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Mortgage Market in Review – December 21, 2015

Market Comment

Mortgage bond prices finished the week slightly lower which pushed rates a bit higher. Trading started on a sharply negative note as traders positioned themselves ahead of the expected Fed rate hike. We recovered some of the losses later in the week amid mixed economic data. Consumer prices were unchanged in November and the core value, which excludes the volatile food and energy costs, rose 0.2%. That data was near expectations and supports the Fed’s 2% inflation target. Housing starts printed at 1,123K versus the expected 1,150K. Weekly jobless claims were lower than expected at 271K. The Philadelphia Fed survey, an indication of manufacturing strength in the Mid-Atlantic region, fell 5.9%. Traders expected a 2% increase. Leading economic indicators rose 0.4% which was stronger than the expected increase of 0.1%. Mortgage interest rates finished the week worse by approximately 1/4 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Q3 Gross Domestic Product Tuesday, Dec. 22,
8:30 am, et
Up 2.1% Important.  The aggregate measure of US economic production.  Weakness may lead to lower rates.
FHFA House Price Index Tuesday, Dec. 22,
10:00 am, et
Up 1.4% Moderately Important.  A measure of single family house prices.  Weakness may lead to lower rates.
Durable Goods Orders Wednesday, Dec. 23, 8:30 am, et Up 2.2% Important.  An indication of the demand for “big ticket” items.  Weakness may lead to lower rates.
PCE Core Inflation Wednesday, Dec. 23,
8:30 am, et
Up 0.1% Important.  A measure of price increases for all domestic personal consumption.  Weaker figure may help rates improve.
Personal Income and Outlays Wednesday, Dec. 23,
8:30 am, et
Up 0.2%,
Up 0.1%
Important.  A measure of consumers’ ability to spend.  Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Wednesday, Dec. 23,
10:00 am, et
92 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.
New Home Sales Wednesday, Dec. 23,
10:00 am, et
505K Important.  An indication of economic strength and credit demand.  Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, Dec. 24,
8:30 am, et
269K Important.  An indication of employment.   Higher claims may result in lower rates.

Fed Rate Hike

The Federal Reserve hiked rates last week which ended a seven year period of a near zero interest rate policy.  The Fed began easing monetary policy in August 2007 to support the economy at the onset of the Great Recession.  Over the next 16 months rates were cut an additional 11 times as economic conditions continued to deteriorate.  Global financial markets were in turmoil, stocks lost half their value and the banking system seized.  The Federal Reserve along with other central banks coordinated an attack to stop the carnage.  After seven years of ultra accommodative policy the Fed hiked rates to ward off potential inflation.  The Fed had to take away the punch bowl at some time or risk the possibility of creating a bubble that could pop and cause economic crisis.

 

Global traders are not as concerned over the first rate hike.  It is what happens next that causes them heartburn.  Low interest rates have helped many companies and consumers in the past 7 years.  This is a great time to take advantage of low mortgage rates to buy a house or refinance.  As the economy improves the Fed will continue to hike rates and mortgage rates will likely follow.

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