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Weekly Mortgage Market Report

Mixed Data Affects Rates

March 5th, 2010 2:53 PM

Economic data was the primary force driving mortgage rates this week. Generally weaker than expected data resulted in modest improvement in rates for most of the week. This was completely offset by an increase in rates on Friday due to stronger than expected Employment data, however, leaving mortgage rates nearly unchanged from last week.

Against a consensus forecast for a decline of -50K jobs, the economy lost -36K jobs in February, and the revisions from prior months showed more jobs than previously reported. The Unemployment Rate remained unchanged from January at 9.7%, which was lower than expected. The payrolls figures and the unemployment rate are calculated from two separate sets of data. The payrolls report focuses on larger companies, while the unemployment survey covers all companies. The more volatile unemployment survey surprisingly showed an increase of 308K jobs in February, indicating that smaller companies were a source of job gains.

This week's housing data was weaker than expected. January Pending Home Sales fell 7.6%, far below the consensus forecast for a small increase. They were still 12% higher than one year ago, however. The expected surge in sales from the extended homebuyer tax credit has failed to materialize so far. The chief economist of the National Association of Realtors (NAR) suggested that unusually harsh weather "hampered shopping activity" in many regions, so a pickup in sales still may be seen as buyers take advantage of the tax credit before the April 30 deadline.

Posted by Corey Phelps on March 5th, 2010 2:53 PMPost a Comment (0)

Mortgage Rates Rise on Weak Auctions

March 26th, 2010 3:18 PM

A combination of factors was negative for mortgage markets this week, and mortgage rates ended higher. Large budget deficits and economic troubles in smaller European Union nations made bonds less attractive to global investors. In addition, stock market gains sent the Dow to an 18-month high, which pulled funds out of fixed income investments. Finally, with just one week remaining for the Fed's MBS purchase program, comments from Fed Chief Bernanke about potential future MBS sales added to the pressure in mortgage markets.

For months, investors have been concerned that the enormous supply of debt needed to fund US government spending would force yields on US Treasury securities to rise to attract purchasers. This is what took place this week. Demand was surprisingly weak at all of this week's record Treasury auctions, especially from foreign investors, and yields were pushed higher. Since mortgage-backed securities (MBS) compete for investors with Treasuries, MBS yields rose as well, pushing mortgage rates higher.

In a speech on Thursday, Fed Chief Bernanke added to the volatility in mortgage markets with his comments about the possible timing of future sales of MBS from the Fed's portfolio. To support the economy, the Fed has purchased almost $1.25 trillion of MBS since the start of 2009. The Fed has made clear from the start that it was a temporary measure and that it would eventually sell its MBS holdings when the economy was healthy enough. Earlier this month, Bernanke stated that he did not expect the Fed to sell assets "in the near term". On Thursday, however, his language changed a little. While Bernanke assured investors that MBS sales would be gradual and that they would only take place if the economy were strong enough to handle it, he opened the door for the start of Fed MBS sales at an earlier date than previously anticipated.

Posted by Corey Phelps on March 26th, 2010 3:18 PMPost a Comment (0)

No Surprises From Fed Meeting

March 19th, 2010 2:29 PM

There were no major surprises in the economic data or the Fed announcement this week. As a result, while volatility remained day to day, mortgage rates ended nearly unchanged for the third straight week.

As expected at its meeting on Tuesday, the Fed held the fed funds rate steady, and the accompanying statement contained few changes. The statement retained the language about the fed funds rate remaining at extremely low levels for at least several months. The Fed's assessment of the economy was a little more upbeat at this meeting, but pointed out that economic improvement will occur slowly. The Fed continued to signal that the $1.25 trillion MBS purchase program will conclude at the end of March. With less than two weeks of Fed MBS purchases remaining, investors will be watching closely to see if the Fed's exit has an impact on mortgage rates.

This week's inflation data showed that inflation is not a concern right now. The February Core Consumer Price Index (CPI) increased at a low 1.3% annual rate. The Fed's target range is commonly believed to be a 1.5% to 2.0% annual rate. The current low inflation environment makes it easier for the Fed to continue to hold the fed funds rate low to stimulate the economy

Posted by Corey Phelps on March 19th, 2010 2:29 PMPost a Comment (0)

Quiet Week for Mortgage Markets

March 12th, 2010 3:49 PM

During a very light week for economic news, the economic data and Treasury auctions contained few surprises and produced little reaction in mortgage markets. Mortgage rates ended the week nearly unchanged.

In early 2009, the Fed embarked on a $1.25 trillion mortgage-backed securities (MBS) purchase program to help keep mortgage rates low and stimulate the economy. The amount purchased varied from week to week, reaching a peak of $33.2 billion in the week of March 25, 2009. The Fed has been gradually reducing the size of its purchases at a pace consistent with a March 31 conclusion of the program, and the most recent weekly purchases have been down to around $10 billion.

As the date nears, the big question is what will happen when the MBS purchase program ends. This program is unprecedented, making the outcome difficult to predict, and forecasts vary widely. Estimates for the impact on mortgage rates from the conclusion of the program vary from an increase of one percent to no change. Those who predict higher mortgage rates point to a basic change in the fundamental supply and demand. The added demand from the Fed was widely credited with moving rates lower, and a decrease in demand would typically push rates higher. However, other economists argue that investors respond only to unexpected news. In this view, since the Fed has telegraphed the end of the program for months, there should be little reaction around March 31. The Fed itself has indicated that they expect a modest increase in mortgage rates due to the end of the program.

Posted by Corey Phelps on March 12th, 2010 3:49 PMPost a Comment (0)