Market Comment Mortgage bond prices finished the week lower, which pushed rates slightly higher. Rates were steady the first portion of the week. Existing home sales were 4.93M versus the expected 5.20M. Stronger than expected gross domestic product data Tuesday morning pressured rates higher. The US economy expanded at a 5% rate in Q3-2014, much better than the expected increase of 4.3%. That data was offset a little by weaker than expected durable goods orders but not enough to erase all the losses. Thin trading conditions coupled with some defensive positioning Wednesday ahead of the holiday resulted in some additional rate increases. Stocks remained strong with the DOW above 18,000 most of the week. Mortgage interest rates finished the week worse by approximately 1/2 of a discount point. LOOKING AHEAD
The Year Ahead The future of the economy will continue to be debated. There is no certainty in predictions but the recent data and Fed statements clearly show continued signs of improvement. The Fed is now talking about raising rates sometime possibly mid 2015 depending on the data. The uncertainty is what that will do to the housing sector, which remains a vital part of the economy. The last thing the housing market needs is higher rates at this point. What we can be certain of is the likeliness that mortgage interest rates will become volatile as we get closer to a Fed rate hike. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, they often do so quickly and furiously. One negative day often erases a week of positive improvements. Of course even that maxim was tested the last few months of last year as market swings of 3/8 a discount point both up and down were often seen in very short spans of time. There were interest rates movements of 31 basis points over 5 times in December alone. It is possible for mortgage interest rates to remain favorable considering the Fed still wants to keep them relatively low and continues to reinvest maturing holdings and payments back into the mortgage-backed securities market. However, we are in unprecedented times and rate increases are still a real possibility. The Fed isn’t the only player in the financial markets and there are many others buying and selling securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate. Rates are determined by the supply and demand for mortgage-backed securities and can change rapidly hour to hour. However, the Fed is still the major player in the market at this time with $1.7 trillion in holdings and they do set the lead. Despite volatility throughout 2014, the Fed kept rates historically low. The big unknown is how things will play out this year as the Fed signaled an intention to raise rates. Now is a great time to take advantage of mortgage interest rates at these still favorable levels. Copyright 2014. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied. |
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