Real Estate Information Archive

Inflation and Mortgage Rates Remain Low

A wide range of major economic data released during the week and comments from the Fed reinforced the consensus outlook for the economy. Economic growth appears to be on track for gradual improvement, while inflation is not a concern in the short-term. With few surprises this week, mortgage rates ended the week nearly unchanged.

The economy is currently experiencing moderate economic growth with low inflation. In a speech on Tuesday, Fed Chief Bernanke indicated that the recession is "very likely over". Retail Sales and Industrial Production showed nice increases this week. Housing Starts, Building Permits, and Homebuilder Sentiment also moved higher. Meanwhile, there have been few signs of inflation in the short-term. For example, Core CPI rose at a modest 1.4% annual rate, the lowest annual rate since February 2004. Tame inflation readings have helped mortgage rates stay at low levels.

Recently, the Fed has been purchasing about $25 billion of mortgage-backed securities (MBS) each week, which represents a very high percentage of the average new issues. At this pace, the Fed will purchase the entire $1.25 trillion authorized for the program by the end of the year, when it's currently scheduled to discontinue its MBS purchases. On Wednesday, at the conclusion of next week's Fed meeting, investors will be hoping to receive an update on the MBS purchase program. The majority outlook is that the Fed will purchase the full $1.25 trillion and end the program, possibly by gradually reducing the level of weekly purchases and extending them into next year. Still, a significant number of investors expect the Fed to increase the limit, while others think the Fed will end the program early. Since mortgage rates are largely determined by MBS prices, changes in the level of demand from the Fed could have a large impact.

Author:  Mortgage Times

Unemployment Rate Jumps

Investor sentiment about the economic recovery fell this week, and the stock market declined. Expectations for slower economic growth are favorable for bond markets, including mortgage-backed securities (MBS), and mortgage rates ended the week a little lower.

The important monthly Employment report showed mixed results. Against a consensus forecast for a loss of -225K jobs in August, the economy lost -216K jobs. This was the smallest level of monthly job losses since August 2008 and was far below the monthly average of -691K seen during the first quarter of the year. The biggest surprise in the data came from the Unemployment Rate, which jumped from 9.4% to 9.7%, the highest level since 1983. The unexpected increase was mostly due to previously discouraged workers returning to the labor pool to look for jobs. Average Hourly Earnings, a proxy for wage growth, rose at a moderate 2.6% annual rate.

The future of Fannie Mae and Freddie Mac made the headlines this week when the Mortgage Bankers Association (MBA) released its restructuring proposal. While the MBA suggested the elimination of the two agencies, it would replace them with new entities which would perform many of the same functions, with many of the same people. Its plan would maintain a government guarantee of principal and interest for MBS investors. The two agencies have played a pivotal role in keeping mortgage rates low and in expanding home-ownership, and the MBA proposal would retain these benefits. It's very early in the process, and the Obama administration indicated that its proposals for Fannie and Freddie may not be revealed until early next year.

Author:  Mortgage Times

Mortgage Rates Hold Steady

There were few surprises in the economic data released this week, and the record $109 billion in Treasury auctions went smoothly. As a result, it was a quiet week for mortgage markets. This week's economic data showed signs that the economy is gradually improving, while inflation is not a concern right now. Demand remained solid for the Treasury auctions. Mortgage rates ended the week nearly unchanged.

Last week, the Fed increased its weekly mortgage-backed securities (MBS) purchases to about $25 billion, and it maintained that level this week. Prior to that, the Fed had purchased roughly $20 billion per week for a couple of months. The current pace would lead to total purchases of the authorized $1.25 trillion by the end of the year, which is when the program is scheduled to expire. Mortgage rates are largely determined by MBS prices, and the added demand from the Fed has helped to keep mortgage rates low. In a speech this week, the Fed's Lacker suggested that with the economy improving the Fed may not need to purchase the entire $1.25 trillion of MBS. Lacker's comments caused little reaction, as his views are often contrary to those of the other Fed officials, but if that were to happen, then mortgage rates would almost certainly move higher. Mortgage investors will be closely watching the Fed's plans for this program.

The housing data released this week was again positive. July New Home Sales rose 10% from June to the highest level since September. Inventories dropped to a 7.5-month supply, which was the lowest level since April 2007. This data follows a similar rise in July Existing Home Sales announced last week.

Author:  Mortgage Times