Rate Watch
Last week, the mortgage markets proved to be fairly boring. There was no significant economic release or geopolitical event that caused the markets to push rates very strongly in either direction. The Freddie Mac
weekly survey fell for the 5th consecutive week. The benchmark 30-year fixed rate mortgage fell 4 basis points to 6.48 percent, falling to their lowest levels since April 6th of this year. Other products followed. The 15-year mortgages averaged 6.18 percent, down slightly from 6.20 percent the prior week. One-year adjustable rate mortgages averaged 5.60 percent, also down from 5.65 percent. All-in-all it was a good week for borrowers.
The housing sector caught most of the attention last week. Two reports on Home Sales from the National Association of Realtors (NAR) showed a sharper than expected slowdown in July. Many media outlets marked this up as the bubble bursting. However, the 2006 housing market is the third strongest in history. Only in comparison to the previous two record breaking years could this year’s level of housing activity be viewed as weak.
This week should present us with a little more activity than last week. Most importantly, the August
Employment Report will be released on Friday. The health of the labor market is perhaps the single biggest factor in the performance of the economy and the Employment report is the most closely watched economic data of the month. Early estimates are for about 125,000 new jobs in August.
A few other significant reports will be coming out as well. On Wednesday, the first revision to 3rd quarter
Gross Domestic Product (GDP) will be released. GDP is the broadest measure of US economic activity, and it is revised twice during each quarter. The two major national manufacturing indexes, the
ISM and
Chicago PMI, are also on the schedule at the end of the week.
While the second half of the week will be packed with economic data, the first half may focus more on the Fed. On Tuesday, the
minutes from the August 8 FOMC meeting will be released. This detailed description of the discussion during the last Fed meeting will be eagerly devoured and scrutinized for clues about future policy.
For more information about rates, mortgages and the state of the real estate economy visit our Blog at
houstonratesheet.blogspot.com.
Rate Watch
Last week, thanks to some very positive inflation news, mortgage rates continued to slide. Freddie Mac’s
weekly survey resulted in an average 30-year fixed rate mortgage rate of 6.52 percent, down from the previous week’s 6.55 percent. The 15-year fixed rate mortgage remained unchanged at 6.20 percent, and the one-year Treasury-indexed ARMs averaged 5.65 percent, down from the previous week’s 5.69 percent.
The two big inflation reports were release last week, and both reports provided good news for borrowers. On Tuesday, the
Producer Price Index provided the biggest jolt the markets. The report, which measures prices at the producer level, showed the core rate of inflation falling 0.03 percent. This decline held up against the consensus forecast, which predicted a .02% rise, helped spur the week long decline of mortgage rates. The rally was helped along on Wednesday with the release of the
Consumer Price Index. CPI is the most closely watched measure of inflation, and it gave strong support to the Fed’s current policy course. Although, CPI did not drop as dramatically as PPI, it did fall short of the consensus forecast at 0.2 percent. Both reports showed inflation rates well within the Fed’s level of comfort. It appears that 17 consecutive rate hikes might have done their job to help curb inflation. Many investors have abandoned the possibility of another Fed rate hike this year.
This week’s
economic calendar will be fairly light.
Durable Orders on Thursday will be an important indicator of future economic activity. In the middle of the week,
Existing Home Sales and
New Home Sales will allow us some insight into the effects of lower rates. That’s just about all for the scheduled economic data. The situation in the Middle East or some other geopolitical issue could become a factor, but most signs point to a relatively quiet week ahead.
Rate Watch
For the first time in 17 consecutive meetings, the Federal Reserve held short-term interest rates unchanged. In response, mortgage rates fell for the third straight week. Freddie Mac’s
survey reported average 30-year fixed rate mortgage rates at 6.55 percent, down from the previous week’s 6.63 percent. The 15-year fixed rate mortgage followed. The popular product 15-year for refinances averaged 6.20 percent, down from the previous week's average of 6.27 percent. The one-year Treasury-indexed ARMs remained unchanged at 5.69 percent.
The result of the Fed’s
FOMC meeting was not unexpected. Nine out of the ten voting Fed officials favored taking no action, while the lone dissenter preferred to raise rates again. The accompanying statement changed little from previous meetings. The Fed acknowledges that inflation has risen over the past several months, but the feeling is that the economy is slowing and that will in turn curb inflation. The Fed left the door open for future rate hikes. They will allow near term economic data to direct their future decisions.
We should have some strong predictions about future Fed meetings after this week. The all important inflation reports will be released this 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. 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. Inflation is the scourge of the bond market and almost without exception high inflation leads to high mortgage rates. These two reports are the most widely watched measurements of inflation and they are of particular interest to the Federal Reserve.
In addition to the inflation reports,
Industrial Production, a broad measure of business related economic activity, and the
Housing Starts data are scheduled for release on Wednesday.
Consumer Sentiment will round out a busy economic calendar on Friday.
Rate Watch
Through last week, mortgage rates continued to fall in response to the previous week’s GDP release. In response, Freddie Mac’s
weekly survey average on the benchmark 30-year fixed rate mortgage fell 9
basis points to 6.63 percent. Other products moved in a similar direction. The average for the 15-year FRM fell to 6.27 percent, down from last week's average of 6.34 percent and one-year Treasury-indexed ARMs averaged 5.69 percent, down from last week when it averaged 5.78 percent. This was the second consecutive week Freddie Mac reported declining mortgage rates.
Freddie Mac’s survey, which is released on Thursday, did not reflect the big news of the week. That news came on Friday afternoon with the release of the
Employment Report. Since, the health of the labor market is perhaps the single biggest factor in the performance of the economy; the Employment report is the most closely watched economic data of the month. The US economy added just 113K new jobs in July. Although, higher than the 3-month average, it was well below the consensus forecast of 145K. The Unemployment Rate unexpectedly jumped to 4.8% from 4.6%, although this was mostly the result of new job seekers entering the labor pool rather than a shortage of jobs. With this weak Employment data, it becomes less likely that the Federal Reserve will continue their rate hiking spree. Upon hearing the news, Mortgage rates fell modestly.
The big story this week will be the Federal Reserve’s
FOMC meeting on Tuesday. That afternoon, we will know if the Fed decided to raise interest rates. The Fed has been raising interest rates for over 2 years, so this is a very interesting time. The financial markets are only giving a 20% chance that the Fed will raise rates tomorrow. The decision and the accompanying could have a big impact on rates. It should prove to be an interesting day.
On the economic data front, Friday’s release of
Retail Sales will be the most significant of the week. Consumers account for about 70% of economic activity, and this report is a major indicator of spending by consumers. The other key report of the week will be the
Productivity report. Increases in productivity allow companies to create more output without adding more workers. In the long run, this is a major factor in our standard of living. The
Trade Balance will come out on Thursday, but this information about the quantity of imports and exports mostly affects just the foreign exchange markets in the short term. Finally, there will be
10-yr and
30-yr Treasury auctions on Wednesday and Thursday respectively, and investors will be closely watching the level of buying by foreigners.
