Rate Watch
Last week, the market's continued to react to Fed Chairman Ben Bernanke's
congressional testimony from the previous week. New economic data served to validate much of what the chairman had predicted. As a result, Freddie Mac’s
weekly survey continued to show falling mortgage rates. The benchmark 30-year fixed-rate mortgage (FRM) averaged 6.72 percent for the week, down from previous week's average of 6.80 percent. Other products continued to fall as well. The average for the 15-year FRM fell to 6.34 percent, down from the previous week’s 6.41 percent and one-year Treasury-indexed ARMs averaged 5.78 percent, down from 5.80 percent.
All and all it was a good new for borrowers and mortgage investors. A nice summary of domestic activity emerged on Wednesday when the Fed released its
Beige Book, outlining current conditions in each of the Fed districts. The report showed a slowing pace of economic growth, a cooling off in the residential real estate market, and "modest" increases in wages and prices. This report proved to be confirmation for Bernanke’s prediction of slowing economic growth and moderate inflation. Both dynamics could prove to move rates one way or the other.
The biggest economic news of the week came on Friday, when the second quarter
GDP was released. The economy was expected to have increased 3.0%, but the actual results showed growth of only 2.5%. Even more importantly for mortgage and bond investors what the GDP report had to say about inflation. Employment costs were almost entirely offset by productivity gains, in other words, workers are making more money, but they are completing more work as well. All of this served as further evidence that the Fed might be finished with their rate hiking spree.
Besides the ISM indexes to be released on
Tuesday and
Thursday, the economic calendar will be pretty uneventful until Friday when the July
Employment Report is released. As usual, this data on the number of new jobs created and the Unemployment Rate will be the most influential economic data of the month. The health of the labor market is perhaps the single biggest factor in the performance of the economy. Leading up to the Employment report, the week might be dictated by the current conflict in the Middle East and a couple of Fed speeches to be given on Monday. Both of which could swing rates one way or the other.
Although, the current climate of falling rates has alleviated some pressure to lock rates, the market is still in a state of flux until the Fed’s
FOMC meeting. I still believe it is a good idea to lock rates at their earliest opportunity.
Rate Watch
By Wednesday morning of last week, it looked like much of the decline in mortgage rates from the previous week would all but disappear. However, when it was all said and done, the week was a good one for borrowers.
Tuesday and Wednesday the two primary monthly inflation reports, the
Producer Price Index (PPI) and the
Consumer Price Index (CPI), were released and they both revealed higher than expected levels. The data showed that core PPI rose at a 1.9% annual rate and core CPI climbed at a 2.6% annual rate. The Fed is generally uncomfortable with core inflation levels above 2.0% and these results served to push mortgage rates up. As a result,
Freddie Mac’s benchmark 30-year fixed-rate mortgage (FRM) averaged 6.80 percent, up from the previous week's average of 6.74 percent. Other products followed. The average for the 15-year FRM came in at 6.41 percent, up from 6.37 percent. One-year Treasury-indexed ARMs averaged 5.80 percent, up from the previous week when it averaged 5.75 percent.
However, this was not the complete story of last week’s events. On Wednesday, a couple of hours after the CPI report came out; the text from Fed Chairman Bernanke’s
Congressional testimony was released. Bernanke did not provide us with any shocking information; however one was left with the impression that the Fed could be done raising rates fairly soon. If economic growth slows later this year as the Fed anticipates, Bernanke suggested that it may relieve some inflationary pressures. He also assured listeners that Fed officials are “very aware” of the risks to the economy entailed in raising rates too high. The testimony immediately had an impact, and mortgage rates started a slide for the remainder of the week. By Friday,
Fannie Mae reported that average 30-year fixed rates decreased by 0.07% for the week.
Investors will closely watch developments to see if the conflict has the potential to spread to other countries. The most important economic data on the economic calendar will be the Friday release of second quarter
Gross Domestic Product (GDP). GDP is the broadest measure of economic activity, and the data is revised twice as additional information becomes available. A substantial slowdown from the first quarter is expected. Since, this data doesn’t come out until late in the week, investors will be very interested into developments in the Lebanese/Israeli conflict. With the conflict having the potential of having the most impact this week, it would be wise to be cautious in considering when to lock your rate. Even though rates have slowly declined over the past two weeks, this trend is not set in stone. The markets are still volatile. I would advice borrowers to lock at their earliest convenience.
