this has precipitated the largest broadening in the wealth gap in decades.

Consumer confidence will not rebound strongly until consumers are confident of when home prices will stop falling. At present, there are between 9-11 months of housing inventory on the market, and housing experts suggest there are many more months worth of inventory that have yet to be placed on the market. Will 2011 be the year that housing markets hit bottom? Check back here regularly to find out.

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:

Last Week’s Report

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.

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:

Last Week’s Report

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.

Mortgage Rates Continue Rising on Mixed Employment News

ADP report shows strong job gains; Unemployment claims rise; Big miss in non-farms payrolls; Bernanke speaks to 60 Minutes defending Quantitative Easing

After 3 straight weeks of weakness in the market for Mortgage-Backed Securities, traders were looking for solid economic news to guide them. They got news, but it didn’t all point in the same direction.

Tuesday showed consumers are getting much more confident about the economy, with consumer confidence rising  more than expected and consumer expectations of future conditions sharply higher. This was in spite of indications that home prices may be taking a turn for the worse. Both results put pressure on mortgage rates, but it was Wednesday’s news that accounted for most of the week’s movement.

Wednesday, payroll firm ADP reported the results of its survey of private employment, announcing an increase of 93,000 private-sector jobs. Adding in 39,000 jobs that were added to prior months results, this nearly doubled analyst expectations of 58,000 jobs gained. Later that morning, the Institute for Supply Management announced firm growth expectations in manufacturing. Mortgage rates increased roughly .25% on the day, a huge move for any single day.

Thursday provided slight relief to mortgage markets, as weekly unemployment claims came in lower than expected, and markets bounced back slightly from the huge sell-off of the prior day. Claims rose to 436,000, but the trend continues lower, which suggests that there may still be some weakness in hiring. Traders stuck to the sidelines, though, as anticipation of Friday’s Employment Situation Report urged caution.

The jobs report was nothing short of eye-popping. Employers added a mere 39,000 jobs in November, and the unemployment rat rose to 9.8% as more workers joined the labor force than jobs were added. This initially sent mortgage rates sharply lower, erasing much of the losses from Wednesday. By the end of the day, though, mortgage pricing had given back all of the gains, as traders lost conviction.

So, in spite of mixed news for the week, mortgage pricing was about 1 point worse than at the outset of the week. Ordinarily, there is little news over the weekend that drives markets. That wasn’t the case this weekend. The European debt crisis continued to find its way into headlines. Additionally, Federal Reserve Chairman Ben Bernanke gave an interview on 60 Minutes this weekend, strongly defending the Quantitative Easing program and suggesting he continues to be more concerned about the risk of deflation and slow economic growth than about inducing excess inflation in the economy.

He also remarked that, should raising interest rates become necessary, the Fed is prepared and able to do so in “15 minutes”. Mortgage-backed security prices have opened the week significantly better as a result. The remainder of this week will be a little thinner on economic news, as follows:

Monday:

  • no significant news

Tuesday

  • $32 billion in 3-year notes to be auctioned
  • Consumer credit

Wednesday

  • $21 billion in 10-year notes to be auctioned

Thursday

  • Weekly unemployment claims
  • Wholesale trade – inventories
  • $13 billion in 30-year bonds to be auctioned

Friday

  • International trade data: Balance, inflation
  • Consumer sentiment

This week’s Treasury sales will provide a test to markets for the future direction of interest rates. If the auctions are well subscribed, mortgage and Treasury rates could stabilize at or near the current level, and may even improve somewhat. If not, we will continue to see rates on the rise as markets keep looking for new equilibrium. 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:

Last Week’s Report

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.

http://lenderama.com/2010/11/29/mortgage-rates-continue-fluctuate-economic-data-shows-improvement/

Mortgage Rates Continue to Fluctuate as Economic Data Shows Improvement

Mortgage rates tenuously hold new levels, average rises to 4.40%; GDP growth revised higher; Jobless claims down sharply; Preliminary “Black Friday” data suggests strong growth in Consumer Spending; Employment data looms

Mortgage pricing was poised to close last week on its first weekly gain since the impact of QEII was felt in markets when a sharp selloff on thin volume took place on Wednesday. The underlying reason: economic growth just might be coming faster than expected.

Last Tuesday, the Commerce Department reported on 3rd quarter GDP growth, revising results higher from 2.0% growth to 2.5%. While this is still too slow a pace to rapidly change the unemployment rate, it was sufficient to send ripples through economic markets, and it suggests that the US economy could be more resilient than recent comments from Federal Reserve officials suggest.

Wednesday turned Tuesday’s gains on their head. The key announcement was new claims for unemployment: only 407,000 Americans applied for unemployment benefits in the prior week, the smallest number since July 2008 when the financial crisis was only beginning to emerge. This came as a bit of a shock to markets expecting a significantly higher level of claims, as it suggested that the economy could be turning a corner. Mortgages sold off heavily, with the cost of some rates increasing by as much as 1 point, or 1% of the loan amount.

