Rate Watch
Mortgage rates slightly up, after volatile week
The markets were especially volatile last week. The volatility began even before the markets opened on Tuesday (the markets were closed on Monday in observance of MLK Day). Futures trading of the Dow Jones industrial average suggested that the equity markets would have one of the largest slides in American History. Also, the Federal Reserve became aware that the French Bank, Societe Generale, would need to write down $7.1 Billion Dollars, due to the fraudulent activities of a single trader. Due to the write down, the bank was forced to reallocate many of its positions, which caused a major shake-up in financial markets across the globe.
In response to these 2 developments, the Federal Reserve would announce an emergency cut of the Federal Funds Rate by 75 basis points. The cut helped to stave off a meltdown of the US equity markets, and it had the immediate effect of pulling down mortgage rates. The cut also had the effect of convincing investors in the equity markets to buy. The rise in the stock markets pulled money away from the mortgage markets, which pushed mortgage rates back up. For the balance of the week, the stock market would move up and down, and the mortgage markets would move in the opposite direction.
Mortgage rates would eventually finish up on the week. Bankrate.com’s
overnight average on the 30-year fixed rate mortgage rose to 5.47 percent, up from last Monday’s 5.42 percent. The 15-year fixed rate mortgage, which is a very popular product for refinances, rose to 4.98 percent, up from last week’s 4.93 percent. Thanks to the Fed cut, the 5-year Adjustable Rate mortgage (ARM) moved in the opposite direction. The popular ARM program fell to 5.09 percent, down from last Monday’s 5.12 percent. Fed cuts typically have a greater impact on short-term interest rate programs, such as ARMs.
This week will be a very, very big week for mortgage rates and the whole of the economy. The economic calendar is jammed packed with data. On Tuesday, the
Durable Goods orders report will provide us some insight into the strength of US manufacturers. Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of long-lasting hard goods, such a appliances, cars, etc. Also, on Tuesday, the
Consumer Confidence survey will provide us some insight into the psychology of the nation’s consumers. Consumers make up two-thirds of economic activity, so their opinion counts big time.
On Wednesday, an advance reading of 4th quarter
Gross Domestic Product (GDP) will be released. GDP is the broadest measure of economic activity and encompasses every sector of the economy. It will provide us with some important insight into the extent of the economic downturn. Also, on Wednesday, the
Federal Reserve will have their scheduled meeting to determine their future policy direction. It is widely expected that they will cut interest rates an additional 25 basis points.
On Thursday, the
Personal Consumption Expenditure (PCE) Index will be released. This reading of the average increase in prices for all domestic personal consumption is a very important reading of inflation. This inflation measure is watched very closely by Fed Board members.
Finally, on Friday, the most important economic report of the month will be released, the
Employment Report. The employment data provides the most comprehensive measure of how many people are looking for jobs, how many have them, what they're getting paid, and how many hours they are working. These numbers are an excellent measure of the future direction of the economy. It will be particularly important as the markets determine the likelihood of recession.
Rate Watch
Mortgage rates slightly up, after volatile weekThe markets were especially volatile last week. The volatility began even before the markets opened on Tuesday (the markets were closed on Monday in observance of MLK Day). Futures trading of the Dow Jones industrial average suggested that the equity markets would have one of the largest slides in American History. Also, the Federal Reserve became aware that the French Bank, Societe Generale, would need to write down $7.1 Billion Dollars, due to the fraudulent activities of a single trader. Due to the write down, the bank was forced to reallocate many of its positions, which caused a major shake-up in financial markets across the globe.
In response to these 2 developments, the Federal Reserve would announce an emergency cut of the Federal Funds Rate by 75 basis points. The cut helped to stave off a meltdown of the US equity markets, and it had the immediate effect of pulling down mortgage rates. The cut also had the effect of convincing investors in the equity markets to buy. The rise in the stock markets pulled money away from the mortgage markets, which pushed mortgage rates back up. For the balance of the week, the stock market would move up and down, and the mortgage markets would move in the opposite direction.
Mortgage rates would eventually finish up on the week. Bankrate.com’s
overnight average on the 30-year fixed rate mortgage rose to 5.47 percent, up from last Monday’s 5.42 percent. The 15-year fixed rate mortgage, which is a very popular product for refinances, rose to 4.98 percent, up from last week’s 4.93 percent. Thanks to the Fed cut, the 5-year Adjustable Rate mortgage (ARM) moved in the opposite direction. The popular ARM program fell to 5.09 percent, down from last Monday’s 5.12 percent. Fed cuts typically have a greater impact on short-term interest rate programs, such as ARMs.