Rate Watch
For the first time in 5 weeks, mortgage rates have fallen. Freddie Mac's
weekly survey resulted in a 30-year fixed-rate mortgage (FRM) average of 6.74 percent, down from the previous week's average of 6.79 percent. Other products followed. The average for the 15-year FRM was 6.37 percent, down from the previous week's average of 6.44 percent. The one-year Treasury-indexed ARMs averaged 5.75 percent, also down from the previous week when it averaged 5.83 percent.
In typical form, the mortgage and bond markets thrived in a climate of negativity. First, the markets are still feeling the effects of the previous week's
Employment report which showed a lower than expected number of new jobs created. This was good news for bond investors, because as we approach full employment the chance for rising wages enters as a more likely possibility. Since, rising wages can have a huge impact on prices and therefore inflation. So even though less new jobs is bad for workers, it was good news for bond investors.
Secondly, the markets are feeling the effects of the
current conflict in the Middle East. Many investors are nervous that this conflict could further escalate into a larger conflict. In times of uncertainty like these, investors shift funds from riskier investments to safer ones. This dynamic is known as a “flight to quality”. Typically, this involves selling stocks and buying bonds, however, gold and certain foreign currencies can be considered safe havens. As expected, world stock markets suffered severe declines, while mortgage rates went down and gold prices soared.
The "
flight to quality" is an easy process to predict in times like these. What is difficult to predict is how much farther rates will fall and to what degree the process will reverse itself if the tensions ease. The times are indeed uncertain.
The week ahead will keep investors on their toes. Geopolitical conflicts, inflation data, and Federal Reserve testimony could all potentially have a big impact on the mortgage markets. Developments in the Middle East will continue to have an impact through out the week. Tuesday, the inflation data will begin with the release of the
Producer Price Index (PPI), followed by the
Consumer Price Index (CPI) on Wednesday. Almost without exception, higher inflation leads to higher interest rates, and PPI and CPI are the most widely watched indicators of inflation. PPI focuses on the increase in prices of “intermediate” goods used by companies to produce finished products, while CPI looks at those finished goods which are sold to consumers. In addition,
Industrial Production, a broad measure of business related economic activity, will be released on Monday, and the
Housing Starts report is scheduled for Wednesday.
The
semi-annual testimony by Fed Chief Bernanke to Congress will take place on Wednesday and Thursday. Bernanke will be expected to present a thorough update on the state of the economy, and he will also be questioned by members of Congress after his speech. Fresh information from Bernanke may render obsolete what would normally be a highly anticipated event, Thursday’s release of the FOMC minutes from the June 29 meeting.
Borrowers will have a difficult time deciding whether to lock rates right now or not. In times like these, it is better safe than sorry. I would recommend locking rates as soon as possible.
Rate Watch
Last week, Freddie Mac's
weekly survey was pretty flat. The benchmark 30-year fixed rate mortgage averaged 6.79 percent only up 1 basis point from the previous week. Other products were just as boring. Both the 15-year FRM and the One-year Treasury-indexed ARMs were up only 1 basis point as well. The 15-year averaged 6.44 percent while the One-year ARM averaged 5.83 percent.
One reason for the inactivity was the coming of the
Employment report, which was released on Friday. This month’s report came in lower than expected with the economy creating 121,000 new jobs against a Wall Street consensus of 200,000. Accelerating job growth can lead to higher rates of inflation, which is bad for bonds. So, this is good news for mortgage investors even though we all like to see job creation in the economy.
Not all of the report’s news was good news for mortgage investors. Apparently, wage earners are making a good bit more money than they were in May. Average Hourly Earnings rose at a stronger than expected 3.9% annual rate, meaning that wages increased at their fastest pace in five years. This is fantastic news for workers, but not so good for bond holders and mortgage investors. Higher wages can lead to higher rates of inflation, which again is not good for bonds.
All and all it was a good week for mortgage rates. Bankrate.com's
overnight average is down 1 basis point from the previous Monday. With not much on the
economic calendar this week, the market should continue to be stable. Friday’s release of
Retail Sales will be the most significant economic data. Consumers account for about 70% of economic activity, and this report is a major indicator of their economic health. The other important report will be the
Trade Balance, but this information about the quantity of imports and exports mostly affects just the foreign exchange markets in the short term. Beyond these two reports, there will be lower tier economic data, Fed speakers, and record high oil prices to consider. It should be a safe week for borrowers; however, they should continue to lock interest rates as soon as possible.