Mortgage prices may have oversold on Wednesday, as they saw some recovery in Friday’s holiday session. It is not uncommon to see an overreaction such as this on a holiday-shortened week when many traders go home very early, if they sign into markets at all. Also affecting markets was continued fallout from the Irish debt crisis and bailout. Borrowing costs for European governments have been increasing lately as problems in Ireland have come to a head. This produces results quite similar to the “flight-to-safety” seen earlier this year in the face of the Greek debt crisis, as traders bought safer debt, usually US government securities, on fears that other assets will struggle to hold value.

Mortgage pricing has improved at the open this morning on further Irish concerns, as well as on the return of many traders in for the full week who had sat out the holiday. This week contains too much data to suggest that mortgage pricing will hold current levels though. It is quite likely with the huge volume of highly influential employment and manufacturing data to be released that mortgage rates will rise significantly this week. Here’s a look at what’s in store:

Monday:

  • no significant data

Tuesday:

  • Consumer confidence
  • S&P Case-Schiller Home Price Index
  • Bernanke speaks

Wednesday:

  • ADP Employment Report
  • ISM Manufacturing index
  • Construction Spending
  • Productivity and Costs

Thursday:

  • Jobless claims
  • Pending home sales

Friday:

  • Employment Situation
  • Factory orders

Clearly, data on jobs dominate this week’s news. If the employment situation is better than expected, mortgage rates will jump sharply. It appears likely that the employment situation could be quite a bit better than anticipated. Recent unemployment claims have been declining sharply, and consumer spending and sentiment have been rising, all suggestive of an improvement to the situation. Analysts are currently expecting an increase in payrolls by 168,000 jobs for November, but it is likely to be significantly more than that, with perhaps as many as 225,000 jobs added by private employers. The unemployment rate may rise; analysts are predicting 9.7% over the current 9.5%, but that rise will be due to the return of many discouraged workers to their job search.

This is a very risky week to float mortgage rates. I would suggest locking in whenever possible. 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:

Last Week’s Report

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.

Mortgage Rates Jump Sharply, Stabilize at New Level; Still Near Historical Lows

Limited news allows pricing to stabilize; 30-year fixed rates have moved away from the 4.25%-4.375% 0 points range; Unemployment claims show continued trend towards improvement

Mortgage and Treasury markets spent most of last week coming to terms with a new pricing equilibrium that was sharply worse than that to which they had become accustomed. At the end of the week, though, mortgage markets appeared to be adjusting to the new equilibrium. While 10-year treasury rates worsened by as much as 45 basis points in yield over the course of the week, mortgage rates were only 22 basis points higher, at 4.39% for the 30-year fixed. Let’s examine that 23 bps or .23% difference in yield for both of those options.

Ordinarily, changes to rate on Treasury securities, especially the 10-year note, and mortgages, tend to be highly correlated. This is because the two are very similar securities. Even though most mortgages are written for 30 years, on average they pay off between 7 to 10 years due to refinancing or sale of the real estate. Why are the correlated? The 10-year Treasury has the explicit backing of the US Government, making it virtually immune to default risk. Mortgage-Backed Securities do not have this protection, meaning that investors purchasing them will require a higher return. This usually causes mortgage rates to average around 1.5% higher than comparable Treasury securities.

There are a couple of reasons why this spread tightened by 23 basis points last week. First, upfront fees, known as points, can help offset interest rate increases. Points increased to their highest level in 2010 last week, with borrowers paying an average of 0.9 points on their loans. Second, banks absorbed some of the pricing pressure, rather than passing it along to consumers. As mortgage pricing had improved in prior weeks, many lenders had passed only a portion of this improvement along to consumers; they have unwound these extra profits in the interest of maintaining a steady flow of business. Remember that many banks have increased their staff this year to keep up with the huge demand for refinances.

The net result was that, while mortgage pricing worsened last week, it could have been much worse at the retail level.

Apart from the market readjustment to the new economic situation, there were several other relevant points of economic data last week. The Producer Price Index and Consumer Price Index each confirmed concerns from the Federal Reserve that inflation is at too low a level to prevent deflation from being a legitimate argument in favor of the Quantitative Easing program. Numerous Fed officials, including Chairman Bernanke, and Boston Fed President Eric Rosengren here in Providence, spoke supporting the program, indicating that it has already had many of the desired effects. Expectations of inflation have increased by about 7/10ths% since the program’s announcement. The stock market has improved, and, until last week, interest rates were lower. These three effects were the primary goal of the program, which suggests it is having the desired effect in the economy, even if long-term results are still years away.

In other data, there was mixed news last week in manufacturing. While the Empire Fed index was sharply worse, the Philadelphia Fed Survey showed a much stronger manufacturing environment. Unemployment claims were up slightly, too.