This week will be a very, very big week for mortgage rates and the whole of the economy. The economic calendar is jammed packed with data. On Tuesday, the
Durable Goods orders report will provide us some insight into the strength of US manufacturers. Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of long-lasting hard goods, such a appliances, cars, etc. Also, on Tuesday, the
Consumer Confidence survey will provide us some insight into the psychology of the nation’s consumers. Consumers make up two-thirds of economic activity, so their opinion counts big time.
On Wednesday, an advance reading of 4th quarter
Gross Domestic Product (GDP) will be released. GDP is the broadest measure of economic activity and encompasses every sector of the economy. It will provide us with some important insight into the extent of the economic downturn. Also, on Wednesday, the
Federal Reserve will have their scheduled meeting to determine their future policy direction. It is widely expected that they will cut interest rates an additional 25 basis points.
On Thursday, the
Personal Consumption Expenditure (PCE) Index will be released. This reading of the average increase in prices for all domestic personal consumption is a very important reading of inflation. This inflation measure is watched very closely by Fed Board members.
Finally, on Friday, the most important economic report of the month will be released, the
Employment Report. The employment data provides the most comprehensive measure of how many people are looking for jobs, how many have them, what they're getting paid, and how many hours they are working. These numbers are an excellent measure of the future direction of the economy. It will be particularly important as the markets determine the likelihood of recession.
Rate Watch
Fed cuts overnight rates in emergency sessionIn an emergency meeting of the
FOMC board, the Federal Reserve moved to cut the federal funds rate 75 basis points early this morning. The three-quarters cut marked the biggest funds rate cut since 1990. It isn’t immediately clear how much of an impact this move will have on mortgage rates. Despite a moderation in the inflation numbers and this large rate cut, Mortgage rates have moved down only slightly over the past week. Last week, the
Consumer Price Index reported an increase of .3 percent. Although, this was a slightly higher than the Wall Street consensus of .2 percent, it was a big improvement from last month’s increase of .8%. This moderation of inflation opened up the opportunity for this morning’s rate cut. It is generally assumed that mortgage rates are not falling at the same pace they have historically, due to a diminishing reputation mortgages as a sound investment. In other words, investors are not looking at mortgages, because they have had so much trouble over the past year. Mortgage bond prices are not rising and pushing rates down. However, if it looks like another rate cut is to occur at the Fed’s scheduled meeting on January 30th, it could help to push mortgage rates down.
As of this morning, Bankrate.com’s
overnight average on the 30-year fixed rate mortgage had fallen only 3
basis points to 5.42%. The 15-year fixed rate mortgage averaged 4.93%, down from last Monday’s average of 4.98 percent. And the 5-yearAdjustable rate mortgage fell to 5.12 percent, down from last week’s 5.2 percent.
Due to yesterday’s Martin Luther King Holiday and a light week of economic data, the markets will probably focus on commentary from Fed Watchers as the markets come to a consensus on the Fed’s next steps. If it is determined, the Fed will make another substantial cut at next week’s Fed meeting, mortgage rates could fall more rapidly. If it is decided that the Fed is not going to make any more moves, mortgage rates could go up. It is probably more likely that the Fed will move to cut rates an additional 25 basis points, and mortgage rates will stay fairly stable over the next couple of weeks. The markets remain very volatile and borrowers should be made aware of it. It is a fantastic time to refinance, and borrowers should take advantage while rates are low. It will not last forever.
Rate Watch
Mortgage rates down on Bernanke Speech and Countrywide troubles
Last week was relatively slow on the economic data front. However, two events had an impact on mortgage rates, a speech given by Fed Chairman Ben Bernanke and the sale of Countrywide Financial to Bank of America.
On Thursday, Fed Chairman Ben Bernanke gave a speech to Women in Housing and Finance Association. The speech covered the Fed’s responsibilities during the current economic troubles. In the speech, the Chairman pledged that the Federal Reserve will “…stand ready to take substantive additional action as needed" to offset rising risks created by the real estate and credit industries. This statement provided a rare level of transparency from the Fed. The market now widely expects a 50 basis point cut to the Federal Funds rate at the Fed Announcement on January 30th.
