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