This week has a lot of data in spite of being a very short week, due to the Thanksgiving holiday. The Treasury will also be raising $99 billion this week through auctions of 2-, 5- and 7-year notes. Here’s a rundown of the week’s events:

Monday:

  • $35 billion 2-year notes at 1:00 PM

Tuesday:

  • Preliminary reading on 3rd quarter GDP expectations – expected to revise Advance report up by about 0.4%
  • Existing home sales
  • FOMC minutes – should be very interesting considering QE II decision is contained there
  • 5-year note auction – $35 billion

Wednesday

  • Personal income and spending
  • Durable goods
  • Weekly unemployment claims
  • Consumer Sentiment
  • 7-year note auction – $29 billion

Tursday

  • Happy Thanksgiving!

Friday

  • No economic news, but markets open until 1:00 PM.

Clearly, this could be a very active week for what is traditionally a very short week. If recent data is accurate, it is likely some of this week’s reports will provide further support to the idea that the economy is doing better than expected. If that’s the case, the recent rise in mortgage rates is likely only the beginning. 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:

Last Week’s Report

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.

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!

Related articles:

Last Week’s Report

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.

Jobs Grow, Unemployment Flat, Fed Acts in a Busy Week

Election results have little effect on markets; Unemployment claims up to 457,000; Fed announces plan to purchase $600 billion in securities; Employers add 151,000 jobs, unemployment rate level at 9.6%

Last week brought more market-affecting news than any in recent weeks. On top of a long-anticipated meeting of the Federal Reserve Open Markets Committee, the week also contained any month’s most significant economic report, the Employment Situation, or Non-Farms Payrolls report. Let’s take a look at the effect these reports have had on mortgage rates.

Monday started the week off weaker for mortgage rates as the ISM services index showed manufacturing was stronger than expected. This sparked a wave of selling in mortgage and other fixed-income securities. Construction spending also exceeded expectations.  These reports were partially offset by a weaker result in personal income and expenditures, which indicated consumers simply had less money available to spend in October.

Tuesday was the quietest day of the week, although mortgage rates fell slightly on no news.

Wednesday was a doozy. Markets opened to a better-than-expected ADP private employment report that showed 43,000 jobs had been added by private employers in October, and suggesting that Friday’s Employment Situation report could exceed estimates, too. Markets also had to absorb the effects of the Republican victory in the House of Representatives, which is believed to be likely to induce gridlock in Washington. This should provide some stability to financial regulations, which have been somewhat volatile of late. Then, at 2:15, the Fed dropped its bombshell: $600 billion in additional security purchases over the next 9 months.

Mortgage rates had opened better on Wednesday, as the election results weighed more heavily than the other data, most of which would normally cause an increase in rates.  Substantial volatility came into play at 2:15 PM when the FOMC announced its decision. Initially, this caused a sharp increase in rates, however, most of that unwound later in the afternoon, and rates closed slightly better than they had opened.

Thursday was a quieter day, as traders digested the Fed announcement, along with Thursday’s higher-than-expected jobless claims. The net result was mortgage rates declined further. Mortgage aggregator Freddie Mac revealed the results of its mortgage rate survey, showing the 30-year fixed rate at an average of 4.24% with 0.8 points, very near record lows.

Friday was another huge day for mortgage rates. The jobs report showed a total of 151,000 jobs added in October, compared to expectations around 73,000. Further, private employers added 159,000 jobs, which is exactly what economists and the Fed have sought as a sign that the right part of the economy is working to relieve unemployment. While an additional 90,000 jobs were added through revisions to prior results, the unemployment rate remained unchanged at 9.6%.

Fixed-income markets sold off on Friday in reaction to this, as the jobs report was seen as a sign that the economy might be on the right track again. At the end of the day, mortgage rates for most situations had increased by about .125%. In spite of this, for the week, mortgage rates improved.

This week, data is substantially more sparse than last. Apart from Wednesday’s initial jobless claims (moved up from Thursday due to the holiday), and Friday’s consumer sentiment, there are few market-influential reports coming. This week’s Treasury auctions will be a strong indicator of the way ahead for rates, though, as how readily that supply of new securities is absorbed will reflect on the strength of the market. Here’s a full list of what to expect:

Monday:

  • 3-year note auction

Tuesday:

  • Retail sales
  • 10-year note auction

Wednesday:

  • Weekly unemployment claims – note moved from Thursday due to holiday
  • 30-year bond auction
  • Treasury budget

Thursday:

  • Markets closed for Veterans’ Day

Friday:

  • Consumer sentiment

Clearly this week will be busier than last week was. If the Treasury auctions are well-received, mortgage pricing should remain stable, however, weaker Treasury results could spell doom for the current low-rate environment. It is beginning to be a bit reckless to float all loans in process; loans less than 30 days to closing should be locked wherever realistic. 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.