Secondarily to the Chairman’s statements, news of Countrywide Financial’s financial woes were of particular interest to the market. Countrywide, the largest home loan lender in the US, first made the news on Wednesday when the company reported a jump in delinquencies and foreclosures. It was rumored that the company was on the verge of filing Bankruptcy, a rumor the company flatly denied on Thursday. That same day, rumors started to circulate that Bank of America would buy the company. This rumor was proven true on Friday when the two companies announced that Bank of America, the nation’s largest bank, would buy the troubled mortgage lender for $4 billion.
As of this morning’s report, Bankrate.com’s
overnight averages were down across the board. The 30-year fixed rate mortgage fell to 5.52 percent, down from last Monday’s 5.57. The 15-year fixed rate mortgage fell to 5.03 percent, down from 5.11 percent. Since short-term interest rates typically fall a little more steeply on Fed news, the 5-year Adjustable Rate mortgage experienced a more significant slide. The popular ARM product fell 10 basis points to 5.26 percent, down from 5.36 percent.
This week will be much more plentiful in economic data. On Tuesday, the
Producer Price Index (PPI) and the
Retail Sales report will be released. The Producer Price Index (PPI) is the average price that US producers get for their goods. PPI is a key measure of inflation. Retail sales measures the total receipts at stores that sell durable and nondurable goods. Since, consumer spending accounts for two-thirds of GDP, this report is a particularly important measure of economic health. On Wednesday, the
Consumer Price Index (CPI) and the
Industrial Production report will be released. CPI measures the average cost of consumer goods. Since consumers make up two-thirds of GDP, this inflation measure is of particular importance. Industrial Production measures the physical output of the nation's factories, mines and utilities. Finally on Thursday, the
Housing Starts report will provide us with a future indicator of the nation’s residential construction industry.
With the vast amounts of data available to the markets this week, the Wall Street consensus could change drastically by the end of the week. Of particular importance will be the PPI and CPI inflation numbers. Rising inflation has made the decisions for the Fed much more complicated. In a rising inflation environment, the Fed will typically move to raise, not lower them. With the economy leaning towards recession, the Fed would prefer to cut rates without worries of rising inflation.
Rate Watch
With the New Year, the market has given us lower interest rates and a gloomier economic picture. The decline in mortgage rates stemmed from weak readings of economic data. Most notably the Employment Report’s poor numbers. On Friday of last week, the Employment Report showed an unemployment rate at 5%, up from November’s 4.7%. This is a significant dip in employment. On the inflation front, average hourly earnings rose 0.4 percent in December. The December reading in wages was slightly above the consensus forecast of 0.3 percent. This poses a dilemma for the Fed. In the event of declining economic growth, the Fed will move to cut interest rates. Thereby increasing borrowing opportunities, which helps to spur economic activity. In the event of rising inflation, the Fed will raise interest rates in order to slow economic activity and thereby curb inflation. In this current dynamic of falling economic growth and rising inflation, the Fed’s options are not as cut and dry. If they cut rates, it could cause inflation to grow out of control. If they raise interest rates, the prospects on an economic recession are almost guaranteed.
Today, Bankrate.com reported an overnight average of 5.57 percent on the 30-year fixed rate mortgage, down an astonishing 27 basis points from last Monday’s 5.84 percent. Other products followed. The 15-year fixed rate mortgage fell to 5.11 percent, down from last Monday’s 5.38 percent, and the 5-year Adjustable Rate Mortgage fell to 5.36 percent, down from 5.55 percent.
This week will be a real test for the markets. Since many traders are on vacation during the holidays, trading volume tends to be much lower. When lower trading volumes exist, movements in the market tend to be exaggerated. As the traders return to full time schedules, it could prove to push rates higher. However, at their current levels, these lower rates provide a perfect opportunity to purchase or refinance.
This week’s economic calendar will be fairly light. On Tuesday, the Pending Home Sales Index will provide us with some insight into the near term health of the real estate market. On Thursday, Ben Bernanke will give a speech on the current economic challenges. Also, there will be several speeches given by other members of the Fed Board of Governors. With the small amount of economic data in the US, there will probably be more focus oversees. On Thursday, the Bank of England and the European Central Bank will release their policy decisions regarding their respective key interest rates. These decision could have an impact on our mortgage rates as the market moves to compete.
Mortgage rates slightly up, after volatile week
